A-92959, JULY 29, 1938, 18 COMP. GEN. 104

A-92959: Jul 29, 1938

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CONTRACTS - WAGE STIPULATIONS - AMOUNTS WITHHELD FROM CONTRACTOR BECAUSE OF WAGE RATE UNDERPAYMENTS - GOVERNMENT DISTRIBUTION TO AGGRIEVED PARTIES THERE IS NO AUTHORITY FOR PAYMENT TO THE AGGRIEVED PARTIES OF AMOUNTS WITHHELD FROM A CONTRACTOR AS REPRESENTING THE DIFFERENCE BETWEEN THE RATES OF WAGES REQUIRED UNDER THE CONTRACT TERMS TO BE PAID LABORERS AND MECHANICS EMPLOYED ON THE WORK AND THE RATES OF WAGES ACTUALLY PAID TO SUCH LABORERS AND MECHANICS. 1938: THERE WAS RECEIVED YOUR LETTER OF FEBRUARY 23. A CONTRACT WAS MADE BY THIS DEPARTMENT WITH HINMAN BROS. ARTICLE 16 (E) OF THE CONTRACT IS QUOTED BELOW: "THE CONTRACTING OFFICER MAY WITHHOLD FROM THE CONTRACTOR SO MUCH OF ACCRUED PAYMENTS AS MAY BE NECESSARY TO PAY TO LABORERS OR MECHANICS EMPLOYED BY THE CONTRACTOR OR ANY SUBCONTRACTOR ON THE WORK.

A-92959, JULY 29, 1938, 18 COMP. GEN. 104

CONTRACTS - WAGE STIPULATIONS - AMOUNTS WITHHELD FROM CONTRACTOR BECAUSE OF WAGE RATE UNDERPAYMENTS - GOVERNMENT DISTRIBUTION TO AGGRIEVED PARTIES THERE IS NO AUTHORITY FOR PAYMENT TO THE AGGRIEVED PARTIES OF AMOUNTS WITHHELD FROM A CONTRACTOR AS REPRESENTING THE DIFFERENCE BETWEEN THE RATES OF WAGES REQUIRED UNDER THE CONTRACT TERMS TO BE PAID LABORERS AND MECHANICS EMPLOYED ON THE WORK AND THE RATES OF WAGES ACTUALLY PAID TO SUCH LABORERS AND MECHANICS, THERE BEING NOTHING IN THE CONTRACT CONCERNED, THE STATUTORY REQUIREMENTS EXISTING AT THE TIME OF THE EXECUTION OF THE CONTRACT, OR OTHERWISE, JUSTIFYING SUCH DISTRIBUTION, AND THE DAVIS-BACON ACT, AS AMENDED AUGUST 30, 1935, 49 STAT. 1011--- THE FIRST PROTECTION PROVIDED BY THE CONGRESS IN THIS RESPECT--- HAVING BEEN ENACTED SUBSEQUENT TO THE EXECUTION OF THE CONTRACT AND BY ITS TERMS MADE SPECIFICALLY APPLICABLE ONLY IN THE CASE OF FUTURE AGREEMENTS.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE SECRETARY OF THE INTERIOR, JULY 29, 1938:

THERE WAS RECEIVED YOUR LETTER OF FEBRUARY 23, 1938, AS FOLLOWS:

UNDER DATE OF JANUARY 31, 1934, A CONTRACT WAS MADE BY THIS DEPARTMENT WITH HINMAN BROS. CONSTRUCTION COMPANY, FOR THE CONSTRUCTION OF THE AGENCY VALLEY DAM, I2R-3911, VALE PROJECT IN OREGON. ARTICLE 16 (E) OF THE CONTRACT IS QUOTED BELOW:

"THE CONTRACTING OFFICER MAY WITHHOLD FROM THE CONTRACTOR SO MUCH OF ACCRUED PAYMENTS AS MAY BE NECESSARY TO PAY TO LABORERS OR MECHANICS EMPLOYED BY THE CONTRACTOR OR ANY SUBCONTRACTOR ON THE WORK, THE DIFFERENCE BETWEEN THE RATE OF WAGES REQUIRED BY THIS CONTRACT TO BE PAID TO LABORERS OR MECHANICS ON THE WORK AND THE RATE OF WAGES ACTUALLY PAID TO SUCH LABORERS OR MECHANICS.'

AS A RESULT OF AN INVESTIGATION AND STUDY MADE BY THE PUBLIC WORKS ADMINISTRATION AND THE BUREAU OF RECLAMATION, IT HAS BEEN DETERMINED THAT 35 OF THE CONTRACTOR'S EMPLOYEES WERE UNDERPAID TO THE EXTENT THE AMOUNT FOUND DUE TO EACH, AND THE LATEST AVAILABLE ADDRESSES. THE CONTRACTOR HAS REFUSED TO PAY THE ADJUSTED COMPENSATION AND THERE IS NOW WITHHELD FROM THE AMOUNT DUE THE CONTRACTOR THE SUM OF $1,700. AS THE WORKMEN WERE EMPLOYEES OF THE CONTRACTOR AND NOT OF THE GOVERNMENT, THIS DEPARTMENT CANNOT MAKE PAYMENT DIRECTLY TO THEM.

THE MEN INVOLVED ARE JUSTLY ENTITLED TO THE AMOUNTS LISTED IN THE ENCLOSURE AND YOUR ADVICE IS REQUESTED AS TO WHAT PROCEDURE MAY BE FOLLOWED TO ACCOMPLISH THE DESIRED RESULTS. YOUR EARLY CONSIDERATION WILL BE APPRECIATED.

THE QUOTED CLAUSE OF THE CONTRACT (ARTICLE 16 (E) ( PROVIDES FOR WITHHOLDING BY THE CONTRACTING OFFICER OF AN AMOUNT EQUAL TO THE DIFFERENCE BETWEEN THE WAGES ACTUALLY PAID TO LABORERS AND MECHANICS AND THE AMOUNT CALLED FOR BY THE TERMS OF THE CONTRACT, BUT IT CONTAINS NO AUTHORITY FOR MAKING PAYMENT BY THE UNITED STATES DIRECTLY TO SUCH EMPLOYEES OF THE AMOUNT WITHHELD. THUS, THE WORDS "SO MUCH OF ACCRUED PAYMENTS AS MAY BE NECESSARY TO PAY TO LABORERS OR MECHANICS" WOULD APPEAR TO BE DESCRIPTIVE OF THE AMOUNT TO BE WITHHELD RATHER THAN AN AUTHORIZATION FOR DISTRIBUTION OF ANY RETAINED FUNDS AMONG AGGRIEVED PERSONS.

THAT THIS INTERPRETATION IS CORRECT IS INDICATED BY AN ANALYSIS OF THE FACTS AND CIRCUMSTANCES WHICH PROMPTED INCORPORATION OF ARTICLE 16 (E) INTO UNITED STATES GOVERNMENT FORM NO. P.W.A. 51, UPON WHICH THE HINMAN BROS, CONSTRUCTION CO. CONTRACT WAS ISSUED. THIS FORM WAS DESIGNED PRIMARILY FOR USE IN CONNECTION WITH CONSTRUCTION AND REPAIR CONTRACTS FINANCED BY THE FEDERAL EMERGENCY ADMINISTRATION OF PUBLIC WORKS, CREATED BY TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT (48 STAT. 195, 200), AND IT APPARENTLY WAS THE PURPOSE TO INCORPORATE THEREIN SUCH PROVISIONS AS WOULD ASSURE COMPLIANCE WITH THE TERMS OF THE ACT AS WELL AS OTHER STATUTORY REQUIREMENTS RELATIVE TO FEDERAL CONTRACTUAL RELATIONSHIPS.

TITLE II OF THE NATIONAL INDUSTRIAL RECOVERY ACT CITED CONTAINED DEFINITE PROVISIONS DESIGNED TO SECURE TO EMPLOYEES, WHO WORKED UNDER CONTRACTS AWARDED PURSUANT TO THE TERMS THEREOF, A WAGE SUFFICIENT TO PROVIDE A STANDARD OF LIVING IN DECENCY AND COMFORT. SEE SECTION 208 OF THE ACT. IT WAS APPARENTLY IN KEEPING WITH THIS PROVISION THAT ARTICLE 18 WAS INSERTED IN THE HINMAN BROS. CONSTRUCTION CO. CONTRACT PROVIDING A WAGE OF $1.20 PER HOUR FOR SKILLED LABOR AND $0.50 PER HOUR FOR UNSKILLED LABOR. EARLIER FEDERAL STATUTES, INCLUDING THE ACT OF AUGUST 13, 1894, AS AMENDED (36 STAT. 1167), AND THE DAVIS-BACON ACT OF MARCH 3, 1931 (46 STAT. 1494), SIMILARLY SOUGHT TO PROVIDE A MEASURE OF PROTECTION TO THOSE WHO FURNISHED LABOR AND MATERIALS IN CONNECTION WITH THE PERFORMANCE OF GOVERNMENT CONSTRUCTION CONTRACTS. BUT NONE OF THESE STATUTORY PROVISIONS AUTHORIZED THE UNITED STATES, IN A CASE SUCH AS THE PRESENT ONE, TO WITHHOLD FUNDS EARNED BY A CONTRACTOR AND THEN TO DISTRIBUTE THEM AMONG LABORERS AND MATERIALMEN. IT WAS NOT UNTIL THE DAVIS-BACON ACT WAS AMENDED BY THE ACT OF AUGUST 30, 1935 (49 STAT. 1011), THAT THIS FINAL PROTECTION WAS ACCORDED TO SUCH EMPLOYEES, IT BEING THEN PROVIDED BY THE CONGRESS THAT THESE RETAINED FUNDS MIGHT BE DISTRIBUTED AMONG UNDERPAID WORKERS. THIS ACT IS NOT APPLICABLE UNDER THE FACTS HERE EXISTING, HOWEVER, BECAUSE IT WAS ENACTED AFTER THE PRESENT CONTRACT WAS PROMULGATED, AND SPECIFICALLY PROVIDED THAT IT SHOULD ONLY APPLY IN THE CASE OF FUTURE AGREEMENTS.

THUS, THERE IS NOTHING IN THE TERMS OF ARTICLE 16 (E), NOR IN THE ADMINISTRATIVE BULLETINS AND INSTRUCTIONS WHICH AUTHORIZED ITS INCORPORATION INTO UNITED STATES GOVERNMENT FORM NO. P.W.A. 51 (SEE BULLETIN NO. 2 OF THE FEDERAL EMERGENCY RELIEF ADMINISTRATION OF PUBLIC WORKS, DATED SEPTEMBER 12, 1933), NOR IN THE STATUTORY REQUIREMENTS EXISTING AT THE TIME THIS FORM WAS PROMULGATED, WHICH WOULD SUPPORT AN INTERPRETATION THAT THE UNITED STATES MAY DISTRIBUTE THE AMOUNT HERE WITHHELD AMONG EMPLOYEES OF THE HINMAN BROS. CONSTRUCTION CO. AS A MATTER OF FACT UNDER THE ORIGINAL DAVIS-BACON ACT OF MARCH 3, 1931 (46 STAT. 1494), THERE WAS NO LEGAL OBJECTION TO THE CONTRACTOR AGREEING WITH HIS EMPLOYEES THAT A WAGE LESS THAN THAT STIPULATED IN THE CONTRACT WITH THE UNITED STATES WOULD BE PAID. UNITED STATES V. MORLEY CONSTRUCTION COMPANY, 17 FED.SUP. 378, 390-91.

LABOR COSTS ARE AN ESSENTIAL ELEMENT OF THE CONSIDERATION UNDER A CONTRACT SUCH AS THAT WITH THE HINMAN BROS. CONSTRUCTION CO. AND THE REQUIREMENT THAT SKILLED LABOR SHOULD BE PAID $1.20 PER HOUR AND UNSKILLED LABOR $0.50 PER HOUR, QUITE OBVIOUSLY INFLUENCED THE OFFERS OF BIDDERS. BREACH OF THIS CONTRACT PROVISION ENTITLED THE UNITED STATES TO MAKE A DEDUCTION EQUAL TO THE DIFFERENCE BETWEEN THE AMOUNT ACTUALLY PAID TO EMPLOYEES AND THE AMOUNT WHICH SHOULD HAVE BEEN PAID, THERE BEING NOT ONLY NO LEGAL OR EQUITABLE BASIS FOR PAYMENT OF THE FULL CONTRACT PRICE FOR MERE PART PERFORMANCE, BUT THE CONTRACT SPECIFICALLY PROVIDED THAT SUCH AMOUNT SHOULD BE WITHHELD. SEE IN THIS CONNECTION 17 COMP. GEN. 84.

UPON THE RECORD PRESENTED, THEREFORE, THE DECISION MUST BE THAT DIRECT DISTRIBUTION AMONG THE LABORERS INVOLVED IS NOT AUTHORIZED OF THE SUM WITHHELD.