Featured Article: Ship Repair's Burning Question: Why (Or Why Not) Walsh-Healey?

Many government contractors in the ship construction and repair industries are familiar with the Walsh-Healey Public Contracts Act.  They understand that, unlike contracts subject to the Davis-Bacon Act and the Service Contract Act, there are no specific wage determinations for Walsh-Healey contracts. Instead, the minimum wages of the Fair Labor Standards Act apply.  Those who work on non-naval government vessels (i.e., not Navy or Coast Guard vessels) understand (or have learned) that the Davis Bacon Act or Service Contract Act, and their respective wage determinations, may apply to the work on those vessels.  Recent laws and regulations, particularly the executive orders requiring a higher minimum wage and paid sick leave for government contractor employees, have added to the confusion for those holding ship construction and repair contracts – do they or don’t they apply? (Short answer – they don’t apply if the contract falls under Walsh-Healey.)

What is least understood is the why – why is some work on some vessels covered by the Walsh-Healey Act, but the same work on other vessels covered by different wage statutes?  What is the purpose of these distinctions?  And who came up with this scheme in the first place?

The answers to these questions lie in an international treaty to limit naval shipbuilding post World War I and the United States’ efforts to recover from the Great Depression. 

1922-1931 – Washington, Japan, Davis, and Bacon

After World War I, pacifism became the fastest growing movement in the United States.[1]  The country was in the mood for disarmament, and on February 22, 1922, the U.S. joined Japan, Britain, Italy, and France in a treaty agreeing to limit the total tonnage of capital ships (large warships) that each country could build.[2]

Five years later, a lot was happening in America.  The Holland Tunnel opened in NYC; Charles Lindbergh made the first non-stop flight across the Atlantic; the first transatlantic telephone call was made; television and the Model A Ford made their debut; Babe Ruth scored a record-setting 60 home runs. The President was Calvin Coolidge, and he, like many fellow Americans, supported limitations on armaments. 

By 1927, Congress and Coolidge had allowed the Navy to drop below the tonnage amount permitted under the 1922 treaty, and the President was seeking another treaty to extend the limitation to cruisers and other smaller vessels. 

That same year, Congressman Robert L. Bacon of New York introduced a bill to require contractors on federal government construction projects to comply with state laws regulating employee wages.  The bill was, according to Bacon, prompted by a federal government project involving the construction of a Veteran’s Bureau hospital in New York.  According to the Congressman, a contractor from Alabama won the bid, and “brought in some thousand non-union laborers from Alabama into Long Island . . . . [The laborers] were housed in shacks, they were paid a very low wage . . . [which] meant that the labor conditions … were entirely upset.”[3]  Congressman Bacon’s bill, however, did not get much attention outside of New York and did not pass.[4]

Coolidge was having similar bad luck.  The other countries to the 1922 treaty were reluctant to agree to further limitations on naval vessels. Coolidge believed that the countries would not agree because the U.S. did not have sufficient political leverage.  He sought to gain that leverage through his “71 Ship Bill”, which would allow the Navy to increase shipbuilding.  The mood of Americans had not changed, however, and Coolidge was unsuccessful in getting the bill passed. 

Finally, on February 13, 1929, shortly before he left office, Coolidge was able to secure passage of a much less ambitious “15 Cruiser Bill”.[5]  Herbert Hoover entered the White House less than a month later with a Republican majority in the House.  Work had begun on five cruisers, but Hoover had no interest in extending the power of the United States Navy.  By August 1929, he had suspended work on three of the five cruisers. 

Only two months later, the stock market crashed.  The ensuing “Great Depression” saw mass unemployment, underemployment, and depressed wages.  In November 1930, the congressional elections resulted in the Republicans losing their majority in the House. 

In December 1930, President Herbert Hoover asked Congress for a $100 million public works program to generate jobs.  Because federal law required the government to award contracts to the lowest responsible bidder and because of the severe unemployment rates, contractors on the resulting public works projects paid low wages.  Many citizens complained that the scenario raised by Congressman Bacon to support his bill in 1927 was now being experienced in broader swaths of the country.  Contractors were accused of employing aliens and transporting cheap labor to jobs, thereby undermining the local labor rates. 

President Hoover first proposed addressing these complaints by adding a term to government contracts requiring contractors to maintain local wages.  Hoover was dissuaded from doing so by the Comptroller General, John McCarl, who informed Hoover that such a requirement could only be included by legislation.  Bacon’s bill was now of much more interest to Congress.[6] 

The Labor, War, and Treasury Departments together drafted a bill, which was introduced in identical form by Congressman Bacon and Senator Davis of Pennsylvania.  The law passed on March 3, 1931.  Known as the Davis-Bacon Act[7] (DBA) it required contractors to pay local wages to laborers and mechanics working on contracts for the construction, alteration, and/or repair of public buildings. 

Upon passage of the DBA, agencies began adding the requirement for the payment of local wages to government contracts for not only building construction, but for road construction and exterior painting of buildings.  The inclusion of the DBA’s requirements in contracts other than for buildings was quickly challenged.  An August 1931 decision of the Comptroller General stated, “it would seem too clear for argument that the painting of an existing public building and the construction of a road is not the ‘construction, alteration, and/or repair’ of any public building.”[8]  Thus, the application of the Davis-Bacon Act was restricted to the construction and repair of buildings.

1933-1935 – Franklin Roosevelt’s New Deal, the National Industrial Recovery Act, and Resurgence of the Navy

In 1932, Franklin Roosevelt was elected President.  As part of Roosevelt’s recovery efforts, the National Industrial Recovery Act was passed in 1933.  The NIRA[9] suspended anti-trust laws and required industry alliances and self-regulation.  A cornerstone of the NIRA was the creation by industries of "codes of fair competition" which would establish prices, wages, and production quotas.  In addition, employees were given the right to unionize.  More than 500 codes were adopted, and companies displayed an emblem to show their participation.[10]

Title II of the NIRA provided for the construction, repair, and improvements of various public works, including public highways, buildings, water power, and low cost housing.  Title II also provided for the construction of naval vessels, and addressed the wages to be paid to those employed on government construction contracts.  Specifically, the law required such wages be “just and reasonable and sufficient to provide . . . a standard of living in decency and comfort”.[11] 

Because at this time the DBA only applied to public buildings, the DBA had no impact on the wages of workers in the shipbuilding and repair industry.  In 1933, the code developed in accordance with the NIRA for that industry was approved by Roosevelt.  It limited work on government contracts to 32 hour workweeks (at $0.35 - $0.45 per hour) and required employers to pay time and one-half for hours over eight each day.  (This only applied to private shipyards, not to workers employed by Navy yards). [12]  

In 1934, Congressman Carl Vinson chaired the House Naval Affairs Committee and Claude Swanson was serving as Secretary of the Navy.  Swanson was known as a “big navy” man.  Vinson believed in “a large, balanced navy composed of surface combatants, aircraft carriers, and submarines.”  While Title II of the NIRA was a start in building up the Navy, Vinson and Swanson believed it was sufficient.  Vinson worked with Senator Alexander Trammel to get passed a bill authorizing the construction of 70 new warships over 4 years.[13]

Although Roosevelt was able to get his recovery agenda through Congress, the Supreme Court was proving to be less enamored by it.   In a 1935 unanimous decision, the Supreme Court ruled that the NIRA was unconstitutional.  The case, Schechter Poultry Corp. v. United States, involved a challenge to the constitutionality of the code system as applied to the poultry industry.  The justices unanimously agreed that the NIRA was an improper delegation of legislative powers.  The date of the decision, May 27, 1935, is referred to as “Black Monday” by U.S. Department of Labor historians.[14]

The Schechter Poultry case was followed by a series of Supreme Court decisions invalidating state and federal labor laws.  One such case, Morehead v. Tipaldo, involved a violation of the New York state minimum wage law.  When the manager of a laundry was forced to pay his workers the minimum wage, he forced the workers to kick back a portion of their pay.  The Supreme Court, by a 5-4 decision, voided his conviction under the law on the grounds that it violated his liberty of contract. 

Meanwhile back in Congress, in 1935 Senator David Walsh introduced an amendment to the Davis-Bacon Act[15] which added a requirement for the Labor Department to prepare wage determinations and overturned the 1931 Comptroller General rulings.  The amendment, which was passed by both houses, added the language currently in the DBA today, applying the statute to the “construction, alteration, and/or repair of public works” (not just buildings) and clarifying that “painting and decorating” were covered activities.

During this same time, the Department of Labor was issuing guidance on the application of the Davis-Bacon Act.  According to a Treasury Procurement Circular issued in October 1935, the Department of Labor’s positions was that the DBA did not apply to contracts involving construction or repair “of ships of other movables where the place of performance of the contract cannot be ascertained in advance of the bidding.”[16] 

1936 – The Reelection of Roosevelt and the Walsh-Healey Act

The 1935 decisions of the Supreme Court blocking progressive labor and wage reforms are credited as a significant factor in Roosevelt’s reelection in 1936.  His overwhelming victory, 523 electoral votes to his opponent’s[17] eight, was seen as resounding support for the New Deal. 

Even with Roosevelt’s landslide victory, however, the “regulation of labor standards and the use of the [constitutional] commerce powers for this purpose were considered beyond the reach of congressional action” because of the Supreme Court’s decisions in Schechter, Tipaldo, and other labor cases.[18]  But the Secretary of Labor, Frances Perkins, was not giving up easily.  Even while the fight on the constitutionality of the NIRA had been raging in the Supreme Court, she was prepared, purportedly telling Roosevelt that she had “two bills . . . locked in the lower left-hand drawer of my desk against an emergency.”[19]  The Supreme Court’s decision in Schechter proved to be the emergency. 

The first of the two bills Perkins pulled out of her drawer was based upon standards upon which the DBA was built for construction workers. [20]. This bill, the Public Contracts Act (PCA), provided for an 8-hour work day and 40-hour work week and payment of the prevailing minimum wage (established by the Secretary of Labor) on government supply contracts.  Because it was within the purview of Congress to use its purchasing power to address wages and labor conditions for workers employed on government contracts, this bill did not run afoul of Schechter. 

The PCA was introduced by Senator Walsh and Representative Arthur Healey in their respective chambers.[21]  In support of the bill, Dr. Isador Lubin, Commissioner of Labor Statistics, stated before Congress that the bill was “vital” because without it, the government would be “compelled by law to deal with the lowest responsible bidder, will be placed in the position of having to purchase its supplies from contractors who have abandoned wage and hour standards of the code [established under the NIRA] in order to undercut their competitors.”[22] 

Dr. Lubin referenced two circumstances in his remarks to highlight the problem.  He noted that a nonunion firm receiving an order for supplies from the government lowered its wages and increased hours immediately after the Supreme Court decision in Schechter.  In another case, a company that broke its contract with a union and moved to a location with “much lower conditions than normal standards” was able to obtain a government contract because it was the lowest bidder.[23]  At the time Congress passed the PCA on June 30, 1936, unemployment was at nearly 15%.[24]

By 1937, the Department of Labor issued its first “Rulings and Interpretations under the Walsh-Healey Public Contracts Act”.  The Ruling noted that “[c]ontracts for the production or repair of vessels or large floating stock are not subject to the Act. . . [but contracts for] small unregistered boats such as canoes, rowboats, and launches are contracts for the furnishing of equipment and therefore subject to the Act.”  It further explained that work to be performed at the site of installation would be a construction contract, but work performed in a shop or factory away from the site of the use, the contract was one for manufacturing.[25]

This first Ruling also established wages for the garment industry providing work garments and uniforms to the government at 37 1/2 cents per hour.    

1938 – Walsh Healey, Davis Bacon, and Carl Vinson

In January 21, 1938, the GAO was asked to determine whether a government contract for the “drydocking, cleaning, painting and repairing of the United States Lighthouse Tender Tulip” must include the Davis Bacon Act requirements.  In its decision, the GAO found that the DBA would not apply to the contract because it did not apply to contracts where the situs of the work could not be ascertained prior to bid in accordance with the DOL’s 1935 guidance on application of the DBA.[26]  In addition, the GAO noted that the 1936 PCA would not apply because that Act applied “exclusively to supply contracts.”[27]  Thus, no wage and labor law would apply to the contract.

At this same time, Roosevelt was seeking from Congress the ability to increase naval fighting tonnage.  The result was the Naval Act of 1938 (Second Vinson Act), signed into law May 7, 1938.  Section 12 of the 1938 Act added the requirement that the “construction, alteration, furnishing, or equipping” of naval vessels would be subject to the Walsh Healey Public Contracts Act.[28]  Without this inclusion, the work on naval vessels would not have been subject to any wage laws (the FLSA was not passed until June 1938[29] and the Service Contract Act did not come into being until the 1960s). 

 

Up to the Present Day

The application of the PCA to naval vessels was kept in the Naval Act of 1940, and is now codified, substantially unchanged, in 10 U.S.C. § 7299.  In its third Ruling on the interpretation of the PCA, the Department of Labor recognized the effect of the Naval Acts of 1938 and 1940.  The Ruling explained that the Naval Acts had enlarged the application of the Public Contracts Act to include “construction, alteration, furnishing or equipping of a naval vessel,” but that the statutes do not extend the jurisdiction of the Public Contract Act to each contract for construction, alteration, furnishing, or equipping of any ship. Rather, the PCA only applies to each contract for such activities when they are performed on a naval vessel.   Accordingly, these Acts would not subject to the Public Contracts Act a contract for the construction of a merchant ship let by the Maritime Administration.[30] 

Given the history of the wage laws and the Naval Acts, it makes sense that 10 U.S.C. § 7299 concerns the PCA’s application to naval vessels but not to other vessels of the government.  At the time the Naval Act of 1938 was passed, the building and repair of naval vessels would not have been subject to any wage law.  As seen with the arguments for the PCA before Congress, the Roosevelt administration and Congress were concerned that the government would be forced to contract with the contractor “whose standards are the most unjust to his employees” because the government would be compelled by law to accept the lowest bid.[31]  The Department of Labor had already established that the DBA would not apply to many contracts involving vessels because the place of performance would not be known at the time of bidding.  Thus, the PCA was the only wage statute under which the naval construction under the Naval Acts could fall.  And, it was not extended to other government vessels because the Naval Acts only concerned naval vessels. 

Wage Determinations

Today, the wage rates under the PCA are simply the minimum wage requirements under the FLSA.  After the Supreme Court invalidated the Labor Department’s methodology for determining PCA wage rates in a 1964 case, the Department issued no further wage rate determinations under the PCA.  Instead, the “prevailing minimum wage” under the PCA for all industries is currently the federal minimum wage under the FLSA.[32]  Given the requirements for wage determinations under the PCA, it is unlikely that the Secretary of Labor will seek to establish any wage rates under the PCA without a change in the law.

Davis Bacon Act, Service Contract Act, and non-naval vessels

Why the Davis Bacon Act currently applies to vessels other than naval vessels and small boats as enumerated in the Rulings is however, not as clear.  In 1935, the DOL’s position was that the DBA did not apply to construction or repair of ships where the place of performance could not be ascertained.  In 1948, the court found that employees of a private contractor “engaged in constructing cargo ships and assault troop ships for the United States Maritime Commission” were required to pay their employees working on the contract under the Fair Labor Standards Act.[33] 

In 1970, however, the DOL issued an opinion letter stating that the alteration, repair and maintenance of ships fell within the exemption from the Service Contract Act for “public works”.[34]  Apparently, prior to this the DOL had taken the position that such work was covered by the SCA.  The Opinion Letter stated that this was a “significant modification” of the DOL’s position, precipitated by“[r]ecent advice received from the Solicitor of Labor” that work on ships was not subject to the SCA because it came within the exception for work on “public works”.  Because this language in the SCA exemption mirrors the language in the Davis Bacon Act, an exemption from the SCA based upon this language suggests that the DBA would be applicable.

When the  Vincent-Trammell Act, as amended, was suspended by the Federal Acquisition Streamlining Act of 1994, the DOL advised the Department of Defense that contracts for construction, alteration, furnishing or equipping of naval vessels would be subject to the Davis-Bacon Act.  The DOL noted that marine vessels had been regarding as “public works” for the purposes of Davis Bacon Act, and without the application of the Public Contract Act to naval vessels via legislation, the DBA would apply.[35]  The DoD Authorization Act of 1996 reinstated 10 U.S.C. §7299, thereby once again bringing naval vessels within the purview of the PCA.

 

Repair v. alteration, furnishing, equipping

Questions have arisen regarding the application of the PCA to “repair” of ships versus the “construction, alteration, furnishing or equipping” of naval vessels.  The Naval Act of 1938 and all subsequent acts, including present day 10 U.S.C. § 7299 do not include the word “repair” in them.  Yet, it is most often understood that repairs of naval vessels come under the PCA.  The DOL’s Field Handbook, in explaining the exemptions under the SCA, states that “building, alteration, and repair of ships . . . is work performed upon ‘public works’” and exempted from the SCA because it is covered by the DBA.  However, the Handbook further explains that contracts for the “construction, alteration, furnishing, or equipping of a naval vessel” is exempt because it is subject to the PCA.  This same section of the Handbook states that contracts for “maintenance and/or cleaning, rather than alteration or repair of a ship or naval vessel” are governed by the SCA.[36] 

In 1989, Representative Walter Jones of North Carolina introduced a bill requiring “contracts for construction and repair of vessels owned or operated by NOAA” to be subject to the PCA  rather than the DBA in order to “provide parity between the Federal Government’s contract procedures for NOAA vessels and vessels of the Navy and Coast Guard.”  Representative Jones further noted that “[c]ontracts for the repair of vessels other than those under the authority of the Navy may be subject to the Davis Bacon Act under a 1987 interpretation by the DOL” but that the Department of Commerce had traditionally considered ship repair contracts for NOAA vessels to be subject to the PCA because they were “naval vessels.”[37] 

There are some cases, outside of the employment law context, however, that have interpreted 10 U.S.C. § 7299 as not including “repair.”  In a bid protest involving a contract for repair of a Coast Guard vessel, the Comptroller General opined that “10 U.S.C. § 7299 does not refer to ship repair and the Coast Guard does not explain why a ship repair contract should be considered to fall” under that statute.  The GAO concluded that the repair contract was one for services for purposes of the small business certification.[38] 

More recently, however, the District Court for the Northern District of California, in a case again involving a Coast Guard vessel, found that the language in 10 U.S.C. § 7299 referring to “alteration, furnishing, or equipping” could reasonably be interpreted as including repairs.[39]  And, in the Standards Industrial Classification Manual, Division D (Manufacturing) states that “[m]ost repair activities are classified as Services.  However, some repair activity such as shipbuilding and boatbuilding and repair . . . are classified as manufacturing.”[40] 

Conclusion

Living in today’s world, one could assume that the purpose of 10 U.S.C. § 7299 was to keep naval vessels from being subject to the higher wages of the Davis Bacon Act or the Service Contract Act.  In fact, the history of the various wage laws and the naval shipbuilding efforts show that the purpose was to ensure government contractors working on naval vessels were paying adequate wages and the government was not letting contracts to the “most unjust” contractors.  Changes in various laws at different times, the impact of court cases, and changes in administrations, have resulted in the status of the law as it is now.  Understanding the history and relationship of naval vessels and wage and hour laws illuminates how the peculiarities in government contracting wage rates have come to be.  Unfortunately, it does not necessarily make them easier to understand or apply.

About the Author

Dawn L. Merkle is a partner in the Government Contracts Practice Group at Willcox & Savage. She has more than ten years’ experience representing contractors in all aspects of government contracting at the state and federal level and has served as in-house counsel to a national civil construction contractor.   She can be reached at dmerkle@wilsav.com or 757-628-5606.  http://willcoxandsavage.com/attorneys/view/dawn-l.-merkle#  

 

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