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BOSTON PUBLIC LIBRARY

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DEPARTMENT OF COMMERCE

OFFICE OF NATIONAL RECOVERY ADMINISTRATION

DIVISION OF REVIEW

WORK MATERIALS

No. 26

POSSIBILITY OF GOVERNMENT CONTRACT PROVISIONS
AS A MEANS OF ESTABLISHING ECONOMIC STANDARDS

Prepared by
JAMES W. IRWIN

+1411'

/

January, 1936

CONFIDE KTIAL

IvIEMOMNDUM TO:
SUBJECT:

SECTION HEADS

WOEZ I1A.TERIALS ilO . 26

January 24,
19 3 6

POSSIBILITY OF GOVEENJ/IENT CON-
TSACT PROVISIONS AS A MEAl^Tg OF
ISTABLISHING ECONOMIC STANDARDS

This preliminary draft on POSSIBILITY OF GOVEHNlviSNT
CONTRACT PROVISIONS AS A i.lEANS OF ESTABLISHING ECONOMIC
STANDARDS by Jarnes T7« Irwin is made available for con-
fidential use within the Division of Review hecause of
its usefulness in connection with other studies.

It is a preliminary draft — an exploration of the
field as a "basis for further work. It is not presented
as a fully rounded treatment of the subject.

L. C. Marshall
Director, Division of Review

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TABLE OF COKTEKTS

Page

foreword 1

I . Introductor:/- and Summary S

1 1 . The Sitiiation in Absence of Legislation 3

III . Review of Sulinc^s 4

I V . Constitutionality 5

V . Desirability of the Flan 7

VI . Must Congress Fix the Standards? 9

VII. Executive Discretion. , 15

AUTHORITIES

Atkin V. Kansas, 191 U.S. 207, 48 L- Ed. 148 6,10

Attorney General G'Dinion, 19 - 685 4

I' " * " 28-254 4

I' " " 28-389 4

Bacon-Davi s Act of 1931 7

Com. v.. Baetty, 15 Pa,. Superior Ct, 5 6

Com. V. Hamilton Mfg. Co., 120 Mass. 383... 6

Comiotroller Gen. Opinion, A-50815 4

" I' " A-47742 4

" " 'I A-52382 4

'I " " A- 34106 4

" " I' A-35G79 4

" " I' A-63153 4,5

Connolly V. General Construction Co., 269 U.S. 385 11

Constitution, 14th Amendment 6,7

Director of Procurement , Circular No. 100 5

Eight-hour Law of 1912 6,7

Ellis V. United States,. 206 U.S. 246, 51 L. Ed. 1047 6,7

Emergency Relief Construction Act of 1932 7

Executive Order Ko. 6246 2,4

" " No. 6646 2,4

risk V. People, 58 lI.E. 958, 52 L.R.A. 291 , 6

Holden v. Hardy, 37 L.R.A. 103, 46 Pac. 756, 169 U.S. 366 6

Low V. Rees Ptg. Co., 59 N.¥. 362, 24 L.R.A. 702 6

Morgan, 26 Colo, 415, 58 Pac. 1071, 47 L.R.A. 52 6

National Ass'n. of Mfgrs. Statement 7,10,15

People V. Lochner, 177 N.Y. 145, 69 N.E. 373 6

Relief Appropriation Act 7

Richie v.' State, 155 111. 98, 29 L.R.A. 79, 40 N.E. 452 6

Schechter Poultry Corp. v. United States, (May 27, 1935)

55 Sup. Ct. 837 4

Section 3709, R. S 3,12

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TA3LE OF COIItEHTS (Cont'd)

Page

Section 3947, R. S 3

Solicitor General Reed, quotation 12,13

State V. Buchanan, 29 Wash. 602, 70 Pac. 52, 59 L.R.A. 342.. 6

State V. McNalley, 21 So. 27, 36 L.R.A. 533 6

23 Stat. 204 3

34 Stat. 835 3

Ten-hour Law for Street Railway Corporations, 54 Atl,

602, 61 L.R.A. 612 6

United States v. Bradley, 9 L. Sd. 448, 10 Peters 341 14

W. B. & T. Ra,ilway Co., v. G-ilmore, 8 Ohio C. C. 658 6

Wenhem V. State, 91 N.TT. 421, 58 L.R.A. 825 6

326

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FOEE'ffOilD

Tills report on the Possibility of Government Contract
Provisions as a Means of Establishing Proper Sconomic Standards,
was prepared "by Mr. James W. Irwin as a study of the Legal Research
Section; Mr. George W. Zretzinger, Jr., in charge.

Prepa.ration of the memorandiim was begun at about the time
of the ad j OLirnme nt of the first session of the 74th Congress, at
vriiich time the Y?alsh Governraent Contract Bill was a very live end
controversial topic. The assignment of the subject of the memo-
randi^j:: did not by any means limit its scope to consideration of the
Ualsh Bill, nor indeed refer to it. However, it vifill be observed
■that this particular proposed enactment figures largely in the
memorandum, as would naturally follow from the fact that it was the

practical legislative along the lines assigned for speculative

/
discussion in the memorandum.

Some opinions are exnressed in the following memorandum,
as on the problem of T/hether in the application of a plan of govern-
mental contractual requirements as to wage and hour standards it '
would be necessary that the standards be legislative, as to which
others may not agree. However the writer of the memorandum has
carefvlly revised it to omit discussion of policy; and the only
opinions expressed are as to law and authority.-

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LBOAL ]).IEMORMDUl.i OH
POSSIBILITY OF GQVEBI&iEHT CONTRACT

paovisiors as a means of establish-

IHC- PHOPEH ECOIJOMIC STyHIDAUDS

I. IHTHODUCTORY AM SUMMARY.

Tne "economic standards" to which attention is usually direct-
ed at this time in connection with proposed regulation through means
of G-overnnent contract provisions, are those pertaining to minimum
wages, maximum hours of labor and prohibition of child labor. These
are the ones treated in the Walsh Bill. But the same legal princi-
ples would apply if other economic ends were sought. In so far as
this method of regulation could be applied to wage, hour, and child
la.bor problems, it could be applied also to a wide field similar to
that covered by Executive Orders Nos» 6246 and 6646 ;oursuant to
K«I«R.A. , which were designed to impose in Government contracts the
obligation of compliance with all provisions of applicable codes of
fair competition.

Ttie Walsh Bill, it may be mentioned, after having been passed
bjr the Senate at the last session, now reposes with the Judiciary Com-
mittee of the House of Representatives. Those controlled by this leg-
islation would be the groups corresponding with those sought to be
reached by Executive Order 6646. Those contracting with the Govern-
ment or its agencies to furnish construction, supplies, property and
"sei'vices, except professional services," and those contracting for
the loan or grant of money from the Government or its agencies, to-
gether with sub-contractors entering into agreements in connection
with any of the transactions aforesaid.

Such legislation, it seems to be unanimously admitted, would be
constitutional J provided the Act establishes definite standards rather'
than leaving them to be established by administrative action. (See
Part IVj infra). On the other hand, there seems to be no disposition
anyivhere to contend that the Government has the right to require con-
tractual provisions along the line referred to above, until this ha.s
been a^ithorized by new legislation. (See Part II, following).

But to the writer of this memoranduiii, it seems that the proviso
in the preceding para.graph to the effect that the standards are to be
fixed by legislative action, is 'unnecessary, and that Congress could
leave the fixing of standards entirely to administrative determination,
(see Part VI),

This memorandum further asserts the belief that such legislation
would not only be valid (Part IV) , but if there is to be any govern-
mental approach to the -oroblems of ?fages, hours, and child labor
prohibition, it would be worthy of consideration as practicable and
effective. (See Part V).

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II. THE SITUATION IM JIBSEI^'CE OF L3GISLATI0N.

Preliminary to the considera,tion of the legality/- and desirahility
of the viroposed legislation, the question might present itself as to
whether, in the absence of Congressional action, it is legally possihle
for the Government to require provisions in its contracts fixing
economic standards for employees of the other contracting party. It
seems tha.t an authoritative a,nswer has been given in the negative. The
C-overniuent cannot, in its contracts, insist upon -oroper economic
standards in the production or furnishing of the articles, su"oplies or
services contracted for by the G-overnment; because the Government must
award its contract, regardless of any conflicting consideration of
economics, policies, or ethics, to the "lowest responsible bidder,"
03iis is because of Section 3709, R. S., which is as follows:

"Except as otherwise provided by law all purchases and
contracts for supplies or services in any of the depart-
ments of the Government and purchases of Indian supplies,
except for personal services, shall be made Idj advertis-
ing a sufficient time previously for proposals respect-
ing the same, when the public exigencies do not require the
the imradediate delivery of the articles, or performance
of the service. When im.mediate delivery or performance
is required by the public exigency, the articles or
service required may be procured by open purchase of con-
tract, at the places and in the manner in which such
articles are usually bought and sold, or such services
engaged, between individuals,"

This statute does not say that the bids must be let to the "lov7est
responsible bidder". The omission is more conspicuous because that
express requirement does appear in some of the special statutes.

For instance, 23 Stat, 204 (41 U. S, C. A. Sec, 24) provides

tliat:

"Ylhenever it is practicable contracts for the trans-
portation of moneys, bullion, coin, notes, bonds, and
other sfcc-'orities of the United States, and paper shall

be let to the lowest responsible bidder therefor, *
* * * * It

Also, 34 Stat. 855 declares that:

"Purchases of material and equipment for use in the
construction of the Panama Canal shall be *******
from the lowest bidder".

Section 3947 R. S. (amended by Act of May 18, 1916) requires that all
contracts for carrying the mail shall be let "to the lowest bidder ten-
dering sufficient guarantees for faithful performajice".

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But, apparently, it is too late to argue that Section 3709 meajis
only what it literally says. It would seem that the interpretation
of this section vhich requires awards to go to the lo'vest res'oonsihle
hidder has "been definitely/ established, and that this interpretation
cannot now "be questioned?

Ill, PSVBW OF HULDiGS..

Diis mernorandttta in original form utilized several pages in dis-
cussion of opinions of the comptroller G-enerai and the Attorney;- G-eneral
which demonstrate the propositions stated in Part II (together with
slight relaxations vhireof) o

For brevity in mimeographing vie will mei'ely cite a few such
opinions, and dJ.scuss one^

Hie following will he foun.d- interesting?

19 Opnso Atty, Genera,! 685
28 " " !' 254
28 " " " 339

Opn, A-50815, Comptroller General (1934)

Opno A-47742, ^' " (1933)

C^n. A--52382s " " (1933)

Opn, A-34106, " "

0-on. A-35879, " "

An opinion whiuh ties directly into discussion of such legislation
as is the subject of this memorandum, is A-63153, dated July .1, 1933«
It T/ill he recalled that after the Schechter decision outm.oded Executive
Order 6546 (which required that parties contracting with the Govern-
ment should fvjrnish a certificate of compliance with the ap"Dlica"ble
code or with the P,xi=Ao where there was no applicable code) a new
method of meeting the situation was sought through action of an ex-
ecutive natureo The Director of Procurement issued Circular Letter Ho»'
100, to all governmental departments accustomed to enter into con-
tracts for iDroperty or services, suggesting that the;?- include in in-
vitations to bid, the following provision:

"Until such time as proper legislation may be acted
upon by Congress the Director of Procurement recommends
ths,t in lieu of the code compliance requirements stip-
ulated in Executive Order 6646 * * * all invitations
to bid for supplies, materials or construction projects
of any character, include the follovdng clause;

"'Bids are recj^uested on the basis that if sub-
sequent legislation should require observance
of minimum wages and or maximum hours of em-
ployment and or limitations as to age of em-
ployees, in the performance of governm.ent con-
tracts, any contract entered into shall be
subject to modification in accordance with its

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statutory requirements to the extent authorized
or required ty law * * *in^

Circular Letter No, 100 further suggested in regard to pending pro-
posals, on v/hich the awards had not lie en 'made that if the accepta'ble
bidder would not agree to- the inclusion of the foregoing condition
in its contract, "new proposals should he issued". The Director of
the Veterans' Bureau requested from the Comptroller General an opinion
as to his right to reject a hid on the ground that the hidder had
declined to agree to the foregoing stipijlation respecting observance
of future legislation. The Comptroller General in Opinion A-63153,
July 1, 1935, rule;l that the "bidder could not be held prejudiced by
his refusal to made the requested stipulation; stating the requirement
for such a condition would be in conflict with Congressional Policy
that contracts be let to the lowest responsible bidder as said policy
was asserted to be established by Section 3709*

It is interesting to note, as appears from the foregoing opinion,
that The Director of Procurement had submitted Circular Letter No«
100 to the Comptroller General before it had been circolated and re-
quested an opinion as to the form of the instrument and as to whether
the requested agreement would be enforceable. The Comptroller General
had approved the form of the letter and had answered the question
stated in the affirmative, Aoparently, he was not asked by the Di-
rector of Procurement to pass upon, and did not express an opinion,
whether the proposed agreement coiild be required as a condition to
awarding a contract.

The status of the ria,tter then is, that a request can be made of
a bidder that he agree to the desired labor standards, but no dis-
crimination can be made between those bidders who do and those who do
not comply with the request. Therefore, to all practical intents and
purposes no such contractual provisions are legally possible under
the Comptroller General's r-'oling until express legislative authority
is extended,

IV. CONSTITUTIONALITY*

As indicated by the heading of this memorandum, the assignment
required answering two questions, one as to Constitutionality, and the
other as to the desirability of the proposed legislative plan, A
categorical answer to the first question is that the law man constitu-
tionally require, in contracts of the United States or of agencies of
the United States relating to the purchase of property, construction
enterprises, furnishing of services, or lending or granting of govern-
mental funds, provisions which bind the second contracting party ta
maintain in his or its business specified economic standards, and to
demand that the same standards be set up by those contracting with
said parties in respect to the subject matter involved in the original
contract with the United States or its agencies.

It may be safely assumed that the foregoing statement will not
be questioned from any responsible source. In making so confident an
assertion, it is to be borne in mind that thq., question does not d3.re-ct.ly

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involve the problem of legislative limita,tions of wages, hoirrs, or
child labor in general industry. As to v/orkers in general industry
engaged in hazardous occupations or in occupations \7here public safety
is involved it i s generally held that such legislation enacted "oj the
states is constitutional. Kolden v. Hardy, (Utali) 57 L. R. A. 103,
46 Pac. 756, affirmed (1898) 169 U.S. 366; ff, E, &. T. Railway Co.,, v,
Gilmore, 8 Ohio C. C. 658; re Ten-hour Law for Street Railway Corpora-*
tions, (R. I. (1902) 54 Atl, 602, 61 L. H. A. 612; People v. Lochner,
177 N. Y, 145, 69 1. E. 373, * But even here there is conflicting

* Hiis case vas reversed in the United States Supreme Court, 198 U. S»
45; but on the theory that there is nothing distinctive about the
work of a baker which justified special regulation.

authority. Re Eight-hour law, (1895)21, Colo. 29, 39 Pac, 328.:; re, ^lorgan
(1899), 26 Colo. 415, 58 Pac. 1071, 47 L. R. A. 52, AlbO as to \70men
and children such legislation by the states is generally held con-
stitutional. Com. V. Hamilton Mfg. Co», 120 Mass. 383; Com, v, Baetty,
15 Pa. Superior Ct. 5; States v. Buchanan . (1902) 29 Wash. 602, 70
Pac. 52, 59 L, R. A, 342; Yfenhem v-. State, (Nebr, 1902) 91 N. W. 421,
58 L, R. A. 825. The minority view on this phase of the labor question
is stated in Richie v. State. (1395) 155 111. 98, 29 L. R. A. 79 , 40
N. E, 4-52. IfThere the limitation is general, there have been a number
of cases which have held such laws passed by the states to be -oncon-
stitiitional. Law v. Rees Ptg. Co.. (Nebr. — 1874) 59 I, "J. 362; 24
L. R. A. 702; Pisk v. People (111. — 1900) 58 N, E. 958, 52 L. R. A.
291; State v. McUalley, '(la. — 1895) 21 So. 27, 35 L. R. A. 533.

However, the question before us pertains to limitations on gov-
ernmental enterprises and the constitutionalitj'- of such legislation
is affirmed by Atkin v. Kansas. (1903) 191 U.S. 207, 48 L. Ed. 148 and
Bllis V. United States. (1907) 206 U. S. 246, 51 L. Ed. 1047.

The first-named case involved the validity under the Constitution,
of the United States of the stp.tute of Kansas which limited to eight
hours the day's work for all persons employed by the state or any of
its sub-divisions, or employed by contractors or sub-contrs.ctors in
execution of any contract for the state or its sub-divisions. The
Court held that the freedom to contract guaranteed by the Fourteenth
Ai'-iendment to the United States Constitution was not infringed by the
aforesaid statute. In the opinion we read:

"It may be tiiat the state in enacting the statute, in-
tended to give its sanction to the view * * * that the
restriction of a day's work to that number of hours would
promote morality, improve the physical and intellectual
condition of laborers bjiA. workmen, and enable them to
develop to discharge the duties appertaining to citizen-
ship. 'Je have no occasion here to consider these questions
* * * or * * * . '.7e can imagine no possible ground to
dispute the power of the state to declare that no one
undertaking work for it or for one of its municipal
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agencies slioiald permit or require an eiiployee on such work
to labor in excess of eight ho-uTs each da;'' * * *. On the
contrary, it "belongs to the state, as a guardian and trustee
for its people, and having control of its affairs, to pre-
scrihe the conditions uiDon which it will permit puhlic work
to "be done on its "behalf, or on "behalf of its municipalities".

The Ellis Case, atove cited, sustained the eight-hour law of August 1,
1892, oeing Chapter 352, 27 Stat. A. L, 340, which applied to la'borers and
mechaiiics en'Tloyed "by the United States, the District of Colua"bia, or an;'-
contractor or su"b-contractor upon any of the pu"blic works of the "United
.States or the District. The Court said:

"The contention that the Act is unconstitutional is not
frivolous, since it ma;.'" he argaed that there are relevant
distinctions "between the power of the United States and.
tliat of a state. But the argxunents naturall;.'" urged against
such a statute apply eqi-'iill;'' for the most part to the two
jurisdictions, and are answered, so far as a state is con-
cerned, "by Atkin v. Kansas * * *. TJe see. no reason to deny
to the United Sta,tes the power thiis esta"kilished for the
states. Like the states it ma;'' sanction the requirements
made of contractors em"olo;'-ed upon its pu"blic works "by penal-
ties in case those requirements are not fiolfilled. "

In the statement of the ITational Association of Maniifactiarers filed
with the Senate Committee on Education and La'bor in opposition to the Ualsh
Bill, the following admission was made:

"V/e recognize the complete authorit;'' of Congress to de-
termine the conditions -under which Government contracts
will he graiited and pu"blic moneys loaned, granted, expend-
ed or otherwise disposed of. Me recognize that there are
few limitations upon this power. ^Te, therefore, agree ,

that Congress ma;r make it e. condition in the dish-uxsement
of pu"blic funds that the recipient shall comply with
certain standards as to wages, ho"urs and the emplojTnent of
minors. "

As to precedents for stat'ator;^ requirements for wage and ho-ui: clauses
in Government contracts may "be cited the Eight-hour law of 1912, the Bacon-.
Davis Act of 1931 requiring pa;;"ment of not less than the -orevailing wage
scale on certain pu"blic works. Section 301 A-1, Emergenc;/ Relief Construc-
tion Act of 1932, Section 206, Title II, N.I.S.A,, and the formula adopted
"b;'' Congress governing wage rates in the Relief Appropriation Act of 1933.

It ma;'' "be remarked however, that in respect to the form of the
proposed legislation there was one serious legal question involved, which
is dealt with in Part VI of this raemorand'um.

T. DESIRABILITY 0? TIE PLAN.

In considering the desirahilit;'' of the plan there iTOuLd he three
questions:

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First, is it desiraljle for the Government to "undertake 'b;'-
anjr method whatever, the regulation of economic conditions
in industr^r;

Second, if so, whether it shotild "be done now; that is, at
this session of Congress; and

Third, \7hether the particular plan under discussion in this
raemorandi-uA is a desiralale one.

Only the third question ahove stated is directly involved in this meno-
randtim.

Starting with the assui^iption tliat some form of Federal regulation
of economic conditions in industry' is to l)e attempted, then this memorandui-n
asserts tlmt the one under discussion as applied to wages, hours and pro-
hibition of child lator, would he practical, effective and desirahle. The
plan might be utilized either as a.n adj-ojict to other attacks upon this
problem or as a forerunner of other plans which might he effectuated in the
future.

The following reasons nay he asserted in support of the plan:

1. Tlie fimdanental proposition involved is the jjower of
the Government to control its own business affairs; and
this shou].d readily gain an affirmative popular response.

2. In establishing economic standards it is appropriate
that the Government should proceed by precept, before, or
at least as soon as, it does by command. It does so by
reqiiiring such standards in its own contracts.

3. The preliminarj/' iTork of framing and considering legis-
lation has already been done in connection with the
¥alsh Bill.

4. Even the opponents of the plan concede that it is not
barred by unconstitutionality.

5. If, as some assert, legislative standards are necessary
or desirable, this is not a matter of great complexity.
The;'- could be established in a variety of ways. For
instance, the last draft of the Walsh Bill set up the
standards by reference to those "as on Lla^r 26, 1935 were
specified in the codes of fair competition * * * purport-
ing to apply to their respective trades or industries,

or as was specified in the President's Reemplojonent Agree-
ment * * * where there were on I.Iay 26, 1935 no approved
codes * * *".

6. The plan has the advantage of being a voluLitarj'- one,
since nobod;^ is required to seek G-overnment contracts.

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7. If it te charged that the plan 3,ino\mts to a Government
subsidj'-, it may he answered that existing law reveals
many subsidies, including the protective tariff.

8. If it he urged that it violates the traditional policy
of Government to contract with the lowest responsible
bidder, it may answer that the oldest policy of our
Government is that of the right of its citizens to "life,
liberty and the pursuit of happiness"; and that no per-
son can be considered qtialified for the pursiiit of happi-
ness nor endowed with genuine freedom, if he is subjected
to economic oppression.

9. To the argument that indxistrial strife would be aroused
^o:f the setting up of two stands.rds of wages and hours for
the sane type of work, - namely, one for those engaged on
Government contracts, another for those in strictly
private enterprise, it may be answered that the most vio-
lent economic strife na;/ ultimately be e:apected if the
C-overnraent should continue a laissez faire policj''.

10. If it be alleged that costs to the Government will be
increased, it may be answered that increa.sed contract
costs will be compensated Ijy increased revenues from im-
proved national prosperity.

11. The resLilts of the plan wo-uld be important, if it affect-
ed onlj' narties virith contracts Trith the Government and
with the governmental agencies, together with their sub-
contractors, because of the vast rai.iifications of govern-
mental action.

12. The benefits would not be limited to those employees
engaged on Government contracts, because often, if not
generally, when a business concern accepted a Government
contra.ct, it would realize the impracticabilit;'" of
maintaining two standards for its employees, and would
extend to all of them the favorable standards required
for those engaged on the Government project.

13. The inevitable tendency would be toward the general
improvement of conditions, because in businesses which
are not engaged in Governmental contract work, there
would be a tendency for the emplojrees to demand and em-
ployers to grant the standards for which Government con-
tracts .would furnish conspicxious examples.

"71. IFJST COIIGKaSS FIX TUB STAIIDABDS?

The Tlalsh 3ill (Senate Bill 3055) as originally proposed to Congress
provided that Government contracts should contain provisions that "all
persons while engaged in the carr^.^ing out of the contract will be paid not
less than such minimtim wages, and employed not to exceed siich maximum hours,

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as shall Ije designated specifically or ty reference in the invitation to
hid, and that no person under 16 years of age * * * * "be employed," Thus
it was contemplated that Congress state the standards as to child lahor,
hut otherwise left the standards to administrative action. But in the
revised draft of the bill the standards were legislatively fixed in the
manner already set forth in Part V (5), in so far as may pertain to
articles manufactured subsequently to the effective date of the Act and
prior to letting of the contract, and setting up a special formula by
which the standards should be fixed as to work done after awarding the
contract.

It can only be surmised whether the sponsors of the legislation
ma6.e this change merely as a matter of policy, or whether they considered
it necessary to insure constitutionality. An attack upon the constitu-
tlona,lity of this feature of the Act as originally drawn had been leveled.
The national Association of Ma,nufacturers in opposing the bill had stated
(see proceedings before Senate Committee on Education and Labor)!

"The measure, therefore, contains practically the identical
defects of the code-making provisions of the National Indus--
trial Recovery Act which were invalidated in the Schechter
poultry decision, since there is no standard whatever to
guide the president in the determination of the wages and
hours to be imposed. There is no le.^al distinction between a
delegation of authority in the field of Government contract
and a delegation generally, as was done in the Eecovery Act,"

So far as the record shows, in the proceedings incident to formula-
ing the Walsh Bill, this idea that "legislative standards" were necessary,
was asserted by some and tacitly accepted by others. However, the writer
of this memorandum desires to raise a very definite question of the correct-
ness of that view.

It seems cbvious, in spite of the statement of the National Associa-
tion of Manufacturers (above quoted), that there _is '^legal distiction
between a delegation of authority in the field of G-overnment contract
and a delegation generally as is done in the Eecovery Act, "

It is the distinction between the right of the Government to say
whether and on what conditions it will deal with "X" in a governmental
transaction, and the right of the Government to say on what conditions
"X" and "Y" shall deal bet'-reen themselves in a private transaction,

Atkin V, Kansas, 191 TJ, S, 2C7, (referred to in part IT of this memo-
randum) authoritatively points the "legal distinction," and it seems to the
writer authoritatively lays the predicate for answer to the query whether
the standards must be legislative, Te quote:

"* * * * whatever may have been the motives controlling the
enactment of the statute in question, we can imagine no possible
ground to dispute the power of the state to declare that no
undertaking work for it or for one of its municipal agencies
should permit or require an employee on such work to labor in
excess of eight hours each day * * *, jt caniot be deemed a

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part of the liberty of any contractor that he he permitted to
do public work in a mode he may choose to adopt without regard
to the wishes of the state." (underscoring represents italics
hy the Court),

Eules concerning delegation of power and legislative standards in
such cases as the Schechter decision, which concern attempts by the
Government to regulate by statute business transactions to which it is
not a party, are not authorities on the question of the method by which
Government shall make contracts regarding its own business.

If we were to seek for a case to lend color to the contention that
the standards of Government contracts must be set by legislative action,
probably the most nearly applicable case would be Connolly v. Ge-neral
Construction Company, 269 U. S. 385, which seems to have been perhaps
the chief case relied on before the Senate Committee to establish the
necessity of legislative standards. Yet, when thoughtfully examined,
this case is no authority for such contention.

It was an action in v/hich the Construction Company sought to restrain
Strte and County officials of Oklahoma from enforcing a state statute
which declared it a criminal offense for any contractor or sub-contractor
engaged on.a state project to paylt-ss than the "current rate of pay in
the locality where the work is performed." The Court held the law in-
valid (though Justices Holmes and Brandeis did not assent to this)
stating:

"We are of the opinion that this provision presents a double
uncertainty, fatal to its validity as a criminal statute. In
the first placo the words 'current rate of wages' do not
denote a specific or definite sum, but minimum, maximum and
intermediate amounts, indeterminately, varying from time to
time and dependent upon the class and k±nd of work done,* * *,
* * * *to direct the payment of an amount which shall not be
less than one of several different amounts, without saying ,
which, is to leave the question of what is meant incapable of
any definite answer,

"In the second place additional obscurity is imparted to the
st.-^.tute by the use of the qualifying word 'locality,' Who
can say with any degree of accuracy, what areas constitute
the locality where a given piece of work is being done,"

It is to be noted that the Oklahoma case concerned a criminal statute,
where a rule of strict construction applies. As the Court said (Page
393):

"The citizen cannot be held to answer charges based upon penal
statutes whose m.andates are so uncertain that they will reason-
ably admit of different construction. A criminal statute cannot
rest upon an uncertain foundation. The crime, a,nd the elem.ents
constituting it, must be so clearly expressed that the ordinary
person can intelligently chocs'^ in advance what course it is lawful

9526

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for him to pursue, penal statutes prohibiting the doing of
certain things and providing a punishment, should not admit
of such a double meaning that the citizen may act upon the
one conception of its requirements and the Court upon another, "

Certainly when the Legislature undert-.kes to declare it a crime
not to pay adequate wa^i^ss^it must specify a standard of adequate \7ages.
This has no hea.ring on whether it may permit an exec^^tive agency to
refuse to contract with a firm which the executive agency determines to
its otm satisfaction is not paying adequate wages.

Furthermore, if the legislative department undertakes to set standards
they must be understandable. It does not necessarily follo^v that it must
set standards at all.

Is the purcha,se of a gross of pencils, or an automobile, or a gun
boat, or selecting a building contractor, a legislative or an executive
matter? The writer will not venture a categorical answer, Of course,
Congress can step in and control any of these matters, just as it could
control whether employees of IvT.R.A. shall begin work at 8:00 or 9:00
A. M, , or any other matter of routine executive action; but until it
does so, the executive branch is free to act according to its own dis-
cretion,

Fny does the Executive Department have to advertise before awarding
a contract? Because Section 5709 R. S. requires it.

Why must the Executive Department award the contract to the lowest
responsible bidder? Because Section 3709 requires it, (or at lea,st the
Attorney G-eneral and Comptroller General and two or more inferior courts
ha-ve so interpreted that section).

Why cannot the Esrecative Department award contracts to whomsoever in
their discretion is best entitled to them? Only because of Section 3709,

Therefore, if Congress will in any way relax the bar of Section 3709,
couJLd not an Exec itive Department, in its discretion, award its contracts
only to those firms which, by way of illustration, maintain a thirty-hour
week? Congress might relax the bar by the simple expedient of saying
(in effect) that governmental agencies may include in their contracts,
provisions governing the hours and wages of employees engaged in executing
those contracts.

During the examination of Solicitor G-eneral Stanley Reed before the
Sena.te Committee considering the Walsh Bill, the following questions and
answers were had:

THE CHAIRIvIAK: Do you think that provision that you have
just read is delegating the power of the
Executive?

IviR, REED: 510, we do not think the question of delega-
tion arises in this type of act,

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THS CHAIRMAN: I agree with you. You say it did not?

ME. ESED: It is the operation of a government function
through its own Executive department, and
they act simply as agents of Congress in
spending the money.

If as Mr. Reed said, in the matter of contracts the executive
agencies "act simply as agents of Congress in spending money, " it might
logicpILly be argued that they could not spend it in such a manner as to
seek to affect collateral purposes not in the mind of Congress,

Are they "simply agents of Congress"? Or are they performing duties
of the Executive Branch in the matter of making contracts? It would seem
to "be only by analogy that they are referred to as "agents of Congress",
although it is true they are acting administratively to carry out plans
which Congress has authorized and for which it has supplied the funds.

Let us carry the analogy further. If it be agency, a principal may
permit as wide a scope of authority as he desires to his agent.

Of course Congress cannot commit legislative authority to an "agent".
But to refer to making government contracts as a "legislative" matter is
begging the question. It is an "administrative" matter. But if forced
to say either that it is a "legislative" or an "executive" function, the
writer of this memorandum would choose the latter term,

Edward S. Corwin, Professor of Jurisprudence in Princeton, in his
book "The Twilight of the Supreme Court" (1934), (at page 133), gives an
e:-pansive view of the field of executive authority:

"Executive power is residual power — it is what is left of
the original competence of government after the relatively
specialized functions of legislation and adjudicatiore have
been substracted therefrom,"

It would appear to be in line with the foregoing idea to say that the
formulation of contracts is such a power of "original competence", except
so far as restricted by legislative enactment.

The same author says further (p. 136):

"So also, it early became necessary to attribute to the
United States certain corpora,te capacities, the right to
sue and be sued, the right to enter into contra.cts, the
right to ask the courts to ce^ncel fraudulent contracts,
and so on and so forth; and invariably the custodian of
such capacities was held to be the executive departments. "
(underscoring inserted)

The following citations were given: (Note 03, p. 221)

"See 3 Wheat. 172 (1818); 5 Pet. 115 (1831); 10 Pet, 343
(1836); 15 pet. 290 (1841); 104 TJ. S, 444 (1881); 125 U, S.

9526

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The question may well "be raised whether the authority thus delegated
to the President, is not as suhjectto attack as ?rould have been a delega^
tion of power to fix the standards in the first place. If one delegation
would oe invalid, would not the other "be likewise Invalid?

VII. EXECUTIVE PISCHETION.

In spite of the apparent effort in the Walsh Bill to set up legislar-
tive standards, they remain essentially of an administrative nature. Of
necessity, this would he true, as was partially recognized "by Mr, Gei-ll,
who appared for the National Association of Manufacturers in opposition
to the legislation "'oefore the Senate committee.

He claimed, referring to the "bill in its original form (p. 28 of the
Proceedings at the Committee Hearing):

"It is our opinion, therefore, that the Bill, as now drafted,
is invalid, and that it must necessarily "be redrafted so that
the Congress itself will supply standards for the application
of the provisions with respect to minimum wages and maximum
hoiirs. The "bill as it now stands provides no standards whatever
"but it would "be possi"ble under the measure, as now drafted,
for any minimum wages and maximum hours to "be fixed; for
different minimum wages and maximum hours to "be fixed "by one
agency from those fixed "by another for similar classes of work;
or for this vague authority to "be so utilized as to give execu-
tive agencies an unnecessary and unwise control over the various
industries through their power to condition proper wage and
hour requirements on the assent of particular industries to
other policies of the same agencies in no way connected with
the contracts, purchases, loans or grants in question."

But he conceded (p. 32 of the Proceedings at the Committee Hearing):

"¥e do not contend that Congress must fix the exact wages '

to "be paid or the exact number of hours to "be worked. Indeed,

we think it would "be very unwise for Congress to undertake

to lay do\'m any rigid rules to "be applied under all conditions

throughout all the industries of the United States, and to

all the persons covered within the generous terms of the

pending "bill, "

The re-drafted Walsh Bill seems to comply with the Gall suggestions.
Yet, analysis shows the legislative standards are shadowy and Executive
authority the su"bstance of the proposed regulations.

As already pointed out in this memorandum, Congress adopted, "by a
reference, the standards of the codes of fair competiUoon and the PRA,
for the guidance of industry until advised in an invitation for "Dids as
to the standards to "be required in future operations. These future
standa^rds are to he set "by the president, or by those to whom he xna-Y,
under Section 10 of the bill, delegate the authority so to do. It is
the dLity of the president, or of his representatives, in establishing
these ste.ndards, to consider four yardsticks: (a) the cost of living;

9526

- 16 -

(b) ercisting local standards; (c) standards in effect d-uring the year
1954; (d) KM standards in effect on May 26, 1935. But these standards
are so elastic that the Executive Department nay stretch or contract
them as it sees fit, attaching as much or as little importance to each as
it may desire.

The extreme of Executive authority is reached in Section 6, which
provides, inter alia,

"The president may provide reasonable limitations and
ma3r make rules and regulations allowing reasonable violations,
tolerances, and exemptions to and from any or all provisions
of this act on the extent of the application of this act to
contractors, sub-contractors, suppliers, borrowers, or grantees,
as hereinbefore described."

Critics of the Act might say,- without being entirely illogical, tlmt
this section gives the President pO'-'er, in practical effect, to amend
and su-spend the Act Q,t will, since there is in the foregoing provision
no limitation on the number or character of vpTiations and exemptions
which he may make, so long as they are "reasonable."

Yet '-ithout some such a wide scope of Executive discretion, thii
bill or any other effective bill for the same purposes would, this memo-
randurn asserts the opinion, be impracticable. For instance, take the
fact that Section 1 sa.ys no government contract may be "modified" unless
the other contracting party certifies to past and future com"oliance with
the applicable wage, hour and child labor standards. Assume a,n exist-
ing contract for a public building, the plans of which it became essential
to modify, or for aeroplanes, the specifications for '-^hich, on account of
some new invention, had be come obsolete. Assume that the contractor,
being tinder no obligation to comply with code standards because his con-
tract ante-dated the effective date of the Act, had continued operations
without meeting those standards. Then he could not make the required cer-
tificate of compliance, and the modifications of the contract could not •
be made, in spite of the Government's necessity. But Section 6, giving
the President povrer to make variations and exemptions, saves the situation,

Talce the fact that one submitting a bid must certify not only that
he will comply with the lare scribed standards in the fixture, but that
"since the effective date of this Act" he has comiglied with the old KBA
standards as to everything" in connection 'dth or which may be identifi-
ed as part of the subject matter of the purchase or contract." Suppose
the Government had to purchase supplies for some emergency need - say
flood relief - but suppose there were no available supplies of the re-
quired t;-pe in existence which had been manufactured in compliance with
the prescribed standards. Would the necessities of the Government hrve
to go ujisatisf ied? While this assumes an extreme state of facts, the re-
quirement of the law that the standards apply "from the date the law
tokes effect," means they would attach as to many bidders who had produc-
ed goods with no thought that they would be used in government contracts,
and consequ.ently difficult situations would be likely to arise even if
not of the magnitude of the flood relief situation we have imagined.
But Si^ction 6 saves all these situations.

9526

I
I

- 17 -

Again, consider the fact tha,t this Act applies to contracts for
loans and grants to sovereign states and to imonicipalities, imDOsing
on them the ohligation of requiring from all parties ?dth whom the;'- deal
certificates of compliance vdth the federal wage and hour standards. It
may '-^ell he presumed that some states will he found to have constitutional
provisions, or statutory provisions similar to the federal law, emhraced
in Section 3709 R, 3. (as interpreted). In such circu'^istances , negotiations
hetvreen the Federal Government and the State or its nunicipalit;?- nould he
hlocked. But this situation also is saved hy Section 6.

If then, legislation along the line of the T/alsh Bill is desire.hle
and. if (ps just stated) it is necessary to the practical working of such
a ste.tiite that wide discretion he left to the Executive hranch of the Gov-
ernment in regard to variations in standards, it may be considered fortua—
ate if the opinion of this memorandum regarding the nature of standards
is correct, Por if they need not be fixed by Congress, but may be left
to the executive department entirely or so far as policy dictates, argu-
ment against constitutionality is practically foreclosed.

James W. Irwin

ir