REQUIRING CONTRACTORS ON PUBLIC-BUILDING PROJECTS TO NAME THEIR SUBCONTRACTORS

TUESDAY, JULY 13, 1937

UNITED STATES SENATE,

COMMITTEE ON PUBLIC BUILDINGS AND GROUNDS,

Washington, D. C. The committee met, pursuant to call, at 10 a. m. in room 453, Senate Office Building, Senator David I. Walsh (acting chairman) presiding.

Present: Senators Walsh (chairman), Maloney, Truman, Chavez, Andrews, Green, Herring, and Austin.

Senator WALSH. The chairman of the committee, Senator Connally, is unable to be present this morning and he has asked me to preside. The matter before the committee this morning is H. R. 146, "An act to require contractors on public-building projects to name their subcontractors, material men, and supply men, and for other purposes.' This bill may be printed in the record.

(H. R. 146 is as follows:)

AN ACT To require contractors on public-building projects to name their subcontractors, material men, and supply men, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That contracts in excess of $5,000 in amount for the construction, alteration, or repair of any public building of the United States or of the District of Columbia within the geographical limits of the States of the Union or the District of Columbia shall be awarded only to bidders whose bids are submitted within sixty days after the date of the invitation for bids, and are accompanied by a statement containing the names and addresses of the subcontractors, material men, and supply men whose services the bidder intends to utilize in the performance of the work, but no subcontractor, or material man, or supply man shall be required to be named where the total amount involved of the individual subcontract or the amount required to be furnished by any material man or supply man does not exceed $500. Such contracts shall also contain provisions for withholding from, or payment by, the contractor of such penalties as may be fixed in the contract for failure to utilize such subcontractors, material men, and supply men in the performance of the work, as well as for failure to pay such subcontractors, material men, and supply men (in proportion to the amounts due them, respectively, in relation to the amount due the contractor on any payment date), as the contractor is paid by the United States. Sums assessed or paid as penalties for such failure may be remitted or refunded, in whole or in part, by the head of the department, bureau, agency, or independent establishment of the Government or the District of Columbia which has made the contract on behalf of the United States or the District of Columbia, but only in case it is shown to his satisfaction that substitution for a subcontractor, material man, or supply man, as the case may be, was justified by reason of the inability or unwillingness of such subcontractor, material man, or supply man to furnish the materials or supplies, or properly to perform the work, as the case may be, in accordance with previous agreements.

SEC. 2. No claim for the remission or refund of any penalty shall be granted under this Act unless application therefor is filed within one year after the liability

of the contractor accrues. If any such application for refund of any sum paid as a penalty is denied, or if no application for such refund is filed within the period provided for filing application under this section, such sum shall be covered into the Treasury as miscellaneous receipts.

SEC. 3. This Act shall take effect thirty days after its passage but shall not affect any contract then existing or any contract that may hereafter be entered into pursuant to invitations for bids that are outstanding at the time of the passage of this Act.

Passed the House of Representatives March 24, 1937.
Attest:

SOUTH TRIMBLE, Clerk. SENATOR WALSH. The Committee on Expenditures in the Executive Departments reported on this bill. The bill passed the House and we will have printed in the record the report submitted by Mr. Griswold of the Committee on Expenditures in the Executive Depart

ments.

(The report referred to is as follows:)

[H. Rept. No. 178, 75th Cong., 1st sess.]

The Committee on Expenditures in the Executive Departments to whom was referred the bill (H. R. 146) to require contractors on public building projects to name their subcontractors, material men, and supply men, and for other purposes, having had the same under consideration, report thereon with the recommendation that it do pass.

The bill is designed to eliminate or curb a vicious practice variously known as "bid shopping" or "bid peddling" which witnesses testified now flourishes in connection with Government contracts. The fact that the Government is in no way responsible for these shady operations does not seem to justify the Congress in not passing some legislation that will at least put a stop to the practice so far as Government work is concerned.

The hearings in past Congresses reveal examples substantially as follows: A, a general contractor, has secured a Government contract. In making up his successful bid he utilized figures submitted by several subcontractors in each phase of the contract, such as foundation, plumbing, electrical fixtures, etc. The subcontractors competing for, say, the plumbing, were B, C, D, and E, among whom E supplied the lowest satisfactory figure which was used by A in obtaining the contract. A then informs B, C, D, and perhaps a favored firm which has submitted no previous bid as to the amount bid by E, and offers the work to the one that will shave this figure the most. The same thing happens in connection with the foundation, electrical fixtures, etc. In their anxiety to keep their organizations at work, the cutthroat competition between the several concerns makes the cost of the work much lower to the general contractor than he figured in his bid, the difference being additional profit. It is testified that these conditions often bring about the failure of the subcontractor.

Witnesses in opposition to the legislation state that the admitted evil cannot be removed by legislation, but only through better business ethics being adopted by the contractors themselves. The fact remains, however, that the subcontractors go to considerable expense in working up the figures which they submit to the general contractor, especially on large projects. It seems to be only fair that when a firm has spent money and enabled the general contractor to secure a contract by reason of its low estimate that it should be given the same assurance of receiving the work as the general contractor has when he enters into competition with other general contractors for the whole job. This assurance is a matter of legislation. It is also stated that many responsible firms have withdrawn from competition for Government work on account of this lack of assurance, and that this is likely to be detrimental to the Government interest.

It is declared that unless the cure is brought about by the business firms themselves, the practice will be continued through the shopping of bids by the general contractor before submitting his bid to the Government in the first instance. Witnesses state that many Government projects already awarded have been held up for months while the bid peddling was taking place, which argues that time is a necessary element in this practice. Proper regulation of the time between the announcing and opening of the bids should curb this, and the naming of the subcontractor whose figures were used by the general contractor should remove the incentive for delaying the start of actual work on Government buildings.

In view of the foregoing reasons your committee believes that this legislation merits favorable consideration.

Senator WALSH. Now, who is present that desires to be heard in favor of this bill? I understand the Treasury Department, which has a representative here, the War Department, the Public Works Administration, the Associated General Contractors of America, appear here in opposition to the bill. Who desires to be heard in favor of the bill? Senator AUSTIN. Mr. Gallagher, of the painters, Senator, appears here in favor of the bill.

STATEMENT OF WILLIAM J. GALLAGHER, REPRESENTATIVE, BROTHERHOOD OF PAINTERS, PAPERHANGERS, AND DECORATORS OF AMERICA,

Senator WALSH. Your full name?

Mr. GALLAGHER. William J. Gallagher.
Senator WALSH. Your residence?

Mr. GALLAGHER. 3339 Quesada Street, Washington, D. C. Senator WALSH. And what is your official capacity in which you appear before the committee?

Mr. GALLAGHER. National Representative of the Brotherhood of Painters, Paperhangers, and Decorators of America.

Senator WALSH. You may proceed to make any statement you desire to make before the committee.

Mr. GALLAGHER. Mr. Chairman and gentlemen of the committee, I favor this legislation because of the fact that many times we have received information where subcontractors have figured on prospective Government work for general contractors and then after the general contractor has made his entire bid we have discovered several places where the subcontractor that figured on that work was not given the job but in place of that the general contractor, after securing the contract, peddled that job in various parts of the country in order to cut down the price submitted by the subcontractor, and we believe that is totally unfair, insofar as the subcontractor is concerned.

Senator WALSH. Now, let me see if I get the situation clearly. When bids are asked by the Government for the erection of buildings, or for other public works, it is customary for the contractor who submits the bid to get the judgment and opinions of subcontractors as to what a particular portion of the work may cost, and it has come to your attention that frequently contractors who have impliedly accepted the bids of subcontractors repudiated those subcontracts and have gone out in the market to get somebody who will perform the services or do the work for a lower price?

Mr. GALLAGHER. Exactly so. Not only that, but we have also discovered the fact that the Government itself is not getting a dollar's worth of work for a dollar spent on many of these subcontracting jobs that are peddled in that manner.

Senator WALSH. Why?

Mr. GALLAGHER. Because of inferior workmanship.

Senator WALSH. Is that not the fault of Government inspectors? Mr. GALLAGHER. They do not have inspectors on many of these jobs.

Another great fault on the part of the Government, if it is a large job the Government does have one of its inspectors on the job, but if the job is a small job it is too costly a proposition on the part of the Government to have one of these inspectors on the job. You can

hardly blame the Government in that respect. However, we find on many of these jobs, and on painting jobs particularly, that the contracts are awarded to painting contractors and the supervision of that job is in the hands of the custodian of the post office who knows absolutely nothing about painting and has his own duties to perform and little or no time given to inspecting the work, even if he did know how to inspect it.

Senator WALSH. Are there any other questions?

Senator GREEN. May I ask a question? It may have been covered already.

Senator WALSH. Senator Green.

Senator GREEN. I understand that the contractor applies to subcontractors for information as to the probable cost before he makes his bid?

Mr. GALLAGHER. That is how he makes his bid up.

Senator GREEN. Yes; but are these subcontractors bound in any way?

Mr. GALLAGHER. They should be.

Senator GREEN. That is not what I asked.

Mr. GALLAGHER. What was the question?

Senator GREEN. I say, are they bound in any way to the contractor to abide by their figures?

Mr. GALLAGHER. Are they bound?

Senator GREEN. Yes.

Mr. GALLAGHER. They are bound by a bond, or should be.
Senator GREEN. To the contractor?

Mr. GALLAGHER. To the general contractor.

Senator GREEN. I mean before the contractor makes his bid.

Mr. GALLAGHER. I do not know whether it is before or afterward. Senator CHAVEZ. They just give him an estimate.

Senator GREEN. I would like to clear Mr. Gallagher's statement on the record, if you do not mind, Senator.

Senator CHAVEZ. Pardon me.

Mr. GALLAGHER. There is no bond executed until the contract is awarded to the general contractor.

Senator GREEN. Exactly, but if the subcontractor is not bound by this informal estimate that he gives the contractor, why should the contractor be obliged to name the subcontractor in advance?

Mr. GALLAGHER. Will you tell me, in your own judgment now-I am an Irishman and I am going to ask you a question.

Senator GREEN. Will you answer my question first, please?
Mr. GALLAGHER. May I have the question?

Senator GREEN. Will the stenographer read the question?
(The question was read by the reporter.)

Mr. GALLAGHER. Because of the fact that he has used his time and his money in making up his general bid. Why should not that man get the opportunity to do the work?

Senator GREEN. Because the subcontractor is not bound by those figures, he may change his figures at any time.

Mr. GALLAGHER. The subcontractor?

Senator GREEN. Yes.

Mr. GALLAGHER. Not after he has submitted it to the general contractor, I would not imagine.

Senator GREEN. Is he legally bound by it in any way?