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BOSTON PUBLIC LIBRARY 



3 9999 06542 



6 6 



1\o 



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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Digitized by the Interhet Archive 

in 2011 with funding from 

Boston Public Library 



http://www.archive.org/details/workmaterials26unit 



T ABLE OF COKTEKTS 

Page 

foreword 1 

I . In troductor:/- and Summa ry 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. E xecutive 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, P SVBW 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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age ncies 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: 



-8- 

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, 

9526 



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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 

9526 



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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, 

9526 



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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 



-15- 

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