Executive Summary
Bacl
On November 4, 1994, the U.S. Department of Labor issued new general wage decisions for
heavy construction in Oklahoma County and other counties comprising the Oklahoma City
metropolitan area. Many of the wages prescribed by these new decisions were significantly
increased from the most recent modified versions of the heavy construction wage decisions. It
had been several years since the previous survey, so a reasonable increase in rates was
expected. In some cases, however, the increase was outrageous, which prompted a public
outcry from the building industry and from a wide variety of government subdivisions that pay for
the construction work with taxpayer dollars.
Some of these affected parties approached the Oklahoma Department of Labor with allegations
that fraudulent data had been submitted to the U.S. Department of Labor during the survey
process. Because Oklahoma's Little-Davis Bacon Act forces Oklahomans to adhere strictly to
the federal wage decisions generated by the U.S. Department of Labor and, due to the fact that
the Oklahoma Department of Labor is responsible for strictly enforcing that law, Oklahoma Labor
Commissioner Brenda Reneau commenced a preliminary investigation to determine whether
Oklahoma's workers and taxpayers had been the victims of fraud and abuse.
This investigation focused on three specific cases of possible fraud. In each case, the Oklahoma
Department of Labor obtained initial documentation from affected parties. Appropriate government
subdivisions were contacted to help establish the credibility of the initial documentation. Other
potentially affected or involved parties were contacted, including contractors and others from the
private sector, and all licensing, financial and anecdotal evidence was pursued. It should be
(Executive Summary Page 1 of 3)
PHONE (40515281500 • FAX (405)528 6751
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noted that this exhaustive investigation attempted to eliminate all plausible explanations, with
fraud being the absolute last resort.
Findings:
Case 1: Oklahoma City Sanitary Sewer
Matthews Trenching Company, an open shop contractor, completed a $587,000 sewer project
in Oklahoma City in the fall of 1992. Matthews' certified payroll indicates that during "peak"
activity, six common laborers, four pipe layers and three operators — 13 total employees in three
work categories — were employed on the project. A U.S. Department of Labor wage survey for
the same project was submitted by an as yet unidentified "interested party" which lists 28 "peak"
employees, with the "extra" 15 being classified as various categories of "operating engineers."
None of these employees — who are listed as receiving substantially higher wages and benefits
— were actually employed on the project. Thus, the wage sun/ey for an actual project submitted
to the USDOL by an "interested party" lists 15 fictitious employees.
Case 2: Underground Storage Tank
Unlike the first case, the underground storage tank was never constructed. Case 2 involves
fictitious workers on a fictitious project. A wage survey submitted to the U.S. Department of
Labor claimed work for 20 plumbers and pipefitters on a $2 million underground storage tank in
Mustang, Oklahoma. This survey indicated that each worker received compensation of $21 .05
per hour — a wage of $17.00 per hour and fringe benefits of $4.05 per hour woiked. The
investigation found that the Mustang underground storage tank was never built — no project was
found that matched the description provided by the U.S. Department of Labor. As a result, the
wage survey on which the USDOL wage decision was based contains false, and we believe,
fraudulent data.
Case 3: Oklahoma City Treatment Plant
The third case involves two wage surveys: one for a project constructed by a different contractor
than claimed, and another that was never constructed at all. The USDOL received two wage
surveys identifying the Concho Company as a subcontractor on projects at the Lake Hefner
Treatment Plant. Each sun/ey identified 16 operating engineer categories for 33 total "peak"
employees. While Concho had performed some excavation and related work at a project
adjacent to the treatment plant, another unrelated contractor, Flintco, Inc., actually performed the
"high lift" job identified in one of the surveys. Interestingly, however, Flintco didn't even sign the
contract to initiate the project until several weeks after the federal wage form had been date
stamped in at the U.S. Department of Labor.
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The project identified in the other survey — and falsely attributed to Concho — has never been
built. Further, the surveys claimed that each job was performed pursuant to a collective
bargaining agreement. Concho, to whom the projects were falsely attributed has a collective
bargaining agreement with an operating engineer local union hall. Flintco, the company that
actually performed the work, does not have a collective bargaining agreement with any of the
operating engineer local union halls.
Conclusion:
It should be noted that the Oklahoma Department of Labor was provided with leads on several
dozen possible cases of fraud. The three cases we investigated were selected at random.
Since all three of these cases contain elements of fraud, we have no choice but to question the
breadth and depth of what may be a significantly larger systemic problem.
in each of these three instances, the Oklahoma Department of Labor believes that the false
information was submitted to the U.S. Department of Labor with the intent to influence the
outcome of the related U.S. Department of Labor wage decisions. Because Oklahoma law
mandates that the U.S. Department of Labor decisions must apply to state construction,
Oklahoma taxpayers are footing the bill for this fraud.
If is our intent to present our findings to the appropriate investigative and prosecutorial authorities
to help bring to justice those who knowingly have attempted to defraud the taxpayers of
Oklahoma and the United States. In cases where Oklahoma law may have been broken, this
report will be presented to the district attorney in each county where a fraudulent act may have
occurred.
The response of the U.S. Department of Labor to date has been disappointing. Repeated
requests for information solely in the possession of the Department have been delayed or
denied. Absent prompt and full cooperation in our effort to expose and prevent criminal activity,
the USDOL will be engaging in conduct bordering on complicity in the illegal conduct.
In all likelihood, the perpetrators of this fraud are unscrupulous "interested parties" who reap the
benefits of an inaccurate survey. The evidence contained in this report provides a compelling
case that the Davis-Bacon Act and its wage survey invites the submission of fraudulent
information and protects those unscrupulous "interested parties" who participate in the process.
(Executive Summary Page 3 of 3)
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ASSOCIATED BUILDERS & WRC-TV
"" CONTRACTORS JTATION ^gc Natwork
PROGHAM NBC Nightly News ^ity Washington, D.C.
BATi October 11, 1995 7:00 PK Auoituct
The Fleecing of Ajnarica/The Davis-Bacon Act
BROADCAST KXCERfT
TOM BROK.\W; Tine now for cur regular Wednesday feature about
your money and hew your goverr.rnant wa.st8s it. Tonight, how phantom
construction projects are driving up the cost of real buildings.
NBC's Robert Hager has details now in this Fleecing of
America.
ROBERT HAGER: Mustang, Cklahoaia, a rural town in the nation's
heartland with a brand new 32 million underground storage tank.
But where is it?
JIM MORGAM [City Manger]: Nc, this is not an underground
storage tank.
HAGER: In fact, the underground tank was never built, needed
or even proposed. It only exists in these documents, federal wage
survey forms, fraudulently submitted to the U.S. Leisor Department,
complete with fake salaries and fake jcbs, intended to persuade the
government to set higher construction wage scales for that area.
Remarkably, it worked.
And since u.ntil recently by law, Oklahoma had to pay using the
sane wage scales, the state labor corii-iiissioner is furious, saying
the fraud is costing taxpayers there nillions of dollars.
BRENDA REN2AU [Oklafcoma Labor Corjnlssloner]: The wage rate
for this area was based on that non-existent or ghost project.
HAGER: A federal law, the Davis-Bacon Act, requires that
construction workers on alnost all U.S. government projects, be
paid the prevailing or going salary for a specific region. Those
salaries are set by the wage survey. But critics say many of those
surveys are being rubber stair.ped without any checking.
155
In Oklahoma, th« inpa-t on the state's wage rate is
tremendous. A backhoe operator whose salary was 8.40 an hour
started getting $22 an hour. A truck driver whose salary was 7.30
got $15 an hour. Total additional taxpayer cost/ 521 million.
On Capitol Hill there's concern.
REP. CASS BALLENGER [R-North Carolina]: If thay found out in
Oklahoma that you could get away with cheating, it's not a secret
thay roust have kept in Oklahoma. It's got to elsewhere in the
country.
KAGER; And NBC Hews has learned the FBI is now investigating.
Because of this, the U.S. Labor Departnent says it's limited in
what it can say.
THOMAS WILLIAMSOhf [Labor Dspartnent Attorney]: We take very
seriously alleaations of fraud thet call into question the
integrity or accuracy of an'/ wage surveys used by the David-Bacon
program.
HAGER: In Oklahoma, ncre fakery. Someone wanted to double
pay for asphalt workers, so a fern was sent to the U.S. Labor
Departnent claiming asphalt workers had made big wages to resurface
a parking lot. But a look today reveals it was never paved with
asphalt. Another survey detailed high wages to put up a building
at a water treatment plant. But a lock today reveals no building
to be found, only barbed wir«. Now, because of continued abuse,
the U.S. Labor Department has withdrawn the prevailing wage rate
for Oklahona.
And because she first raised questions of fraud, the state
labor cotDinissioner's life has been threatened. But that's not
stopping her.
RENEAU: It's fraud. It's fraud at the fullest extent.
HAGER: No one has been charged yet, but there's growing
concern that the system of setting wages on U.S. govemaent
construction projects is so flawed that it's fleecing taxpayers of
hundreds of millions of dollars.
Robert Hager, NBC Kews, Washington.
156
Opening Statement
Representative Major R. Owens
January 18, 1996
Oklahoma Field Hearing: Davis-Bacon
Thank you, Mr. Chairman for the opportunity to submit this statement for
the hearing record. Unfortunately, the record blizzard sustained by the eastern
part of our country made it impossible for me to attend the Oklahoma hearing on
Davis-Bacon.
It is my impression that the Republican party has misinterpreted and,
therefore, misunderstands the Davis-Bacon Act and it's intent. During the
depression unscrupulous fly-by-night contractors were hauling gangs of
"itinerant", cheap, bootleg labor, around the country to undercut local firms on
federal public works project, at a time when other new construction was limited.
The Davis-Bacon Act of 1931 requires that the minimum wage rates
paid to each separate classification of workers on federally-financed construction,
repair, and alteration contracts be those determined to be locally "prevailing**
by the Department of Labor. Therefore, carpenters ( representing various
counties) working on highway construction projects in your state of North
157
Carolina earn $ 7.71 and no fringe benefits; while unskilled laborers working
on federally-funded sewer and water construction projects and heavy construction
projects earn $4.41 and no fringe benefits . These wages are not Michigan wages
nor Texas wages; because the prevailing wage for Michigan is determined by what
Michigan pays it's workers in the same category, and in Texas by what Texas
pays. So, when the statement is made that: "The Davis-Bacon Act requires
contractors on federally funded construction projects valued at over $2000 to
pay a government-determined prevailing or inflated salary in a specific city
or area." It is an untrue statement. It is the locality that establishes the
prevailing wage, and the U.S. Department of Labor.
Mr. Chairman , I have to trust that men such as ourselves—earning over
$133,000 yearly and in some instances blessed with additional income and
privileges—are not acting capriciously because we disdain poor and working
people. I hope we have not become indifferent to their concerns when they
organize to confront the tyrants who over-work and underpay or reftise to pay
them. However, I can not ignore the unreasonable, mean-spirited attacks launched
every day against American workers and their families by the Republican
majority. Through unproved accusations, generalization and sensationalism the
majority is attempting to create the false impression that a nationwide union
158
controlled Davis-Bacon Act is at the core of the misery of taxpayers. Davis-Bacon
does not cheat the American taxpayer -it ensures that construction workers
working on federal projects are paid a fair wage. Mr. Chairman, you bemoan the
fact that $48 million are annually spent on federal construction under the Davis-
Bacon Act, but you have no problem supporting a $240 billion tax cut for the rich.
Since the earliest days of the 104th Congress the Committee leadership has
made it clear that the policy implications of Davis-Bacon, such as its value in
promoting quality construction and encouraging employer provided employee
training, health care and pension benefits would not be debated. Nor would the
Committee review the real Davis-Bacon scandal of contractors cheating workers
by underpaying the reported wage on federal contracts.
I am not willing to sit quietly by while the zealots conspire to destroy
minimum wage protections for construction workers — Davis-Bacon.
Eighty seven Democrats and Republicans are co-sponsors of H.R.2472
(introduced by Mr. Curt Weldon, R-PA) a bill to reform Davis-Bacon; however,
the leadership of this committee has not allowed the bill to come up for committee
consideration. Why? A letter written and widely disseminated by Mr. Souder of
Indiana may hold the answer.
On October 12, 1995 and on February 9, 1996 Congressman Mark Souder,
159
Indiana-4th District, sent the following letter to contractors and others: (excerpts
from the October 12, 1995 letter follow. Full text of February 9, 1996 is
attached.)
October 12, 1995
Mr. Rick Cowley
Mechanical Services & Systems, Inc.
7021 South 400 West
Midvale,Ut 84047-1032 •• , • •
Dear Mr. Cowley:
With your help, you and I can save American taxpayers billions of dollars and end a form of
economic discrimination that costs Americans some 200,00 jobs annually.
How?
By repealing the five decade old Davis-Bacon Act, a law that effectively bars non-union
employees from working on most government construction projects.
For more than 60 years, all Americans have suffered under this law.
Honest Businessmen and women who refuse to force their employees into unions have been
denied federal contracts they've rightfully earned.
Their employees have been deprived work of they're fully qualified to do, and the American
taxpayer has paid literally billions in inflated costs over the years
Now, you and I have chance to end this unjust, corrupt and costlv system by repealing the Davis-
Bacon Act.
But to have a chance of repealing Davis-Bacon, I will need to rally the American people to our
cause.
And your pledge of $500, $100, $75 or $50 to the Free Enterprise Institute will help pay for the
Committee's campaign
. These are vicious distortions of the truth. How can the Republican
majority defend this ? The original authors of this law, both Davis and
160
Bacon were Republicans fighting to maintain decent standards of living for
middle-class Americans.
t
THIS IS ONLY THE "TIP OF THE ICEBERG"; THERE IS
FRAUD, DECEPTION AND COLLUSION ORCHESTRATED BY
ZEALOTS WILLING TO DO ANYTHING TO DESTROY WORKER
PROTECTIONS AND RIGHTS.
Mark Souder
Indiana - 4ih District
161
United States Congressman
Washington, D.C.
February 9, 1996
Mr. David B. Norris
Den Management Co. Inc.
4053 Navajo Ln.
Wichita, KS 67210-1542
Dear Mr. Norris:
With your help, you and I can save American taxpayers
billions of dollars and end a form of economic discrimination
that costs Americana some 200,000 jobs annually.
By repealing the five decade old Davis -Bacon Act, a law that
effectively bars non -nirinp f>Tn ployees from working on most
government construction projects.
For more than 60 years, all Americans have suffered under
this law.
Honest businessmen and women who refuse to force their
employees into unions have been denied federal contracts they've
rightfully earned.
Their employees have been deprived work they're fully
qualified to do, and the American taxpayer has paid literally
billions in inflated construction costs over the years.
Now, vou and I have a chance to end this unjust, corrupt and
costly system bv r epealing the Davis -Bacon Act.
1 am totally behind the effort to pass the Davis -Bacon
Repeal Bill (H.R. 500/S.141) in this Congress, but I need your
help - - today .
I urgently need vou to sign - - and return to me right away
- - special petitions prepared for you by the Committee to Repeal
Davis -Bacon, a project of the Free Enterprise Institute. The
Committee is a new coalition of employers and employees,
dedicated to returning fairness and fiscal sanity to federal
contracting.
Our goal is to deliver a minimum of 1,000,000 petitions to
NOT CRlNTSn r»-. MAII.lii) AT OOV'A?
162
Page 2
Congress .
Th;tr. means vou must act imm ediately.
Will you join with me in this great coalition of Americans
united in their desire to rid this nation of one of the most
discriminatory, destructive and costly laws ever enacted by
Congreas?
Congress must know that Americans want to restore free and
fair cornpetitive bidding on government construction projects.
Por f^o long, union officials have treated the federal
construction budget as if it was their own private slush fund.
By repealing Davis Bacon, you and I will:
*♦* Protect consumers and taxpayers , who ultimately pay Che
price when union officials shut down vital federal
construction projects with strikes or jack up the cost of
construction with their "hate-the-boss" propaganda,
senseless work rules and work slowdowns.
♦♦♦ Return common sen se and sound budgeting to federal
contracting , which is now rife with political favoritism and
cronyism costing taxpayers billions of dollars.
♦*♦ Bnd widescale discrimination against independent contractors
and their employees, which shuts hundreds of thousands of
workers out of jobs and denies contracts to the 8 out of 10
contractors that don't force their employees to pay union
dues.
But to have anv chance of repealing Davis-Bacon. I will need
to rally the American oeoole to our cause.
That means you and I need to build massive nationwide
support among America's independent contractors, their employees
and their customers.
And that's where you can help.
By signing the petitions prepared for you bf the Committee
to Repeal Davis Bacon, you will give me the backing I need to
force a Davis-Bacon Repeal Bill to the floor of Congress for a
public vote. *
And your pledge of $500, $100, $75 or $50 to the Free
Enterprise Institute will help pay for the Committee's campaign
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Page 3
to rally employees, einployers, taxpayers and consumers behind the
drive to repeal this misguided and discriminatory law.
The Free Enterprise Institute is behind me lOO percent. But
I need the help of patriotic Americans like you - today.
The Big Labor political machine will be kicked into high
gear in an effort to preserve one of the juiciest perks ever
handed to union bosses by Washington politicians.
But we can overcome this obstruction - if we deliver a
clear message to Congress that Americans want an end to Davis-
Bacon discrimination and waste.
Most Washington politicians k now this law is indefensible -
even Pre sident Clinton.
The president has cried to slow down the drive for repeal by
calking about a phony "compromise" Davis-Bacon Repeal measure
that would leave all the old discriminatory practices in place.
The fact is, every day the Davis-Bacon Act stays on the
books, Americans pay - in lost jobs, lost opportunities and tax-
boosting cost overruns on federal construction projects.
And for what? So Washington politicians can feather the
nests of the powerful union officials they depend on for election
and re-election.
Davis-Bacon was crafted as a political payoff for union
officials who had only one goal - to keep c ertain Americans from
working .
Over the years, union bosses have used the law to shut out
anyone who could out ccxnpece them - that includes contractors
who don't force their workers to pay union dues, upstart
businesses with low overhead and operating costs and, frequently,
companies owned by minorities.
Davis-Bacon is federally-mandated discrimination against
independent workers. Pure and simple.
Now, after 65 years on the books, the massivfe federal
construction budget is Che private domain of powerful union
officials and a few fat cac contractors willing t» sell out the
rights of their employees.
That's left the small, independent contractor out in the
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It has also destroyed countless opportunities for new
businesses.
Under Davis-Bacon, many fledgling enterprises, looking to
land even a small government contract and establish their
businesses, can't get a foot in the door.
They simply don't have a staff of lawyers and accountants to
fill out the mountain of Davis-Bacon paperwork required to bid on
a contract .
In fact, experts estimate that simply complying with Davis-
Bacon regulations alone costs contractors nearly $200 million a
year,
Clearlv. the time has come to rid this country of the dead
weight of Davis -Bacon.
In this highly competitive global economy, we cannot afford
a system that penalizes the most efficient companies and crushes
the dreams of the most willing workers.
You and I can and must repeal Davis -Bacon. But we must act
today .
Please, sign and return to me as soon as possible the
enclosed petitions urging your congressman and senators to vote
for the Davis-Bacon Repeal Bill (H.R. 500/S. 141).
And Please send alo ng vour most generous contribution
possible .
Some Americans are so fed up with years of Davis -Bacon waste
and abuse that they've sent $500, $1000 and more to help the Free
Enterprise Institute.
Others have sent $50 and $75.
Your contribution - whether it's $1000, $500, $200, $iO0 or
$75 - will help pay for the mailings, phone bank;^, advertising
and other efforts needed to generate grassroots support for the
Davis -Bacon Repeal Bill.
Through every means possible - mass mailings, briefings for
local and national media and. if possible, nationwide television,
radio and newspaper advertising - the Committee to Repeal Davis
Bacon will need to organize and sustain intense public pressure
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Page 5
on Congress to repeal the Davis -Bacon Act.
As Z said, our goal is to deliver a minimum of one million
petitions to Congress.
Thia wgn't b< easy
But by contributing $75, $100, $200 or more, you will give
the Free Enterprise Institute the wherewithal to meet this
ambitious goal. I hope you will send at least $50.
Only with your help can we build enough popular support to
end a system that is patently unfair, wildly inefficient and
grossly discriminatory.
To do that we will have to rally thousands of America's
en^loyers, en?>loyees, consumers and taxpayers to our cause •- by
phone, by mail, by any means necessary.
And y^ must act right away.
The union bosses won't hesitate to spend whatever it takes
to retain their Davis -Bacon privileges.
Your contribution of $1000, $500, $200 or $100 is essential
if we are going to overcome Big Labor obstruction and end 60
years of discrimination against America's independent contractors
and their enployees.
So, please, return your petitions today, and send along your
most generous contribution possible.
Mark Souder
U.S. Congressman