JOINT HELD HEARING ON DAVIS-BACON FKAUD
AND ABUSE
Y 4.SCI 2:104/78
[EARING
Technological Solutions to Inprove... tE the
SUBCOMMITTEE OX WORKFORCE PROTECTIONS
AND THE
SUBCOMMITTEE OX 0\^RSIGHT AND
IXl^STIGATIOXS
OF THE
COMMITTEE ON ECONOMIC AND
EDUCATIONAL OPPORTUNITIES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED AND FOURTH CONGRESS
SECOND SESSION
JOINT FIELD HEARING HELD IN OKLAHOMA CITY, OKLAHOMA,
JANUARY 18, 1996
Serial Number 104-78
Printed for the use of the Committee on Economic and
Educational Opportunities
>
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1996
For sale by the U.S. Government Printing Office
Superintendent of Documents. Congressional Sales Office, Washington. DC 20402
ISBN 0-16-053915-3
36-049 - 96 - 1
JOINT HELD HEARING ON DAVIS-BACON FKAUD
AND ABUSE
V 4. SCI 2:104/78 ^^^^^^
Technological Solutions to Inprove... ie the
SUBCOMxMITTEE OX WORIiFORCE PROTECTIONS
AND THE
SUBCOMMITTEE OX 0\^RSIGHT AXD
LX\^STIGATIOXS
OF THE
COMMITTEE ON ECONOMIC AND
EDUCATIONAL OPPORTUNITIES
U.S. HOUSE OF REPRESENTATI\^S
ONE HUNDRED AND FOURTH CONGRESS
SECOND SESSION
JOINT FIELD HEARING HELD IN OKLAHOMA CITY, OKLAHOMA,
JANUARY 18, 1996
Serial Number 104-78
Printed for the use of the Committee on Economic and
Educational Opportunities
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1996
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-053915-3
COMMITTEE ON ECONOMIC AND EDUCATIONAL OPPORTUNITIES
WILLIAM F. GOODLING, Pennsylvania, Chairman
WILLIAM (BILL) CLAY, Missouri
GEORGE MILLER, California
DALE E. KILDEE, Michigan
PAT WILLIAMS, Montana
MATTHEW G. MARTINEZ, California
MAJOR R. OWENS, New York
THOMAS C. SAWYER, Ohio
DONALD M. PAYNE, New Jersey
PATSY T. MINK, Hawaii
ROBERT E. ANDREWS, New Jersey
JACK REED, Rhode Island
TIM ROEMER, Indiana
ELIOT L. ENGEL, New York
XAVIER BECERRA, CaUfornia
ROBERT C. "BOBBY" SCOTT, Virginia
GENE GREEN, Texas
LYNN C. WOOLSEY, CaUfornia ,
CARLOS A. ROMERO-BARCELO,
Puerto Rico
CHAKA FATTAH, Pennsylvania
THOMAS E. PETRI, Wisconsin
MARGE ROUKEMA, New Jersey
STEVE GUNDERSON, Wisconsin
HARRIS W. FAWELL, Illinois
CASS BALLENGER, North Carolina
BILL E. BARRETT, Nebraska
RANDY "DUKE" CUNNINGHAM, California
PETER HOEKSTRA, Michigan
HOWARD P. "BUCK" McKEON, California
MICHAEL N. CASTLE, Delaware
JAN MEYERS, Kansas
SAM JOHNSON, Texas
JAMES M. TALENT, Missouri
JAMES C. GREENWOOD, Pennsylvania
TIM HUTCHINSON, Arkansas
JOSEPH K. KNOLLENBERG, Michigan
FRANK D. RIGGS, CaUfornia
LINDSEY O. GRAHAM, South Carolina
DAVE WELDON, Florida
DAVID FUNDERBURK, North CaroUna
MARK SOUDER, Indiana
DAVID McINTOSH, Indiana
CHARLIE NORWOOD, Georgia
Jay Eagen, Staff Director
Gail E. Weiss, Minority Staff Director
Subcommittee on Workforce Protections
CASS BALLENGER, North CaroUna Chairman
Y. TIM HUTCHINSON, Arkansas
LINDSEY O. GRAHAM, South Carolina
DAVID FUNDERBURK, North CaroUna
CHARLIE NORWOOD, Georgia
HARRIS W. FAWELL, IlUnois
BILL BARRETT, Nebraska
PETER HOEKSTRA, Michigan
JAMES C. GREENWOOD, Pennsylvania
MAJOR R. OWENS, New York
GEORGE MILLER, California
PATSY T. MINK, Hawaii
ROBERT E. ANDREWS, New Jersey
ELIOT L. ENGEL, New York
LYNN C. WOOLSEY, California
CARLOS A. ROMERO-BARCELO,
Puerto Rico
Subcommittee on Oversight and Investigations
PETER HOEKSTRA, Michigan, Chairman
BILL BARRETT, Nebraska
CASS BALLENGER, North Carolina
RANDY "DUKE" CUNNINGHAM, California
HOWARD P. "BUCK" McKEON, CaUfornia
MICHAEL N. CASTLE, Delaware
DAVID WELDON, Florida
WILLIAM F. GOODLING, Pennsylvania
HARRIS W. FAWELL, Illinois
THOMAS C. SAWYER, Ohio
MATTHEW G. MARTINEZ, CaUfornia
JACK REED, Rhode Island
TIM ROEMER, Indiana
ROBERT C. "BOBBY" SCOTT, Virginia
GENE GREEN, Texas
CHAKA FATTAH, Pennsylvania
(II)
CONTENTS
Page
Joint Field Hearing held in Oklahoma City, Okalahoma, January 18, 1996 1
Statement of:
Ballenger, Hon. Cass, a Representative in Congress from the State of
North Carolina 1
Bumpers, Terry, Director, National Alhance for Fair Contracting 123
Connelly, Jim, Connelly Paving Company 104
Estell, Bill, Quickway Excavating 110
Istook, Hon. Ernest, a Member of Congress from the State of Oklahoma .. 12
Lester, Jeff, Deputy Commissioner, Oklahoma Department of Labor 35
Marshall, Jim, Chief of Staff, Oklahoma Department of Labor 35
Matthews, Gary, Matthews Trenching Company 96
Milner, James, Director, Oklahoma Citizens for a Sound Economy 106
Reneau, Brenda, Commissioner, Oklahoma Department of Labor 19
Witness A 129
Witness C 134
Prepared statements, letters, supplemental materials, et cetera:
Associated Builders & Contractors, broadcast excerpt 154
Ballenger, Hon. Cass, a Representative in Congress from the State of
Nortn Carolina, prepared statement of 2
Bumpers, Terry, Director, National Alliance for Fair Contracting, pre-
pared statement of 127
Connelly, Jim, Connelly Paving Company, prepared statement of 105
The Davis-Bacon Act, and Fraudulent Wage Data Investigative Report
document, an Executive Summary 150
Estell, Bill, Quickway Excavating, prepared statement of 113
Istook, Hon. Ernest J., a Member of Congress from the State of Okla-
homa, prepared statement of 14
Lester, Jeff, Deputy Commissioner, Oklahoma Department of Labor, pre-
pared statement of 44
Marshall, Jim, Chief of Staff, Oklahoma Department of Labor, prepared
statement of 35
Matthews, Gary, Matthews Trenching Company, prepared statement of ... 96
Miller, Hon. George, a Representative in Congress from the State of
California, prepared statement of 148
Milner, James, Director, Oklahoma Citizens for a Sound Economy, pre-
pared statement of 109
Owens, Hon. Major R., a Representative in Congress from the State
of New York, prepared statement of 156
Reneau, Brenda, Commissioner, Oklahoma Department of Labor, pre-
pared statement of 21
Souder, Hon. Mark E., a Representative in Congress from the State
of Indiana, prepared statement of 161
Taylor, Lonnie P., Vice President, Congressional Affairs, Chamber of
Commerce of the United States, Washington, DC, prepared statement
of 148
Witness A, prepeired statement of 130
Witness C, prepared statement of 136
(III)
FIELD HEARING ON DAVIS-BACON FRAUD
AND ABUSE
THURSDAY, JANUARY 18, 1996
House of Representatives, Subcommittee on Over-
sight AND Investigations with the Subcommittee
ON Workforce Protections, Committee on Eco-
nomic and Educational Opportunities, Oklahoma
City, OK.
The subcommittee met, pursuant to call, at 10 a.m., in the U.S.
Courthouse, 200 N.W. Fourth Street, Oklahoma City, Oklahoma,
Hon. Cass Ballenger, Chairman of the Subcommittee on Workforce
Protections, presiding.
Members present: Representatives Ballenger and Hoekstra.
Also present: Representative Istook.
Chairman BALLENGER. A quorum being present, I would like to
call together this joint hearing of the Subcommittee on Workforce
Protections and the Subcommittee on Oversight and Investigations.
The subcommittee is meeting today to hear the testimony on al-
legations of fraud, abuse and favoritism in the Davis-Bacon Act
uncovered by the Oklahoma Department of Labor. I have a brief
opening statement.
The Davis-Bacon Act requires contractors on federally funded
construction projects valued at over $2,000 to pay a government-
determined prevailing or inflated salary in a specific city or area.
When the Act was passed in 1931, there were no Federal mini-
mum wage laws or other labor laws with protection for workers,
and since that time Congress has enacted numerous laws to protect
the wages and working conditions for all workers, including con-
struction workers. Some $48 million annually in Federal construc-
tion spending falls under the Davis-Bacon Act requirements.
Also, the Congressional Budget Office says that the Davis-Bacon
Act raises the government construction costs on the order of $1 bil-
lion a year; clearly, Davis-Bacon drives up construction costs. Elec-
tricians in Philadelphia who are working on a Davis-Bacon project
are paid $37 an hour, compared with an electrician on a private
contract, who is paid only $15.76. Or consider the backhoe operator
in Oklahoma whose salary was $22 an hour on a Federal construc-
tion job, compared with the private rate of $8.40 an hour. Compa-
nies cannot stay in business paying $37 or $22 an hour to an em-
ployee when the market rate is much less.
The total cost of Davis-Bacon extends to State and local govern-
ment construction programs, thus having the same practical impli-
cations as an unfunded mandate. Davis-Bacon is particularly bur-
densome in the area of school construction. Consider this — a county
(1)
in West Virginia built a high school, an elementary and middle
school and an academic center at a total cost of $5.8 million, aver-
aging out at $78.81 per square foot of construction. Interviews with
contractors in the county established that open shop contractors
usually charge an average of $52 per square foot as compared to
$78. Using those figures, one-third of the cost could have been
saved had the schools been exempt from the Davis-Bacon Act. The
savings could have been realized by the taxpayers or used in other
ways to help the educational system.
There are additional costs to Federal agencies which must col-
lect, process and disseminate thousands of wage rates. And as we
will hear from our witnesses today, these are potentially serious
flaws in a prevailing wage determination project. Likewise, there
are direct costs to contractors who must comply with record-keep-
ing and paperwork requirements under the Copeland Act. Compli-
ance costs to the industry total about $100 million — money which
would be better spent creating additional jobs.
In addition to the wasteful and burdensome paperwork require-
ments of this prevailing wage law, recent investigations suggest
that the system of collecting wage information is so flawed as to
allow for systemic submission of fraudulent and false data.
The hearing today will focus on the allegations of fraud, waste
and abuse in the administration of the Davis-Bacon Act. We first
learned of these charges in July of 1995, and at that time the Okla-
homa Department of Labor had uncovered three specific cases
where the survey data on Federal projects was submitted and ghost
employees were identified, presumably with the intent of inflating
prevailing wage determinations. Basing the wages on inflated and
perhaps fraudulent data would drive up the cost of government
construction projects, wasting hundreds of millions of taxpayer dol-
lars.
Because of the serious nature of the allegations uncovered by the
Oklahoma Department of Labor, Bill Goodling, Chairman of the
House Economic and Educational Opportunities Committee, Pete
Hoekstra, Chairman of the Oversight and Investigations Commit-
tee and I wrote the Department of Labor to demand some answers.
And as a result of this action and the concern about developing
scandal, the U.S. Department of Labor withdrew the prevailing
wage determinations for Oklahoma City and Tulsa.
Here is what the Department of Labor found after the initial re-
view of the WD- 10 forms used in Oklahoma. And by the way, for
those of you that are not conversant with the government-speak, a
WD- 10 form is the survey form used by the Department of Labor
to determine the Davis-Bacon wage. Out of 259 forms submitted,
only 124, or a little under half of the forms submitted, remained
usable. The Department of Labor listed several reasons for exclud-
ing forms, including the information that could not be verified. I
have a copy of a letter from the Department of Labor, along with
a chart detailing this information which will be submitted for the
record.
We have also asked the General Accounting Office, the GAO, the
U.S. Department of Justice and the Inspector General's Office of
the U.S. Department of Labor — or the agency's watchdog — to inves-
tigate allegations of fraud, abuse and favoritism in the Oklahoma
Davis-Bacon Act. We anticipate receiving these reports later this
year.
Needless to say, the events and information you will hear today
are quite disturbing. If all the allegations are true, the only conclu-
sion to be drawn is that the Davis-Bacon Act and its system of
wage information collection is fatally flawed. Every year the De-
partment of Labor must collect and monitor thousands of wage sub-
missions on billions of dollars of federally financed contracts. If the
dubious interested parties here in America's heartland are so easily
able to penetrate and dupe the Department of Labor's best efforts,
it certainly raises the possibility that similar activities are taking
place in other States. The Department of Labor uses the same col-
lection process across the country that they do in Oklahoma. And
while the case here may be particularly egregious, unfortunately I
believe that it is unlikely that this system is better elsewhere.
Moreover, the Oklahoma investigation certainly reinforces the re-
ports by the GAO, released in 1979, which said that after nearly
50 years, the Department of Labor has not developed an effective
program to issue and maintain current and accurate wage deter-
minations. A GAO follow-up report in 1994 noted that the potential
for wage determinations to be based on low quality data continues
to exist.
We will hear from three panels of witnesses today, including the
Honorable Ernest Istook, representing the Fifth District of Okla-
homa; Commissioner Brenda Reneau, Oklahoma Department of
Labor and Deputy Commissioner Jeff Lester; and a panel of con-
tractors.
Because of concern for their personal safety and possible retalia-
tion by those opposed to exposing this fraud, waste and abuse, four
of our witnesses have asked and been granted anonymity. We will
hear testimony from these witnesses and we will be able to ques-
tion them, but due to the concern for their personal safety and that
of their families and co-workers, their identity will be closely pro-
tected. In that regard, I will clear the hearing room and allow these
witnesses to be brought in, seated and then shielded with protec-
tive partitions. And I hope you can be patient during this process.
Thank you. That is the end of my statement.
Congressman Hoekstra.
[The prepared statement of Hon. Cass Ballenger follows]:
Statement of Hon. Cass Ballenger, a Representative in Congress from the
State of North Carolina
The Davis-Bacon Act requires contractors on federally funded construction
projects valued over $2,000 to pay a government determined "prevailing" or inflated
salary in a specific city or area. When the Act was passed in 1931, there were no
Federal minimum wage law or other labor laws with protections for workers. Since
that time. Congress has enacted numerous laws to protect the wages and working
conditions of all workers, including construction workers. Some $48 bilUon annually
in Federal construction spending falls under the Davis-Bacon Act requirements.
Also, the Congressional Budget Office says that the Davis-Bacon Act raises govern-
ment construction costs on the order of $1 bilUon a year.
Clearly, Davis-Bacon drives up construction costs. Electricians in Philadelphia
who are working on a Davis-Bacon project are paid about $37 an hour compared
with electricians on a private contract who are paid an average of $15.76 an hour.
Or consider that a backhoe operator in Oklahoma whose salary was $22 an hour
on a Federal construction job compared with a private rate of $8.40 an hour. Com-
panics can not stay in business paying $37 or $22 an hour to an employee when
the market rate is less.
The total cost of Davis-Bacon extends to State and local government construction
programs, thus having the same practical implications as an unfunded mandate.
Davis-Bacon is particularly burdensome in the area of school construction. Consider
this example: a county in West Virginia built a high school, an elementary/middle
school, and an academic center at a total cost of over $5.8 million, averaging out
to $78.81 per square foot of construction. Interviews with contractors in the county
established that open shop contractors usually charged an average of $52 per square
foot for similar facilities. Using those figures, one-third of the cost could have been
saved had the schools been exempt from Davis-Bacon. The savings could have been
readized for the taxpayers or used in other ways the educational system.
There are additional costs to Federal agencies which must collect, process, and
disseminate thousands of wage rates. And, as we will hear from our witnesses
today, there are potentially serious flaws in the prevailing wage determination proc-
ess. Likewise, there are direct costs to contractors who must comply with record-
keeping and paperwork requirements under the Copeland Act. Compliance costs to
the industry total nearly $100 million per year, money which could be better spent
creating additional jobs. In addition to the wasteful and burdensome paperwork re-
quirements of this prevailing wage law, recent investigations suggest that system
of collecting wage information is so flawed as to allow for systematic submission of
fraudulent and false data.
The hearing today will focus on allegations of fraud, waste, and abuse in the ad-
ministration of the Davis-Bacon Act. We first learned of these charges in July,
1995. At that time, the Oklahoma Department of Labor had uncovered three specific
cases where survey data on phantom projects was submitted and ghost employees
were identified, presumably with the intent of inflating prevaiUng wage determina-
tions. Basing the wages on inflated and perhaps fraudulent data would drive up the
costs of government construction projects — wasting hundreds of millions of taxpayer
dollars.
Because of the serious nature of the allegations uncovered by the Oklahoma De-
partment of Labor, Bill Gk)odling, Chairman of the House Economic and Educational
Opportunities Committee, Pete Hoekstra, Chairman of the Oversight and Investiga-
tions Subcommittee and I wrote the Department of Labor to demand some answers.
As a result of this action and concern about a developing scandal, the U.S. Depart-
ment of Labor withdrew the prevailing wage determinations for Oklahoma City and
Tulsa.
Here is what the Department of Labor found after their initial review of the WD-
10 forms used in Oklahoma. By the way, for those of you not conversant in "govern-
ment speak," a WD-10 form is a survey form used by the U.S. Department of Labor
to determine a Davis-Bacon wage. Out of 259 forms submitted, only 124, or a little
under half of the forms submitted, remained usable. The Department of Labor listed
several reasons for excluding forms including that the information could not be veri-
fied. I have a copy of the letter from the Department of Labor, along with a chart
detailing this information, which will be submitted for the record.
We have also asked the General Accounting Office (GAO), the U.S. Department of
Justice, and the Inspector General's Office of the U.S. Department of Labor or the
Agency's watchdog to investigate allegations of fraud, abuse, and favoritism in the
Oklahoma Davis-Bacon Act. We anticipate receiving these reports later this year.
Needless to say the events and information you will hear toaay are quite disturb-
ing. If all the allegations are true, then the only conclusion to be drawn is that the
Davis-Bacon Act and its system of wage information collection is fatally flawed.
Every year, the Department of Labor must collect and monitor thousands of wage
submissions on billions of dollars of federally financed contracts. If the dubious "in-
terested parties" here in America's heartland are so easily able to penetrate and
dupe the Department of Labor's best efforts, it certainly raises the possibility that
similar activities are taking place in other States.
The Department of Labor uses the same collection procedures across the country
that they do in Oklahoma, and while the case here may be particularly egregious,
unfortunately I believe that it is unlikely that this system is better elsewhere. More-
over, the Oklahoma investigation certainly reinforces the reports by the GAO re-
leased in 1979 which said that "after nearly 50 years, the Department of Labor has
not developed an effective program to issue and maintain current and accurate wage
determinations." A GAO follow-up report in 1994 noted that "the potential for wage
determinations to be based on low quality data" continues to exist.
We will hear from three panel's of witnesses today, including the Honorable Er-
nest Istook, representing the 5th District of Oklahoma; Commissioner Brenda
Reneau, Oklahoma Department of Labor; Deputy Commdssioner of Labor Jeff Les-
ter; and a panel of contractors.
Because of concern for their personal safety and possible retaliation by those op-
posed to exposing fraud, waste and abuse, four of our witnesses have asked for and
been granted anonymity. We will hear testimony from these witnesses and we will
be able to question them, but due to concern for their personal safety and that of
their families and coworkers, their identity will be closely protected. To that regard,
I will clear the hearing room and allow these witnesses to be brought in, seated,
and then shielded by protective partitions. I hope you can be patient during this
process.
Thank you.
COMMITTEE ON ECONOMIC
AND EDUCATIONAL OPPORTUNITIES
U.S. HOUSE OF REPRESENTATIVES
2161 RAYBURN MOUSE Of FICE BUILCHNG
WASHINGTON. DC 20515-6100
MINOmlY — IJ02) 225-3725
(rTY)_l202l 229-31 V
November 28, 1995
VIA FACSIMILE #202/219-4753
Ms. Maria Echaveste
Administrator
Wage and Hour Division
U.S. Department of Labor
200 Constitution Ave., NW
Washington, D.C. 20210
Dear Ms. Echaveste:
On October 19, 1995 you were invited to brief a number of Members on the findings of the Wage and
Hour Division (Division) regarding the allegation that fi-audulent information was submitted to the Division in
response to a prevailing wage survey conducted in Oklahoma. At that briefing you were also asked to provide
follow-up responses to a number of additional questions.
Approximately one month has passed since that briefing and we have yet to receive the information we
requested regarding, among other things, the WD- 10s filed by interested third parties. Accordingly, please
provide to us by December 5, 1995 the following:
1. the total number of WD-lOs reviewed by the Division related to the Oklahoma situation divided by
party (e.g. interested third party, contractors, unions);
2. the number of WD-lO's that the Division "set aside "/excluded, the reason that they were "set
aside'/excluded and the party to whom the WD- 10 was attributed; aixl
3. in those instances where the Division did decide to "set aside'/exclude a WD-IO, please explain in
detail whedier the Division advised the Department of Justice of the WD-lOs ttiat were "set
aside'/excluded fi'ora consideration in the prevailing wage determination. In the event that the Department
of Justice was not advised of the Division's findings with regard to then WD-lOs, please explain.
Thank you in advance for your prompt and timely responses to our inquiries.
Sincerely,
CaU^M
CASS BALLENGER
Chairman, Chairman,
Subcommittee on Oversight Subcommittee on Workforce
and Investigations Protections
^nr-
U.S. Department of Labor Employment standards Admif
Wage and Hour Division
Washington, DC. 20210
DEC 7
The Honorable Pete Hoekstra
Chairman
Subcommittee on Oversight and Investigations
The Honorable Cass Ballenger
Chairman
Subcommittee on Workforce Protections
Committee on Economic and Educational Opportunities
U.S. House of Representatives
Washington, D.C. 20615-6100
Dear Chairmen Hoekstra and Ballenger:
Thank you for your letter of November 28 requesting additional
information regarding the Davis-Bacon heavy construction wage
survey conducted in Oklahoma City, Oklahoma.
There apparently is a misunderstanding. At the meeting, we
thought you had agreed that you would submit any follow-up
questions you had in writing. We just received your letter.
I hope the following is helpful.
Of the total WD-lO's submitted in response to the survey and
reviewed by the Department, 145 WD-lO's were submitted by various
contractors; 85 WD-lO's were submitted by unions; and an employer