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88th Congress ~ COMMITTEE PRINT
1st Session
~ ~ j~ 7
IMPACT OF DEFENSE SPENDING
ON LABOR-SURPLUS AREAS
REPORT
OF THE
SUBCOMMITTEE ON RETAILING, DISTRIBUTION,
AND MARKETING PRACTICES
TO THE
SELECT COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ON
GOVERNMENT PROGRAMS AND POLICIES AS THEY
RELATE TO THE USE OF PROCUREMENT IN
REDEVELOPING DISTRESSED AREAS
AND
A COMPILATION OF POLICY DIRECTIVES, STATUTES,
AND REGULATIONS RELATING TO PROCUREMENT
IN DISTRESSED AREAS
AUGUST 19, 1963
Printed for the use of the Coimnittee on Small Business
U.S. GOVERNMENT PRINTING OFFICE
22-101 WASHINGTON : 1963
/27f7Y~
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SELECT COMMITTEE ON SMALL BUSINESS
(Created pursuant to S. Res. 58, 81st Cong.)
88TH CONGRESS, 1ST SESSION
JOHN SPARKMAN, Alabama, Chairman
RUSSELL B. LONG, Louisiana LEVERETT SALTONSTALL, Massachusetts
HUBERT H. HUMPHREY, Minnesota JACOB K. JAVITS, New York
GEORGE A. SMATHERS, Florida JOHN SHERMAN COOPER, Kentucky
WAYNE MORSE, Oregon HUGH SCOTT, Pennsylvania
ALAN BIBLE, Nevada WINSTON L. PROUTY, Vermont
JENNINGS RANDOLPH, West Virginia NORRiS COTTON, New Hampshire
CLAIR ENGLE, California
E. L. BARTLETT, Alaska
HARRISON A. WILLIAMS, Jn., New Jersey
FRANK B. MOSS, Utah
LEwIs G. ODoR, Jr., Staff Director and qeneral Counsel
BLASI O'Co~xon, Assistant Staff Director
SUBCOMMITTEE ON RETAILING, DISTRIBUTION, AND MARKETING PRACTICES
HUBERT H. HUMPHREY, Minnesota, Chairman
WAYNE MORSE, Oregon HUGH SCOTT, Pennsylvania
HARRISON A. WILLIAMS, JR., New Jersey NORRIS COTTON, New Hampshire
FRANK E. MOSS, Utah
NEAL D. PETERSON, counsel
Dorm S. SCROENBROD, Staff Assistant
II
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PREFACE
A 10th of the Nation's productive facilities are employed in the
maintenance of national security. Seventy percent of all men and
facilities engaged in research and development in the United States
are working on Government-financed projects. Thus, the defense
effort obviously has a significant impact on the economy of the Nation.
Some of this impact has been beneficial to the civilian economy:
many innovations developed in defense work have been adapted for
use in private industry and have stimulated progress in science and
technology.
But, your subcommittee's hearings and report have shown that shifts
in defense spending from one region of the country to another have
created a significant number of our distressed areas. The cities that
received large increases in defense contracting often experienced a
resultant overload on their public facilities, housing, and labor sup-
plies, while areas which lost defense contracts sometimes encountered
exactly the opposite type of problems-labor surplus, housing sur-
plus, and so on. For instance, one major community in southern
California now has over 80 percent of its productive facilities devoted
to defense and space work. Therefore, the loss of a small number of
contracts has understandably created major unemployment problems
in this community on several occasions. The difficulties which such
an area would face in the event of overall defense cutbacks would be
awesome.
In the early 1950's, missiles and electronics goods began to require
an increasing share of defense moneys, while automotive and ordnance
purchases declined. At that time, the creation of distressed areas
through the changing pattern of defense spending and the consequent
overconcentration of defense production in certain regions could have
been foreseen. Yet, there was no Government agency or official
charged with alerting the Nation to these impending problems. Had
preventive action been taken at that time, economic dislocations which
have sapped the strength of the Nation and impoverished many areas
might have been largely avoided. If the recommendations of this
report, which seek to encourage defense spending in distressed areas,
had been enacted in the crucial period of the early 1950's, not only
might there have been fewer new distressed areas created, but many
of the older distressed areas might have received material assistance.
The shift in the geographic location of defense spending is only one
of the forces changing the shape of our economy. Automation, for
example, will have an even more profound and long-lasting impact on
the economy. The American people and their Government must
anticipate such trends and respond to them with positive action.
One of the recommendations of this report is an increase in the
responsibilities of the Office of Emergency Planning. The Office of
Emergency Planning would be empowered to make long-range studies
of the changing structure of our economy and to offer consequent
suggestions to industry, labor, and Government. Policies adopted
through the cooperation of the private and public sector, could then
lead to a more balanced and healthier pattern of economic growth.
HUBERT H. HUMPHREY.
III
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CONTENTS
Page
I. Introduction 1
II. Four shifting factors in our economy 4
III. Defense manpower policy 7
IV. Additional activity 9
Department of Defense 9
Commerce Department 11
Department of Labor 11
Area Redevelopment Administration 11
National Aeronautics and Space Administration 11
Small Business Administration 12
V. Legislation relating to procurement in labor surplus areas 12
VI. Recommendations 14
National policy considerations and emphasis_ 14
Legislative action 14
Executive action-Policy formulation 15
Executive action-Interagency relationships 16
Executive action-Organization and personnel 16
Executive action-Contracting and subcontracting procedure_ - - 17
Executive action-Establishment of facilities 19
Executive action-Assistance to sources 19
Executive action-Source selection and dissemination of require-
ments 21
Executive action-Training activities 22
Executive action-Research and studies 23
Executive action-Assistance to small businesses 24
Supplemental views of Senator Harrison A. Williams, Jr., of New Jersey~ - 25
Statement of Senator Frank E. Moss 26
APPENDIXES
A. Statistics on defense spending in labor-surplus areas 27
B. A compilation of policy directives, statutes, and regulations relating to
procurement in distressed areas 28
I. Policy directives 28
1. Defense manpower policy No. 4 28
2. Department of Defense directive 3005.3 31
II. Statutes 32
1. Full Employment Act of 1946 32
2. Defense Production Act of 1950 33
3. Merchant Marine Act of 1936 as amended 34
4. Defense Procurement Act of 1947 35
5. Department of Defense Appropriation Act of 1963 36
6. Contract Adjustment Act of 1958 36
7. Area Development Act 37
8. Manpower Development and Training Act of 1962 45
9. Public Works Acceleration Act 51
10. National Industrial Reserve Act of 1948 53
11. Defense Public Works and Housing Act 55
12. Trade Expansion Act of 1962 58
III. Regulations 66
1. Armed services procurement regulations concerning procure-
ment policies and procedures for aiding labor surplus areas... 66
2. Armed services procurement regulations concerning policies and
procedures on "make-or-buy" programs 71
3. Armed services procurement regulations concerning advan-
tages given to labor-surplus area concerns in competition
with foreign firms 72
4. Title 41, Code of Federal Regulations ("Public Contracts")__ 74
V
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IMPACT OF DEFENSE SPENDING ON
LABOR-SURPLUS AREAS
Economists tell us that an unemployment rate of 6 percent is the
danger signal. When a community passes that point it is officially
regarded as an area of "substantial labor surplus." If it remains there
it is entitled to special Government help through defense procurement and
other programs.
JOHN F. KENNEDY.
CHARLESTOWN, W. VA., September .19, 1960.
I. INTRODUCTION
On August 29, 1962, the Subcommittee on Retailing, Distribution,
and Marketing Practices, of the Senate Select Committee on Small
Business, held hearings on the impact of defense spending on labor
surplus areas. Specifically, your subcommittee studied shifts in
Government spending as both a cause of and a possible relief to dis-
tressed areas. Senator Hubert lEE. Humphrey, cochairman of the
hearings, discussed the extent of the problem as follows:
According to most recent Department of Labor figures, there were 517 areas of
substantial and persistent unemployment existing in May of this year. The 20
million people of these areas work and do business under extremely adverse con-
ditions. Over 9 percent of their 8.9 million man-laboring force is unemployed,
with little prospect of finding work in the extremely tight job markets. The
economic growth and progress of these areas is hampered by lack of capital, and
thus is considerably slower than that of the rest of the Nation. Businesses are
discouraged from entering these areas because the tax base has been jeopar-
dized. * * *1
According to one witness, Seymour L. Wolfbein, Director, Office of
Manpower, Automation, and Training, Department of Labor-
High rates of unemployment have persisted in some communities through
periods of prosperity as well as recession, reflecting such factors as shifts in the
pattern of consumer or business demand, changes in technology, depletion of
natural resources, and migrations of the population 2
Areas of persistently high unemployment are more than geograph-
ically concentrated manifestations of national recessions; rather, these
areas are afflicted with a disease as debilitating to their local economies
as the depression of the 1930's was to the Nation.
The existence of labor surplus areas is a problem of major importance
to the entire Nation. The 20 million Americans living in these areas
experience the hardships of a major depression. Moreover, the Nation
cannot call upon the unused productive resources of these areas in
defense and other efforts. Their existence depresses the Nation's
1 Hearings, "Impact of Defense Spending on Labor Surplus Areas," Select Committee on Small Busi-
ness, U.S. Senate, Aug. 29, 1962, 87th Cong., 2d sess., p. 5.
2Hearings, p. 43.
1
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2 IMPACT OF DEFENSE SPENDING
economy, because unemployment in distresssed areas lessens buying
power in the marketplace. As President John F. Kennedy pointed
out in his economic report to Congress, in January 1962:
In the last decade, the Nation has lost an estimated $175 billion of gross national
product by operating the economy below potential.
Being situated in a labor surplus area is a handicap to any firm-
particularly one which finds its market within the area. Senator
John Sparkman, chairman of the Select Committee on Small Business,
explained the serious effect that substantial and persistent labor sur-
plus areas have on the many small businesses in these areas as follows:
The merchants and distributors in distressed areas must attempt to sell their
goods to people whose incomes are well below the national average. The small
manufacturer must hire from the sometimes less skilled laboring force which
distressed areas afford and must sel1 to the depressed local markets. If a small
manufacturer hopes to get part of the Government's defense business through a
subcontract award, he finds that few prime contracts are going to any distressed
region. He must therefore attempt to sell to a prime contractor situated hundreds
or thousands of miles away, despite the tendency for prime contractors to let
subcontracts to firms in their immediate vicinity.3
Government spending is now approximately one-sixth of the gross
national product and the Defense budget is now approaching one-
tenth of the gross national product. President Kennedy recognized
that, with proper direction, these funds could be used as a tool to
regenerate the depressed economies of labor surplus areas. As a
presidential candidate in 1960, he said:
Economists tell us that an unemployment rate of 6 percent is the danger signal.
When a community passes that point it is officially regarded as an area of "sub
stantial labor surplus." If it remains there it is entitled to special Government
help through defense procurement and other programs.4
Another witness, Ronald M. Linton, Director of Economic Utiliza-
tion Policy, Department of Defense, estimated that every job created
in a labor-surplus area through Government procurement would, in
turn, cause the demand for three services jobs.5 The consensus of
opinion of the witnesses who appeared before your subcommittee was
that the direction of Government spending in labor surplus areas,
though not an answer in iteslf, could and should be used to alleviate
conditions in these areas and initiate recovery. That view is sum-
marized by Dr. Conley H. Dillon, professor of government and
politics at the University of Maryland, and consultant to the Governor
of West Virginia:
Such measures, by themselves, may be insufficient to eliminate completely the
pockets of unemployment which exist in the United States. But they could
accomplish a great deaL And since the machinery for implementing them is
already in place, it would seem practical to throw the switch that will set it
into operation.6
In the first months of the present administration, a national policy
of encouraging the placement of contracts in areas of substantial and
persistent labor surplus was established under defense manpower poi-
icy No. 4 (DMP No. 4).7 Many of the witnesses expressed the
opinion that the policies of DMP No. 4 were not being implemented
`Hearings, pp. 1-2.
4 Speech, Charlestown, w. Va., Sept. 19, 1960, Senate Commerce Committee, S. Rept. 994, pt. 1, 87th
Cong., lit seas., Sept. 13, 1961, p. 1034.
5 Hearings, p. 55.
`Hearings, p. 182.
7 HearIngs, app. I, p. 157.
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IMPACT OF DEFENSE SPENDING 3
to the extent they should be.8 According to Harold W. Williams,
Acting Administrator, Area Redevelopment Administration, U.S. De-
partment of Commerce, redevelopment areas get only 3.7 percent of
defense spending, though they contain 19 percent of the Nation's
population and produce about 10 percent of the Nation's goods.°
Less than one-third of these funds were placed in distressed areas
through the partial set-aside program.1°
The relative dearth of defense contracts in distressed areas can,
in part, be explained by the nature of the firms in these areas. In
addition to the handicap of often being located in resource- and skifi-
deprived areas, they usually do not have the funds to investigate and
carry through the complicated procedures for taking full advantage
of opportunities in Government contracting. Thus, distressed areas
find themselves trapped in a vicious circle, where their economic
degeneration blocks the road to recovery.
But, the nature of firms in areas of labor surplus is only partially
the reason for the relatively small share of the defense dollar they
receive. Statements made at the hearing indicate that procurement
officers in various agencies have often demonstrated an only-half-
hearted compliance with the policies of DMP No. 4. In the approxi-
mately 85 percent of defense contracts let by negotiation, it is probable
that procurement officers have often found it more convenient to deal
with old suppliers rather than investigate the possibility of finding
new sources in distressed areas. Though it may be easier for a
procurement officer to assess the capabilities of an old supplier in
negotiating a contract rather than investigating the possibility of
using a new source, such action puts expediency and departmental
objectives above national policy.
The dearth of defense contracting in labor-surplus areas can further
be explained by a congressional impediment to the implementation of
DMP No. 4, section 523 of the Defense Appropriations Act, which
expressly forbids a price differential to be paid in order to avoid eco-
nomic dislocation. This has been interpreted by the Department of
Defense and the Government Accounting Office to forbid 100-percent
set-asides to labor-surplus areas. The following case, cited by Mr.
Linton, clearly demonstrates the implications of section 523:
* * * one of the first cases I ran into was where a contract was awarded to a low
bidder, who was a low bidder by $250,000. The result of the award was the sec-
ond low bidder closed his plant and 1,200 people were put out of work. I did an
exercise for the particular Secretary who made the decision showing that the
$250,000 the Department saved actually cost the Government $950,000 because
of those lost jobs. The reply of the legal department was "That is fine. We
agree with you; we have looked at these things, but we can't figure these things
into our costs because the Congress said we can't." 11
Thus, the Department of Defense's saving of $250,000 cost the Ameri-
can people $700,000. This sort of procurement procedure clearly
places departmental over national objectives.
The following sections of this report discuss the relation of the crea-
tion of some distressed areas to shifts in defense spending; a survey
of action now being taken to encourage Government contracting in
areas of labor surplus; and a series of recommendations which your
subcommittee believes will improve the ability of firms in distressed
8 Hearings, pp. 3, 38, 58, 181.
`Hearings, p. 2.
10 Hearings, p. 85.
11 Hearings, p. 56.
22-101-63-2
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4
IMPACT OF DEFENSE SPENDING
areas to fulfill Government contracts, maintain the mobilization base
for national defense, improve communications between procurement
officers and firms in distressed areas, and alter procurement proce-
dures to bring them into compliance with the policy objectives set forth
in DMP No.4.
IT. FOUR SHIFTING FACTORS IN OUR ECONOMY
One of the major factors affecting the lack of Government spending
in substantial and persistent labor-surplus areas can be set forth in
terms of four shifts which are taking place in our economy. These are:
(1) The shift of industry and employment from one geograph-
ical area to another.
(2) The shift in our work force from several types of employ-
ment to engineering employment.
(3) The shift in the type of goods being purchased by the
Defense Department.
(4) The shift in geographical areas in which defense contracts
are being awarded.
In regard to the first shift, Mr. Wolfbein explained that one of the
little-recognized factors in this whole problem is that industry in
this country has become mobile and has acquired the capacity to
move from one part of the country to another, economically and with
reasonable speed. Mr. Wolfbein expressed the following opinion:
One of the things that impresses us, Mr. Chairman, is the fact that, as you
read these returns, it becomes pretty clear that one of the major forces affecting
this country, in terms of this, shall we say, employment-unemployment paradox,
is what we call the changing geography of American industry.1'
Mr. Wolfbein went on to explain that, since 1947, eight States had
an employment growth rate which was double the national average.
Those States were Nevada, Utah, Arizona, Colorado, New Mexico,
California, Texas, and Florida. Mr. Wolfbein stated:
* * * One of the most dramatic indications of the changing geography of
American industry is seen by this simple fact that one out of every six jobs in
the United States is located in just three States-California, Texas, and Florida.13
Mr. Wolfbein contends that the result of this shift is that the
Great Lakes area has suffered; in fact, States like Wisconsin, Michigan,
Illinois, Indiana, and Ohio increased their employment less than the
national average.
The second shift, namely, the type of employment, is commented
upon in Manpower Report No. 1 of the U.S. Department of Labor.
This report is entitled "The Growth of Engineering Employment in
the United States-1950-60." It reveals that the number of men
working as professional engineers in this country has increased by
64 percent since 1950. This was four times the growth of total
employment and nine times the growth of male employment from 1950
to 1960. One important fact related to both the first and second
shifts is illustrated by the following statment from Manpower Report
No. 1:
As a result of these geographic shifts, California moved from second to first
place in engineering employment, as the number of engineers in that State rose
2~ times (from 50,000 to 125,000). New York is second with 87,000 engineers, an
increase from 61,000 in 1960.* * *
12 Hearings, p. 22.
11 Hearings, p. 26.
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IMPACT OF DEFENSE SPENDING 5
Significant other State increases also took place in engineering employment;
it tripled in Florida, rose by four-fifths in Maryland and by two-thirds in Texas.14
It is interesting to note that the Department of Labor recites the
U.S. Government as one of the primary causes for this shift in em-
ployment. The reason given is increased spending for research and
development and the great increase in spending for modern weapons
systems. In fact, it was learned that 42 percent of all manufacturing
in the Los Angeles area was defense connected.15
The third shift; is a change in the type of goods being purchased by
the Defense Department, as highlighted by the fact that in 1953
missile purchases accounted for oniy 0.5 percent of the hard goods
delivered in that year, while in 1961 they had taken up 33.6 percent.
There has also been a significant increase in the proportion of elec-
tronic equipment being purchased. Perhaps one of the most sig-
nificant shifts in Goverament purchases is in the field of tank-auto-
motive, weapons, ammunition, and production equipment, which has
gone from 50.09 percent of the goods delivered in 1953 down to 12.4
percent of the goods delivered in 1961. Also highly significant is the
increase in contracts for research, development, testing, and evalua-
tion (R.D.T. & E.). In 1961 these contracts totaled $6 bfflion and
constituted about one-fourth of all prime contracts awarded in the
United States. These facts make it clear that this shift in spending
by the U.S. Government has caused the second shift relating to engi-
neering employment.16
The fourth shift; has to do with the location of Government awards
of prime contracts. It is startling to learn that the Mountain and
Pacific States during World War II received only 13.5 percent of the
prime contract awards, but by 1961 this had increased to 32.6 percent.
The geographical locations of R.D.T. & E. contracts were even more
closely concentrated than the contracts for hard goods. California
alone accounted for 41.3 percent of such contracts let by the Defense
Department. A report issued by the Department of Labor, Office of
Manpower, Automation, and Training, entitled Manpower Report
No. 1, states that California in 1961 received a total of $2.5 bfflion in
R.D.T. & E. contracts from the U.S. Government, which constituted
two-fifths of this budget. Some interesting comments in connection
with these shifts are to be found in a document entitled "The Changing
Patterns of Defense Procurement," issued by the Office of the Secretary
of Defense, June 1962, concerning the geographical shift in contract
awards. In that document, it is stated that-
Michigan, for example, obtained 10.5 percent of military prime contract
awards during World War II and 9.5 percent during Korea; yet had only 2.7
percent of the smaller fiscal year 1961 contract total. The States of Illinois,
Ohio, Indiana, and Wisconsin, combined, had 21.9 percent of the total in World
War II, 17.8 percent during Korea, and only 9.1 percent in fiscal year 1961.
It is difficult to translate dollar prime contract awards into employment figures,
because of variations in products, subcontracting, wage levels, and indirect labor
ratios. Nevertheless, it is plainly evident that the drop in annual prime awards
in the East North-Central area from $8.7 billion during Korea to $2.6 billion in
fiscal year 1961 had a severe economic impact. Under any system of translation,
the loss of $6.1 billion per year in defense contracts means hundreds of thousands of
jobs. It is not surprising that many communities in these five States have encountered
recurrent unemployment problems. During World War II, and Korea, these
14 HearIngs, p. 31.
15Hear!ngs, p. 8.
16 HearIngs, pp. 171-172.
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6 IMPACT OF DEFENSE SPEND~G
States contributed heavily to the production of wheeled vehicles, weapons,
ammunition, and equipment items which then bulked heavily in defense procure-
rnent, but which now form a relatively smaller share of requirements.'7 [Italic
supplied.1
A significant fact to be noted here is that the Defense Department
itself recognizes that its buying program may have caused recurrent
unemployment problems.
In connection with the concentration of research and development
contracts, the report states:
This is of major importance, because any company which has conducted or
managed the research, design, development, and test work on a new weapon
system or a major component and has assembled the engineering talent and
experience for this purpose, is obviously in an exceptionally strong position to
compete for the follow-on production contracts, and for new developmental
contracts, as well. It is logical, then, that production contracts for the newer
sophisticated items, which will figure heavily in future procurement, may tend
to be placed in areas where R.D.T. & K effort has been centered.
The point is reinforced by the fact that development and test work represents
a much larger share of some types of procurement than of others. The value and
percentage of total prime contract awards to business firms in fiscal year 1961
classified as R.D.T. & E. was as follows:
R.D.T. & E.
share of pro-
gram (percent)
R.D.T. & E.
awards
(millions)
MLulles
Electronics and communications
Miscellaneous and hardgoods
ShIps.....
Ammunition
Weapons
Aircraft
Tank-auto
57.9
24.9
22.1
20.3
18.5
16.0
10. 1
2.5
$3, 409
786
196
278
102
23
500
15
The ordnance items which characterize much of the contract defense produc-
tion in the midwestern area have a relatively low R. & D. emphasis at this time.
Obsolescence, and consequent replacement, is less likely to affect military items
outside the mainstream of the research effort. It should be noted, of course,
that considerable in-house R. & D. occurs in these categories.
A region that gains a long headstart in a new and expanding field of procure-
ment is bound to enjoy an enduring advantage, especially when R. & D. is a
primary element. Factors influencing the location of awards, strictly on merit,
include availability of highly specialized scientific, engineering, and technical
manpower, specialized facilities, labor skills, production experience and know-
how, together with competence and determination in presentation of bid pro-
posals. All these tend to be associated with R. & D. capability, and their pres-
ence fosters the climate in which long-scale R. & D. may flourish.
In summary, successful research and design, or development and testing
effort, often leads to follow-on production contracts; and, in turn, engineering
work on highly complex new weapon systems creates new R. & D. capability.
The process is circular, and it regenerates itself."
The need for study of the geographical location of these contract
awards seems obvious. The Defense Department has as much as
admitted that many contracts of the type that go to institutions of
learning have not been distributed entirely on the basis of qualifica-
tion. This startling admission may be inferred from the following
statement contained in the above-cited document:
It must be recognized that the Midwest, with its great university resources,
and with its heavy annual production of Ph. D.'s and other professionals, did
not in fiscal year 1961 obtain a share of defense prime contract awards, either for
"Hearings, app. Ill, p. 169.
JSJIearIngs, pp. 171-172.
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IMPACT OF DEFENSE SPENDING 7
production, for general R.D.T. & E., or for nonprofit research proportional to
its share of the Nation's scientific and technical skills. Conversely, considerable
R.D.T. & E. and some basic research, is being conducted in areas where local
institutions of higher learning fall far short of producing a comparable flow of
trained professional and scientific manpower."
III. DEFENSE MANPOWER POLICY
The sole effort of the Department of Defense to utilize defense
contracts to alleviate unemployment in substantial and persistent
labor surplus areas is found in defense manpower policy No. 4. This
policy was adopted in 1951 and was issued by the Director of the
Office of Civil Defense Mobilization under Executive Order 10480
and Executive Order 10773.
The latest revision of this document is dated July 6, 1960, and may
be found in volume 25 of the Federal Register, page 5283. This
remarkable document proclaims unequivocally:
It is the policy of the Federal Government to encourage the placing of contracts
and facilities in areas of persistent or substantial labor surplus, with first prefer-
ence being given to areas of persistent labor surplus, and to assist such areas in
making the best use of their available resources in order to achieve the following
objectives:
(a) To preserve management and employee skills necessary to the ful-
fillment of Government contracts and purchases;
(b) To maintain productive facilities;
(c) To improve utilization of the Nation's total manpower potential by
making use of the manpower resources of each area;
(d) To help assure timely delivery of required goods and services and to
promote readiness for expanded effort by locating procurement where the
needed manpower and facilities are fully available."
This policy has been adopted because of the fact that the defense
program depends upon efficient use of all our resources. It is further
frankly recognized that:
The words "substantial labor-surplus areas" and "persistent labor-surplus
areas" are used in both the defense manpower policy No. 4 and the Area Rede-
velopment Act, 75 Stat. 48, sec. 5(a). The Department of Labor classifies
unemployment areas according to these two documents as either "substantial
labor-surplus area" or "persistent labor-surplus area." The same criteria is
used by the Department of Labor to make this classification under both documents
so that if an area is a substantial and persistent area which would qualify as a
distressed area in 5(a) of the Area Redevelopment Act, it would also qualify for
set-asides of Government procurement contracts under defense manpower
policy No. 4.
When large numbers of workers move to already tight areas, heavy burdens are
placed on community facilities-schools, hospitals, housing, transportation,
utilities, etc. On the other hand, when unemployment develops in certain areas,
unemployment compensation costs increase and plants, tools, and workers'
skills remain idle and unable to contribute to our defense program.21
In general, the policies of DMP No. 4 are implemented by directives
to the Department of Labor, Government procurement agencies, the
Department of Commerce, the Sm all Business Administration, the
Surplus Manpower Committee of the Office of Civil and Defense
Mobilization, regional directors of OCDM, and all Federal depart-
ments and agencies planning sites for Government facilities expansion.
The three most important provisions of DMP No. 4 policy are ones
that direct the procurement agencies to award negotiated procurement
contracts to the contractors who will perform a substantial proportion
"Hearings, app. III, p. 173.
20 Hearings, app. I, p. 157.
21 Hearings, app. I, p. 157.
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8 IMPACT OF DEFENSE SPENDING
of the production within labor-surplus areas. It urges procurement
agencies to set aside portions of procurements exclusively with firms
which wifi perform a substantial proportion of the production within
labor-surplus areas. The directive which seems to have been least
implemented is the one which states that all Federal departments and
agencies shall give consideration to labor-surplus areas, particularly
to persistent labor-surplus areas, in the selection of sites for Govern-
ment-financed facilities expansion, to the extent that such considera-
tiOn is not inconsistent with essential economic and strategic factors
that must also be taken into account.
The President himself, in a memorandum to the Cabinet and
principal agencies, dated February 27, 1962, stated his personal con-
cern for using the weight of the Federal Government to give preference
to redevelopment areas in the awarding of contracts. In view of this,
the question arises why so few contracts are placed in substantial and
persistent labor-surplus areas. The answer lies partly in an amend-
ment attached to the Defense Appropriations Act of 1957. This
amendment has been placed in every appropriation act since 1953, and
in the current act (sec. 523, Public Law 87-577) reads as follows:
Provided further, Thatino funds herein appropriated shall be used for the
payment of a price differential on contracts hereafter made for the purpose of
relieving economic dislocations.
This amendment has turned out to be disastrous for a successful
implementation of DMP No. 4, because of the interpretation placed
upon it by the Office of the Comptroller General of the United States
in opinion B-145136, dated March 3, 1961. In this opinion the
Comptroller General stated:
On the record we must construe the limitation in question as precluding the
expenditure by the Defense Establishment of appropriated funds under any
contract awarded on the basis of a labor surplus area situation at a price in excess
of the lowest obtainable on an unrestricted solicitation of bids or proposals.
Because of this opinion, a program has had to be devised which has
been set forth in part 8 of the Armed Services Procurement Regulation
(ASPR) and subpart 1-18 of the Federal Procurement Regulations
(FPR) respectively.22 Detailed explanation of these regulations may
be found in the statement of James E. Welch, Deputy General Counsel,
General Accounting Office.23
Explained briefly, the program works as follows: 24 Where a
Government procurement is severable into two or more economic
production runs, and where one or more labor-surplus-area concerns
are expected to have the technical competency and productive ca-
pacity to furnish a severable portion of the procurement at a reasonable
price, such portion or portions may be reserved, i.e., set aside for
exclusive award to labor-surplus-area concerns. Such set-asides
enjoy preference over small business set-asides. Furthermore, in
case of a tie bid, a firm located in a labor-surplus area is given prefer-
ence, even through the procurement may not have been set aside for
labor-surplus firms.
In awarding a contract for a procurement set aside for a labor-
surplus area, negotiations are conducted only with responsible labor-
surplus-area concerns (and small business concerns to the extent
22 Hearings, p. 93.
23 Hearings, pp.93 and 94.
24Hearings, pp. 136 and 137.
PAGENO="0015"
IMPACT OF DEFENSE SPENDING 9
indicated below) which had submitted responsive bids on the non-
set-aside portion at a unit price within 120 percent of the highest
award made on the non-set-aside portion, in the following order of
priority and under the following conditions:
Group 1. Persistent labor-surplus-area concerns which are also
small business concerns.
Group 2. Other persistent labor-surplus-area concerns.
Group 3. Substantial labor-surplus-area concerns which are also
small business concerns.
Group 4. Other substantial labor-surplus-area concerns.
Group 5. Small Business concerns which are not labor-surplus-area
concerns.
Within each of the above groups, negotiations with such concerns
are conducted in the order of their bids or proposals on the non-set-
aside portion, beginning with the lowest responsive bid. The set-
aside quantities are awarded at the highest unit price awarded for the
non-set-aside portion, adjusted to reflect transportation and other
cost factors which were considered in evaluating bids on the non-set-
aside portion. The sole responsibility for implementing this program
rests on the contracting officer, and the absolute ineffectiveness of this
program is well explained by Mr. Linton, when he states:
The partial setaside which currently is used requires that the total quantity
of goods to be bought must be divisible into two or more economic production
runs. The variation in quantity requirements is such that the percentage which
can be divided will never be large enough to make this system a technique of major
significance. [Italic supplied.] 25
Certainly something should be done to make this program work
more effectively. In 1960, less than 1 percent of the defense con-
tracts were set aside under this program. As clumsy as it is, how-
ever, it would seem that a better showing than 1 percent could be
made.
IV.JADDITIONAL ACTIVITY
The hearings brought out the fact that many Government agencies
are engaged in or contemplating programs which will more adequately
utilize Government procurement to alleviate conditions in areas of
substantial and persistent labor surplus. The following is a compila-
tion of these activities, by Department:
DEPARTMENT OF. DEFENSE
1. At the direction of the President, created the Office of Economic
Utilization Policy. It is the function of this Office to advise the
Defense Department of the economic impact of their proposed action.
Under the Director of Economic Utilization Policy, there is an
Advisor of Economic Utilization Policy in each of the services-Army,
Navy, and Air Force-as well as the Defense Supply Agency. The
functions of this Office are as follows:
(a) Maintains and disseminates to appropriate units of the
organization current information on areas, industries, and specific
facilities which are, or may become, economically distressed, and
which have a significant potential to participate in defense pro-
curement and logistics programs.
2~ Hearings, p. 70.
PAGENO="0016"
10 IMPACT OF DEFENSE SPENDING
(b) Provides information in connection w:th specific major
procurements and other logistics actions to those responsible
for final decision, in order to assure that there is full awareness
of underutilized economic resources and that this is taken into
consideration in making such decision.
(c) Cooperates with State, regional, local, and industry leaders,
upon request, in informing the appropriate Department of
Defense officials of the capabilities of underutilized plants and
other resources which can be employed in support of defense
procurement and logistics programs.
(d) Continuously studies procurement policies and practices
in order to recommend revisions in policies, and to identify
opportunities for more effective implementation of the armed
services procurement regulations relating to labor surplus.
(e) Assists contracting offices to assure full application of the
Department's labor-surplus area policies by increasing the sources
on bidders' lists, by reviewing potential procurements to increase
the number of set-asides, and by working with prime contractors
on their subcontracting planning.
(f) Works with the aerospace industry to form a committee
which would voluntarily make an effort to subcontract with
firms in labor-surplus areas.
2. Is experimenting with a new program which may provide a
partial answer. This program, instead of dividing the requirement
between two firms, would result in one firm either producing a certain
percentage in a labor-surplus area or subcontracting a certain per-
centage to firms in labor-surplus areas.
Specifically, the program requires first that the procurement
agencies select those items which lend themselves to subcontracting.
The percentage of subcontracting is arbitrary at this time. It requires
that the item to be procured lend itself to at least 50 percent subcon-
tracting. When such a forthcoming contract is identified, the request
for proposal (which is in the form of an invitation to~ bid) contains a
clause requiring the low bidder either to perform 50 percent of the
contract value in the labor-surplus area or to subcontract that amount
in such an area. If the contractor fails to agree, then the next low
bidder who is within 120 percent of that bid and qualifies as a small
business in a labor surplus area will be given an opportunity to meet
the price. If there is no such small business, then any business next
in line which is within 120 percent of the low bid and is also willing
to produce or subcontract 50 percent in a labor-surplus area will be
given an opportunity to meet the low bid. If no contractor can be
found to meet the qualifications of subcontracting or performance in
a labor-surplus area, the original low bidder will receive the contract.
3. Is considering a further proposal with promise which arises from
the fact that most of the capacity in distressed areas is in the form of
small business. The proposal would utilize the small business set-
aside through cooperation with the Small Business Administration.
A study of labor-surplus areas shows that for the most part they do
not contain large defense-oriented industries, but do contain sub-
stantial numbers of small businesses which could participate in the
defense effort. Thus, the Small Business Administration would seek
to have partial labor-surplus set-asides placed in contracts that are
set aside 100 percent for small business.
PAGENO="0017"
IMPACT OF DEFENSE SPENDING 11
COMMERCE DEPARTMENT
1. Has created and provided a staff for a Cabinet-level board,
headed by the SeOretary of Commerce, for the purpose of advising
the Secretary of Defense on the problems of the labor-surplus areas.
DEPARTMENT OF LABOR
1. Is obtaining statistics in regard to the employment situation
in labor market areas. From them recommendations may be made
to the Secretary of Commerce for the designation of areas as "rede-
velopment areas." Such recommendations may also be made by
the Secretary of Agriculture or the Secretary of the Interior ~
2. Provides technical assistance in the development of an overall
economic development program as a prerequisite to Federal aid.
3. Identifies training needs to be met through occupational training.
4. Selects and refers qualified trainees.
5. Provides for the payment of subsistence benefits to those in
training. Since the end of 1961, when the ARA program got under-
way, 11,000 American workers have received, or are receiving, training
designed to enable them to get jobs. By mid-August 1962, $4 million
had been paid out to individuals in training allowances and $3.2
million for the cost of training.20
AREA REDEVELOPMENT ADMINISTRATION
1. Is working on programs which will more readily make available
to the Department of Defense production capabilities in substantial
and persistent labor-surplus areas. This work is pursuant to the
specific legislative responsibility placed upon the Area Redevelop-
ment Administration to furnish lists of potential bidders t~ the De-
partment of Defense.
2. Has made a grant to Wilkes College for the purpose of establish-
ing a capability to do Government research in chemistry and elec-
tronics.27
3. Has a program under which contracting officers are reminded
that they are charged with the responsibility to persuade prime con-
tractors to subcontract with firms in distressed areas.
4. Is experimenting with a Federal procurement coordinator to
help business bid more successfully for defense contracts in West
Virginia.
5. Makes loans to potential bidders. (This is one of their primary
functions under their legislative responsibility.)
6. Has a program for training assistance which is very helpful to
facilities in distressed areas which contemplate doing defense con-
tracting.
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
1. Has encouraged prime contractors to place subcontracts in labor-
surplus areas. This is done in part by a clause in all NASA contracts
requiring prime contractors to exert their best efforts.
28 Hearings, p. 45.
27Hearings, p. 18.
22-1O1-6a-----3
PAGENO="0018"
12 IMPACT OF DEFENSE SPENDL~G
2. Publishes in the Commerce Daily contract descriptions and
companies invited to bid. This practice enables subcontractors to
make proposals.
3. Requires that all procurement offices maintain a record of con-
tracts in excess of $25,000 placed in labor-surplus areas.
4. With permission of the Bureau of the Budget, is experimenting
with a program, which requires prime contractors to give information
to NASA on their first- and second-tier subcontracts. This allows
the compilation of telling information on how many subcontracts are
being placed with small business and firms in distressed areas.
SMALL BUSINESS ADMINISTRATION
Has stepped up all of their programs, including the production
assistance program and the set-aside program, to help secure defense
contracts for small businesses in substantial and persistent labor-surplus
areas. In particular, it has issued two regulations under its section
502 program which-
(1) Reduces the maximum interest rate in these areas to 4
percent.
(2) Establishes a 25-percent differential in the size standards
for firms in such areas.
In the course of 12 months following these regulations, 37 loans
were made under this program in an aggregate amount of $5.3 million.28
V. LEGISLATION RELATING TO PROCUREMENT IN LABOR-SURPLUS
AREAS
There are a number of laws, with executive directives and regula-
tions, already in existence which, if properly utilized, would be effective
in carrying out national policy on labor-surplus areas. These laws
and regulations seem to be incompletely realized in Government
agencies at the policy, control, and operational levels. The recom-
mendations in chapter VI, it is hoped, will facilitate a better use of
these laws and effect a fuller implementation of the national policy
toward procurement in labor-surplus areas. Appendix B contains a
limited compilation of relevant passages from those statutes which
relate to distressed areas and Government spending.
These laws and regulations are briefly summarized as follows:
Defense Manpower Policy No. 4 (revised), as issued under Execu-
tive Orders 10480 and 10773, proclaims a policy of encouraging the
placement of contracts and facilities in areas of persistent or sub-
stantial unemployment.
The Armed Services Procurement Act of 1947, as amended and
codified in 10 U.S.C. 2301 et seq., sets forth 17 exceptions under
which a contract may be negotiated. Relevant exceptions are pur-
chases (1) under a declared national emergency, (5) from educational
institutions, and (16) for maintenance of the mobilization base.
The Defense Production Act of 1950, as amended and codified in
50 U.S.C. 2061 et seq., sets forth the following national policy:
In the construction of any Government-owned industrial facilities and in the
procurement of goods and services, under this or any other act, each department
and agency of the executive branch shall apply, under the coordination of the
Offices of Defense Mobilization, when practicable and consistent with existing
2$ Hearings, p. 138.
PAGENO="0019"
IMPACT OF DEFENSE SPENDING 13
law and the desirability for maintaining a sound economy, the principle of the
geographical dispersal of such facilities in the interest of national defense.
Loan guarantees and direct loans may be made through title III of
this act.
Department of Defense Directive 3005.3 of December 7, 1954,
implements a policy of maintaining the mobilization base and orders
that all contract awards be reviewed with such factors as geographic.
dispersal, preservation of a skilled labor force, and maximum sub..
contracting in mind. The directive asks that exceptions 1 and 16 of
the Armed Services Procurement Act be used to negotiate in order
to carry out the national policy.
The National Industrial Reserves Act of 1948, as amended and
codified in 50 U.S.C. 451 et seq., sets forth policy under which the
Secretary of Defense finds equipment to be surplus and disposes of
it. Particularly, 50 U.S.C. 456 authorizes the lending of equipment
to nonprofit educational institutions.
Section 502(f) of Public Law 84-805 (amended), as codified in
46 U.S.C. 1152(1), amends the Merchant Marine Act of 1936 such
that at least once a year the Secretary of Commerce shall conduct a
survey of privately owned shipyards and that "upon a basis of a find-
ing that the award of the proposed construction, reconditioning, or
remodeling work will remedy an existing or impending inadequacy in
such mobilization base as to capabilities and capacities of a shipyard
or shipyards at a strategic point, and after taking into consideration
the benefits accruing from standardized construction, the conditions
of unemployment, and the needs and reasonable requirements of all
shipyards, may allocate such construction, reconditioning, or remod-
eling to such yards in such manner as it may be determined to be
fair, just and reasonable to all sections of the country, subject to the
provisions of this subsection." The section continues to state that
any resulting price differential will be paid as part of the cost of
national defense.
Armed Services Procurement Regulations 1-800 set forth the poli-
cies to be followed for armed services procurements in labor surplus
areas.
Armed Services Procurement Regulations 1-900 sets forth the policies
to be followed in determining which parts of contracts should be
subcontracted.
The Area Redevelopment Act of 1961, of May 1, 1961, as codified
in 42 U.S.C. 2501 et seq., states the national policy regarding sub-
stantial and persistent unemployment and underemployment.
The Manpower and Training Act of 1962, as codified in 42 U.S.C.
2571 et seq., complements and supplements the Area Redevelopment
Act of 1961 in providing training to accomplish the objectives of
technological progress, while avoiding or minimizing individual
hardship and widespread unemployment.
The Contract Adjustment Act of 1958, Public Law 85-804, 72 Stat.
972, as implemented by Executive Order 10789 of November 14,
1958 (23 F.R. 8897) empowers the President to authorize depart-
ments and agencies exercising functions in connection with the na-
tional defense, to enter into contracts or into amendments or modifi-
cations of contracts and to make advance payments, without regard
to other provisions of law relating to the making, performance, amend-
ment, or modification of contracts, whenever he deems that such action
PAGENO="0020"
14 IMPACT OF DEFENSE SPENDING
would facilitate the national defense. The Executive order author-
izes the Secretaries of Defense, the Army, the Navy, and the Air
Force, respectively, under regulations prescribed or approved by the
Secretary of Defense, to exercise this authority.
VI. RECOMMENDATIONS
NATIONAL POLICY CONSIDERATIONS AND EMPHASIS
1. Direct more forcibly Government agencies to carry out the Nation's
avowed policy of encouraging the placement of contracts `in labor-
surplus areas
It is quite clear from the President's statements of February 2,
1961, and February 27, 1962, the continuance in effect of the policy
set forth in the Defense Production Act of 1950 (50 U.S.C. app. 2062),
the issuance of an amended Defense Manpower Policy No. 4 on July
6, 1960, the enacting of the Area Redevelopment Act of 1961 (Public
Law 87-27 of May 1, 1961), the Manpower and Training Act of 1962
(Public Law 87-415 of Mar. 15, 1962), these hearings and acknowl-
edgments of legislative and executive action on the part of agency
heads, that there is a national policy (inclusive of Defense policy,
Commerce policy, Labor policy, Office of Emergency Planning policy,
and other agencies).
This national policy is to encourage the placement of contracts and
facilities in areas of persistent and substantial labor surplus, and to
assist such areas in making the best use of their available resources to
achieve the objectives of-
(a) Preserving management and employee skills necessary to
the fulfillment of Government contracts;
(b) Maintaining productive facilities;
(c) Improving utilization of the Nation's total manpower
potential by making use of the manpower resources of each area;
(d) Assuring timely delivery of required goods and services
and promoting readiness for expanded effort by locating procure-
ment where the needed manpower and facilities are fully available.
Much remains to be done in the implementation of this policy to
overcome what appears to be negative and halfhearted compliance
on the part of the Government agencies and departments. It is the
recommendation of this subcommittee that emphasis and reemphasis
be given to this national policy by immediate and affirmative action on
the part of all Government departments and agencies to implement
this policy. This will require clear enunciation of departmental
policy, objectives, organization, goals, and reports of activities in the
conduct of the overall national policy to enable retention and con-
servation of our Nation's manpower, productive capacity, and
resources.
LEGISLATIVE ACTION
~. Section 5~3 of the Defense Appropriations Act should be amended by
altering parts which hinder the Department of Defense `in `imple-
menting DMP No. 4
The subcommittee was told all too often of the negative aspects of
legislative provisions in the application of the national policy. These
negative provisions seem to be the basis for grounding of departmental
PAGENO="0021"
IMPACT OF DEFENSE SPENDING 15
policy against rather than in consonance with the national policy.
The subcommittee is not unmindful of the provisions in the Defense
Appropriations Act, section 523 of Public Law 87-577, precluding a
price differential to relieve economic dislocation, but believes that this
provision has been utilized far too often to forbid actions entirely
appropriate under exceptions to the Armed Services Procurement Act
of 1947, as amended, and other authorities.
The subcommittee recommends removal of this provision or, in the
alternative, such clarification through appropriate hearings and reports
that "economic dislocation," as utilized in this or similar actions, does
not relate to actions within the policy, purposes, and scope of defense
manpower policy No. 4. The recommendation for removal, if
carried out by the Congress, will make the Defense Appropriations
Act consistent with that of other agencies of the Government, such as
NASA, AEC, Commerce, GSA, and like agencies whose appropria-
tions do not contain such provisions.
On the affirmative side, the subcommittee recommends enactment
of a provision authorizing total set-asides of a procurement for labor
surplus areas where it is determined by the agency head or his designee
that such total set-asides would be in the interest of maintaining and
mobilizing the Nation's full manpower and other resources and
productive capacity or in the interests of national defense programs
in assuring a national (all States and territories) industrial and
mobilization base.
EXECUTIVE ACTION-POLICY FORMULATION
3. Revise defense manpower policy No. 4 so that it will reflect new laws
and recently created agencies
The subcommittee further recommends that defense manpower
policy No. 4 be rejuvenated and updated to better reflect the national
policy in all regards. The Surplus Manpower Committee provided for
therein is outmoded. The national policy set forth in defense man-
power policy No. 4 should clearly set forth the requirement that de-
partmental policy shall not be initiated or interpreted to overrule
national policy objectives. Defense manpower policy No. 4 should,
and the subcommittee recommends that it be, updated to give recogni-
tion to the purposes and objectives of the Area Redvelopment Act
of 1961, the Manpower and Training Act of 1962, the Merchant Ma-
rine Act of 1936, as amended by the addition of section 502(f) of
Public Law 84-805, the Defense Production Act of 1950, and like
legislation. The emergence of NASA and other agencies such as
GSA, whose activities have an impact on the national policy, should
also be considered in such updating.
4. Revise part 8 of section I of the armed services procurement regulations
to reflect more clearly the national policy
Part 8 of section I of the armed services procurement regulations
sets forth the procurement procedures in relation to labor surplus
areas. Part 8 should be revised to spell out more clearly the national
policy and the duties of procurement officers in carrying it out.
PAGENO="0022"
16 IMPACT OF DEFENSE SPENDING
EXECUTIVE ACTION-INTERAGENCY RELATIONSHIPS
5. Abolish the Surplus Manpower Committee and create an Economis
Utilization Board with representatives from interested departments
The subcommittee was made fully aware of the interrelationships
required in the conduct of the national policy between Defense,
Commerce, Labor, OEP, NASA, GSA, and other agencies of the
Government. An interagency counsel representative of the major
agencies and departments should be established, whose function it
would be to coordinate the interagency relationships, including those
covering the presently inactive and obsolete Surplus Manpower
Committee (DMP No. 4, par. 4(e)). It is suggested that in this
regard it would be more appropriate to designate a committee of this
type as an economic utilization committee or board with representa-
tion from all agencies having major procurement and other policy
activities. The character of the representation should be changed
from one that is procurement-oriented to one that is oriented to the
national policy implications and considerations.
EXECUTIVE ACTION-ORGANIZATION AND PERSONNEL
6. Create art office of Economic Utilization policy with responsibility
to improve agency performance in all appropriate agencies
7. Place the directors of offices of Economic Utilization Policy at the
level of Assistant Secretary. Such offices must be staffed adequately
so that they are able to make appropriate studies, work with potential
bidders, State Governments and local units
The implementation of a successful labor surplus area national
policy requires departmental organization and personnel sufficiently
geared and oriented to carry out the national policy requirements.
Every agency with major procurement responsibilities should establish
offices of economic utilization policy with responsibility to improve
agency performance. Exceptionally well-qualified men of supergrade
capability should direct these offices. They should be placed high
in the organization of the departments, first, to indicate the importance
placed upon the program, and, secondly, to cut across existing organi-
zational lines and departments. In an agency such as the Department
of Defense, where areas of policy control and operations cut across
subagency units such as the research and development, the production
end of procurement, the operation and maintenance, the construction
and foreign assistance programs, and involve the Defense Supply
Agency, Army, Navy, and Air Force activities, this is essential. The
director of the office could well be an Assistant Secretary of Defense.
NASA, GSA, FAA, and like agencies should have directors reporting
to the agency head.
The offices of economic utilization policy should be adequately
staffed with competent personnel at all necessary levels of action, so
that the national policy can be carried out at all major procurement
locations. The committee particularly feels that attention should be
given and studies made on the effects of critical unemployment in
any given area, with reports being given to a legislative branch of the
Government as well as to the executive.
Offices of Economic Utilization Policy should be equipped and
maintained with all of the necessary data to assist various agencies
PAGENO="0023"
IMPACT OF DEFENSE SPENDL~G 17
of the Government as well as the State and local community groups
which are calling on the Government for assistance. Personnel
should be trained to present the procurement opportunities, programs,
and procedures of their department in all aspects such as facilities
assistance, financing, interpretation of regulations, relief under
extraordinary circumstances, and like activities.
8. Offices of economic utilization policy should continuously encourage
prime contractors to establish new facilities in distressed areas
Offices of Economic Utilization Policy and ARA should system-
atically encourage firms to establish new facilities in distressed areas
by pointing out the Government procurement and other advantages
of these areas.
EXECUTIVE ACTION-CONTRACTING AND SUBCONTRACTING PROCEDURE
9. Devise and adopt programs which would create a wider geographical
distribution of R. d, D. contracts
Agencies, with particular emphasis on the Department of Defense,
should be more concerned with the development, maintenance,
and retention of the industrial, scientific, and mobilization base
in their awarding of research and development and like contracts.
There should be a national spread and a planting of the seed corn
of R. & D. which will lead to production contracts in all sections of
the country. The excellent institutions of learning in all States
have research capabilities which could and should fulfill basic and
applied research contract and grant needs. Each area of the country
has R. & D. capabilities within its scientific and industrial groupings
which could and should be given the opportunity to take on develop-
ment and design activities. It is not enough to say that concentration
in certain areas of the country, on the basis of Nobel Prize winners,
is the only answer in the achievement of national policy objectives
in R. & D. and supply procurement programs.
10. Adopt the program now being experimented with which requires ~5
percent of selected contracts to be produced in distressed areas and
devise a more liberal and exact interpretation of labor surplus area
set-aside policy. Contracting officers from all agencies, on pro-
curements over a certain size, should report on why a set-aside
under DMP No. 4 was not utilized
The set-aside programs of the DOD should be stepped up with
recognition given to other types in addition to those set forth in
ASPR 1-800. There should be set forth liberal interpretation of
"economic production run or reasonable lot" to assist procurement
and contracting personnel. The program now successfully underway
in the Defense Department, which requests a specific percentage of
selected contracts lending themselves to subcontracting to be produced
or subcontracted in a labor surplus area, should be encouraged and
utilized in other Government agencies. The percentage factors to be
utilized in such contract actions should be flexible to enable contract
placement under varying situations to as many prime contractors
as possible.
PAGENO="0024"
18 IMPACT OF DEFENSE SPENDL~G
11. Adopt new programs under which more subcontracts are awarded in
labor surplus areas
12. Institute a reporting system by which prime contractors with awards
above $100,000 must report subcontracts
Greater emphasis must be given to the problem of subcontracting
by prime contractors to firms in labor surplus areas. This will
require missionary work in the conduct of the national policy with
such contractors and it is for this reason that personnel at all levels
of procurement should be entirely familiar with the national policy
requirements. The "best efforts" clause (ASPR 1-805.3) and its
meaning and purpose should be stressed in contract negotiations and
coupled in interest with the requirements of ASPR 3-501 on prepara-
tion of requests for proposals and quotations. The subcommittee
recognizes that many of the labor surplus areas lack large defense-
oriented industrial complexes to qualify as prime contractors and that
much of the capacity in such areas falls within the small business
categories. These small businesses must be assisted in obtaining
small Government contracts, as well as subcontracts. The use of
breakout would assist such small contractors. The make-or-buy
section of contract proposals should be carefully reviewed by procure-
ment personnel to be sure that the national policy is being carried out.
Pertinent statistics and other data should be available to all procure-
ment personnel to assist them and prime contractors in the placement
of contracts in labor surplus areas. An award program giving recog-
nition to good work on the part of procurement personnel and con-
tractors should be established.
13. Government procurement contracts should provide for purchase at
point of origin so that firms located in distressed areas will be
competitive with firms that are located near points of delivery
There seems to be no reason why production should be encouraged
near points of delivery, yet freight costs are lower for firms adjacent
to points of delivery and thus they are more competitive. Firms in
distressed areas should be entitled to produce for the U.S. Govern-
ment, regardless of their location. Competition may be so keen
that for many of the common products purchased by the Nation, the
difference in freight charges alone may be the prime factor in keeping
firms in distressed areas from securing Government contracts.
14. ARA and the Office of Economic Utilization policy should study
the feasibility of having a factor covering public costs occasioned
by economic dislocation included in the determination of costs in
placing contracts
One of the functions of the Government contract under the na-
tional policy set forth in DMP No. 4 is to encourage full utilization
of existing production facilities and workers in preference to creating
new plants or moving workers, thus assisting in the maintenance of
economic balance and employment stability. Where unemployment
develops in certain areas, unemployment compensation costs increase,
and plants, tools, and worker skills remain idle, and are unable to
contribute to our defense program.
Therefore, the subcommittee recommends that a study be made of
including in the determination of costs for purposes of evaluation in
the placement of contracts a factor covering other public costs which
PAGENO="0025"
IMPACT OF DEFENSE SPENDING 19
would be occasioned by the pullout of contracts in a persistent and
substantial labor surplus area and the impact (money and otherwise)
on other Government agencies.
15. Prevent further concentration of defense industry by permitting
negotiation of contracts under 10 U.S.C. 2304
The subcommittee believes that among the tools available to the
Department of Defense which would facilitate the national defense in
its retention of the industrial base and manpower resources, and which
could be utilized in labor surplus areas, are the provisions set fQrth
in 10 U.S.C. 2304, providing for exceptions under which contracts
could be negotiated. These exceptions could and should be utilized
to preclude undue concentration, allow dispersal, utilization of in-
vestments in facilities, authorize research and development activities,
and like contract actions in labor surplus areas.
lfJ. Allow modifications of contracts under authority of Public Law
85-804 and Executive Order 10789 in cases where such action
would maintain productive facilities for national defense
Another avenue for action would be to utilize the powers set forth
in the Contract Adjustment Act of 1958 (Public Law 85-804, and
contained in 72 Stat. 972), and Executive Order 10789 of November
14, 1958 (23 F.R. 8897), which would authorize amendments and
modifications to contracts under certain situations, including hardship
relief, and which actions would facilitate the national defense in the
retention of skills, capabilities, protection of Government investment,
protection of Government facilities, and like activities in surplus labor
area cases.
EXECUTIVE ACTION-ESTABLISHMENT OF FACILITIES
17. Place new Government facilities wherever possible in labor-s'urplus
areas by requiring clearance for the placement of such facilities
outside of labor-surplus areas
The testimony dealt mostly with procurement and the impact of
Federal contracts made with private firms. The Defense Manpower
Policy No. 4 requirement concerning the location of Federal and
defense facilities, while not discussed in detail, is important. Each
year Federal officials plan and propose numerous projects from tem-
porary buildings to multistory permanent ones. Typically, these
facilities have been concentrated in a few localities, some where the
unemployment is relatively low. Agencies in the Federal Government
which contemplate establishment of facilities in the amount of an
excess of $50,000 should be required to clear such facility action and
to explain placement of such facility in other than a distressed or
labor surplus area, or to point out the reasons why tins mandate in
Defense Manpower Policy No. 4 has not been complied with.
EXECUTIVE ACTION-ASSISTANCE TO SOURCES
18. Implement the policy of maintaining the mobilization base
The subcommittee is aware of the fact that all Government agencies
want responsive and responsible contractor sources. The subcom-
mittee further recognizes that the source finding, selection, and
maintenance of source data are integral parts of the procurement
22-1O1-63-----4
PAGENO="0026"
20 IMPACT OF DEFENSE SPENDING
activity. The sum total of these sources is the industrial, scientific,
and mobilization base of the Nation and all areas of the country should
be an active part of this base. The retention of this entire industrial,
scientific, and mobilization base is a national defense objective and
should be so recognized.
The subcommittee recommends that the Department of Defense
exercise the use of the exceptions set forth in 10 U.S.C. 2304 and the
policy dictates of the Defense Production Act of 1950, as implemented
in its Directive 3005.3 to maintain an all-State and territory industrial
and mobilization base. Economic impact situation reports covering
active sources where immediate help is needed should be prepared at
the economic utilization headquarters in the agencies and sent out to
all procurement activities to the end that immediate steps could be
taken to retain and conserve the resources.
19. Make more readily available federally owned production equipment
for the use of firms in labor-surplus areas.
One of the major areas to be harnessed for utilization in labor
surplus areas is in the form of facilities assistance. The experience
of the United States in the oversea mutual defense assistance programs.
which included facility assistance, bespeaks this fact. The provisions
set forth in ASPR XIII covering acquisition and utilization of tooling
and other forms of facilities should be liberalized to recognize and
authorize labor surplus area contract acquisition and utilization.
Procedures should be devised to permit prompt execution of arrange-
ments with contractors, allowing use of Government facilities on
commercial as well as defense work where there are community impact
situations involving closing down by reason of stretchout, cutback, or
termination of Government business. If high-level approval of actions
is to be acquired, then immediate steps should be developed to process
such cases in an expedient way. The Department of Defense, OEP,
and other agencies working on policy and other aspects should develop
better procedures for this purpose. The DOD should immediately
undertake studies with respect to its authorities to utilize Public Law
883, 80th Congress, and 50 U.S.C. 451, in training activities. Its
industrial reserve should be made available to labor surplus contractors
under liberal terms to assist them in getting contracts and to enable
them to better perform a variety of prime and sub contracts. Pro-
grams should be initiated to indicate the "how and where" such
facilities might be acquired and utilized in the conduct of defense and
other agency contracts.
20. Render financial assistance to firms where it tends to encourage
dispersal of defense industry
Another possible avenue for utilization which affords guidance to
the DOD is contained in the Defense Production Act of 1950, as
amended (50 U.S.C., app. sec. 2062, et seq.). The policy section of
this statute, which is still in effect, calls upon the agencies of the
Government, including the Department of Defense, to insure produc-
tive capacity by encouragement of geographical dispersal of industrial
facffities and by the discouragement of concentration of such produc-
tive facilities within limited geographical areas. This policy also
requires, where practicable and consistent with existing law, to
render financial assistance for construction, expansion and improve-
PAGENO="0027"
IMPACT OF DEFENSE SPENDING 21
ment of industrial facilities, and in the procurement of goods and
services.
21. Lend, lease, transfer, or sell machine eguipment to nonprofit institu-
tions who will use it in programs which will materially contribute
to national defense
Another provision in law, the National Industrial Reserve Act of
1948 (50 U.S.C., sec. 451), declares it to be the intent of Congress to
provide for the future safety and defense of the United States by
assuring an essential nucleus of Government and industrial plants,
and a national reserve of machine tooling and industrial manufactur-
ing equipment. Under the National Industrial Reserve Act of 1948,
there is within the power of the Secretary of Defense authority, when
he deems such action to be in the interest of national security, to
establish policies respecting such property, to direct transfers, to
direct leasing, to authorize dispositions by sale or otherwise, and to
authorize and regulate lending to nonprofit educational institutions
or training schools upon determinations that the programs of such
schools for the use of property will contribute materially to national
defense.
Under foregoing authorities, the subcommittee believes and recom-
mends actions by the DOD which would more effectively correlate
its procurement, construction, and other activities with the national
policies respecting labor surplus areas. The subcommittee recom-
mends studies by the DOD that will enable the foregoing authorities
to be utilized in this regard.
22. Render technical assistance directly to contractors and subcontractors
in labor surplus areas and indirectly to subcontractors through
prime contractors
The subcommittee further recommends that the DOD determine the
feasibility of providing to contractors in labor surplus areas technical
assistance both to primes and to their subcontractors where condi-
tions are such as to warrant such action. It is recognized that while
administratively it is not the responsibility of the DOD to perform
a contractor's contract for him, the fact does remain that interpreta-
tion and assistance in understanding the design disclosure package
data of a contract and other forms of technical aid can be given such
prime and subcontractors and will enable their performance of the
contract in a more satisfactory way.
A study should also be initiated with respect to determining the
feasibility of assistance by prime contractors to their subcontractors
in this same regard.
EXECUTIVE ACTION-SOURCE SELECTION AND DISSEMINATION OF RE-
QUIREMENTS
23. Facilitate source finding through the use of electronic data processing
methods
Many sources, particularly those in labor-surplus areas, are un-
tapped, unrecognized, and thus not utilized. They are, in most cases,
ready, willing, and able to participate in furnishing national man-
power and facility resources which should be utilized. To better use
these sources, the subcommittee believes and recommends augmented
activities by Defense and other agencies in the development of elec-
PAGENO="0028"
22 IMPACT OF DEFENSE~ SPEND]~G
tronic and other capabilities for source finding, determination of
capability, and utilization to meet national policies and objectives.
The Area Redevelopment Administration's program for the develop-
ment of source data should be clearly understood in all departments
and utilized. Much missionary work with respect to source develop-
ment and utilization will be done without expense to the Government
departments by State and local development commissions, by labor
unions, chambers of commerce, and like civic groups.
24. Make requirements of proposed procurements more readily available
The subcommittee recommends that agencies such as the DOD,
NASA, AEC, and GSA take immediate steps to better develop and
utilize all labor surplus sources. This may require, in cases, additional
time for procurements, better publicity, more utilization of the daily
synopses prepared by the Department of Commerce and like media,
educational meetings, and like activities. Methods and procedures for
source selection, dissemination of requirements, preparation of re-
quests for proposals, determinations and findings, and like procurement
matters should be made available to industry associations (AlA,
NSIA, ETA, AOA, and others) and to the aforementioned groups, as
well as to requesting contractors. The evaluation techniques utilized
in source selection should be carefully spelled out.
EXECUTIVE ACTION-TRAINING ACTIVITIES
25. Organize task forces to meet with officials of educational institutions,
scientific, and industrial groups in all States to help them par-
ticipate in R. cf~ D. contracts
Defense, NASA, AEC, and like task forces should be organized to
visit and meet with officials of educational institutions, scientific, and
industry groups within each of the States to help them establish
relationships with the U.S. Government in those regards. The
Department of Defense should establish programs for this purpose.
26. Increase the efforts to educate potential bidders as to bidding pro-
cedures and criteria used in bid evaluation
The subcommittee is aware of and commends the DOD in its
activities covering discussions of procurement regulations, technical
meetings, and like training activities to afford science and industry
knowledge as to the ways and means whereby Government contracts
are programed, funded, executed, and performed. The subcommittee
believes and recommends that much more can be done in this regard.
It is our understanding that many of the industrial associations have
agreed to and would work with the DOD in the conduct of meetings
and in activities which would bring into effect the national policy
considerations in labor surplus areas. In the same regard, the State
and local governments have asked for such meetings. It is believed
that they should be arranged in all labor surplus areas of the country.
Such conferences could be sponsored by the DOD, NASA, GSA, and
other agencies and should solicit the participation of prime contractors,
subcontractors, and other interested elements of the community. As
a part of such conferences, field trips should be undertaken through
distressed areas, so that procurement representatives could meet on
the spot with firms and civic leaders mterested m Defense activities
PAGENO="0029"
IMPACT OF DEFENSE SPENDING 23
27. Indoctrinate procurement officers as to the President's national policy
and its implications of assisting distressed areas through Govern-
ment contracts
There appears, also, to be a need for definite indoctrination of
Defense, NASA, GSA, and other personnel engaged in procurement
activities bringing to their attention the national policy implications
and considerations, and affording them sufficient guidance as to the
relationship of procurement to such policies. This, in turn, will
require educational activities by the agencies with their own personnel.
EXECUTIVE ACTION-RESEARCH AND STUDIES
28. Investigate the relationship between the letting of R. ct~ D. contracts
and the placement of pursuant prime contracts
Such a study should includes a case-by-case study to determine the
frequency with which R. & D. contractors received follow-on prime
contract awards. It would also be useful to determine to what extent
procurement officers investigate the possibility of placing prime
contracts with firms who have not done the R. & D. work.
29. Publish statistics relative to productive potential in labor surplus
areas useful to firms considering placing new facilities in labor
surplus areas
The Commerce Department should find and publish statistics on
each area as to such factors as work force, numbers and capability,
resource advantages and such economic factors as average number of
days lost due to sickness, labor problems, and average rates of pro-
duction.
30. Issue complete reports on agencies' implementation oj DMP No. 4
NASA and GSA should issue a quarterly report similar to the reports
that are now issued by the Department of Defense, entitled, "Military
Prime Contract Awards Placed in Areas of Substantial TJnemploy-
ment." This report should include a complete breakdown of con-
tracts awarded in substantial and persistent labor surplus areas as
well as the number of contracts which are set aside under DMP No. 4.
In this connection, the report issued semiannually by the Department
of Defense should include all these statistics.
31. Expand the responsibility of the Office of Emergency Planning to
include preparation of studies and suggestions to improve the
Long-range health of the economy
A thorough consideration should be given to expanding the function
of the Office of Emergency Planning to include making studies and
recommendations to increase the economic strength of our Nation.
DMP No. 4 recognizes the tremendous necessity of maintaining a
healthy and growing economy as seen in its opening statement:
Success of the defense program depends upon efficient use of all our resources,
including ~manpower and facilities, which are preserved through practice of the
skills of both management and workers.
No persuasion should be necessary to convince the Congress that an
expanding unemployment rate makes us as vulnerable to ultimate
defeat as if we were to fail behind the Communist bloc in military
technology.
One of the most significant findings of these hearings is that a lack
of coordination and planning may be responsible for some of the~Na-
PAGENO="0030"
24 IMPACT OF DEFENSE SPENDING
tion's worst economic problems, including the existence of persistent
and substantial labor surplus areas. It may well be that by antici-
pating shifts in defense spending and other factors in our economy
and acting accordingly, industry and government, working coopera-
tively, could have prevented distressed areas. Such a study should
include the possibility of expanding the Office of Emergency Planning
to perform the following functions:
(a) Collecting suggestions and projections of future U.S.
Government activity affecting the economy.
(b) Making a survey of all leading industries and other pro-
ductive areas of the economy to determine their long-range plans
and potential problems.
This information, properly formulated, could be used cooperatively
by Government and industry in making long-range economic plans
and projections.
EXECUTIVE ACTION-ASSISTANCE TO SMALL BUSINESSES
32. Continue active and increasing effective implementation of govern-
mental policy regarding small business participation in Govern-
ment procurement
The subcommittee has consistently supported a strong governmen-
tal policy to assure small concerns a fair opportunity to compete for
Government contracts. Because of the interest of this and other
congressional committees, an active and effective program of assist-
ance to small concerns exists within the various procurement activities.
In addition, Congress has authorized a program of procurement set
asides for small busmess. This subcommittee has supported this pro-
gram and continues to do so. It hopes that the scope of the set-aside
program will be broadened to make an even greater percentage of
Government procurement available to small concerns in those cases
where sufficient competition among small bidders can assure com-
petitive prices.
The small and independent American businessman is the first to
suffer in depressed areas. Accordingly, this subcommittee strongly
urges that existing programs and those recommended in this report
to assist depressed areas be pursued vigorously along with all other
established programs of assistance to small concerns. Such an effec-
tive governmental program fully supported at all levels will serve to
strengthen the American small business community and the entire
national economy.
PAGENO="0031"
SUPPLEMENTAL VIEWS OF SENATOR HARRISON A.
WILLIAMS, JR., OF NEW JERSEY
I wish to say, in signing this report, that I am in full accord with
the general principle of directing additional Federal resources, includ-
ing defense spending, into areas of substantial unemployment. This
report is a valuable assessment of what can and should be done to im-
plement our national policy in this respect.
However, I am very much concerned about the adequacy of the
criteria presently used to identify and designate areas of substantial
and persistent unemployment.
Unless greater attention is devoted to this basic question, I fear we
may end up building an imposing edifice of governmental programs
and policies on the wrong foundation.
In addition to the recommendations contained in this report con-
cerning defense spending in labor surplus areas, two other major pro-
gTams-the Area Redevelopment Act and the accelerated public works
program-are also tied to the same concept of labor surplus areas.
In my judgment, however, the designation of labor surplus areas
suffers from two serious inadequacies.
First, the geographical boundaries of the area for which employment
statistics are compiled to determine whether the area suffers substan-
tial and persistent unemployment are based on the availability of jobs
within commuting distance, which completely ignores other causes of
hard-core unemployment.
Second, the eligibility of an area for additional Federal assistance
is based on the percentage of unemployment rather than on the num-
ber of people unemployed. It seems to me that we ought to be talking
about people and not percentages.
As a result of these inadequacies, we find many larger cities like
Newark, N.J., which find themselves beyond the pale of any special
governmental consideration. Yet these larger cities, set in the
middle of a generally prosperous region, have undeniably acute
problems of hard-core unemployment and a critical need for the
infusion of outside capital to compensate for the city's shrinking tax
base and swelling welfare costs.
Surely there is something the matter with our present system when
the Newark labor market area-with more than 48,000 men and
women unemployed, many of whom present special hard-core em-
ployment problems-receives no special consideration while areas
with only a fraction of that number unemployed are given top priority
attention by a number of Federal programs simply because the per-
centage of unemployment happens to be somewhat higher. I cannot
help but feel that we are taking first things last.
I earnestly hope, therefore, that the subcommittee will schedule
additional hearings in the near future to explore the adequacy of our
present methods of selecting areas for special governmental attention
and aids.
HARRISON A. WILLIAMS, Jr.
25
PAGENO="0032"
STATEMENT OF SENATOR FRANK E. MOSS
The pressure of business prevented my attending the hearings on
the impact of defense spending on labor surplus areas on which this
report is based. Therefore, I wish to disassociate myself from this
report. I neither approve nor disapprove the subcommittee's find-
ings on this subject.
FRANK E. Moss.
26
PAGENO="0033"
APPENDIX A
STATISTICS ON DEFENSE SPENDING IN LABOR-SURPLUS AREAS
(This table serves to update the statistics on defense spending in
labor-surplus areas as reported in the hearings. Perhaps the most
significant figure is the decreased percentage of defense contracts
placed through the labor-surplus set-aside program.)
Areas of per-
sistent and
substantial
labor surplus
Areas of sub-
stantial labor
surplus
Number of areas
Population of areas
499
22, 500,000
12.5
8,800,000
966, 000
11.0
1,014,000, 000
4
60,100,000
0.24
633
51,800,000
29
20,200,000
1,803,000
8.9
7,400,000,000
295
106, 000, 000
0.42
Percent of Nation's population
Labor force in areas
Number of unemployed in areas
Unemplojtment rate
Prime contracts in areas
Percent of total prime contracts in areas
Set-asides in areas
Percent of prime contract in areas through set-asides
NoTE-Population figures are for May 1962 and Defense spending figures are for fiscal 1962.
Source: Office of Economic Utilization Policy, Department of Defense.
22-1O1-63-----5
27
PAGENO="0034"
APPENDIX B
A COMPILATION OF POLICY DIRECTIVES, STATUTES, AND REGULATIONS
RELATING TO PROCUREMENT IN DISTRESSED AREAS
CONTENTS
I. Policy directives.
1. Defense manpower policy No. 4.
2. Department of Defense directive 3005.3.
II. Statutes:
1. Full Employment Act of 1946.
2. Defense Production Act of 1950.
3. Merchant Marine Act of 1936, as amended.
4. Defense Procurement Act of 1947.
5. Department of Defense Appropriations Act of 1963.
6. Contract Adjustment Act of 1958.
7. Areas Development Act.
8. Manpower Development and Training Act of 1962.
9. Public Works Acceleration Act.
10. National Industrial Reserve Act of 1948.
11. Defense Public Works and Housing Act.
12. Trade Expansion Act of 1962.
III. Regulations:
1. Armed services procurement regulations concerning procurement
policies and procedures for aiding labor surplus areas.
2. Armed services procurement regulations concerning policies and
procedures on "make-or-buy" programs.
3. Armed services procurement regulations concerning advantages
given to labor surplus area concerns in competition with foreign
firms.
4. Title 41, Code of Federal Regulations ("Public Contracts").
I. POLICY DIRECTIVES
Defense Manpower Policy No. 4
DMP 4-PLACEMENT OF PROCUREMENT AND FACILITIES IN AREAS OF PERSISTENT
OR SUBSTANTIAL LABOR SURPLUS
REVISION
1. Introduction. Success of the defense program depends upon efficient use
of all our resources, including manpower and facilities, which are preserved
through practice of the skills of both management and workers.
A primary aim of Federal manpower policy is to encourage full utilization of
existing production facifities and workers in preference to creating new plants or
moving workers, thus assisting in the maintenance of economic balance and
employment stabifity. When large numbers of workers move to already tight
areas, heavy burdens are placed on community facilities-schools, hospitals,
housing, transportation, utilities, etc. On the other hand, when unemployment
develops in certain areas, unemployment compensation costs increase and plants,
tools, and workers' skills remain idle and unable to contribute to our defense
program.
2. Purpose. It is the purpose of this Defense Manpower Policy No. 4 to direct
attention to the potentialities of areas of persistent or substantial labor surplus,
hereafter referred to as labor surplus areas, for the placement of procurement
contracts or the location of new plants or facilities, and to assign responsibilities
to specified departments and agencies of the Government to carry out the policy
stated below.
3. Policy. It is the policy of the Federal Government to encourage the
placing of contracts and facilities in areas of persistent~ or substantjal labor
28
PAGENO="0035"
IMPACT OF DEFENSE SPENDING 29
surplus, with first preference being given in areas of persistent labor surplus, and
to assist such areas in making the best use of their available resources in order to
achieve the following objectives:
(a) To preserve management and employee skills necessary to the fulfill-
ment of Government contracts and purchases;
(b) To maintain productive facilities;
(c) To improve utilization of the Nation's total manpower potential by
making use of the manpower resources of each area;
(d) To help assure timely delivery of required goods and services and to
promote readiness for expanded effort by locating procurement where the
needed manpower and facilities are fully available.
4. Implementation. By virtue of the authority vested in me by Executive
Order 10480 and Executive Order 10773, as amended, and to carry out the purpose
and policy objectives set forth above, the following assignments of responsibilities
are made to the specified departments and agencies of the Government:
(a) The Department of Labor shall:
(1) Classify areas having a persistent or substantial surplus of labor,
under standards to be established by the Secretary of Labor.
(2) In cooperation with the States and labor surplus areas, provide
labor market data and related economic information in efforts to assist
in the initiation of industrial expansion programs in these areas.
(3) Identify skills which are in surplus supply within such areas and
make this information available to firms requiring such skills and
interested in establishing new plants and facilities.
(4) Identify occupations and skills for which labor will be needed by
new or expanding industries; and, in collaboration with other govern-
mental agencies, make assistance available to area institutions and
manpower users in developing on-the-job apprentice or other training
programs for developing skills of the workforce.
(b) All procurement agencies shall:
(1) Use their best efforts to award negotiated procurement contracts
to contractors who will perform a substantial proportion of the produc-
tion on those contracts within labor surplus areas, giving first preference
to contractors performing in persistent labor surplus areas, to the extent
that procurement objectives will permit: Provided, That in no case will
price differentials be paid for the purpose of carrying out this policy.
(2) Where deemed appropriate, set-aside portions of procurements
for negotiation at prices no higher than those paid on the balance of
these procurements exclusively with firms which will perform or cause
to be performed a substantial proportion of the production on these
contracts within labor surplus areas, giving first preference to firms in
persistent labor surplus areas: Provided further that firms which will
perform in areas not meeting the minimum size qualifications for classifi-
cation by the U.S. Department of Labor shall be eligible for participation
in set-asides, if these firms submit a certificate issued by the U.S. De-
partment of Labor that a persistent or substantial labor surplus exists
in the area in accordance with standards and procedures prescribed by
the U.S. Department of Labor.
(3) Assure that firms in labor surplus areas which are on appropriate
bidders' lists will be given the opportunity to submit bids or proposals on
all procurements for which they -are qualified. Whenever the number
*of firms on a bidders' list is excessive, there will be included a repre-
sentative number of firms from labor surplus areas.
(4) In the event of tie bids or offers on any procurement, award the
contract to the firm which will perform in a labor surplus area, other
things being equal, giving firSt preference to firms in persistent labor
surplus areas.
(~5) Encourage prime contractors to award subcontracts to firms
which will perform ~a substantial proportion of the production on those
subcontracts in: labor --surplus areas, particularly in areas of persistent
* labor surplus. -. *-; : *
(6) The preferential actions described in this policy shall be in addition
to other such actions to * which firms may be entitled because of per-
formance in substantial labor -surplus areas, such as additional preference
under the' Buy American Act
(7) Cooperate- with the other agencies listed herein in achieving the
objectives of this PolicY.
PAGENO="0036"
30 IMPACT~ OF DEFENSE. SPENDING
(c) The Department of Commerce shall:
(1) In cooperation with State development agencies, the Department
of Defense, the General Services Administration, and the Small Business
Administration, assist manufacturers in areas of persistent labor surplus
in obtaining Government procurement business by (a) providing such
firms with timely information on proposed Government procurements;
(b) maintaining current information on the manufacturing capabilities
of labor surplus area firms with respect to Government procurement and
disseminating such information to Federal procurement agencies.
(2) Urge firms planning new production facilities (where Federal
assistance or interests are involved) to consider the industrial location
advantages of labor surplus areas.
(3) Provide technical advice and counsel to groups and organizations
in labor surplus areas on planned industrial parks, industrial develop-
ment organizations, expanding tourist business, and available Federal
aids.
(d) The Small Business Administration shall make available to small
business concerns in labor surplus areas all of its services, endeavor to insure
opportunity for maximum participation by such concerns in Government
procurement, and give consideration to the needs of. these concerns in the
making of joint small business set-asides with Government procurement
agencies.
(e) There is hereby created within the Office of. Civil and Defense Mobili-
zation a Surplus Manpower Committee:
(1) This Committee shall be chaired by the Deputy Assis.tant Director
for Manpower of the Office of Civil and Defense Mobilization and shall
include representation from the Department of Defense. (including the
three military departments), Department of Commerce, Department of
Labor, General Services Administration, and Small Business Administra-
tion.
(2) The Committee shall advise the Director of the Office of Civil and
Defense Mobilization and its member agencies on policies, procedures,
and activities in existence or needed to carry out the purpose of this
policy.
(3) When an entire industry, which sells a significant proportion of
its production to the Government, is generally depressed or has a sig-
nificant proportion of its production units located in areas of persistent
or substantial labor surplus, the Committee may make appropriate
recommendations relative to that industry in lieu of. recommendations
relative to specific geographical areas. In such cases, after notice to
and hearing of interested parties, the Director of the Office of Civil
and Defense Mobilization will give consideration to appropriate meas-
ures applicable to the entire industry.
(f) The Regional Directors of OCDM shall, with the advice and assistance
of the Regional Civil and Defense Mobilization Boards, recommend actions
considered desirable to carry out the purposes of this policy to the Chairman
of the Office of Civil and Defense Mobilization Surplus Manpower Com-
mittee.
(g) All Federal departments and agencies shall give consideration to labor
surplus areas, particularly to persistent labor surplus areas, in the selection of
sites for Government-financed facilities expansion, to the extent that such
consideration is not inconsistent with essential economic and strategic factors
that must also be taken into account.
(h) All agencies assigned responsibilities under this policy, shall submit
such reports on their activities as may be requested in connection therewith
to the Office of Civil and Defense Mobilization, and shall submit such addi-
tional information as may be necessary.
(i) All existing notifications of labor surplus areas issued by the U.S. De-
partment of Labor pursuant to Defense Manpower Policy No. 4, dated
November 4, 1953, as amended July 29, 1955, continue in force. Notifica-
tions Nos. 38, 39, 53, 57, and 58, dealing with the placement of procurement
with the textile, shoe, apparel, shipbuilding, nd petroleum and petroleum
products industries, are continued in effect to the extent that they are not
inconsistent with this revised policy.
Effective date. This revised policy shall take effect on July 6, 1960.
Lno A. HOEGII, Director.
[F.R. Doc. 60-5387; Filed, ~une 13, 1960; 8:50 a.m.1
PAGENO="0037"
IMPACT OF DEFENSE SPENDING 31
Department of Defense Directive No.3005.3, December 7, 1954
Subject: Maintenance of the mobilization base.~
Reference: Office of Defense Mobilization Order DM0 VII-7, as amended.
I. PURPOSE
The purpose of this directive is to integrate Department of Defense procure-
ment policy with industrial mobilization plans in order to maintain a sound
mobilization base.
II. POLICY
The referenced document prescribes the Government policy for maintaining
the mobilization base. With respect to current procurement particular attention
is invited to paragraph 3A which provides in part:
"1. Procurement agencies shall integrate current procurement with their
industrial mobilization plans to the greatest possible extent with the objec-
tive of supporting the mobilization base within authorities and funds avail-
able.
2 Data assembled on essential mobilization suppliers by the industrial
mobilization planning of these agencies shall be used in planning current
procurement. The policy of using contractors and facilities essential to the
mobilization base is considered to be in the best interest of the Government.
Suppliers that are deemed to be part of the mobilization base normally~ will
be invited to participate in appropriate current procurement."
III. ACTION
In furtherance of this policy and to integrate current procurement with mili-
tary mobilization plans, the military departments are requested to review
proposed procurement of items contained in the Department of Defense Prefer-
ential Planning List. Responsibility for such review should be maintained at
the level of the Procurement Secretaries or their authorized designees. Such
review should take into consideration the following:
a. Maintaining multiple sources of supply;
b. Geographic dispersal;
c. Avoidance of undue concentration of contracts in a few leading sup-
pliers;
d Multiple awards,
e. Preservation of essential skilled labor forces;
f. Utilization of existing open industrial capacity;
g. Preservation of essential management organization and "know-how";
h. Maximum subcontracting; and
i. Any other factors relevant to maintaining a sound mobilization base.
In carrying out this program it is expected that the authority contained in
Sections 2(c) 1 and 16 of the Armed Services Procurement Act will be utilized.
In this connection comparative price experience shall be utilized to negotiate
the best possible price for the Government.
IV. IMPLEMENTATION
Each military department will proceed with the revision of regulations, pro-
cedures and instructions as necessary to implement the provisions hereof and
will submit such revised regulations, procedures and instructions in duplicate to
the Assistant Secretary of Defense (Supply and Logistics) within 30 days after
the date of this directive.
V. REPORTS
Each military department will report actions taken pursuant to this directive
to the Assistant Secretary of Defense (Supply and Logistics). Such reports
shall be submitted at least every 90 days.
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32 IMPACT OF DEFENSE SPENDII~G
II. STATUTES
Full Employment Act of 1946, Public Law 79-340, 60 Stat. 33
AN ACT To declare a national policy on employment, production, and purchasing power, and for other
purposes
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled,
SHORT TITLE
SECTION 1. This Act may be cited as the "Employment Act of 1946".
DECLARATION OF POLICY
SEC. 2. The Congress hereby declares that it is the continuing policy and
responsibility of the Federal Government to use all practicable means consistent
with its needs and obligations and other essential considerations of national policy,
with the assistance and cooperation of industry, agriculture, labor, and State and
local governments, to coordinate and utifize all its plans, functions, and resources
for the purpose of creating and maintaining, in a manner calculated to foster
and promote free competitive enterprise and the general welfare, conditions under
which there will be afforded useful employment opportunities, including self-
employment, for those able, willing, and seeking to work, and to promote maximum
employment, production, and purchasing power.
ECONOMIC REPORT OF THE PRESIDENT
SEC. 3. (a) The President shall transmit to the Congress within sixty days
after the beginning of each regular session (commencing with the year 1947) an
economic report (hereinafter called the "Economic Report") setting forth (1) the
levels of employment, production, and purchasing power obtaining in the United
States and such levels needed to carry out the policy declared in section 2; (2) cur-
rent and foreseeable trends in the levels of employment, production, and pur-
chasing power; (3) a review of the economic program of the Federal Government
and a review of economic conditions affecting employment in the United States
or any considerable portion thereof during the preceding year and of their effect
upon employment, production, and purchasing power; and (4) a program for
carrying out the policy declared in section 2, together with such recommendations
for legislation as he may deem necessary or desirable.
(b) The President may transmit from time to time to the Congress reports
supplementary to the Economic Report, each of which shall include such supple-
mentary or revised recommendations as he may deem necessary or desirable to
achieve the policy declared in section 2.
(c) The Economic Report, and all supplementary reports transmitted under
subsection (b), shall, when transmitted to Congress, be referred to the joint
committee created by section 5.
COUNCIL OF ECONOMIC ADVISERS TO THE PRESIDENT
SEC. 4. (a) There is hereby created in the Executive Office of the President a
Council of Economic Advisers (hereinafter called the "Council"). The Council
shall be composed of three members who shall be appointed by the President, by
and with the advice and consent of the Senate, and each of whom shall be a person
who, as a result of his training, experience, and attainments, is exceptionally
qualified to analyze and interpret economic developments, to appraise programs
and activities of the Government in the light of the policy declared in section 2,
and to formulate and recommend national economic policy to promote employ-
ment, production, and purchasing power under free competitive enterprise. Each
member of the Council shall receive compensation at the rate of $15,000 per
annum. The President shall designate one of the members of the Council as
chairman and one as vice chairman, who shall act as chairman in the absence of
the chairman.
(b) The Council is authorized to employ, and fix the compensation of, such
specialists and other experts as may be necessary for the carrying out of its
functions under this Act, without regard to the civil-service laws and the Clas-
sification Act of 1923, as amended, and is authorized, subject to the civil-service
laws, to employ such other officers and employees as may be necessary for carrying
out its functions under this Act, and fix their compensation in accordance with
the Classification Act of 1923, as amended.
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IMPACT OF DEFENSE SPENDING 33
(c) It shall be the duty and function of the Council-
(1) to assist and advise the President in the preparation of the Economic
Report;
(2) to gather timely and authoritative information concerning economic
developments and economic trends, both current and prospective, to analyze
and interpret such information in the light of the policy declared in section 2
for the purpose of determining whether such developments and trends are
interfering, or are likely to interfere, with the achievement of such policy,
and to compile and submit to the President studies relating to such develop-
ments and trends;
(3) to appraise the various programs and activities of the Federal Govern-
ment in the light of the policy declared in section 2 for the purpose of determin-
ing the extent to which such programs and activities are contributing, and
the extent to which they are not contributing, to the achievement of such
policy, and to make recommendations to the President with respect thereto;
(4) to develop and recommend to the President national economic policies
to foster and promote free competitive enterprise, to avoid economic fluctua-
tions or to diminish the effects thereof, and to maintain employment, pro-
duction, and purchasing power;
(5) to make and furnish such studies, reports thereon, and recommenda-
tions with respect to matters of Federal economic policy and legislation as
the President may request.
(d) The Council shall make an annual report to the President in December
of each year.
(e) In exercising its powers, functions and duties under this Act-
(1) the Council may constitute such advisory committees and may consult
with such representatives of industry, agriculture, labor, consumers, State
and local governments, and other groups, as it deems advisable;
(2) the Council shall, to the fullest extent possible, utilize the services,
facilities, and information (including statistical information) of other Govern-
ment agencies as well as of private research agencies, in order that duplication.
of effort and expense may be avoided.
(f) To enable the Council to exercise its powers, functions, and duties under this
Act, there are authorized to he appropriated (except for the salaries of the members
and the salaries of officers and employees of the Council) such sums as may be
necessary. For the salaries of the members and the salaries of officers and em-
ployees of the Council, there is authorized to he appropriated not exceeding
$345,000 in the aggregate for each fiscal year.
* * * * * *
Defense Production Act of 1950, Public Law 81-774, 64 Stat. 798, 50
App. U.S.C. § 2061 et seq.
§ 2062. Declaration of policy
In view of the present international situation and in order to provide .for the
national defense and national security, our mobilization effort continues to. require
some diversion of certain materials and facilities from civilian use to military and
related purposes. It also requires the development of preparedness programs and
the expansion of productive capacity and supply beyond the levels needed to meet
the civilian demand, in order to reduce the time required for full mobilization
in the event of an attack on the United States.
In order to insure productive capacity in the event of such an attack on the
United States, it is the policy of the Congress to encourage the geographical
dispersal of the industrial facilities of the United States.iu the interest of the na-.
tional defense, and to discourage the concentration of such productive facilities
within limited geographical areas which are vulnerable, to attack by an enemy of
the United States. In the construction of any Government-owned industrial
facilities, in the rendition of any Government financial assistance for the construc-
tion, expansion, or improvement of any industrial facilities, and in the procurement
of goods and services, under this or any other Act, each department and agency
of the Executive Branch shall apply, under the coordination of the Office of De-
fense Mobilization, when practicable and consistent with existing law and the
desirability for maintaining a sound economy, the principle of the geographical
dispersal of such facilities in the interest of national defense Nothing contained
in this paragraph shall preclude the use of existing industrial facilities
PAGENO="0040"
34 IMPACT OF DEFENSE SPENDfl~G
TITLE Ill-EXPANSION OF PRODUCTIVE CAPACITY AND SUPPLY
§ 2091. Loan guarantees-Purpose of loans; guaranteeing agencies
(a) In order to expedite production and deliveries or services under Government
contracts, the President may authorize, subject to such regulations as he may
prescribe, the Department of the Army, the Department of the Navy, the Depart-
ment of the Air Force, the Department of Commerce, and such other agencies of
the United States engaged in procurement for the national defense as he may
desi nate (hereinafter referred to as "guaranteeing agencies"), without regard
to provisions of law relating to the making, performance, amendment, or modifica-
tion of contracts, to guarantee in whole or in part any public or private financing
institution (including any Federal Reserve bank), by commitment to purchase,
agreement to share losses, or otherwise, against loss of principal or interest on
any loan, discount, or advance, or on any commitment in connection therewith,
which may be made by such financing institution for the purpose of financing
any contractor, subcontractor, or other person in connection with the performance
of any contract or other operation deemed by the guaranteeing agency to be
necessary to expedite production and deliveries, or services under Government
contracts for the procurement of materials or the performance of services for
the national defense, or for the purpose of financing any contractor, subcontractor,
or other person in connection with or in contemplation of the termination, in the
interest of the United States, of any contract made for the national defense;
but no small-business concern (as defined in section 714(a) (1) of this Act) shall
be held ineligible for the issuance of such a guaranty by reason of alternative
sources of supply.
§ 2092. Loans to private business enterprises
To expedite production and deliveries or services to aid in carrying out Govern-
ment contracts for the procurement of materials or the performance of services
for the national defense, the President may make provision for loans (including
participations in, or guarantees of, loans) to private business enterprises (including
research corporations not organized for profit) for the expansion of capacity,
the development of technological processes, or the production of essential materials,
including the exploration, development, and mining of strategic and critical
metals and minerals, and manufacture of newsprint. Such loans may be made
without regard to the limitations of existing law and on such terms and conditions
as the President deems necessary, except that financial assistance may he ex-
tended only to the extent~that it is not otherwise available on reasonable terms.
Merchant Marine Act of 1936, a'~ Amended; Pi~blic Law 74-835,
4611.5.0. 1152(f), 49 Stat. 1996
SURVEY OF SHIPBUILDING CAPABILITY; CORRECTION OF INADEQUACIES
(f) The Secretary of Commerce, with the advice of and in coordination with
the Secretary of the Navy, shall at least once each year, as required for purposes
of this chapter, survey the existing privately owned shipyards capable of mer-
chant ship construction, or review available data on such shipyards if deemed
adequate, to determine whether their capabilities for merchant ship construction,
including facilities and skilled personnel, provide an adequate mobilization base
at strategic points for purposes of national defense and national emergency. The
Secretary of Commerce, in connection with ship construction, reconstruction,
reconditioning, or remodeling under sections 1191-1204 and section 1159 of this
title, and the Federal Maritime Board, in connection with ship construction,
reconstruction, or reconditioning under sections 1151-1161 of this title (except
section 1159 of this title), upon a basis of a finding that the award of the pro-
posed construction, reconstruction, reconditioning, or remodeling work will remedy
an existing or impending inadequacy in such mobilization base as to the capabili-
ties and capacities of a shipyard or shipyards at a strategic point, and after
taking into consideration the benefits accruing from standardized construction,
the conditions of unemployment, and the needs and reasonable requirements of
all shipyards, may allocate such construction, reconstruction, reconditioning, or
remodeling to such yard or yards in such manner as it may be determined to be
fair, just, and reasonable to all sections of the country, subject to the provisions
of this subsection. In the allocation of construction work to such yards as herein
provided, the Board or Secretary may, after first obtaining competitive bids for
PAGENO="0041"
IMPACT OF DEFENSE SPENDING 35
such work in compliance with the provisions of this chapter, negotiate with the
bidders and with other shipbuilders concerning the terms and conditions of any
contract for such work, and is authorized to enter into such contract at a price
deemed by the Board or Secretary to be fair and reasonable. Any contract
entered into by the Board or Secretary under the provisions of this subsection
shall be subject to all of the terms and conditions of this chapter, excepting those
pertaining to the awarding of contracts to the lowest bidder which are inconsistent
with the provisions of this subsection. In the event that a contract is made
providing for a price in excess of the lowest responsible bid which otherwise would
be accepted, such excess shall be paid by the Board or Secretary as a part of the
cost of national defense, and shall not be considered as a part of the construction-
differential subsidy. In the event that a contract is made providing for a price
lower than the lowest responsible bid which otherwise would be accepted, the
construction-differential subsidy shall be computed on the contract price in lieu
of such bid.
Defense Procurement Act of 1947, 10 U.S.C. 2304. Source (Statutes
at Large) Feb. 19, 1948, chapter 65, §~ 2(b) (less first sentence),
(c), (e), 7(d), 8, 62 Stat. 21, 22, 24, amended
§ 2304. Purchases and contracts: formal advertising; exceptions
(a) Purchases of and contracts forproperty or services covered by this chapter
shall be made by formal advertising. However, the head of an agency may
negotiate such a purchase or contract, if-
(1) it is determined that such action is necessary in the public interest
during a national emergency declared by Congress or the President;
* * * * * * *
(5) the purchase or contract is for any service by a university, college, or
other educational institution;
* * * * * * *
(11) the purchase or contract is for property or services that he determines
to be for experimental, developmental, or research work, or for making or
furnishing property for experiment, test, development, or research;
*, * * * * * *
(13) the purchase or contract is for equipment that he determines to be
technical equipment whose standardization and the interchangeability of
whose parts are necessary in the public interest and whose procurement by
negotiation is necessary to assure that standardization and interchangeability;
(14) the purchase or contract is for technical or special property that he
determines to require a substantial initial investment or an extended period
of preparation for manufacture, and for which he determines that formal
advertising and competitive bidding might require duplication of investment
or preparation already made or would unduly~delay the procurement of that
property; or
* * * *~ * * *
(16) he determines that (A) it is in the interest of national defense to
have a plant, mine, or other facility, or a producer, manufacturer, or other
supplier, available for furnishing property or services in case of a national
emergency; or (B) the interest of industrial mobilization in case of such an
emergency, or the interest of national defense in maintaining active engi-
neering, research, and development, would otherwise be subserved; or
(17) negotiation of the purchase or contract is otherwise authorized by law
* * * * * * *~
1962 Amendment to 10 U.S.C. 2304; Public Law 87-653, §1 (a)-(c),
76 Stat. 528
* * *- * * *
(g) In all negotiated procurements in excess of $2,500 in which rates or prices
are not fixed by law or regulation and in which time of delivery will permit,
proposals shall be solicited from the maximum number of qualified sources
22-1O1-63------6
PAGENO="0042"
36 IMPACT OF DEFENSE SPENDING
consistent with the nature and requirements of the supplies or services to be
procured, ana written or oral discussions shall be conducted with all responsible
offerors who submit proposals within a competitive range, price, and other factors
considered: Provided, however, That the requirements of this subsection with
respect to written or oral discussions need not be applied to procurements in
implementation of authorized set-aside programs or to procurements where it
can be clearly demonstrated from the existence of adequate competition or ac-
curate prior cost experience with the product, that acceptance of an initial proposal
without discussion would result in fair ana reasonable prices anci where the
request for proposals notifies all offerors of the possibility that award may be
made without discussion.
Department of Defense Appropriation Act, 1963, Public Law 87-577;
76 Stat. 318, 382
* *. * * * * *
SEC. 523. No part of any appropriation contained in this Act shall be available
for the procurement of any article of food, clothing, cotton, woven silk and woven
silk blends, spun silk yarn for cartridge cloth, or wool (whether in the form of
fiber or yarn or contained in fabrics, materials, or manufactured articles) not
grown, reprocessed, reused, or produced in the United States or its possessions,
except to the extent that the Secretary of the Department concerned shall de-
termine that a satisfactory quality and sufficient quantity of any articles of
food or clothing or any form of cotton, woven silk and woven silk blends, spun
silk yarn for cartridge cloth, or wool grown, reprocessed, reused, or produced
in the United States or its possessions cannot be procured as and when needed
at United States market prices and except procurements outside the United States
in support of combat operations, procurements by vessels in foreign waters and
emergency procur~ment.s or procurements of perishable foods by establishments
located outside the United States for the personnel attached thereto: Provided,
That nothing herein shall preclude the procurement of foods manufactured -or
processed in the United States or its possessions: Provided further, That no funds
herein appropriated shall be used for the payment of a price differential on contracts
hereafter made for the purpose of relieving economic dislocations: Provided further,
That none of the funds appropriated in this Act shall-be used except that, so far
as practicable, all contracts shall be awarded on a formally advertised competitive
bid basis to the lowest responsible bidder.
* * -- * * * * *
Contract Adjustment Act of 1958, Public Law 85-804, 72 Stat. 972,
50 U.S.C. §~ 1431-1 435
AN ACT To authorize the making, amendment, and modification of contracts to facilitate the nationa
defense
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, That the President may authorize any department
or agency of the Government which exercises functions in connection with the
national defense, acting in accordance with regulations prescribed by the President
for the protection of the Government, to enter into contracts or into amendments
or modifications of contracts heretofore or hereafter made and to make advance
payments thereon, without regard to other provisions of law relating to the
making, performance, amendment, or modification of contracts, whenever he
deems that such action would facilitate the national defense. The authority
conferred by this section shall not be utilized to obligate the United States in an
amount in excess of $50,000 without approval by an official at or above the level
of an Assistant Secretary or his Deputy, or an assistant head or his deputy, of
such department or agency, or by a Contract Adjustment Board established
therein.
SEC. 2. Nothing in this Act shall be construed to constitute authorization
hereunder for- -
(a) the use of the cost-plus-a-percentage-of-cost system of contracting;
(h) any contract in violation of existing law relating to limitation of
profits; -
PAGENO="0043"
IMFACT OF DEFENSE SPENDING 37
(c) the negotiation of purchases of or contracts for property or services
required by law to be procured by formal advertising and competitive
bidding:
(d) the waiver of any bid, payment, performance, or other bond required
bylaw;
(e) the amendment of a contract negotiated under section 2304(a) (15),
title 10, United States Code, or under section 302(c) (13) of the Federal
Property and Administrative Services Act of 1949, as amended (63 Stat.
377, 394), to increase the contract price to an amount higher than the lowest
rejected bid of any responsible bidder; or
(f) the formalization of an informal commitment, unless it is found that
at the time the commitment was made it was impracticable to use normal
procurement procedures.
SEc. 3. (a) All actions under the authority of this Act shall be made a matter of
public record under regulations prescribed by the President and when deemed by
him not to be detrimental to the national security.
(b) All contracts entered into, amended, or modified pursuant to authority
contained in this Act shall include a clause to the effect that the Comptroller
General of the United States or any of his duly authorized representatives shall,
until the expiration of three years after final payment, have access to and the
right to examine any directly pertinent books, documents, papers, and records of
the contractor or any of his subcontractors engaged in the performance of and
involving transactions related to such contracts or subcontracts.
SEc. 4. (a) Every department and agency acting under authority of this Act
shall, by March 15 of each year, report to Congress all such actions taken by that
department or agency during the preceding calendar year. With respect to actions
which involve actual or potential costs to the United States in excess of $50,000,
the report shall-
(1) name the Tontractor;
(2) state the actual cost or estimated potential cost involved;
(3) describe the property or services involved; and
(4) state further the circumstances justifying the action taken.
With respect to (1), (2), (3), and (4), above, and under regulations prescribed
by the President, there may be omitted any information the disclosure of which
would be detrimental to the national security.
(b) The Clerk of the House and the Secretary of the Senate shall cause to be
published in the Congressional Record all reports submitted pursuant to this
section.
SEC. 5. This Act shall be effective only during a national emergency declared
by Congress or the President and for six months after the termination thereof
or until such earlier time as Congress, by concurrent resolution, may designate.
Area Redevelopment Act, Public Law 87-27, 75 Stat. 47, 42 U.S.C.
2501 et seq.
AN ACT To establish an effective program toafleviate conditions of substantial and persistent unemp1oy~
~inent and underemployment in certain economically distressed areas.
Be it enacted by the Senate and House of Representatives of the L'nited States of
America in Congress assembled, That this Act may be cited as the "Area Redevelop-
ment Act".
DECLARATION OF PURPOSE
SEC. 2. The Cong~ess declares that the maintenance of the national economy
at a high level is vital to the best interests of the United States, but that some of
our communities are suffering substantial and persistent unemployment' and
underemployment; that such unemployment and underemployment cause hard-
ship to many individuals and their families and detract from the national welfare
by wasting vital human resources; that to overcome this problem the Federal
Government, in cooperation with the States, should help areas of substantial
and persistent unemployment and underemployment to take effective steps in
planning and financing their economic redevelopment; that Federal assistance to
communities, industries, enterprises, and individuals in areas needing redevelop-
ment should enable such areas to achieve lasting improvement and enhance the
domestic prosperity by the establishment of stable and diversified local economies
and improved local living conditions; and that under the provisions of this Act
PAGENO="0044"
38 Th~PACT OF DEFENSE SPENDfl~G
new employment opportunities should be created by developing and expanding
new and existing facilities and resources rather than by merely transferring jobs
from one area of the United States to another.
* * * * * *
REDEVELOPMENT AREAS
SEc. 5. (a) The Secretary shall designate as "redevelopment areas" those areas
within the United States in which he determines, upon the basis of standards
generally comparable with those set forth in paragraphs (1) and (2), that there has
existed substantial and persistent unemployment for an extended period of time.
There shall be included among the areas so designated any area-
* (1) where the Secretary of Labor finds that the rate of unemployment~
excluding unemployment due primarily to temporary or seasonal factors, is
currently 6 per centum or more and has averaged at least 6 per centum for
the qualifying time periods specified in paragraph (2); and
(2) where the Secretary of Labor finds that the annual average rate of
unemployment has been at least-
(A) 50 per centum above the national average for three of the preceding
four calendar years, or
(B) 75 per centum above the national average for two of the preceding
three calendar years, or
(C) 100 per centum above the national average for one of the preceding
two calendar years.
The Secretary of Labor shall find the facts and provide the data to be used by the
Secretary in making the determinations required by this subsection.
(b) The Secretary shall also designate as "redevelopment areas" those areas
(including Indian reservations) within the United States which do not meet the
requirements set forth in subsection (a) but which he determines are among the
highest in numbers and percentages of low-income families, and in which there
exists a condition of substantial and persistent unemployment or underemploy-
ment. In making the designations under this subsection and before extending
any financial assistance as the result of designations under this subsection, the
Secretary shall, by regulation, prescribe detailed standards upon which the
designations under this subsection shall be based. In the formulation of such
standards the Secretary shall consider, among other relevant factors, the number
of low-income farm families in the various rural areas of the LTnited States, the
proportion that such low-income families are of the total farm families of each of
such areas, the relationship of the income levelsof the families in each such area
to the general levels of income in the United States, the extent to which "rural
development" projects have previously been located in any such area under pro-
grams administered by the Department of Agriculture, the current and prospec-
tive employment opportunities in each such area, the availability of manpower
in each such area for supplemental employment, the extent of migration out of the
area, and the proportion of the population of each such area which has been re-
ceiving public assistance from the Federal Government or from the State or States
in which such area is locat&t or from any municipality therein. In making the
designations under this subsection, the Secretary shall endeavor to distribute
the projects widely among the several States, so far as is feasible and proper, in
order that actual experience with this program may be had in as many States and
in as many areas and under as many different circumstances as possible. In
making these determinations the Secretary shall be guided, but not conclusively
governed, by pertinent studies made, and information and data collected, or com-
piled, by (1) departments, agencies, and instrumentalities of the Federal Govern-
ment, (2) State and local governments, (3) universities and land-grant colleges,
and (4) private organizations.
(c) Upon the request of the Secretary, the Secretary of Labor, the Secretary
of Agriculture, the Secretary of the Interior, and such other heads of agencies as
may be appropriate are authorized to conduct such special studies, obtain such /
information, and compile and furnish to the Secretary such data as the Secretary
may deem necessary or proper to enable him to make the determinations provided
for in subsection (b) of this section. The Secretary shall reimburse when appro-
priate, out of any funds appropriated to carry out the purposes of this Act, the
foregoing officers for any expenditures incurred by them under this section~
(d) As used in this Act, the term "redevelopment area" refers to any area
within the United States which has~ been designated by the Secretary as a re-
development area.
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IMPACT OF DEFENSE SPENDING 39
LOANS AND PARTICIPATIONS
SEC. 6. (a) The Secretary is authorized to purchase evidences of indebtedness
and to make loans (which for purposes of this section shall include participations
in loans) to aid in financing any project within a redevelopment area for the
purchase or development of land and facilities (including, in cases of demonstrated
need, machinery and equipment) for industrial or commercial usage, including the
construction of new buildings, the rehabilitation of abandoned or unoccupied
buildings, and the alteration, conversion, or enlargement of existing buildings.
Such financial assistance shall not be extended (1) for working capital, or (2) to
assist establishments relocating from one area to another. The limitation set
forth in clause (2) shall not be construed to prohibit assistance for the expansion
of an existing business entity through the establishment of a new branch affiliate
or subsidiary of such entity if the Secretary finds that the establishment of such
branch, affiliate, or subsidiary will not result in an increase in unemployment in
the area of original location or in any other area where such entity conducts busi-
ness operations, unless the Secretary has reason to believe that such branch,
affiliate, or subsidiary is being established with the intention of closing down the
operations of the existing business entity in the area of its original location or in
any other area where it conduCts such operations.
(b) Financial assistance under this section shallbe on such terms and conditions
as the Secretary determines, subject, however, to the following restrictions and
limitations:
(1) The total amount of loans (including purchased evidences of indebted-
ness) outstanding at any one time under this section (A) with respect to
projects in redevelopment areas designated under section 5(a) shall not exceed
$100,000,000 and (B) with respect to projects in redevelopment areas desig-
nated under section 5(b) shall not exceed $100,000,000.
(2) Such assistance shall be extended only to applicants, both private and
public (including Indian tribes), which have been &pproved for such assistance
by an agency or instrumentality of the State or political subdivision thereof in
which the project to he financed is located, and which agency or instrumental-
ity is directly concerned with problems of economic development in such
State or subdivision.
(3) The project for which financial assistance is sought must be reasonably
calculated to provide more than a temporary alleviation of unemployment or
underemployment within the redevelopment area wherein it is, or will be,
located.
(4) No such assistance shall be extended hereunder unless the financial
assistance applied for is not otherwise available from private lenders or other
Federal agencies on reasonable terms.
(5) The Secretary shall not make any loan without a participation unless
he determines that the loan cannot be made on a participation basis.
(6) No evidences of indebtedness shall be purchased and no loans shall be
made unless it is determined that there is a reasonable assurance of repayment.
(7) Subject to section 12(5) of this Act, no loan, including renewals or
extension thereof, may be made hereunder for a period exceeding twenty-five
years and no evidences of indebtedness maturing more than twnety-five years
from date of purchase may be purchased hereunder: Provided, That the
foregoing restrictions on maturities shall not apply to securities or obligations
received by the Secretary as a claimant in bankruptcy or equitable reorgani-
zation or as a creditor in other proceedings attendant upon insolvency of the
obligor.
(8) Loans made and evidences of indebtedness purchased under this section
shall bear interest at a rate equal to the rate of interest paid by the Secretary
on funds obtained from the Secretary of the Treasury as provided in section
9(a) of this Act, plus one-half of 1 per centum per annum to cover adminis-
trative expenses and to provide for losses on loans made and evidences
of indebtedness purchased under this section.
(9) Such assistance shall not exceed 65 per centum of the aggregate cost
to the applicant (excluding all other Federal aid in connection with the
undertaking) of acquiring or developing land and facilities (including, in cases
of demonstrated need, machinery and equipment), and of constructing, alter-
* ing, converting, rehabilitating, or enlarging the building or buildings of the
particular project, and shall, among others, be on the condition that-
(A) other funds are available in an amount which, together with the
assistance provided hereunder, shall be sufficient to pay such aggregate
cost; *
PAGENO="0046"
40 IMPACT OF DEFENSE SPENDING
(B) not less than 10 per centum of such aggregate cost be supplied by
the State or any agency, instrumentality, or political subdivision thereof,
or by an Indian tribe or a community or area organization which is non-
governmental in character, as equity capital or as a loan repayable only
after the Federal financial assistance extended under this section has
been repaid -in full according to the terms thereof and, if such a loan is
secured, it-s security shall be subordinate and inferior to the lien or liens
securing such Federal financial assistance;
(C) in extending financial assistance under this section with respect
to a redevelopment area, the Secretary shall require that not less than
5 per centum of the aggregate cost of the project for which such assist-
ance is extended shall he supplied by nongovernmental sources as equity
capital or as a loan repayable only after the Federal financial assistance
extended under this section has been repaid in full according to the terms
thereof and, if such a loan is secured, its security shall be subordinate and
inferior to the lienor liens securing such Federal financial assistance; and
(D) to the extent the Secretary finds such action necessary to en-
courage financial participation in a particular project by other lenders
and investors, and except as otherwise provided in suhparagraphs (B)
and (C), any Federal financial assistance extended under this section may
he repayable only after other loans made in connection with such project
have been repaid in full, and the security, if any, for such Federal
financial assistance may be subordinate and inferior to the lien or liens
securing other loans made in connection with the same project.
(10) No such assistance shall be extended unless there shall he submitted
to and approved by the Secretary an Overall program for the economic
development of the area and a finding by the State, -or any agency, instru-
mentality, or local political subdivision thereof, that the project for which
financial assistance is sought is consistent with such program: Provided, That
nothing in this Act shall authorize financial assistance for any project pro-
hibited by laws of the State or local political subdivision in which the project
would be located.
LOANS FOE PUBLIC FACILITIES
SEc. 7. (a) Upon the application of any State, or political subdivision thereof,
Indian tribe, or private or public nonprofit organization or association representing
any redevelopment area or part thereof, the Secretary is authorized to make
loans to assist in financing the purchase or development of land for public facility
usage, and the construction, rehabilitation, alteration, expansion, or improvement
of public facilities, within a redevelopment area, if he finds that-
(1) the project for which financial assistance is sought will tend to improve
the opportunities, in the redevelopment area where such project is or will be
located, for the successful establiShment or expansion of industrial or com-
mercial plants or facilities which will provide more than a temporary
alleviation of unemployment or underemployment in such area;
(2) the funds requested for such project are not otherwise available on
reasonable terms; -
(3) the amount of the loan plus the amount of other available funds for
such project are adequate to insure the completion thereof;
(4) there is a reasonable expectation of repayment; and
(5) such area has an approved economic development program as provided
in section 6(b)(l0) and the project for which financial assistance is sought
is consistent with such program.
(b) Subject to section 12(5), the maturity date of any such loan shall be not
later than forty years after the date such loan is made. Any such loan shall
bear interest at a rate equal to the rate of interest paid by the Secretary on funds
obtained from the Secretary- of the Treasury as provided in section 9(a) of this
Act, plus one-quarter of 1 per centum per annum. -
(c) The total amount of loans outstanding at any one time under this section
shall not exceed S100,000,000.
(d) No financial assistance shall be extended under this section with respect
to any public facility which would compete with an existing privately owned
public utility rendering a service to the public at rates or charges subject to
regulation by a State regulatory body, unless the State regulatory body deter-
mines that in the area to be served by the public facility for which the financial
assistance is to be extended there is a need for an increase in such service (taking
into consideration reasonably foreseeable future needs) which the existing public
utility is not able to meet through its existing facilities or through an expansion
which it agrees to undertake. -
PAGENO="0047"
IMPACT OF DEFENSE SPENDING 41
GRANTi~ FOR PUBLIC FACILITIES
SEC. 8. (a) Upon the application of any State, or political subdivision thereof,
Indian tribe or nrivate or public nonprofit organization or association represent
ing any redevelopment area or part thereof, the Secretary is authorized to make
grants for land acq uisition or development for public facility usage, and the con-
struction, rehabilitation, alteration, expansion, or improvement of public facilities,
within a redevelopment area, if he finds that-
(1) the project for which financial assistance is sought will tend to im-
prove the opportutuities, in the redevelopment area where such project is or
will be located, for the successful establishment or expansion of industrial
or commercial plants or facilities which will provide more than a temporary
alleviation of unemployment or underemployment in such area;
(2) the entity requesting the grant proposes to contribute to the cost of
the project for which such grant is requested in proportion to its ability so
to contribute;
(3) the project for which a grant is requested will fulfill a pressing need
of the area, or part thereof, in which it is, or will be, located, and there is
little probability that such project can be undertaken without the assistance
of a grant under this section; and
(4) the area for which a project is to be undertaken has an approved
economic development program as provided in section 6(b)(l0) and such
project is consistent with such program.
The amount of any grant under this section for any such project shall not exceed
the difference between the funds which can be practicably obtained from other
sources (including a loan under section 7 of this Act) for such project, and the
amount which is necessary to insure the completion thereof.
(b) The Secretary shall by regulation provide for the supervision of projects
with respect to which grants are made under this section so as to insure that
Federal funds are not wasted or dissipated.
(c) No financial assistance shall be extended under this section with respect
to any public facility which would compete with an existing privately owned
public utility rendering a service to the public at rates or charges subject to
regulation by a State regulatory body, unless the State regulatory body deter-
mines that in the area to be served by the public facility for which the financial
assistance is to be extended there is a need for an increase in such service (taking
into consideration reasonably foreseeable future needs) which the existing public
utility is not able to meet through its existing facilities or through an expansion
which it agrees to undertake.
(d) There is hereby authorized to be appropriated not to exceed $75,000,000
for the purpose of making grants under this section.
AREA REDEVELOPMENT FUND /
SEC. 9. (a) To obtain funds for the purpose of extending financial assistance
under sections 6 and 7, the Secretary may, with the approval of the President,
issue and have outstanding at any one time notes and obligations for purchase
by the Secretary of the Treasury in an amount not to exceed $300,000,000. Such
notes or other obligations shall be in such forms and denominations, have such
maturities, and be subject to such terms and conditions as may be prescribed by
the Secretary with the approval of the Secretary of the Treasury. Any such notes
or other obligations which are issued by the Secretary to raise funds for financial
assistance under section 6 shall bear interest at a rate determined by the Secretary
of the Tieasury, but such rate shall not be greater than the current average yields
on outstanding marketable obligations of the United States of comparable ma-
turities as of the last day of the month preceding the issuance of such notes or
other obligations. Any such notes or other obligations which are issued by the
Secretary to raise funds for financial assistance under section 7 shall bear interest
at a rate determined by the Secretary of the Treasury which shall be not mere than
the higher of (1) 23~ per centum per annum, or (2) the average annual interest rate
on all interest-bearing obligations of the United States then forming a part of the
public debt as computed at the end of the fiscal year next preceding the issuance
by the Secretary and adjusted to the nearest one-eighth of 1 per centum. The
Secretary of the Treasury is authorized and directed to purchase any notes and
other obligations issued under this section and for such purpose is authorized to
use as a public debt transaction the proceeds from the sale of any securities issued
under the Second Liberty Bond Act, as amended, and the purposes for which
securities may be issued under such Act are extended to include any purchase of
PAGENO="0048"
42 Th~PACT OF DEFENSE SPEND~G
such notes and other obligations. The Secretar y of the Treasm y may at any
time sell any of the notes or other obligations acquired by him under this section.
All redemptions, purchases, and sales by the Secretary of the Treasury of such
notes or other obligations shall be treated in every respect as public debt trans-
actions of the United States.
(b) Funds obtained by the Secretary under subsection (a) shall be deposited in
an area redevelopment fund (hereinafter referred to as the "fund"), which i~
hereby established in the Treasury of the United States, and which shall be
available to the Secretary for the purpose of extending financial assistance under
sections 6 and 7 and for the payment of all obligations and expenditures arising
therefrom. Receipts arising from the programs of assistance under sections 6
and 7 shall be credited to the fund. Any moneys in the fund determined by the
Secretary to be in excess of current needs shall be paid into the Treasury as
miscellaneous receipts.
(c) The fund shall contribute to the civil service retirement and disability
fund a sum as provided by section 4(a) of the Civil Service Retirement Act (5
U.S.C. 2254(a)), except that such sum shall be determined by applying to the
total basic salaries (as defined in that Act) paid to employees performing ac-
tivities authorized under sections 6 and 7 of this Act and covered by that Act
the per centum rate determined annually by the Civil Service Commission to be
the excess of the total normal cost per centum rate of the civil service retirement
system over the employee deduction rate specified in such section 4(a). The
fund shall also pay into the Treasury as miscellaneous receipts that portion of
the cost of administration of the civil service retirement and disability fund
attributable to employees performing activities authorized under sections 6 and
7 of this Act, as determined by the Civil Service Commission.
(d) In the performance of and with respect to the functions, powers, and duties
vested in him by sections 6 and 7 of this Act, the Secretary shall-
(1) prepare annually and submit a budget program in accordance with
the provisions of sections 102, 103, and 104 of the Government Corporation
Control Act, as amended; and
(2) determine the character of and the necessity for obligations and ex-
penditures and the manner in which they shall be incurred, allowed, and
paid, subject to provisions of law specifically applicable to Government
corporations.
INFORMATION
SEC. 10. The Secretary shall aid redevelopment areas and other areas by
furnishing to interested individuals, communities, industries, and enterprises
within such areas any assistance, technical information, market research, or other
forms of assistance, information, or advice which are obtainable from the various
departments, agencies, and instrumentalities of the Federal Government and
which would be useful in alleviating or preventing conditions of excessive unem-
ployment or underemployment within such areas. The Secretary shall furnish
the procurement divisions of the various departments, agencies, and other
instrumentalities of the Federal Government with a list containing the names and
addresses of business firms which are located in redevelopment areas and which
are desirous of obtaining Government contracts for the furnishing of supplies or
services, and designating the supplies and services such firms are engaged in
providing.
TECHNICAL ASSISTANCE
SEC. 11. In carrying out his duties under this Act the Secretary is authorized
to provide technical assistance which would he useful in alleviating or preventing
conditions of excessive unemployment or underemployment (1) to areas which
he has designated as redevelopment areas under this Act, and (2) to other areas
which he finds have substantial need for such assistance. Such assistance shall
includestudies evaluating the needs of, and developing potentialities for, economic
growth of such areas. Such assistance may be provided by the Secretary through
members of his staff or through the employment of private individuals, partner-
ships, firms, corporations, or suitable institutions, under contracts entered into
for such purposes. Appropriations are hereby authorized for the purposes of
this section in an amount not to exceed $4,500,000 annually.
* * * * * *
PAGENO="0049"
IMPACT OF DEFENSE SPENDING 43
TERMINATION OF ELIGIBILITY FOR FURTHER ASSISTANCE
SEC. 13. Whenever the Secretary shall determine that employment conditions
within any area previously designated by him as a redevelopment area have
changed to such an extent that such area is no longer eligible for such designation
under section 5 of this Act, no further assistance shall be granted under this Act
with respect to such area and, for the purposes of this Act, such area shall not he
considered a redevelopment area: Provided, That nothing contained herein shall
(1) prevent any such area from again being designated a redevelopment area
under section 5 of this Act if the Secretary determines it to be eligible under such
section, or (2) affect the validity of any contracts or undertakings with respect to
such area which were entered into pursuant to this Act prior to a determination by
the Secretary that such area no longer qualifies as a redevelopment area. The
Secretary shall keep the departments and agencies of the Federal Government,
and interested State or local agencies, advised at all times of any changes made
hereunder with respect to the designation of any area.
* * * * * * *
OCCUPATIONAL TRAINING
SEC. 16. (a) The Secretary of Labor is authorized, upon request and whenever
he determines such studies are needed, to undertake, or to provide assistance to
others for, studies of the size, characteristics, skills, adaptability, occupational
potentialities, and related aspects of the labor force of any redevelopment area.
(b) When a redevelopment area has an approved economic development
program as provided in section 6(b) (10), the Secretary of Labor, in consultation
with the Secretary and the Secretary of Agriculture, shall determine the occupa-
tional training or retraining needs of unemployed and underemployed individuals
residing in the redevelopment area. The Secretary of Labor shall notify the Secre-
tary of Health, Education, and Welfare of the occupational training or retraining
requirements of the area, and shall provide for the orderly selection and referral
of those unemployed or underemployed individuals residing in the area who can
reasonably be expected to obtain employment as a result of the skill they will
acquire in the training which is to he made available. The Secretary of Labor
shall cooperate with the Secretary of Health, Education, and Welfare and with
existing State and local agencies and officials in charge of existing programs relating
to vocational training and retraining for the purpose of assuring that the facilities
and services of such agencies are made fully available to such individuals.
(c) Whenever the Secretary of Labor finds that additional facilities or services
are needed in the area to meet the occupational training or retraining needs of such
individuals, he shall so advise the Secretary of Health, Education, and Welfare.
The Secretary of Health, Education, and Welfare shall provide assistance including
financial assistance whemi necessary, to the appropriate State vocational edaca-
tional agency in the provision of such additional facilities or services, If the
Secretary of Health, Education, and Welfare finds that the State vocational educa-
tional agency is unable to provide the facilities and services needed, he may, after
consultation with such agency, provide for the same by agreement or contract
with public or private educational institutions.
(d) The Secretary of Labor shall arrange to provide any necessary assistance
for setting up apprenticeships, and to promote journeyman and other on-the-job
training.
(e) There are hereby authorized to be appropriated such sums, not in excess
of $4,500,000 annually, as may he necessary to carry* out the provisions of this
section.
(f) In providing assistance under this section with respect to unemployed and
underemployed individuals residing in redevelopment areas, the Secretary of
Labor and the Secretary of Health, Education, and Welfare shall give considera-
tion to the special needs of individuals who are agricultural workers or are engaged
in other seasonal occupations and who require occupational training in order to
qualify them to engage in supplementary employment during the off season and
during other periods of reduced activity in the field of their regular or primary
occupations.
RETRAINING SUBSISTENCE PAYMENTS
SEC. 17. (a) The Secretary of Labor in consultation with the Secretary and
the Secretary of Agriculture may, on behalf of the United States, enter into
agreements with States in which redevelopment areas are located, under which
the Secretary of Labor shall make payments to such States either in advance or
PAGENO="0050"
44 IMPA~2T OF DEFENSE SPENDING
by way of reimbursement for the purpose of enabling such States, as agents of
the United States, to make weekly retraining payments to unemployed or under-
employed individuals residing within such redevelopment areas who are certified
by the Secretary of Labor to be undergoing occupational training or retraining
under section 16 of this Act. Such payments shall be made only for the period
the individual is receiving occupational training or retraining under section 16
of this Act, but not in any event to exceed sixteen weeks, and the..amoünt of any
such payment for any week shall be equal to the amount of the average weekly
unemployment compensation payment (including allowances for dependents when
appropriate) payable for a week of total unemployment in the State making such
payments.
(b) No weekly retraining payment shall be madeto any person otherwise eligible
who, with respect to the week for which such payment would be made, has received
or is seeking unemployment compensation under title XV of the Social Security
Act or any other Federal or any State unemployment compensation law, but if
the appropriate State or Federal agency finally determines that a person denied
benefits for any week because of this subsection was not entitled to unemployment
compensation under title XV of the Social Security Act or such Federal or State
law with respect to such week, this subsection shall not apply with respect to
such week.
(c) Any agreement under this section may contain provisions (including, so far
as may be appropriate, provisions authorized or made applicable with respect to
agreements concluded by the Secretary of Labor pursuant to title XV of. the Social
Security Act) as will promote effective administration, protect the United States
against loss, and insure the proper application of payments made to the State
under such agreement. Except as may be provided in such agreements, or in
the rules and regulations prescribed pursuant to subsection (d) of this section,
determinations by any duly designated officer or agency as to the eligibility of
individuals for weekly retraining payments under this section shall be final and
conclusive for any purposes and not subject to review by any court or any other
officer.
(d) The Secretary of Labor and the Secretary shall jointly prescribe such rules
and regulations as they may deem necessary to carry out the provisions of this
section.
(e) There are hereby authorized to be appropriated such sums, not in excess
of $10,000,000 annually, as may be necessary to carry out the provisions of this
section.
* * * * * * *
PREVAILING RATE OF WAGE AND FORTY-HOUR WEEK
SEC. 21. All laborers and mechanics employed by contractors or subcontractors
on projects assisted by the Secretary under this Act and undertaken by public
applicants shall be paid wages at rates not less than those prevailing on similar
construction in the locality as determined by the Secretary of Labor in accordance
with the Davis-Bacon Act, as amended (40 U.S.C. 276a-276a-5), and every
such employee shall receive compensation at a rate not less than one and one-half
times his basic rate of pay for all hours worked in any workweek in excess of eight
hours in any workday or forty hours in the workweek, as the case may be. The
Secretary shall not extend any financial assistance under section 6, 7, or 8 for such
a project without first obtaining adequate assurance that these labor standard
will be maintained upon the construction work. The Secretary of Labor shall
have, with respect to the labor standards specified in this provision, the authority
and functions set forth in Reorganization Plan Numbered 14 of 1950 * *
ANNUAL REPORT
SEC. 22. The Secretary shall make a comprehensive and detailed annual report
to the Congress of his operations under this Act for each fiscal year beginning
with the fiscal year ending June 30, 1962. Such report shall be printed and
shall be transmitted to the Congress not later than January 3 of the year fol-
lowing the fiscal year with respect to which such report is made. Such report
shall show, among other things, (1) the number and size of Government con-
tracts for the furnishing of supplies and services placed with business enterprises
located in redevelopment areas, and (2) the amount and duration of employment
resulting from such contracts. Upon the request of the Secretary, the various
PAGENO="0051"
IMPACT OF DEFENSE SPENDING 45
departments and agencies of the Government engaged in the procurement of
supplies and services shall furnish to the Secretary such information as may be
necessary for the purposes of this section.
* * ..* * * *
RESEARCH
SEc. 27. To assist in the long-range accomplishment of the purposes of this
Act, the Secretary, in cooperation with other agencies having similar functions,
shall establish and conduct a continuing program of study and research designed
to assist in determining the causes of unemployment, underemployment, under-
development, and chronic depression in the various areas ~of the Nation and in
the formulation and implementation of national, State, and local programs which
will raise income levels and otherwise produce solutions of the problems resulting
from these conditions. The Secretary shall include in his annual report under
section 22 a detailed statement concerning the study and research conducted
under this section together with his findings resulting therefrom and his recom-
mendations for legislative and other action.
* * * * * *
TERMINATION OF AUTHORITY.
SEC. 29. (a) This Act and all authority conferred thereunder shall terminate
at the close of June 30, 1965.
(b) Notwithstanding the foregoing, effective on July 1, 1965, those assets,
funds, contracts, loans, liabilities, commitments, authorizations, allocations, and
records of the Secretary under this Act which the Director of the Bureau of the
Budget shall determine are necessary to the liquidation of the affairs and func-
tions conducted under this Act, are transferred to the Secretary of the Treasury
for purposes of liquidation.
(c) The termination of this Act shall not affect the disbursement of funds
under, or the carrying out of, any contract, commitment, or other obligation
entered into pursuant to this Act prior to the date of such termination, or the
taking of any action necessary to preserve or protect the interests of the United
States in any amounts advanced or paid out in carrying on operations under
this Act.
Manpower Development and Training Act of 1962; Public Law 87-415;
76 Stat. 23; 42 U.S.C. § 2571 et seq.
AN ACT Relating to manpower requirements, resources, development, and utilization, and for other
purposes
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, That this Act may he cited as the "Manpower
Development and Training Act of 1962".
TITLE I-MANPOWER REQUIREMENTS, DEVELOPMENT, AND
UTILIZATION.
STATEMENT OF FINDINGS AND PURPOSE
SEC. 101. The Congress finds that there is critical need for more and better
trained personnel in many vital occupational categories, including professional,
scientific, technical, and apprenticeable categories; that even in periods of high
unemployment, many employment opportunities remain unfilled because of the
shortages of qualified personnel; and that it is in the national interest that current
and prospective manpower shortages be identified and that persons who . can
be qualified for these positions through education and training be sought out and
trained, in order that the Nation may meet the staffing requirements of the struggle
for freedom. The Congress further finds that the skills of many persons have been
rendered obsolete by dislocations in the economy arising from automation or other
technological developments, foreign competition, relocation of industry, shifts
in market demands, and other changes in the structure of the economy; that
Government leadership is necessary to insure that the benefits of automation do
not become burdens of widespread unemployment; that the problem of assuring
sufficient employment opportunities will he compounded by the extraordinarily
PAGENO="0052"
46 iMPACT OF DEFENSE SPENDfl~G
rapid growth of the labor force in the next decade, particularly by the entrance of
young people into the labor force, that improved planning and expanded efforts
will be required to assure that men, women, and young people will be trained and
available to meet shifting employment needs; that many persons now unemployed
or underemployed, in order to become qualified for reemployment or full employ-
ment must be assisted in providing themselves with skills which are or will be in
demand in the labor market; that the skills of many persons now employed are
inadequate to enable them to make their maximum contribution to the Nation's
economy; and that it is in the national interest that the opportunity to acquire
new skills be afforded to these people in order to alleviate the hardships of un-
employment, reduce the costs of unemployment compensation and public assist-
ance, and to increase the Nation's productivity and its capacity to meet the
requirements of the space age. It is therefore the purpose of this Act to require
the Federal Government to appraise the manpower requirements and resources
of the Nation, and to develop and apply the information and methods needed to
deal with the problems of unemployment resulting from automation and techno-
logical changes and other types of persistent unemployment.
EVALUATION, rNF0RMATI0N, AND RESEARCH
SEC. 102. To assist the Nation in accomplishing the objectives of technological
progress while avoiding or minimizing individual hardship and widespread
unemployment, the Secretary of Labor shall-
(1) evaluate the impact of, and benefits and problems created by auto-
mation, technological progress, and other changes in the structure of produc-
tion and demand on the use of the Nation's human resources; establish
techniques and methods for detecting in advance the potential impact of
such developments; develop solutions to these problems, and publish findings
pertaining thereto;
(2) establish a program of factual studies of practices of employers and
unions which tend to impede the mobility of workers or which facilitate
mobility, including but not limited to early retirement and vesting provisions
and practices under private compensation plans; the extension of health, wel-
fare, and insurance benefits to laid-off workers; the operation of severance
pay plans; and the use of extended leave plans for education and training
purposes. A report on these studies shall be included as a part of the Secre-
tary's report required under section 104;
(3) appraise the adequacy of the Nation's manpower development efforts
to meet foreseeable manpower needs and recommend needed adjustments,
including methods for promoting the most effective occupational utilization
of and providing useful work experience and training opportunities for un-
trained and inexperienced youth;
(4) promote, encourage, or directly engage in programs of information
and communication concerning manpower requirements, development, and
utilization, including prevention and amelioration of undesirable manpower
effects from automation and other technological developments and improve-
ment of the mobility of workers; and
(5) arrange for the conduct of such research and investigations as give
promise of furthering the objectives of this Act.
* * * * * * *
MANPOWER REPORT
SEC. 104. The Secretary of Labor shall make such reports and recommendations
to the President as he deems appropriate pertaining to manpower requirements,
resources, use, and training; and the President shall transmit to the Congress
within sixty days after the beginning of each regular session (commencing with
the year 1963) a report pertaining to manpower requirements, resources, utiliza-
tion, and training.
TITLE TI-TRAINING AND SKILL DEVELOP1\IENT PROGRAMS
PART A-DUTIEs OF THE SECRETARY OF LABOR
GENERAL RESPONSIBILITY
SEC. 201. In carrying out the purposes of this Act, the Secretary of Labor
shall determine the skill requirements of the economy, develop policies for the
adequate occupational development and maximum utilization of the skills of the
PAGENO="0053"
IMPACT OF DEFENSE SPENDING 47
Nation's workers promote and encourage the development of broad and diversified
training programs, including on-the-job training, designed to qualify for employ-
ment the many persons who cannot reasonably be expected to secure full-time
employment without such training, and to equip the Nation's workers with the
new and improved skills that are or will be required.
SELECTION OF TRAINEES
SEC. 202. (a) The Secretary of Labor shall provide a program for testing,
counseling, and selecting for occupational training under this Act those unem-
ployed or underemployed persons who cannot reasonably be expected to secure
appropriate full-time employment without training. Whenever appropriate
the Secretary shall provide a special program for the testing, counseling, and
selection of youths, sixteen years of age or older, for occupational training and
further schooling. Workers in farm families with less than $1,200 annual net
family income shall be considered unemployed for the purpose of this Act.
(b) Although priority in referral for training shall be extended to unemployed
persons, the Secretary of Labor shall, to the maximum extent possible, also refer
other persons qualified for training programs which will enable them to acquire
needed skills. Priority in referral for training shall also be extended to persons
to be trained for skills needed within, first, the labor market area in which they
reside and, second, within the State of their residence.
(c) The Secretary of Labor shall determine the occupational training needs
of referred persons, provide for their orderly selection and referral for training
under this Act, and provide counseling and placement services to persons who
have completed their training, as well as follow-up studies to determine whether
the programs provided meet the occupational training needs of the persons
referred.
(d) Before selecting a person for training, the Secretary shall determine that
there is a reasonable expectation of employment in the occupation for which
the person is to be trained. If such employment is not available in the area in
which the person resides, the Secretary shall obtain reasonable assurance of such
person's willingness to accept employment outside his area of residence.
(e) The Secretary shall not refer persons for training in an occupation which
requires less than two weeks training, unless there are immediate employment
opportunities in such occupation.
(f) The duration of any training program to which a person is referred shall
be reasonable and consistent with the occupation for which the person is being
trained.
(g) Upon certification by the responsible training agency that a person who
has been referred for training does not have a satisfactory attendance record
or is not making satisfactory progress in such training absent good cause, the
Secretary shall forthwith terminate his training and subsistence allowances,
and his transportation allowances except such as may be necessary to enable
him to return to his regular place of residence after termination of training,
and withdraw his referral. Such person shall not be eligible for such allowances
for one year thereafter.
TRAINING ALLOWANCES
SEC. 203. (a) The Secretary of Labor may, on behalf of the United States,
enter into agreements with States under which the Secretary of Labor shall make
payments to such States either in advance or by way of reimbursement for the
purpose of enabling such States, as agents for the United States, to make pay-
ment of weekly training allowances to unemployed persons selected for training
pursuant to the provisions of section 202 and undergoing such training in a pro-
gram operated pursuant to the provisions of this Act. Such payments shall be
made for a period of not exceeding fifty-two weeks, and the amount of any such
payment in any week for persons undergoing training, including uncompensated
employer-provided training, shall not exceed the amount of the average weekly
unemployment compensation payment (including allowances for dependents) for
a week of total unemployment in the State making such payments during the
most recent quarter for which such data are available: Provided however, That in
any week an individual who, but for his training, would be entitled to unemploy-
ment compensation in excess of such allowance, shall receive an allowance in-
creased by the amount of such excess. With respect to Guam and the Virgin
Islands the Secretary shall by regulation determine the amount of the training
allowance to be paid any eligible person taking training under this Act.
PAGENO="0054"
48 IMPACT OF DEFENSE SPENDfl~G
\\Tith respect to any week for which a person receives unemployment compensa-
tion under title XV of the Social Security Act or any other Federal or State
unemployment compensation law which is less than the average weekly unem-
ployment compensation payment (including allowances for dependents) for a week
of total unemployment in the State making such payment during the most recent
quarter for which such data are available, a supplemental training allowance may
be paid to a person eligible for a training allowance under this Act. This supple-
mental training allowance shall not exceed the difference between his unemploy-
ment compensation and the average weekly unemployment compensation
payment referred to above.
For persons undergoing on-the-job training, the amount of any payment which
would otherwise be made by the Secretary of Labor under this section shall be
reduced by an amount which bears the same ratio to that payment as the number
of compensated hours per week bears to forty hours.
(b) The Secretary of Labor is authorized to pay to any person engaged in
training under this title, including compensated full-time on-the-job training, such
sums as he may determine to be necessary to defray transportation and sub-
sistence expenses for separate maintenance of such persons when such training is
provided in facilities which are not within commuting distance of their regular
place of residence: Provided, That the Secretary in defraying such subsistence
expenses shall not afford any individual an allowance exceeding $35 per week, at
the rate of $5 per day; nor shall the Secretary authorize any transportation ex-.
penditure exceeding the rate of 10 cents per mile.
(c) The Secretary of Labor shall pay training allowances only to unemployed
persons who have had not less than three years of experience in gainful employ-
ment and are either heads of families, or heads of households as defined in the
Internal Revenue Code of 1954, except that he may pay training allowances at a
rate not exceeding $20 a week to youths over nineteen but under twenty-two years
of age where such allowances are necessary to provide them occupational training,
but not more than 5 per centum of the estimated total training allowances paid
annually under this section may be paid to such youths.
(d) After June 30, 1964, any amount paid to a State for training allowances
under this section, or as reimbursement for unemployment compensation under
subsection (h), shall be paid on condition that such State shall bear 50 per centum
of the amount of such payments.
(e) No training allowance shall be made to any person otherwise eligible who,
with respect to the week for which such payment would be made, has received or
is seeking unemployment compensation under title XV of the Social Security Act
or any other Federal or State unemployment compensation law, but if the appro-
priate State or Federal agency finally determines that a person denied training
allowances for any week because of this subsection was not entitled to unemploy-
ment compensation under title XV of the Social Security Act or such Federal or
State law with respect to such week, this subsection shall not apply with respect
to such week.
(f) A person who refuses, without good cause, to accept training under this
Act shall not, for one year thereafter, be entitled to training allowances.
(g) Any agreement under this section may contain such provisions (including,
as far as may be appropriate, provisions authorized or made applicable with respect
to agreements concluded by the Secretary of Labor pursuant to title XV of the
Social Security Act) as will promote effective administration, protect the United
States against loss and insure the proper application of payments made to the
State under such agreement. Except as may be provided in such agreements, or
in regulations hereinafter authorized, determinations by any duly designated
officer or agency as to the eligibility of persons for weekly training allowances
under this section shall be final and conclusive for any purposes and not subject
to review, by any court or any other officer.
(h) If State unemployment compensation payments are paid to a person
taking training under this Act and eligible for a training allowance, the State
making such payments shall be reimbursed from funds herein, appropriated. The
amount of such reimbursement shall be determined by the Secretary of Labor on
the basis of reports furnished to him by the States and such amount shall then be
placed in the State's unemployment trust fund account.
(i) A person who, in connection with an occupational training program, has
received a training allowance or whose unemployment compensation payments
were reimbursed under the provisions of this Act or any other Federal Act shall
not be entitled to training allowances under this Act for one year. after the comple-
tion or other termination (for other than good cause) of the training with respect
to which such allowance or payment was made.
PAGENO="0055"
IMPACT OF DEFENSE SPENDING 49
(j) No training allowance shall be paid to any person who is receiving training
for an occupation which requires a training period of less than six days.
ON-THE-JOB TRAINING
SEC. 204. (a) The Secretary of Labor shall encourage, develop, and secure the
adoption of programs for on-the-job training needed to equip persons selected
for training with the appropriate skills. The Secretary shall, to the maximum
extent possible, secure the adoption by the States and by private and public
agencies, employers, trade assoejations, labor organizations and other industrial
and community groups which he determines are qualified to conduct effective
training programs under this title of such programs as he approves, and for this
purpose he is authorized to enter into appropriate agreements with them.
(b) In adopting or approving any training program under this part, and as a
condition to the expenditure of funds for any such program, the Secretary shall
make such arrangements as he deems necessary to insure adherence to appropriate
training standards, including assurances-
(1) that the training content of the program is adequate, involves reason-
able progression, and will result in the qualification of trainees for suitable
employment;
(2) that the training period is reasonable and consistent with periods
customarily required for comparable training;
(3) that adequate and safe facilities, and adequate personnel and records
of attendance and progress are provided; and
(4) that the traineea are compensated by the employer at such rates,
including periodic increases, as may be deemed reasonable under regulations
hereinafter authorized, considering such factors as industry, geographical
region, and trainee proficiency.
(c) Where on-the-job training programs under this part require supplementary
classroom instruction, appropriate arrangements for such instruction shall be
agreed to by the Secretary of Health, Education, and Welfare and the Secretary
of Labor.
* * * * * * *
STATE AGREEMENTS
SEC. 206. (a) The Secretary of Labor is authorized to enter into an agreement
with each State, or with the appropriate agency of each State, pursuant to which
the Secretary of Labor may, for the purpose of carrying out his functions and
duties under this title, utilize the services of the appropriate State agency and,
notwithstanding any other provision of law, may make payments to such State
or appropriate agency for expenses incurred for such purposes.
(b) Any agreement under this section may contain such provisions as will
promote effective administration, protect the United States against loss and
insure that the functions and duties to be carried out by the appropriate State
agency are performed in a manner satisfactory to the Secretary.
* * * * * * *
PART B-DUTIES OF THE SECRETARY OF HEALTH, EDUCATION, AND WELFARE
GENERAL RESPONSIBILITY
SEC. 231. The Secretary of Health, Education, and Welfare shall, pursuant
to the provisions of this title, enter into agreements with States under which
the appropriate State vocational education agencies will undertake to provide
training needed to equip persons referred to the Secretary of Health, Education,
and Welfare by the Secretary of Labor pursuant to section 202, for the occupa-
tions specified in the referrals. Such State agencies shall provide for such training
through public education agencies or institutions or, if facilities or services of
such agencies or institutions are not adequate for the purpose, through arrange-
ments with private educational or training institutions. The State agency shall
be paid 50 per centum of the cost to the State of carrying out the agreement,
except that for the period ending June 30, 1964, the State agency shall be paid
100 per centum of the cost to the State of carrying out the agreement with respect
to unemployed persons. Such agreements shall contain such other provisions
as will promote effective administration (including provision (1) for reports on
the attendance and performance of trainees, (2) for immediate certification to
the Secretary of Labor by the responsible training agency with respect to each
person referred for training who does not have a satisfactory attendance record
PAGENO="0056"
50 IMPACT OF DEFENSE SPENDING
or is not making satisfactory progress in such training absent good cause, and
(3) for continuous supervision of the training programs conducted under the agree-
ment to insure the quality and adequacy of the training provided), protect the
United States against loss, and assure that the functions and duties to be carried
out by such State agency are performed in such fashion as will carry out the
purposes of this title. In the case of any State which does not enter into an
agreement under this section, and in the case of any training which the State
agency does not provide under such an agreement, the Secretary of Health,
Education, and Welfare may provide the needed training by agreement or contract
with public or private educational or training institutions.
* * * * * * *
TITLE Ill-MISCELLANEOUS
APPORTIONMENT OF BENEFITS
SEC. 301. For the purpose of effecting an equitable apportionment of Federal
expenditures among the States in carrying out the programs authorized under
title II of this Act, the Secretary of Labor and the Secretary of Health, Education,
and Welfare shall make such apportionment in accordance with uniform standards
and in arriving at such standards shall consider only the following factors: (1) the
proportion which the labor force of a State bears to the total labor force of the
United States, (2) the proportion which the unemployed in a State during the
preceding calendar year bears to the total number of unemployed in the United
States in the preceding calendar year, (3) the lack of appropriate full-time employ-
ment in the State, (4) the proportion which the insured unemployed within a State
bears to the total number of insured employed within such State, and (5) the
average weekly unemployment compensation benefits paid by the State. The
Secretary of Labor and the Secretary of Health, Education, and Welfare are
authorized to make reapportionments from time to time where the total amounts
apportioned under this section have not been fully obligated in a particular State,
or where the State or appropriate agencies in the State have not entered into the
necessary agreements, and the Secretaries find that any other State is in need of
additional funds to carry out the programs authorized by this Act.
MAINTENANCE OF STATE EFFORT
SEC. 302. No training program which is financed in whole or in part by the
Federal Government under this Act shall be approved unless the Secretary of
Labor, if the program is authorized under part A of title II, or the Secretary of
Health, Education, and Welfare, if the program is authorized under part B of
title II, satisfies himself that neither the State nor the locality in which the train-
ing is carried out has reduced or is reducing its own level of expenditures for voca-
tional education and training, including program operation under provisions of the
Smith-Hughes Vocational Education Act and titles I, II, and III of the Vocational
Education Act of 1946, except for reductions unrelated to the provisions or
purposes of this Act.
* * * * * * *
APPROPRIATIONS AtTTHORIZED
SEC. 304. (a) There are hereby authorized to be appropriated $2,000,000 for
the fiscal year ending June 30, 1963, $3,000,000 for the fiscal year ending June 30,
1964, and a like amount for the fiscal year ending June 30, 1965, for the purpose
of carrying out title I.
(b) There aie hereby authorized to be appropriated $97,000,000 for the fiscal
year ending June 30, 1963, $161,000,000 for the fiscal year ending June 30, 1964,
and a like amount for the fiscal year ending June 30, 1965, for the pm pose of
carrying out title II.
(c) There are hereby authorized to be appropriated $1,000,000 for the fiscal
year ending June 30, 1963, $1,000,000 for the fiscal year ending June 30, 1964, and
a like amount for the fiscal year ending June 30, 1965, for the purpose of carrying
out title III.
(d) There are hereby authorized to be appropriated $5,000,000 for the fiscal
year ending June 30, 1962, for planning and starting programs under this Act.
PAGENO="0057"
IMPACT OF DEFENSE SPENDING 51
LIMITATiONS ON USE OF APPROPRIATED FUNDS
SEC. 305. (a) Funds appropriated under the authorization of this Act may be
transferred, with the approval of the Director of the Bureau of the Budget,
between departments and agencies of the Government, if such funds are used foi
the purposes for which they are specifically authorized and appropriated.
(b) Any equipment and teaching aids purchased by a State or local vocational
education agency with funds appropriated to carry out the provisions of part B
shall become the property of the State.
(c) No portion of the funds to be used under part B of this Act shall be appro-
priated directly or indirectly to the purchase, erection, or repair of any building
except for minor remodeling of a public building necessary to make it suitable
for use in training under part B.
(d) Funds appropriated under this Act shall remain available for one fiscal
year beyond that in which appropriated.
AUTHORITY TO CONTRACT
SEC. 306. (a) The Secretary of Labor and the Secretary of Health, Education,
and Welfare may make such contracts or agreements, establish such procedures,
and make such payments, either in advance or by way of reimbursement, or
otherwise allocate or expend funds made available under this Act, as they deem
necessary to carry out the provisions of this Act.
(b) The Secretary of Labor and the Secretary of Health, Education, and
Welfare shall not use any authority conferred by this Act to assist in relocating
establishments from one area to another. Such limitation shall not prohibit
assistance to a business entity in the establishment of a new branch, affiliate,
or subsidiary of such entity if the Secretary of Labor finds that assistance will
not result in an increase in unemployment in the area of original location or in
any other area where such entity conducts business operations, unless he has
reason to believe that such branch, affiliate, or subsidiary is being. established
with the intention of closing down the operations of the existing business entity
in the area of its original location or in any other area where it conducts such
operations.
* * * * * * *
DEFINITION
SEc. 308. For the purposes of this Act, the term "State" includes the District
of Columbia, Puerto Rico, the Virgin Islands, and Guam.
* . * * . * * * *
TERMINATION OF AUTHORITY
SEC. 310. (a) All authority conferred under title II of this Act shall terminate
at the close of June 30, .1965.
(b) Notwithstanding the foregoing, the termination of title II shall not affect
the disbursement of funds under, or the carrying out of, any contract, commitment
or other obligation entered into prior to the date of such termination: Provided,
That no disbursement of funds shall be made pursuant to the authority conferred
under title II of this Act after December 30, 1965.
Public Works Acceleration Act, Public Law 87-658, 76 Stat. 541,
42 U.S.C. § 2641 et sea.
AN ACT To provide authority to accelerate public works programs by the Federal Government and State
and local bodies
Be it enaëted by the Senate and House of Representatives of the United States of
America in Congress assembled, That this Act may be cited as the "Public Works
Acceleration Act".
SEC. 2. (a) The Congress finds that (1) certain communities and areas in the
Nation are presently burdened by substantial unemployment and underemploy-
ment and have failed to share fully in the economic gains of the recovery from the
recession of 1960-1961 and (2) action by the Federal Government is necessary,
both to provide immediate useful work for the unemployed and underemployed
in these communities and to help these communities, through improvement of
PAGENO="0058"
52 IMPACT OF DEFENSE SPENDING
their facilities, to become more conducive to industrial development and better
places in which to live and work. The Nation has a backlog of needed public
projects, and an acceleration of these projects now will not only increase employ-
ment at a time when jobs are urgently required but wifi also meet longstanding
public needs, improve community services, and enhance the health and welfare
of citizens of the Nation.
(b) The Congress further finds that Federal assistance to stimulate public
works investment in order to increase employment opportunities is most urgently
needed in those areas, both urban and rural, which qualify as redevelopment
areas because they suffer from persistent and chronic unemployment and economic
underdevelopment, as well as in other areas which have suffered from substantial
unemployment for a period of at least twelve months.
Sxc. 3. (a) For the purposes of this section the term "eligible area" means-
(1) those areas which the Secretary of Labor designates each month as
having been areas of substantial unemployment for at least nine or the pre-
ceding twelve months; and
(2) those areas which are designated by the Secretary of Commerce under
subsections (a) and (b) of section 5 of the Area Redevelopment Act as "re-
development areas".
(b) The President is authorized to initiate and accelerate in eligible areas
those Federal public works projects which have been authorized by Congress,
and those public works projects of States and local governments for which Federal
financial assistance is authorized under provisions of law other than this Act,
by allocating funds appropriated to carry out this section-
(1) to the heads of the departments, agencies, and instrumentalities of
the Federal Government responsible for the construction of Federal public
works projects, and
(2) to the heads of the departments, agencies, and instrumentalities of
the Federal Government responsible for the administration of laws authorizing
Federal financial assistance to public works projects of States and local
governments.
(c) All grants-in-aid made from allocations made by the President under this
section shall be made by the head of the department, agency, or instrumentality
of the Federal Government administering the law authorizing such grants, and,
except as otherwise provided in this subsection, shall be made in accordance
with all of the provisions of such law except (1) provisions requiring allocation
of funds among the States, and (2) limitations upon the total amount of such
grants for any period. Notwithstanding any provision of such law requiring
the Federal contribution to the State or local government involved to be less than
a fixed portion of the cost of a project, grants-in-aid may be made under authority
of this section which bring the total of all Federal contributions to such project
up to 50 per centum of the cost of such project, or up to 75 per centum of the
cost of such project if the State or local government does not have economic
and financial capacity to assume all of the additional fmancial obligations required.
(d) There is hereby authorized to be appropriated not to exceed $900,000,000
to be allocated by the Pi~esident in accordance with subsection (b) of this section,
except that not less than $300,000,000 shall be allocated for public works projects
in areas designated by the Secretary of Commerce as redevelopment areas under
subsection (b) of section 5 of the Area Redevelopment Act.
(e) The President shall prescribe rules, regulations, and procedures to carry
out this section which will assure that~adequate consideration is given to the
relative needs of eligible areas. In prescribing such rules, regulations, and
procedures the President shall consider among other relevant factors (1) the
severity of the rates of unemployment in the eligible areas and the duration of
such unemployment, and (2) the income leveis of families and the extent of
underemployment in eligible areas.
(f) Funds allocatedby the President under this section shall be available only
for projects-
(1) which can be initiated or acceleratedwithina reasonably short period
of time;
(2) which will meet an essential public need;
(3) a substantial portion of which can be completed within twelve months
after initiation or acceleration; : ~.
(4) which will1~contribute significantly to the reduction of local unem-
ployment;:. . ~ : : *
(5) which are not inconsistent with ~locally approved comprehensive plans
H. for the~jurisdictiou affected, wherever such plans ~
PAGENO="0059"
IMPACT OF DEFENSE SPENDING 53
(g) Not more than 10 per centum of all amounts allocated by the President
under this section shall be made available for public works projects within any
one State.
(h) The ciiteria to be used by the Secretary of Labor in determining areas of
substantial unemployment for the purposes of paragraph (1) of subsection (a)
of this section shall be the criteria established in section 6.3 of title 29 of the Code
of Federal Regulations as in effect May 1, 1962.
SEC. 4. (a) No part of any allocation made by the President under this Act
shall be made available during any fiscal year to any State or local government
for any public works project, unless the proposed or planned total expenditure
(exclusive of Federal funds) of such State or local government during such fiscal
year for all its capital improvement projects is increased by an amount approxi-
mately equal to the non-Fedesal funds required to be made available for such
public works project.
(b) No part of any allocation made by the President under this Act shall be
made available for any planning or construction, directly or indirectly, of any
school or other educational facility.
SEC. 5. (a) Paragraph (4) of subsection (b) of section 202 of the Housing
Amendments of 1955 is amended by adding at the end thereof the following new
sentence: "This paragraph shall not apply to any financial assistance to be
extended under subsection (a) of this section for the purpose of financing any
project for public works or facilities to be initiated or accelerated as the result
of a grant-in-aid from an allocation made by the President under section 9 of
the Public Works Acceleration Act."
(b) Section 202 of the Housing Amendments of 1955 is amended by adding at
the end thereof the following new subsection:
"(e) The Administrator is authorized to make a grant-in-aid from any allocation
made for such purpose by the President under section 9 of the Public Works
Acceleration Act to any public entity described in clause (1) of subsection (a) of
this section of not to exceed 50 per centum of the cost of construction of any project
for public works or facilities, if such project would be eligible (without regard to the
restrictions and limitations of subsections (b) and (c) of this section) for financial
assistance under clause (1) of subsection (a) of this section in accordance with the
rules and regulations of the Administrator (as in effect on the date of enactment
of this subsection) relating to the types of public works and facilities to which such
assistance may be extended."
SEC. 6. Section 702 of the Housing Act of 1954 is amended by adding at the
end thereof the following new subsection:
"(g) Notwithstanding any other provision of this section, no advance made
under this sectiQn for the planning of any public works project shall be required
to be repaid if constructiOn of such project is initiated as a result of a grant-in-aid
made from an allocation made by the President under the Public Works Accelera-
tion Act."
National Industrial Reserve Act of 1948, Public Law 80-833, 62 Stat.
1225, 50 U.S.C. §~ 451-462
AN ACT To promote the common defense by providing for the retention and maintenance of a national
reserve of industrial productive capacity, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of
America in Congress assembled, That this Act may be cited as the "National
Industrial Reserve Act of 1948".
DECLARATION OF POLICY
SEC. 2. In. enacting this Act, it is the intent of Congress to provide a compre-
hensive and continous program for the future safety and for the defense of the
United States~ by providing adequate measures whereby an essential nucleus of
Government-owned industrial plants and a national reserve of machine tools and
industrial manufacturing equipment may be assured for immediate use to supply
the needs of the armed forces in time of national emergency or in anticipation
thereof; it is further . the intent of the. Congress that such. Government-owtied
plants and such reserve shall not exceed in number or kind the minimum require-
ments for immediate use in time of national emergency and that any such items
which shall become surplus to such requirements shall be disposed of as expedi-
tiously as possible.
* * * * * * *
PAGENO="0060"
54 IMPACT OF DEFENSE SPENDING
SEC. 4. To effectuate the policy set forth in section 2 of this Act the Secretary
of Defense is hereby authorized and directed to-
(1) determine which excess industrial properties should become a part of
the national industrial reserve under the provisions of this Act;
(2) formulate a national security clause, as defined in section 3 (c) hereof
and vary or modify the same from time to time in such manner as best to
attain the objectives of this Act, having due regard to securing advantageous
terms to the Government in the disposal of excess industrial property;
(3) consent to the relinquishment or waiver of all or any part of any na-
tional security clause in specific cases when necessary to permit the disposition
of particular excess industrial property when it is determined that the
retention of the productive capacity of any such excess industrial property
is no longer essential to the national security or that the retention of a lesser
interest than that originally required will adequately fulfill the purposes of
this Act: Provided, That nothing in this subsection (3) shall require the modi-
fication or waiver of any part of any such national security clause when such
clause is deemed necessary by the Secretary of Defense to effectuate the pur-
poses of this Act; and
(4) designate what excess industrial property shall be disposed of subject
to the provisions of the national security clause.
* * * * * * *
SEC. 7. The Secretary of Defense, with respect to property in the national
industrial reserve, is authorized when he deems such action to be in the interest
of national security-
(1) to establish general policies for the care, maintenance, utilization,
recording, and security of such property transferred ~to the Federal Works
Agency pursuant to section 5 hereof; and
(2) to direct the transfer without reimbursement by the Federal Works
Agency of any of such property to other Government agencies with the con-
sent of such agencies; and
(3) to direct the leasing by the Federal Works Agency of any of such
property to designated lessees; and
(4) to authorize the disposition by the Federal Works Agency of any of
such lroperty by sale or otherwise when in the opinion of the Secretary of
Defense such property may be disposed of subject to or free of the national
security clause provided for in section 5 hereof; and
(5) to authorize and regulate the lending of any such property by the
Federal Works Agency to any nonprofit educational institution or training
school when (a) the Secretary shall determine that the program proposed by
such institution or school for the use of such property will contribute mate-
rially to national defense, and (b) such institution or school shall by agreement
make such provision as the Secretary shall deem satisfactory for the proper
maintenance of such property and for its return to the Federal Works Agency
without expense to the Government.
SEc. 8. As and when directed or authorized by the Secretary of Defense pursuant
to the provisions of section 7 hereof, the Federal Works Agency shall after the
date upon which transfer is directed pursuant to section 5 hereof provide for the
transportation, handling, care, storage, protection, maintenance, utilization,
repair, restoration, renovation, leasing, and disposition of excess industrial
property.
* * * * * * *
SEC. 11. It shall be the duty of the Committee appointed under section 10
hereof to review not less often than once each year the justification for the
retention of property in the national industrial reserve established hereunder and
(i) to recommend to the Secretary of Defense the disposition of any such property
which in the opinion of the Committee would no longer be of sufficient strategic
value to warrant its further retention for the production of war material in the
event of a national emergency; (ii) to recommend to the Secretary of Defense
standards of maintenance for the property held in the national industrial reserve;
(iii) to review and recommend to the Secretary of Defense the disposal of that
property which in the opinion of the Committee could and should be devoted to
commercial use in the civilian economy; and (iv) to advise the Secretary of Defense
with respect to such activities under this Act as he may refluest.
SEC. 12. The Secretary of Defense shall submit to the Congress on April 1 of
each year a report detailing the action taken by it hereunder and containing such
other pertinent information on the status of the national industrial reserve as will
PAGENO="0061"
IMPACT OF DEFENSE SPENDING 55
enable the Congress to evaluate its administration and the need for amendments
and related legislation.
SEC. 13. Section 5 of the Act approved August 5, 1947 (ch. 493, 61 Stat. 774),
is hereby repealed.
SEC. 14. There are hereby authorized to be appropriated to the Office of the
Secretary of Defense and to the Federal Works Administration, out of any moneys
in the Treasury not otherwise appropriated, such sums as the Congress may, from
time to time, determine to be necessary to enable the Secretary of Defense and
the Federal Works Agency to carry out their respective functions under the Act.
Defense Public Works and Housing, Title 42, United States Code
§ 1531. Declaration of policy; definition of "public work."
It is declared to be the policy of this subchapter to provide means by which
public works may be acquired, maintained, and operated in the areas described
in section 1532 of this title. As used in this subchapter, the term "public work"
means any facility necessary for carrying on community life substantially ex-
panded by the national-defense program, but the activities authorized under this
subchapter shall be devoted primarily to schools, waterworks, sewers, sewage,
garbage and refuse disposal facilities, public sanitary facilities, works for the
treatment and purification of water, hospitals and other places for the care of the
sick, recreational facilities, and streets and access roads.
SUBCHAPTER 111,-DEFENSE PUBLIC WORKS
§ 1532. Housing and Home Finance Administrator's powers respecting defense
public works; definition of "private agency".
Whenever the President finds that in any area or locality an acute shortage of
public works or equipment for public works necessary to the health, safety, or
welfare of persons engaged in national-defense activities exists or impends which
would impede national-defense activities, and that such public works or equip-
ment cannot otherwise be provided when needed, or could not be provided without
the imposition of an increased excessive tax burden or an unusual or excessive
increase in the debt limit of the taxing or borrowing authority in which such
shortage exists, the Housing and Home Finance Administrator is authorized, with
the approval of the President, in order to relieve such shortage-
(a) To acquire, prior to the approval of title by the Attorney General if neces-
sary (without regard to section 1339 of Title 10, and section 5 of Title 41), improved
or unimproved lands or interests in lands by purchase, donation, exchange, lease
(without regard to sections 34 and 278a of Title 40, or any time limit on the avail-
ability of funds for the payment of rent), or condemnation (including proceedings
under sections 257, 258, 361-386 and 258a-258e of Title 40), for such public works.
(b) By contract or otherwise (without regard to section 1339 of Title 10, sec-
tion 5 of Title 41, section 278a of Title 40, or any Federal, State, or municipal laws,
ordinances, rules, or regulations relating to plans and specifications or forms of
contract, the approval thereof or the submission of estimates therefor), prior to
the approval of title by the Attorney General if necessary, to plan, design, con-
struct, remodel, extend, repair, or lease public works, and to demolish structures,
buildings, and improvements, on'lands or interests in lands acquired under the
provisions of subsection (a) of this section or on other lands of the United States
which may be available (transfers of which for this purpose by the Federal agency
having jurisdiction thereof are authorized notwithstanding any other provisions
of law) provide proper approaches thereto, utilities, and transportation facilities,
and procure necessary materials, supplies, articles, equipment and machinery,
and do ail things in connection therewith to carry out the purposes of this sub-
chapter.
(c) To make loans or grants, or both, to public and private agencies for public
works and equipment therefor, and to make contributions to public or private
agencies for the maintenance and operation of public works, upon such terms and
in such amounts as the Administrator may consider to be in the public interest.
As used in this paragraph, the term "private agency" means any private agency
no part of the net earnings of which inures to the benefit of any private shareholder
or individual.
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56 IMPACT OF DEFENSE SPENDING
SUBCHAPTER VIII.-CRITICAL DEFENSE HOUSING AREAS
§ 1591. Determination of critical areas by President; requisite conditions.
(a) Notwithstanding any other provisions of this Act, the authority contained
in titles II or III of this Act shall not be exercised in any area unless the President
shall have determined that such area is a critical defense housing area.
(b) No area shall be determined to be a critical defense housing area pursuant
to this section unless the President finds that in such area all the following Con-
ditions exist:
(1) a new defense plant or installation has been or is to be provided, or an
existing defense plant or installation has been or is to be reactivated or its opera-
tion substantially expanded;
(2) substantial in-migration of defense workers or military personnel is required
to carry out activities at such plant or installation; and
(3) a substantial shortage of housing required for such defense workers or
military personnel exists or impends which impedes or threatens to impede
activities at such defense plant or installation, or that community facilities or serv-
ices required for such defense workers or military personnel are not available or are
insufficient, or both, as the case may be.
§ 1591a. Construction by private enterprise.
In order to assure that private enterprise shall be afforded full opportunity to
j~rovide the defense housing needed wherever possible, in any area which the
President, pursuant to the authority contained in section 1591 of this title, has
declared to be a critical defense housing area-
PUBLICATION OF NUMBER OF UNITS NEEDED
(a) first, the number of permanent dwelling units (including information as to
types, rentals, and general locations) needed for defense workers and military
personnel in such critical defense housing area shall be publicly announced and
printed in the Federal Register by the Housing and Home Finance Administrator;
SUSPENSION OF CREDIT RESTRICTIONS
(b) second, residential credit restrictions under the Defense Production Act
of 1950, as amended, (1) as to housing to be sold at $12,000 or less per unit or to
be rented at $85 or less per imit per month, shall be suspended with respect to
the number and types of housing units at the sales prices or rentals which the
President determines to be needed in such area for defense workers or military
personnel, and (2) as to all other housing, shall be relaxed in such manner and
to such extent as the President determines to be necessary and appropriate to
obtain the production of such housing needed in such area for defense workers
or military personnel;
MORTGAGE INSURANCE
(c) third, the mortgage insurance aids provided under sections 371, 1430, 1702,
1715c, 171Sf and 1716, and subchapter X of chapter 13 of Title 12 shall be made
available to obtain the production of housing needed in such area for defense
workers or military personnel; and
CONSTRUCTION BY GOVERNMENT AS CONDITIONAL
(d) fourth, no permanent housing shall be constructed by the Federal Govern-
ment under the provisions of subchapter IX of this chapter except to the extent
that private builders or eligible mortgagees have not, within a period of not less
than ninety days (as the Housing and Home Finance Administrator shall specify)
following public announcement of the availability of such mortgage insurance
aids under sections 371, 1430, 1702, 1715c, 171Sf and 1716, and subchapter X
of chapter 13 of Title 12, indicated through bona fide applications (which meet
the requirements as to types, rentals or sales prices, and general locations) for
exceptions from such residential credit restrictions or for mortgage insurance or
guaranty that they will provide the housing determined to be needed in such
area for defense workers and military personnel and publicly announced as
provided by subsection (a) of this section.
§ 1591b. Community facilities or services by local agencies.
In order to assure that community facilities or services required in connection
with national defense activities shall, wherever possible, be provided by the ap-
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IMPACT OF DEFENSE SPENDING 57
propriate local agencies with local funds, in any area which the President, pursuant
to the authority contained in section 1591 of this title, has declared to be a critical
defense housing area-
(a) no loan shall be made pursuant to subchapter IX of this chapter for the
provision of community facilities or equipment therefor required in connection
with national defense activities in such area unless the chief executive officer of
the appropriate political subdivision certifies, and the Housing and Home Finance
Administrator finds, that such facilities or equipment could not otherwise be
provided when needed;
(b) no grant or other payment shall be made pursuant to subchapter IX of
this chapter for the provision, or for the operation and maintenance, of community
facilities or equipment therefor, or for the provision of community services, re-
quired in connection with national defense activities in such area unless the chief
executive officer of the appropriate political subdivision certifies, and the Housing
and Home Finance Administrator finds, that such community facilities or services
cannot otherwise be provided when needed, or operated and maintained, as the
case may be, without the imposition of an increased excessive tax burden or an
unusual or excessive increase in the debt limit of the appropriate local agency; and
(c) no community facilities or services shall be provided, and no community
facilities shall be maintained and operated, by the United States directly except
where the appropriate local agency is demonstrably unable to provide such
facilities and services, or to maintain or operate such community facilities and
services adequately with its own personnel, with loans, grants, or payments au-
thorized to be made pursuant to subchapter IX of this chapter.
For the purposes of this section, the term "chief executive officer of the appro-
priate political subdivision" shall mean appropriate principal executive officer or
governing body having primary responsibility with respect tO the community
facility or service involved, but shall not, in any case, mean any public housing
authority, or its governing body, or any of its officers, acting in such capacity.
SUBCHAPTER IX-DEFENSE HOUSING AND COMMUNITY FACILITIES AND SERVICES
* * * * * * *
§ 1592. Authority of Administrator.
Subject to the provisions and limitations of sections 1591-1591c of this title,
and of this subchapter, the Housing and Home Finance Administrator (herein-
after referred to as the "Administrator") is authorized to provide housing in
any areas (subject to the provisions of section 1591 of this title) needed for defense
workers or military personnel or to extend assistance for the provision of, or to
provide, community facilities or services required in connection with national
defense activities in any area which the President, pursuant to the authority
contained in said section, has determined to be a critical defense housing area.
§ 1592c. Loans or grants for community facilities or services; conditions; maxi-
mum amounts; annual adjustments.
In furtherance of the purposes of this subchapter and subject to the provisions
hereof, the Administrator may make loans or grants, or other payments, to public
and nonprofit agencies for the provision, or for the operation and maintenance,
of community facilities and equipment therefor, or for the provision of community
services, upon such terms and in such amounts as the Administrator may consider
to be in the public interest: * * * Provided further, That grants or payments for
the provision, or for the maintenance and operation, of community facilities or
services under this section shall not exceed the portion of the cost of the provision,
or the maintenance and operation, of such facilities or services which the Ad-
ministrator estimates to be attributable to the national defense activities in the
area and not to be recovered by the public or nonprofit agency from other sources,
including payments by the United States under any other provisions of this Act
or any other law: * * *
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58 IMPACT OF DEFENSE SPENDING
Trade Expansion Act of 1962; Public Law 87-794, 76 Stat. 872,
generally, 19 u.s.a. §~ 1802-1806, 1901-1902, 1911 et seq.
TITLE Ill-TARIFF ADJUSTMENT AND OTHER ADJUSTMENT
ASSISTANCE
CHAPTER 1-ELIGIBILITY FOR ASSISTANCE
§ 302. Presidential action after Tariff Commission determination.
(a) After receiving a report from the Tariff Commission containing an affirma-
tive finding under section 301(b) with respect to any industry, the President may-
(1) provide tariff adjustment for such industry pursuant to section 351
or 352,
(2) provide, with respect to such industry, that its firms may request the
Secretary of Commerce for certifications of eligibility to apply for adjust-
ment assistance, under chapter 2,
(3) provide, with respect to such industry, that its workers may request
the Secretary of Labor for certifications of eligibility to apply for adjustment
assistance under chapter 3, or
(4) take any combination of such actions.
(b)(1) The Secretary of Commerce shall certify, as eligible to apply for adjust-
ment assistance under chapter 2, any firm in an industry with respect to which
the President has acted under subsection (a) (2), upon a showing by such firm
to the satisfaction of the Secretary of Commerce that the increased imports
(which the Tariff Commission has determined to result from concessions granted
under trade agreements) have caused serious injury or threat thereof to such firm.
(2) The Secretary of Labor shall certify, as eligible to apply for adjustment
assistance under chapter 3, any group of workers in an industry with respect to
which the President has acted under subsection (a) (3), upon a showing by such
group of workers to the satisfaction of the Secretary of Labor that the increased
imports (which the Tariff Commission has determined to result from concessions
granted under trade agreements) have caused or threatened to cause unem-
ployment or underemployment of a significant number or proportion of workers
of such workers' firm or subdivision thereof.
(c) After receiving a report from the Tariff Commission containing an affirma-
tive finding under section 301(c) with respect to any firm or group of workers,
the President may certify that such firm or group of workers is eligible to apply
for adjustment assistance.
(d) Any certification under subsection (b) or (c) that a group of workers is
eligible to apply for adjustment assistance shall specify the date on which the
unemployment or underemployment began or threatens to begin.
(e) Whenever the President determines, with respect to any certification of the
eligibility of a group of workers, that separations from the firm or subdivision
thereof are no longer attributable to the conditions specified in section 301(c) (2)
or in subsection (b) (2) of this section, he shall terminate the effect of such cer-
tification. Such termination shall apply only with respect to separations occurring
after the termination date specified by the President.
CHAPTER 2-AssIsTANcE TO FIRMS
§ 311. Certification of adjustment proposals. -
(a) A firm certified under section 302 as eligible to apply for adjustment
assistance may, at any time within 2 years after the date of such certification,
file an application with the Secretary of Commerce for adjustment assistance
under this chapter. Within a reasonable time after filing its application, the
firm shall present a proposal for its economic adjustment.
(b) Adjustment assistance under this chapter consists of technical assistance,
financial assistance, and tax assistance, which may be furnished singly or in com-
bination. Except as provided in subsection (c), no adjustment assistance shall be
provided to a firm under this chapter until its adjustment proposal shall have been
certified by the Secretary of Commerce-
(1) to be reasonably calculated materially to contribute to the economic
adjustment of the firm,
(2) to give adequate consideration to the interests of the workers of such
firm adversely affected by actions taken in carrying out trade agreements, and
(3) to demonstrate that the firm will make all reasonable efforts to use its
own resources for economic development.
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IMPACT OF DEFENSE SPENDING 59
(c) In order to assist a firm which has applied for adjustment assistance under
this chapter in preparing a sound adjustment proposal, the Secretary of
Commerce may furnished technical assistance to such firm prior to certification
of its adjustment proposal.
(d) Any certification made pursuant to this section shall remain in force only
for such period as the Secretary of Commerce may prescribe.
§ 312. Use of existing agencies.
(a) The Secretary of Commerce shall refer each certified adjustment proposal
to such agency or agencies as he determines to be appropriate to furnish the
technical and financial assistance necessary to carry out such proposal.
(b) Upon receipt of a certified adjustment proposal, each agency concerned
shall promptly-
(1) examine the aspects of the proposal relevant to its functions, and
(2) notify the Secretary of Commerce of its determination as to the
technical and financial assistance it is prepared to furnish to carry out the
proposal.
(c) Whenever and to the extent that any agency to which an adjustment
proposal has been referred notifies the Secretary of Commerce of its determination
not to furnish technical or financial assistance, and if the Secretary of Comrrerce
determines that such assistance is necessary to carry out the adjustment proposal,
he may furnish adjustment assistance under sections 313 and 314 to the firm
concerned.
(d) There are hereby authorized to be appropriated to the Secretary of Com-
merce such sums as may be necessary from time to time to carry out his functions
under this chapter in connection with furnishing adjustment assistance to firms,
which sums are authorized to be appropriated to remain available until expended.
§ 313. Technical assistance.
(a) Upon compliance with section 312(c), the Secretary of Commerce may
provide to a firm, on such terms and conditions as he determines to be appropriate,
such technical assistance as in his judgment will materially contribute to the
economic adjustment of the firm.
(b) To the maximum extent practicable, the Secretary of Commerce shall
furnish technical assistance under this section and section 311(c) through existing
agencies, and otherwise through private individuals, firms, or institutions.
(c) The Secretary of Commerce shall require a firm receiving technical assistance
under this section or section 311(c) to share the cost thereof to the extent he
determines to be appropriate.
§ 314. Financial assistance.
(a) Upon compliance with section 312(c), the Secretary of Commerce may
provide to a firm, on such terms and conditions as he determines to be appropri-
ate, such financial assistance in the form of guarantees of loans, agreements for
deferred participations in loans, or loans, as in his judgment will materially
contribute to the economic adjustment of the firm. The assumption of an out-
standing indebtedness of the firm, with or without recourse, shall be considered
to be the making of a loan for purposes of this section.
(b) Guarantees, agreements for deferred participations, or loans shall be made
under this section only for the purpose of making funds available to the firm-
(1) for acquisition, construction, installation, modernization, develop-
ment, conversion, or expansion of land, plant, buildings, equipment, facilities,
or machinery, or
(2) in cases determined by the Secretary of Commerce to be exceptional,
to supply working capital.
(c) To the maximum extent practicable, the Secretary of Commerce~ shall
furnish financial assistance under this section through agencies furnishing fi-
nancial assistance under other law.
§ 315. Conditions for financial assistance.
(a) No loan shall be guaranteed and no agreement for deferred participation
in a loan shall be made by the Secretary of Commerce in an amount which exceeds
90 percent of that portion of the loan made for purposes specified in section 314(b).
(b)(1) Any loan made or deferred participation taken up by the Secretary of
Commerce shall bear interest at a rate not less than the greater of-
(A) 4 percent per annum, or
(B) a rate determined by the Secretary of the Treasury for the year
in which the loan is made or the agreement for such deferred participation
is entered into.
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60 IMPACT OF DEFENSE SPENDLN~I
(2) The Secretary of the Treasury shall determine annually the rate referred
to in paragraph (1) (B), taking into consideration the current average market
yields on outstanding interest-bearing marketable public debt obligations of the
United States of maturities comparable to those of the loans outstanding under
section 314.
(c) Guarantees or agreements for deferred participation shall be made by the
Secretary of Commerce only with respect to loans bearing interest at a rate which
he determines to be reasonable. In no event shall the guaranteed portion of
any loan, or the portion covered by an agreement for deferred participation, bear
interest at a rate more than 1 percent per annum above the rate prescribed by
subsection (b) (determined when the guarantee is made or the agreement is
entered into), unless the Secretary of Commerce shall determine that special
circumstances justify a higher rate, in which case such portion of the loan shall
bear interest at a rate not more than 2 percent per annum above such prescribed
rate.
(d) The Secretary of Commerce shall make no loan or guarantee having a
maturity in excess of 25 years, including renewals and extensions, and shall make
no agreement for deferred participation in a loan which has a maturity in excess
of 25 years, including renewals and extensions. Such limitation on maturities
shall not, however, apply to-
(1) securities or obligations received by the Secretary of Commerce as
claimant in bankruptcy or equitable reorganization, or as creditor in other
proceedings attendant upon insolvency of the obligor, or
(2) an extension or renewal for an additional period not exceeding 10 years,
if the Secretary of Commerce determines that such extension or renewal is
reasonably necessary for the orderly liquidation of the loan.
(e) No financial assistance shall be provided under section 314 unless the
Secretary of Commerce determines that such assistance is not otherwise available
to the firm, from sources other than the United States, on reasonable terms, and
that there is reasonable assurance of repayment by the borrower.
(f) The Secretary of Commerce shall maintain operating reserves with respect
to anticipated claims under guarantees and under agreements for deferred parti-
cipation made under section 314. Such reserves shall be considered to constitute
obligations for purposes of section 1311 of the Supplemental Appropriation Act,
1955 (31 U.S.C., sec. 200).
§ 316. Administration of financial assistance.
(a) In making and administering guarantees, agreements for deferred partici-
pation, and loans under section 314, the Secretary of Commerce may-
(1) require security for any such guarantee, agreement, or loan, and enforce,
waive, or subordinate such security;
(2) assign or sell at public or private sale, or otherwise dispose of, upon
such terms and conditions and for such consideration as he shall determine
to be reasonable, any evidence of debt, contract, claim, personal property, or
security assigned to or held by him in connection with such guarantees, agree-
ments, or loans, and collect, compromise, and obtain deficiency judgments
with respect to all obligations assigned to or held by him in connection with
such guarantees, agreements, or loans until such time as such obligations
may be referred to the Attorney General for suit or collection;
(3) renovate, improve, modernize, complete, insure, rent, sell, or otherwise
deal with, upon such terms and conditions and for such consideration as he
shall determine to be reasonable, any real or personal property conveyed to
or otherwise acquired by him in connection with such guarantees, agreements,
or loans;
(4) acquire, hold, transfer, release, or convey any real or personal property
or any interest therein whenever deemed necessary or appropriate, and exe-
cute all legal documents for such purposes; and
(5) exercise all such other powers and take all such other acts as may be
necessary or incidental to the carrying out of functions pursuant to section 314.
(b) Any mortgage acquired as security under subsection (a) shall be recorded
under applicable State law.
§ 317. Tax assistance.
(a) If-
(1) to carry out an adjustment proposal of a firm certified pursuant to
section 311, such firm applies for tax assistance under this section within 24
months after the close of a taxable year and alleges in such application that
it has sustained a net operating loss for such taxable year,
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IMPACT OF DEFENSE SPENDING 61
(2) the Secretary of Commerce determines that any such alleged loss for
such taxable year arose predominantly out of the carrying on of a trade or
business which was seriously injured, during such year, by the increased
imports which the Tariff Commission has determined to result from con-
cessions granted under trade agreements, and
(3) the Secretary of Commerce determines that tax assistance under this
section will materially contribute to the economic adjustment of the firm,
then the Secretary of Commerce shall certify such determinations ~ ith respect
to such firm for such taxable year. No determination or certification under this
subsection shall constitute a determination of the existence or amount of any
net operating loss for purposes of section 172 of the Internal Revenue Code of
1954.
(b) Effective with respect to net operating losses for taxable years ending after
December 31, 1955, subsection (b) of section 172 of the Internal Revenue Code
of 1954 (relating to net operating loss carrybacks and carryovers) is amended to
read as follows:
"(b) NET OPERATING Loss CARRYBACKS AND CARRYOVERs.-
"(1) YEARS TO WHICH LOSS MAY BE CARRIED.-
"(A)(i) Except as provided in clause (ii), a net operating loss for any
taxable year ending after December 31, 1957, shall be a net operating
loss carryback to each of the 3 taxable years preceding the taxable year
of such loss.
"(ii) In the case of a taxpayer with respect to a taxable year ending
on or after December 31, 1962, for which a certification has been issued
under section 317 of the Trade Expansion Act of 1962, a net operating
loss for such taxable year shall be a net operating loss carryback to each
of the 5 taxable years preceding the taxable year of such loss.
"(B) Except as provided in subparagraph (C), a net operating loss
for any taxable year ending after December 31, 1955, shall be a net
operating loss carryover to each of the 5 taxable years following the
taxable year of such less.
"(C) In the case of a taxpayer which is a regulated transportation
corporation (as defined in subsection (j) (1)), a net operating loss for
any taxable year ending after December 31, 1955, shall (except as
provided in subsection (j)) be a net operating loss carryover to each of
the 7 taxable years following the taxable year of such loss.
"(2) AMOUNT OF CARRYBACKS AND CARRYOVERS.-Except as provided in
subsections (i) and (j), the entire amount of the net operating loss for any
taxable year (hereinafter in this section referred to as the `loss year') shall
be carried to the earliest of the taxable years to which (by reason of para-
graph (1)) such loss may be carried. The portion of such loss which shall
be carried to each of the other taxable years shall be the excess, if any, of the
amount of such loss over the sum of the taxable income for each of the prior
taxable years to which such loss may be carried. For purposes of the pre-
ceding sentence, the taxable income for any such prior taxable year shall be
computed-
"(A) with the modifications specified in subsection (d) other than
paragraphs (1), (4), and (6) thereof; and
"(B) by determining the amount of the net operating loss deduction
without regard to the net operating loss for the loss year or for any
taxable year thereafter,
and the taxable income so computed shall not be considered to be less than
zero.
"(3) SPECIAL RULES.-
"(A) Paragraph (1) (A) (ii) shall apply only if-
"(1) there has been filed, at such time and in such manner as
may be prescribed by the Secretary or his delegate, a notice of
filing of the application under section 317 of the Trade Expansion
Act of 1962 for tax assistance, and, after its issuance, a copy of
the certification under such section, and
"(ii) the taxpayer consents in writing to the assessment, within
such period as may be agreed upon with the Secretary or his dele-
gate, of any deficiency for any year to the extent attributable to
the disallowance of a deduction previously allowed with respect to
such net operating loss, even though at the time of filing such con-
sent the assessment of such deficiency would otherwise be prevented
by the operation of any law or rule of law.
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62 IMPACT OF DEFENSE SPENDING
"(B) In the case of-
a partnership and its partners, or
"(ii) an electing small business corporation under subchapter S
and its shareholders,
paragraph (1)(A)(ii) shall apply as determined under regulations pre-
scribed by the Secretary or his delegate. Such paragraph shall apply
to a net operating loss of a partner or such a shareholder only if it arose
predominantly from losses in respect of which certifications under sec-
tion 317 of the Trade Expansion Act of 1962 were filed under this
section."
(c) Subsection (h) of section 6501 of the Internal Revenue Code of 1954 (re-
lating to limitations on assessment and collection in the case of net operating
loss carrybacks) is amended by inserting before the period: ", or within 18 months
after the date on which the taxpayer files in accordance with section 172(b)(3)
a copy of the certification (with respect to such taxable year) issued under section
317 of the Trade Expansion Act of 1962, whichever is later".
(d) Section 6511(d)(2)(A) of the Internal Revenue Code~ of 1954 (relating to
special period of limitation on credit or refund with respect to net operating loss
carrybacks) is amended to read as follows:
"(A) PERIOD OF LIMITATI0N.-If the claim for credit or refund relates to
an overpayment attributable to a net operating loss carryback, in lieu of the
3-year period of limitation prescribed in subsection (a), the period shall be
that period which ends with the expiration of the 15th day of the 40th month
(or the 39th month, in the case of a corporation) following the end of the
taxable year of the net operating loss which results in such carryback, or the
period prescribed in subsection (c) in respect of such taxable year, whichever
expires later; except that-
"(i) with respect to an overpayment attributable to a net operating
loss carryback to any year on account of a certification issued to the
taxpayer under section 317 of the Trade Expansion Act of 1962, the
period shall not expire before the expiration of the sixth month following
the month in which such certification is issued to the taxpayer, and
"(ii) with respect to an overpayment attributable to the creation of,
or an increase iii, a net operating loss carryback as a result of the elimina-
tion of excessive profits by a renegotiation (as defined in section 1481(a)
(1)(A)), the period shall not expire before September 1, 1959, or the
expiration of the twelfth month following the month in which the agree-
ment or order for the elimination of such excessive profits becomes final,
whichever is the later.
In the case of such a claim, the amount of the credit or refund may exceed
the portion of the tax paid within the period provided in subsection (b)(2)
or (c), whichever is applicable, to the extent of the amount of the overpay-
ment attributable to such carryback."
* * * * * * *
CHAPTER 3-AssIsTANcE TO WORKERS
§ 321. Authority.
The Secretary of Labor shall determine whether applicants are entitled to re-
ceive assistance under this chapter and shall pay or provide such assistance to
applicants who are so entitled.
SUBCHAPTER A-TRADE READJUSTMENT ALLOWANCES
§ 322. Qualifying requirements.
(a) Payment of a trade readjustment allowance shall be made to an adversely
affected worker who applies for such allowance for any week of unemployment
which begins after the 30th day after the date of the enactment of this Act and
after the date determined under section 302(d), subject to the requirements of
subsections (b) and (c).
(b) Total or partial separation shall have occurred-
(1) after the date of the enactment of this Act, and after the date deter-
mined under section 302(d), and
(2) before the expiration of the 2-year period beginning on the day on
which the most recent determination under section 302(d) was made, and
before the termination date (if any) specified under section 302(e).
(c) Such worker shall have had-
(1) in the 156 weeks immediately preceding such total or partial separa-
tion, at least 78 weeks of employment at wages of $15 or more a week, and
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IMPACT OF DEFENSE SPENDING 63
(2) in the 52 weeks immediately preceding such total or partial separation,
at least 26 weeks of employment at wages of $15 or more a week in a firm or
firms with respect to which a determination of unemployment or under-
employment under section 302 has been made, or
if data with respect to weeks of employment are not available, equivalent amounts
of employment computed under regulations prescribed by the Secretary of Labor.
§ 323. Weekly amounts.
(a) Subject to the other provisions of this section, the trade readjustment al-
lowance payable to an adversely affected worker for a week of unemployment
shall be an amount equal to 65 percent of his average weekly wage or to 65 per-
cent of the average weekly manufacturing wage, whichever is less, reduced by 50
percent of the amount of his remuneration for services performed during such
week.
(b) Any adversely affected worker who is entitled to trade readjustment al-
lowances and who is undergoing training approved for the Secretary of Labor,
including on-the-job training, shall receive for each week in which he is undergo-
ing any such training, a trade readjustment allowance in an amount (computed
for such week) equal to the amount computed under subsection (a) or (if greater)
the amount of any weekly allowance for such training to which he would be en-
titled under any other Federal law for the training of workers, if he applied for
such allowance. Such trade readjustment allowance shall be paid in lieu of any
training allowance to which the worker would be entitled under such other Fed-
eral law.
(c) The amount of trade readjustment allowance payable to an adversely
affected worker under subsection (a) or (b) for any week shall be reduced by any
amount of unemployment insurance which he has received or is seeking with re-
spect to such week; but, if the appropriate State or Federal agency finally deter-
mines that the worker was not entitled to unemployment insurance with respect
to such week, the reduction shall not apply with respect to such week.
(d) If unemployment insurance, or a training allowance under the Manpower
Development and Training. Act of 1962 or the Area Redevelopment Act, is paid
to an adversely affected worker for any week of unemployment with respect to
which he would be entitled (determined without regard to subsection (c) or (e)
or to any disqualification under section 327) to a trade readjustment allowance
if he applied for such allowance, each such week shall be deducted from the total
number of weeks of trade readjustment allowance otherwise payable to him
under section 324(a) when he applies for a trade readjustment allowance and is
determined to be entitled to such allowance. If the unemployment insurance or
the training allowance paid to such worker for any week of unemployment is
less than the amount of the trade readjustment allowance to which he would be
entitled if he applied for such allowance, he shall receive, when he applies for a
trade readjustment allowance and is determined to be entitled to such allowance,
a trade readjustment allowance for such week equal to such difference.
(e) Whenever, with respect to any week of unemployment, the total amount
payable to an adversely affected worker as remuneration for services performed
during such week, as unemployment insurance, as a training allowance referred
to in subsection (d), and as a trade readjustment allowance would exceed 75
percent of his average weekly wage, his trade readjustment allowance for such
week shall be reduced by the amount of such excess.
(f) The amount of any weekly payment to be made under this section which
is not a whole dollar amount shall be rounded upward to the next higher whole
dollar amount.
(g) (1) If unemployment insurance is paid under a State law to an adversely
affected worker for a week for which-
(A) he receives a trade readjustment allowance, or
(B) he makes application for a trade readjustment allowance and would
be entitled (determined without regard to subsection (c) or (e)) to receive
such allowance,
the State agency making such payment shall, unless it has been reimbursed for
such payment under other Federal law, be reimbursed from funds appropriated
pursuant to section 337, to the extent such payment does not exceed the amount
of the trade readjustment allowance which such worker would have received, or
would have been entitled to receive, as the case may be, if he had not received
the State payment. The amount of such reimbursement shall be determined by
the Secretary of Labor on the basis of reports furnished to him by the State agency.
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64 IMPACT OF DEFENSE SPENDING
(2) In any case in which a State agency is reimbursed under paragraph (1)
for payments of unemployment insurance made to an adversely affected worker,
such payments, and the period of unemployment of such worker for which such
payments were made, may be disregarded under the State law (and for purposes
of applying section 3303 of the Internal Revenue Code of 1954) in determining
whether or not an employer is entitled to a reduced rate of contributions permitted
by the State law.
§ 324. Time limitations on trade readjustment allowances.
(a) Payment of trade readjustment allowances shall not be made to an ad-
versely affected worker for more than 52 weeks, except that, in accordance with
regulations prescribed by the Secretary of Labor-
(1) such payments may be made for not more than 26 additional weeks
to an adversely affected worker to assist him to complete training approved
by the Secretary of Labor, or
(2) such payments shall be made for not more than 13 additional weeks
to an adversely affected worker who had reached his 60th birthday on or
before the date of total or partial separation.
(b) Except for a payment made for an additional week specified in subsection
(a), a trade readjustment allowance shall not be paid for a week of unemployment
beginning more than 2 years after the beginning of the appropriate week. A
trade readjustment allowance shall not be paid for any additional week specified
in subsection (a) if such week begins more than 3 years after the beginning of the
appropriate week. The appropriate week for a totally separated worker is the
week of his most recent total separation. The appropriate week for a partially
separated worker is the week in respect of which he first receives a trade readjust-
ment allowance following his most recent partial separation.
§ 325. Application of State laws.
Except where inconsistent with the provisions of this chapter and subject to
such regulations as the Secretary of Labor may prescribe, the availability and
disqualification provisions of the State law-
(1) under which an adversely affected worker is entitled to unemployment
insurance (whether or not he has filed a claim for such insurance), or
(2) if he is not so entitled to unemployment insurance, of the State in
which he was totally or partially separated,
shall apply to any such worker who files a claim for trade readjustment allowances.
The State law so determined with respect to a separation of a worker shall remain
applicable, for purposes of the preceding sentence, with respect to such separation
until such worker becomes entitled to unemployment insurance under another
State law (whether or not he has filed a claim for such insurance).
SUBCHAPTER B-TRAINING
§ 326. In general.
(a) To assure that the readjustment of adversely affected workers shall occur
as quickly and effectively as possible, with minimum reliance upon trade read just-
ment allowances under this chapter, every effort shall be made to prepare each
such worker for full employment in accordance with his capabilities and prospec-
tive employment opportunities. To this end, and subject to this chapter, ad-
versely affected workers shall be afforded, where appropriate, the testing, counsel-
ing, training, and placement services provided for under any Federal law. Such
workers may also be afforded supplemental assistance necessary to defray trans-
portation and subsistence expenses for separate maintenance when such training
is provided in facilities which are not within commuting distance of their regular
place of residence. The Secretary of Labor in defraying such subsistence ex-
penses shall not afford any individual an allowance exceeding $5 a day; nor shall
the Secretary authorize any transportation expense exceeding the rate of 10 cents
per mile.
(b) To the extent practicable, before adversely affected workers are referred
to training, the Secretary of Labor shall consult with such workers' firm and their
certified or recognized union or other duly authorized representative and develop
a worker retraining plan which provides for training such workers to meet the
manpower needs of such firm, in order to preserve or restore the~employment
relationship between the workers and the firm.
§ 327. Disqualification for refusal of training, etc.
Any adversely affected worker who, without good cause, retuses to accept or
continue, or fails to make satisfactory progress in, suitable training to which he
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IMPACT OF DEFENSE SPENDING 65
has been referred by the Secretary of Labor shall not thereafter be entitled to
trade readjustment allowances until he enters or resumes training to which he
has been so referred.
SUBCHAPTER C-RELOCATION ALLOWANCES
§ 328. Relocation allowances afforded.
Any adversely affected worker who is the head of a family as defined in regula-
tions prescribed by the Secretary of Labor and who has been totally separated
may file an application for a relocation allowance, subject to the terms and condi-
tions of this subchapter.
§ 329. Qualifying requirements.
(a) A relocation allowance may be granted only to assist an adversely affected
worker in relocating within the United States and only if the Secretary of Labor
determines that such worker cannot reasonably be expected to secure suitable
employment in the commuting area in which he resides and that such worker-
(1) has obtained suitable employment affording a reasonable expectation
of long-term duration in the area in which he wishes to relocate, or
(2) has obtained a bonafide offer of such employment.
(b) A relocation allowance shall not be granted to such worker unless-
(1) for the week in which the application for such allowance is filed, he is
entitled (determined without regard to section 323 (c) and (e)) to a trade
readjustment allowance or would be so entitled (determined without regard
to whether he filed application therefor) but for the fact that he has obtained
the employment referred to in subsection (a) (1), and
(2) such relocation occurs within a reasonable period after the filing of
such application or (in the case of a worker who has been referred to training
by the Secretary of Labor) within a reasonable period after the conclusion of
such training.
§ 330. Relocation allowance defined.
For purposes of this subchapter, the term "relocation allowance" means-
(1) the reasonable and necessary expenses, as specified in regulations pre-
scribed by the Secretary of Labor, incurred in transporting a worker and his
family and their household effects, and
(2) a lump sum equivalent to two and one-half times the average weekly
manufacturing wage.
SUBCHAPTER D-GENERAL PROVISIONS
§ 331. Agreements with States.
(a) The Secretary of Labor is authorized on behalf of the United States to
enter into an agreement with any State, or with any State agency. Under such
an agreement, the State agency (1) as agent of the United States, will receive
applications for, and will provide, assistance on the basis provided in this chapter,
(2) where appropriate, will afford adversely affected workers who apply forassist-
ance under this chapter testing, counseling, referral to training, and placement
services, and (3) will otherwise cooperate with the Secretary of Labor and with
other State and Federal agencies in providing assistance under this chapter.
(b) Each agreement under this subchapter shall provide the terms and condi.
tions upon which the agreement may be amended, suspended, or terminated.
(c) Each agreement under this subchapter shall provide that unemployment
insurance otherwise payable to any adversely affected worker will not be denied
or reduced for any week by reason of any right to allowances under this chapter.
§ 332. Payments to States.
(a) The Secretary of Labor shall from time to time certify to the Secretary of
the Treasury for payment to each State which has entered into an agreement
under section 331(1) the sums necessary to enable such State as agent of the United
States to make payments of allowances provided for by this chapter, and (2) the
sums reimbursable to a State pursuant to section 323(g). The Secretary of the
Treasury, prior to audit or settlement by the General Accounting Office, shall
make payment to the State in accordance with such certification, from the funds
for carrying out the purposes of this chapter. Sums reimbursable to a State pur-
suant to section 323(g) shall be credited to the account of such State in the Un-
employment Trust Fund and shall be used only for the payment of cash benefits
to individuals with respect to their unemployment, exclusive of expenses of
administration.
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66 IMPACT OF DEFENSE SPENDING
(b) All money paid a State under this section shall be used solely for the pur-
poses for which it is paid; and any money so paid which is not used for such pur-
poses shall be returned, at the time ~specified in the agreement under this sub-
chapter, to the Treasury anct credited to current applicable appropriations, funds,
or accounts from which payments to States under this section may be made.
(c) Any agreement under this subchapter may require any officer or employee
of the State certifying payments or disbursing funds under the agreement, or other-
wise participating in the performance of the agreement, to give a surety bond to
the United States in such amount as the Secretary of Labor may deem necessary,
and may provide for the payment of the cost of such bond from funds for carrying
out the purposes of this chapter.
§ 333. Liabilities of certifying and disbursing officers.
(a) No person designated by the Secretary of Labor, or designated pursuant
to an agreement under this subchapter, as a certifying officer, shall, in the absence
of gross negligence or intent to aefrauct the Unitect States, be liable with respect
to the payment of any allowance certified by him under this chapter.
(b) No disbursing officer shall, in the absence of gross negligence or intent to
defraud the United States, be liable with respect to any payment by him, under
this chapter if it was based upon a voucher signed by a certifying officer designated
as provided in subsection (a).
* * * * * *
III. REGULATIONS
Armed Services Procurement Regulations Ooncerning Procurement Poli-
cies and Procedures for Aiding Labor Surplus Areas
SECTION I
PART 8-LABOR SURPLUS AREA CONCERNS
1-800 Scope of Part. This Part sets forth Department of Defense procurement
policy and procedures with respect to aiding areas of persistent or substantial
labor surplus, hereinafter referred to as labor surplus areas, in the United States, its
possessions, and Puerto Rico. This Part implements Defense Manpower Policy
No. 4 (Revised) 6 June 1960 (32-A C.F.R. Chapter 1.)
1-801 Definitions.
1-801.1 Labor surplus area concern includes-
(i) persistent labor surplus area concerns which will perform or cause to be
performed any contracts awarded to them as labor surplus area concerns
substantially in "Areas of Substantial and Persistent Labor Surplus"; and
(ii) substantial labor surplus area concerns which will perform or cause to
be performed any contracts awarded to them as labor surplus area concerns
substantially in "Areas of Substantial Labor Surplus."
A concern shall be deemed to perform a contract substantially in "Areas of
Substantial and Persistent Labor Surplus" if the costs that it incurs on account
of manufacturing or production (by itself or its subcontractors) in such areas
amount to more than 50 percent of the contract price. A concern shall be
deemed to perform a contract substantially in "Areas of Substantial Labor
Surplus" if the costs that it incurs on account of manufacturing or production
(by itself or its subcontractors) in such areas or in "Areas of Substantial or
Persistent Labor Surplus" amount to more than 50 percent of the contract price.
Example A. ABC Company, manufacturing in a full~employment area, bids
on a contract at $1,000. ABC Company will incur the following costs:
Direct labor $200
Overhead 200
Purchase of materials from XYZ, which manufactures the materials
inalaborsurplusarea 510
ABC Company qualifies as a labor surplus area concern.
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IMPACT OF DEFENSE SPENDING 67
Example B. DEl? Company, manufacturing in a labor surplus area, bids on a
contract at $1,000. DEF Company will incur the following costs:
Direct labor $200
Overhead 200
Purchase of materials from UVW, which is located in a labor surplus
area but which merely distributes the materials from stocks on hand
(the materials having been manufactured by UVW's supplier) 550
DEF Company does not qualify as a labor surplus area concern regardless of
whether UVW's supplier manufactures in a labor surplus area.
Example C. Gill Company, manufacturing in a labor surplus area, bids on a
contract at $1,000. Gill Company will incur the following costs:
Direct labor $230
Overhead 275
Purchase of materials from RST, which manufactures the materials
in a full employment area 425
Gill Company qualifies as a labor surplus area concern.
1-801.2 Labor surplus area means a geographical area which at the time of
award is-
(i) classified by the Department of Labor as an "Area of Substantial Labor
Surplus" or as an "Area of Substantial and Persistent Labor Surplus" (also
callea "Area of Substantial and Persistent Unemployment") (herein referred
to as an area of persistent labor surplus) and listed as such by that Depart-
ment in conjunction with its publication "Area Labor Market Trends"; or
(ii) not classified as in (i) above, but which is individually certified as an
area of persistent or substantial labor surplus by the Department of Labor
at the reauest of any prospective contractor.
1-801.3 Small business concern is defined in 1-701.
1-802 General Policy. Except as provided in 1-806 with respect to depressed
industries, it is the policy of the Department of Defense to aid labor surplus
areas by ulacing contracts with labor surplus area concerns, to the extent con-
sistent with procurement objectives and where such contracts can be awarded
at prices no higher than those obtainable from other concerns, and by encouraging
prime contractors to place subcontracts with concerns which will perform sub-
stantially in labor surplus areas. In carrying out this policy, to accommodate
the small business policies of Section 1, Part 7, preference shall be given in the
following order of priority to (i) persistent labor surplus area concerns which
are also small business concerns, (ii) other persistent labor surplus area concerns,
(iii) substantial labor surplus area concerns which are also small business con-
cerns, (iv) other substantial labor surplus area concerns and (v) small business
concerns which are not labor surplus area concerns. But in no case will price
differentials be paid for the purpose of carrying out this policy.
1-803 Application of Policy.
(a) Within the policy set forth in 1-802, the following shall be applied to
procurements which are estimated to exceed $10,000 and may, if deemed prac-
ticable by the contracting officer, be applied to procurements between $2,500
and $10,000:
(i) negotiated procurements shall, where procurement objectives permit,
be awarded to labor surplus area concerns; provided, that in no case shall
price differentials be paid for the purpose of carrying out this policy;
(ii) where appropriate, procurements shall be made from labor surplus
area concerns by partial set-aside procedures, in accordance with 1-804,
and such set-asides shall be given preference over any small business set-aside
(but no total set-aside shall be made for labor surplus area concerns);
(iii) each Department shall assure that information identifying labor
surplus areas is disseminated promptly to procurement personnel;
(iv) Department of Labor certification (see 1-801.2(u)) shall be con-
sidered conclusive with respect to the particular procurement concerned;
(v) even though less than a complete bidders' list is to be used pursuant
to 2-205.4, all prospective contractors in labor surplus areas shall be solicited,
except that only a pro rata number of prospective labor surplus area concerns
may be solicited when the bidders' list is composed predominantly of labor
surplus area concerns and the estimated award is not expected to be more
than $25,000;
(vi) subcontracting with concerns in labor surplus areas shall be encouraged
in accordance with 1-805.
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68 IMPACT OF DEFENSE SPENDING
(b) Records of the total value of all contracts in excess of $10,000 placed
with labor surplus area concerns during each fiscal year, and reports based thereon,
are maintained by each Department through the Department of Defense Report-
ing System described in 1-110 and Section XVI, Part 9. Accordingly, each De-
partment, in soliciting bids and proposals for any procurement estimated to
exceed $10,000 shall request from any bidder or offeror, or other source, any
information needed to determine whether the bidder or offeror is a labor surplus
area concern. Contract files shall be documented to indicate the extent to
which labor surplus area concerns were considered and the action taken with
respect thereto.
1-804 Partial Set-Asides for Labor Surplus Area Concerns.
1-804.1 General.
(a)(1) In accordance with the policy set forth in 1-802 and 1-803, a portion
of each procurement shall be set aside for labor surplus area concerns if:
(i) the procurement is severable into two or more economic production
runs or reasonable lots; and
(ii) one or more labor surplus area concerns are expected to have the tech-
nical competency and productive capacity to furnish a severable portion of
the procurement at a reasonable price.
(2) In furtherance of the policy to assure that a fair proportion of procurements
is placed with small business concerns, each labor surplus area set-aside shall
provide that, in addition to labor surplus area concerns, small business concerns
not performing in such areas are also eligible for participation in the set-aside
for such quantities thereof as are not awarded to labor surplus area concerns.
(In this respect, see applicable provisions of 1-804.2 (b) and (c) for notices to
bidders or offerors, and 1-804.2(d) for conduct of set-aside negotiations.)
(b) None of the following is, in itself, sufficient cause for not making a set-aside:
(i) a large part of previous procurements of the item in question has been
placed with labor surplus area concerns;
(ii) the item to be purchased is on an established~ planning list under the
Industrial Readiness Planning Program;
(ffl) the item to be purchased is on a Qualified Products List;
(iv) a period of less than thirty days from the date of issuance of invitations
for bids or requests for proposals is prescribed for the submission of bids or
proposals;
(v) the procurement is classified; or
(vi) labor surplus area concerns are receiving a fair proportion of contracts.
(c) Procurement of supplies which were developed and financed in whole or in
part by Canadian sources under the U.S.-Canadian Defense Development
Sharing Program shall not be set aside for labor surplus areas. Identification of
the supplies covered by the Program will be in accordance with Departmental
procedures.
1-804.2 Set-Aside Procedures.
(a) Where a portion of a procurement is to be set aside pursuant to 1-804.1,
the procurement shall be divided into a non-set-aside portion and set-aside portion,
each of which shall be not less than an economic production run or reasonable lot.
Insofar as practical, the set-aside portion will be such as to make the maximum
use of the capacity of labor surplus area concerns. Delivery terms and other
terms applicable to the set-aside portion of an item and those applicable to the
non-set-aside portion of that item shall be comparable.
(b) In advertised procurements involving set-asides pursuant to this Part, each
invitation for bids shall contain either substantially the following notice or the
notice set forth in (c) below. In negotiated procurements, whichever notice is
used will be appropriately modified for use with requests for proposals. The
appropriate notice shall be made a part of each contract under the set-aside portion
of the procurement.
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IMPACT OF DEFENSE SPENDING 69
NOTICE OP LABOR SURPLUS AREA SET-ASIDE (OCT. 1962) *
(a) General. A portion of this procurement, as identified elsewhere in the Schedule, has been set aside
for award only to one or more labor surplus area concerns, and, to a limited extent, to small business concerns
which do not qualify as labor surplus area concerns. Negotiations for award of the set-aside portion will be
conducted only with responsible labor surplus area concerns (and small business concerns to the extent
indicated below) who have submitted responsive bids or proposals on the non-set-aside portion at a unit
price no greater than 120 percent of the highest award made on the non-set-aside portion. Negotiations for
the set-aside portion will be conducted with such bidders in the following order of priority:
Group 1. Persistent labor surplus area concerns which are also small business concerns.
Group 2. Other persistent labor surplus area concerns.
Group 3. Substantial labor surplus area concerns which are also small business concerns.
Group 4. Other substantial labor surrilus area concerns.
Group 5. Small business concerns which are not labor surplus area concerns.
Within each of the above groups, negotiations with such concerns wifi be in the order of their bids on the
non-set-aside portion, beginning with the lowest responsive bid. The set-aside portion shall be awarded
at the highest unit price awarded on the non-set-aside portion, adjusted to reflect transportation and other
cost factors which were considered in evaluating bids on the non-set-aside portion. However, the Govern-
ment reserves the right not to consider token bids or other devices designed to secure an unfair advantage
over other bidders eligible for the set-aside portion.
(b) Definitions.
(1) The terin"labor surplus area" means a geographical area which is a persistentlabor surplus area or a
substantial labor surplus area, or both, as defined below:
(i) "Persistent labor surplus area" means an area which (A) is classified by the Department of
Labor as an "Area of Substantial and Persistent Labor Surplus" (also called "Area of Substantial and
Persistent Unemployment") and Is listed as such by that Department in conjunction with its publica-
tion "Area Labor Market Trends," or (B) is certified as an area of substantial and persistent labor
surplus by the Department of Labor pursuant to a request by a prospective contractor.
(ii) "Substantial labor surplus area" means an area which (A) is classified by the Department of
Labor as an "Area of Substantial Labor Surplus" (also called "Area of Substantial Unemployment")
and which is listed as such by that Department in conjunction with its publication"Area Labor Market
Trends," or (B) is certified as an area of substantial labor surplus by the Department of Labor pursuant
to a request by a prospective contractor.
(2) The term' `labor surplus area concern" includes persistent labor surplus area concerns and substantial
labor surplus area concerns as defined below:
(i) "Persistent labor surplus area concern" means a concern that agrees to perform, or cause to be
performed, a substantial proportion of a contract in persistent labor surplus areas. A concern shall be
deemed to perform a substantial proportion of a contract in persistent labor surplus areas if the costs
that the concern will incur on account of manufacturing or production performed in such areas (by it-
self or its first-tier subcontractors) amount to more than 50 percent of the contract price.
(il) "Substantial labor surplus area concei~n" means a concern that agrees to perform, or cause to be
performed, a substantial proportion of a contract in substantial labor surplus areas. A concern shall be
deemed to perform a substantial proportion of a contract in substantial labor surplus areas if the costs
that concern will incur on account of manufacturing or production performed in substantial and per-
sistent labor surplus areas (by itself or its first-tier subcontractors) amount to more than 50 percent of
the contract price.
(3) A "small business concern" is a concern that (i) is certified as a small business concern by the Small
Business Administration, or (ii) is independently owned and operated, is not dominant in its field of opera-
tion and, with its affiliates, employs not more than 500 employees. In addition to meeting these criteria a
manufacturer or regular dealer submitting bids or proposals in his own name must agree to furnish in the
performance of the contract end items manufactured or produced in the United States its possessions, or
Puerto Rico, by small business concerns; provided, that this additional requirement does not apply in con-
nection with construction or service contracts.
(c) Identification of Areas of Performance. Each bidder desiring to be considered for award as a labor
surplus area concern on the set-aside portion of this procurement shall identify in his bid the geographical
areas in which he proposes to perform, or cause to be performed, a substantial proportion of the production
of the contract. If the Department of Labor classification of any such area changes after the bidder has sub-
mitted his bid, the bidder may change the areas in which he proposes to perform, provided, that he so notifies
the Contracting Officer before award of the set-aside portion. Priority for negotiation will be based upon
the labor surplus classification of the designated production areas as of the time of the proposed award.
(d) Agreement. The bidder agrees that, if awarded a contract as a persistent labor surplus area concern
under the set-aside portion of this procurement, he will perform, or cause to be performed, a substantial
proportion of the production in areas classified at the time of award, or at the time of performance of the
contract, as persistent labor surplus areas; and that if awarded a contract as a substantial labor surplus area
concern under the set-aside portion of this procurement, he will perform, or cause to be performed, a sub-
stantial proportion of the production in areas classified at the time of award, or at the time of performance
of the contract, as substantial or persistent labor surplus areas.
Where the definition of a small business concern for a given industry, as prescribed
by the Small Business Administration and promulgated within the Department
of Defense, differs from that set forth in the notice above, the notice shall be appro-
priately modified to reflect such definition.
(c) Where it is anticipated that bids may be received which appear designed to
take unfair advantage of bona fide bidders, by devices such as unrealistically low
bids on mere token quantities, the notice set forth below may be used instead of
that in (b) above.
* * * * * * *
Norx.-The longer form ofthe notice has been deleted.
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70 IMPACT OF DEFENSE SPENDING
(d)(1) !After the award price~ for the non-set-aside portion has been deter-
mined, negotiations may be conducted for the set-aside portion. Procurement
of the set-aside portiomjshall in all instances be effected by negotiation. Nego-
tiations shall be conducted only with those. bidders or offerors who have sub-
mitted responsive bids or proposals on the non-set-aside portion at a unit price
no greater than 120 percent of the highest award made or to be made on the
non-set-aside portion and who are determined to be responsible prospective
contractors for the~set-aside portion of the procurement. Negotiations shall be
conducted in the order of priority indicated in the foregoing notices; provided
that, where equal low bids are received on the non-set-aside portion from con-
cerns which are equally eligible for the set-aside portion, the concern which is
awarded the non-set-aside portion (under the equal low bid procedures of
2-407.6) shall have first priority with respect to negotiations for the set-aside
portion. The set-aside portion shall be awarded at the highest unit price
awarded or to be awarded for the non-set-aside portion. If the entire set-aside
portion cannot be awarded by the method described herein, any unawarded
portion may be procured by advertising or negotiation, as appropriate, in accord-
ance with existing regulations (see 3-201.2(b)(i) as to negotiation).
(2) When the award price for a non-set-aside portion has been determined
and where an award will be made to a labor surplus area concern and the same
labor surplus area concern is entitled to receive a set-aside portion of the solicita-
tion, the set-aside portion may be added to the basic contract by supplemental
agreement. The supplemental agreement shall include the Examination of
Records clause, applicable to the set-aside portion only. For purposes of
16-901.2, the non-set-aside and set-aside portions shall be reported separately.
1-804.3 Withdrawal of Set-Asides. If, prior to the award of a contract involv-
ing a labor surplus set-aside, the contracting officer considers that the set-aside
is detrimental to the public interest, e.g., because of unreasonable prices, the
contracting officer shall withdraw the set-aside and complete the procurement
by advertising or negotiation as appropriate in accordance with existing regu-
lations. A signed memorandum setting forth the basis of the withdrawal of
any set-aside shall be made and retained.
1-804.4 Contract Authority. Contracts for set-aside made under this Part 8
shall cite as authority 10 U.S.C. 2304(a)(1). For reporting purposes, see
3-201.2(b) (i) for contracts awarded to labor surplus area concerns and
3-201.2(b)(ii) for contracts awarded to small business concerns which are not
labor surplus area concerns.
1-805 Subcontracting With Labor Surplus Area Concerns.
1-805.1 General Policy. It is the policy of the Government to promote equitable
opportunities for labor suplus area concerns to compete for defense subcontracts
and to encourage placement of subcontracts with concerns which will perform
such contracts substantially in areas of persistent or substantial labor surplus, in
the order to priority described in 1-802 where this can be done, consistent with
efficient performance of contracts, at prices no higher than are obtainable else-
where.
1-805.2 Labor Surplus Area Subcontracting Program. The Government's labor
surplus area subcontracting program requires Government prime contractors to
assume an affirmative obligation with respect to subcontracting with labor surplus
area concerns. In contracts which range from $5,000 to $500,000, the contractor
undertakes the simple obligation of using his best efforts to place his subcontracts
with concerns which will perform such subcontracts substantially in areas of per-
sistent or substantial labor surplus where this can be done, consistent with the effi-
cient performance of the contract, at prices no higher than are obtainable else-
where. This undertaking is set forth in the contract clause prescribed in 1-805.3
(a). In contracts which may exceed $500,000, the contractor is required, pursuant
to the clause set forth in 1-805.3(b) to undertake a number of specific responsibili-
ties designed to insure achievement of the objectives referred to above and to
impose similar responsibilities on major subcontractors.
1-805.3 Required Clauses.
(a) The "Utilization of Concerns in Labor Surplus Areas" clause set forth below
shall be inserted in all contracts in amounts which may exceed $5,000, except-
(1) contracts with foreign contractors which, including all subcontracts there-
under, are to be performed entirely outside the United States, its possessions, and
Puerto Rico;
(2) contracts for services which are personal in nature; and
(3) contracts for construction.
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IMPACT OF DEFENSE SPENDING 71
UTILIZATION OF CONCERNS IN LABOR SURPLUS AREAS (FEB. 1962)
It is the policy of the Government to place contracts with concerns which will perform such contracts
substantially in areas of persistent or substantial labor surplus where this can be done, consistent with the
efficient performance of the contract, at prices no higher than are obtainable elsewhere. The Contractor
agrees to use his best efforts to place his subcontracts in accordance with this policy. In complying with
the foregoing and with paragraph (b) of the clause of this contract entitled "Utilization of Small Business
Concerns," the Contractor in placing his subcontracts shall observe the following order of preference: (I)
persistent labor surplus area concerns which are also small business concerns; (ii) other persistent labor sur-
plus area concerns; (iii) substantial labor surplus area concerns which are also small business concerns;
(iv) other substantial labor surplus area concerns; and (v) small business concerns which are not labor
surplus area concerns.
(b) The "Labor Surplus Area Subcontracting Program" clause below shall
be included in all contracts which may exceed $500,000, but which contain the
clause required by (a) above and which, in the opinion of the purchasing activity,
offer substantial subcontracting possibilities. Prime contractors who are to be
awarded contracts that do not exceed $500,000, which in the opinion of the pur-
chasing activity offer substantial subcontracting possibilities, shall be urged to
accept the following clause:
LABOR SURPLUS AREA SUBCONTRACTING PROGRAM (FEB. 1962)
(a) The Contractor agrees to establish and conduct a program which will encourage labor surplus area
concerns to compete for subcontracts within their capabilities. In this connection, the Contractor shall-
(1) Designate a llaison officer who will (i) maintain liaison with duly authorized representatives of
the Government on labor surplus area matters, (ii) supervise compliance with the "Utilization of Con.
cerns in Labor Surplus Areas clause, and (iii) administer the Contractor's Labor Surplus Area Sub-
contracting Program;
(2) Provide adequate and timely consideration of the potentialities of labor surplus area concerns
in all "make-or-buy" decisions;
(3) Assure that labor surplus area concerns will have an equitable opportunity to compete for sub-
contracts, particularly by arranging solicitations, time for the preparation of bids, quantities, specifics.
tions, and delivery schedules so as to facilitate the participation of labor surplus area concerns;
(4) Maintain records showing procedures which have been adopted to comply with the policies set
forth In this clause; and
(5) Include the "Utilization of Concerns in Labor Surplus Areas" clause in subcontracts which offer
substantial labor surplus area subcontracting opportunities.
(b) A "labor surplus area concern" is a concern which will perform, or cause to be performed, a substantial
proportion of any contract awarded to It in" Areas of Substantial and Persistent Labor Surplus" or in "Areas
of Substantial Labor Surplus," as designated by the Department of Labor. A concern shall be deemed to
perform a substantial proportion of a contract in a labor surplus area if the costs that the concern will incur
on account of manufacturing or production (by itself or its first-tier subcontractors) in such areas amount
to more than 50 percent of the price of such contract.
(c) The Contractor further agrees, with respectto any subcontract hereunder which is in excess of $500,000
and which contains the clause entitled "Utilization of Concerns in Labor Surplus Areas," that he will
insert provisions in the subcontract which will conform substantially to the language of this clause, including
this paragraph (c), and that he will furnish the names of such subcontractors to the Contracting Officer.
1-805.4 Responsibility for Reviewing Subcontracting Program. Only one Depart-
ment shall be responsible for reviewing a contractor's Labor Surplus Area Sub-
contracting Program. Departmental responsibility shall be assigned and carried
out in accordance with 1-707.4.
Armed Services Procurement Regulations Concerning Policies and
Procedures on "Ma/ce-or-Buy" Programs
SECTION III
PART 9-SUBCONTRACTING POLICIES AND PROCEDURES
3-900 Scope of Part. This Part sets forth policies and procedures for the
evaluation, review, and approval of contractors' "make-or-buy" programs,
purchasing systems, and proposed subcontracts.
3-901 General.
(a) Information as to the contractor's "make-or-buy" program, purchasing
system, and proposed subcontracts may be important to (i) negotiation of
reasonable contract prices (see 3-807.10 and 3-808.2(h)), (ii) assurance of satis-
factory contract performance, or (iii) carrying out Government policies regarding
small business (1-707.1), labor surplus areas (1-805.1), acquisition and use of
Government facilities, maintenance of mobilization base, or other policies which
may be appropriate to the particular procurement. Therefore, Government
surveillance of contractors' "make-or-bUy" programs and proposed subcontracts
is required as set forth in this Part. Where "make-or-buy" decisions and sub-
contracting will have a substantial impact on any of the above mentioned factors,
the contractor's "make-or-buy" program and subcontracting should, to the
extent practicable, be evaluated and agreed on during negotiations.
PAGENO="0078"
72 IMPACT OF DEFENSE SPENDING
(b) The subcontracting policies and procedures in this Part should generally
be applied to procurement where (i) the item, system, or work is complex, the
dollar value is substantial, or competition is restricted, and (ii) either (A) cost-
reimbursement, price redetermination, or incentive-type contracts are to be
used, or (B) make-or-buy decisions are expected to have a substantial impact
on negotiations leading to a firm fixed-price contract.
* * * * * * *
3-904 Additional Contract Clauses. Additional contract clauses with respect
to subcontracting with Small Business and Labor Surplus Area concerns are set
forth in Section VII.
Armed Services Procurement Regulations Concerning Advantages Given
to Labor Surplws Area Concerns in Competition with Foreign Firms
SECTION VI
PART 1-BUT AMERICAN ACT-SUPPLY AND SERVICE CONTRACTS
6-100 Scope of Part. This Part implements the Buy American Act (41 U.S.C.
lOa-d) and the policies set forth in Executive Order 10582, dated 17 December
1954, with respect to supply and service contracts.
6-101 Definitions. As used in this Part, the following terms have the meanings
set forth below.
(a) End products means articles, materials, and supplies, which are to be
acquired for public use. As to a given contract, the end products are the items
to be delivered to the Government, as specified in the contract, including supplies
to be acquired by the Government for public use in connection with service
contracts, but excluding installation and other services to be performed after
delivery.
(b) Components means those articles, materials, and supplies which are directly
incorporated in end products.
(c) United States means the States, the District of Columbia, Puerto Rico,
American Samoa, the Canal Zone, the Virgin Islands, Guam, and any areas
subject to the complete sovereignty of the United States.
(d) Domestic source end product means an unmanufactured end product which
has been mined or produced in the United States, or an end product manufac-
tured in the United States if the cost of its components which are mined, pro-
duced, or manufactured in the United States exceeds 50 percent of the cost of
all its components. A component shall be considered to have been mined,
produced, or manufactured in the United States (regardless of its source in fact)
if the end product in which it is incorporated is manufactured in the United
States and the component is of a class or kind (1) determined by the Government
to be not mined, produced, or manufactured in the United States in sufficient
and reasonably available commercial quantities and of a satisfactory quality, or
(ii) as to which the Secretary concerned has determined that it would be incon-
sistent with the public interest to apply the restrictions of the Act.
(e) Canadian end product means an unmanufactured end product mined or
produced in Canada, or an end product manufactured in Canada if the cost of
its components which are mined, produced, or manufactured in Canada or the
United States exceeds 50 percent of the cost of all its components.
(f) Foreign end product means an end product other than a domestic source
end product.
(g) Domestic bid means a bid or offered price for a domestic source end prod-
uct, including transportation to destination.
(h) Foreign bid means a bid or offered price for a foreign end product, including
transportation to destination and duty (whether or not a duty-free entry certificate
may be issued).
6-102 Statutory Requirements. Except as provided in 6-103, the Buy Ameri-
can Act requires that in the procurement of supplies and services, only domestic
source end products shall be acquired for public use. In determining whether an
end product is a domestic source end product, only the end product andjits com-
ponents shall be considered.
6-103 Exceptions.
6-103.1 Use Outside the United States. The restrictions of the Buy American
Act do not apply to articles, materials, or supplies for use outside the United States.
PAGENO="0079"
IMPACT 01? DEFENSE SPENDING 73
6-103.2 Nonavailability in the United States. The Buy American Act does not
apply to articles, materials, or supplies of a class or kind which the~rGovernment
has determined are not mined, produced, or manufactured in the United States
in sufficient and reasonably available commercial quantities and of a satisfactory
quality. See 6-105.
6-103.3 Unreasonable Cost or Inconsistency With :the Public Interest. The
restrictions of the Buy American Act do not apply when it is determined by the
Secretary concerned that the cost of a domestic source end product would be
unreasonable or that its acquisition would be inconsistent with the public interest.
Such determination shall be made in accordance with 6-104.4.
6-103.4 Scrap. Scrap generated in, collected in, and prepared for processing
in the United States shall be considered as of domestic origin.
6-103.5 Canadian Supplies.
(a) Listed. The secretaries of the Departments have determined that it would
be inconsistent with the public interest to apply the restrictions of the Buy
American Act with respect to certain supplies, which have been determined to be
of a military character or involved in programs of mutual interest to the United
States and Canada, where such supplies are mined, produced, or manufactured
in Canada and either (i) are Canadian end products or (ii) are incorporated in
end products manufactured in the United States. Each Department maintains
a list of these supplies, which is approved by the Secretary concerned. (The
Departmental lists provide that parts and equipment for listed supplies are con-
sidered to be included in the lists, even though not separately listed, when they
are procured under a contract that also calls for listed supplies.)
(b) Not Listed. The secretaries of the Departments have also determined that
it would be inconsistent with the public interest to apply the restrictions of the
Buy American Act (i) to the acquisition of any unlisted Canadian end product
that is offered by a bid or proposal which is the lowest acceptable bid or proposal
after any applicable duty (whether or not a duty-free entry certificate may be
issued) is included for evaluation purposes, and (ii) with respect to any supplies
mined, produced, or manufactured in Canada that are incorporated in end prod-
ucts manufactured in the United States.
(c) Application of Canadian Exception. The effect of (a) and (b) above may
be summarized as follows.
(1) As to any end product that is manufactured in the United States, all
Canadian components are treated as components mined, produced, or manu-
factured in the United States for the purpose of determining whether the end
product is a domestic source end product.
(2) Listed Canadian end products are treated as domestic source end products
and neither duty nor the evaluation factors prescribed by 6-104.4 shall be used
for evaluation.
(3) Unlisted Canadian end products are evaluated by including any applicable
duty, whether or not a duty-free entry certificate may be issued.
(d) Limitations. The above exceptions from the provisions of the Buy Ameri-
can Act which are applicable solely with respect to Canadian supplies, and the
special procedures relating thereto which are set forth in this Part, do not apply to,
or affect determinations made with respect to, (i) items contained in the list set
forth in 6-105, (ii) the purchase of supplies for civil work;s acquired with funds
appropriated for Civil Functions, Department of the Army, or (iii) food items.
6-103.6 Panamanian Supplies for use in the Canal Zone. In accordance with
the Memorandum of Understandings ancillary to the Treaty with the Republic
of Panama signed 25 January 1955, the Secretaries have determined that it would
be inconsistent with the public interest to apply the restrictions of the Buy Ameri-
can Act to articles, materials, or supplies that are mined, produced, or manufac-
tured in Panama and are purchased for use in the Canal Zone.
6-104 Procedures.
6-104.1 Applicability. The following procedures apply to all contracts involv-
ing the procurement of supplies except contracts exclusively for articles, materials,
or supplies, for use outside the United States~(but see 6-103.5(a)).
6-104.2 Solicitation of Bids and Proposals. Invitations for Bids and Requests
for Proposals shall state that specific information as to articles, materials, and
supplies excepted from the Buy American Act (see 6-105) is available to pros-
pective contractors upon request.
6-104.3 Certificate. Invitations for Bids and Requests for Proposals shall
require that each bid or proposal include a certificate substantially as follows:
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r IMPACT OF DEFENSE SPENDING $
BuY:AMERIcAN CERTIFICATE (OCT. 1959)
The bidder or offeror hereby certifies that each end product, except the end products excluded below, Is a
domestic source end product (as defined in the contract clause entitled Buy American Act); and that com-
ponents of unknown origin have been considered to have been mined, produced, or manufactured outside
the United States.
EXCLUDED ITEMS:
6-104.4 Evaluation of Eids and Proposals.
(a) In accordance with the Buy American Act, the Secretarys of the Depart-
ménts have determined that where the following procedures result in the acquisition
of. foreign end products, the acquisition of domestic source end products would be
(i) unreasonable in cost or (ii) inconsistent with the public interest (see 6-103.3
and 6-103.5).
(b) Except as provided in (d) below, bids and proposals shall be evaluated
so as tQ give preference to domestic bids. For the purpose of evaluation, a factor
ot 6 percent of each foreign bid (which does not offer a Canadian end product)
shall be added to that foreign bid, except that where the firm submitting the low
acceptable domestic bid is a small business concern, or a labor surplus area con-
cern, or both-
(i) the proposed awardj shall be submitted to the Secretary if required
pursuant to (c) below, or
(ii) if not required to be submitted under (c) below, then a factor of 12
percent (in lieu of the 6 percent factor) of each such foreign bid shall be added
to that foreign bid, except that where small purchase procedures (see Sec-
tion III, Part 6) are used, the 6 percent factor shall apply.
Except for those cases forwarded to the Secretary pursuant to (c) below, award
shall be made to the low acceptable bidder. When more than one line item is
offered in response to an invitation for bids or request for proposals, the appro-
priate factor shall be applied on an item-by-item basis, except that the factor
may be applied to any group of items as to which the invitation for bids or re-
quest for proposals specifically provides that award may be made on a particular
group of items.
(c) (1) Notwithstanding that the low acceptable bid or proposal as to any item
or group of items under (b) above may be a foreign bid, proposed awards shall be
submitted, in accordance with Departmental procedures, to the Secretary con-
cerned for decision where all acceptable domestic bids exceed the low acceptable
foreign bid plus 6 percent (determined in accordance with (b) above) and the
sum of any low acceptable domestic bid from any single (i) small business concern
or (ii) labor surplus area concern, exceeds $100,000; provided, that this subpara-
graph (c) (1) shall not apply where the low foreign bid offers a Canadian end
product.
(2) Proposed awards shall be submitted, in accordance with Departmental
procedures, to the Secretary concerned for decision where:
(i) rejection of an acceptable low foreign bid is considered necessary to
protect essential national security interests, such as maintenance of a mobili-
zation base; or
(ii) rejection of any bid or proposal for other reasons of the national interest
is considered necessary.
Prior to final action, cases within this subparagraph (2) shall be referred by the
Secretary concerned to the Assistant Secretary of Defense (Installations and
Logistics).
(d) (1) Bids offering Canadian end products on the lists described in 6-103.5(a)
shall be evaluated on a parity with domestic bids, i.e., neither a price differential
nor duty shall be added.
Title ~U-Gode of Federal Regulations (Public aontrac~s)
CHAPTER 1-REGULATIONs IMPLEMENTING D.M.P. No. 4
NOTE.-ThiS title establishes the Federal Procurement Regulations System
applicable to all Federal agencies to the extent specified in the Federal Property
and Administrative Services Act of 1949; Public Law 81-152; ch. 288, 63 Stat.
377, 393; generally, 41 U.S.C. § 251 et seq.
SUBPART 1-L8-LABOR SURPLUS AREA CONCERNS
SOURCE: §~ 1-1.800 to 1-1.807 appear at26 F.R. 6715, July 27, 1961; 26 P.R. 8595, Sept. 14, 1961, except as
otherwise noted.
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IMPACT OF DEFENSE SPENDTh~G 75
§ 1-1.800 Scope of subpart.
This subpart sets forth policies and procedures with respect to the placement
of contracts in order to aid persistent or substantial labor surplus areas in the
United States, its possessions, and Puerto Rico. This suhpartimplements Defense
Manpower Policy No. 4 (Revised), June 6, 1960 (32A CFR Ch. I; 25 F.R. 5283).
§ 1-1.801 Definitions.
§ 1-1.801-1 Labor surplus area concern.
The term "labor surplus area concern" includes persistent labor surplus area
concerns and substantial labor surplus area concerns as defined below:
(a) "Persistent labor surplus area concern" means a concern which will per-
form, or cause to be performed, a substantial proportion of a contract in persistent
labor surplus areas. A concern shall be deemed to perform a substantial propor-
tion of a contract in persistent labor surplus areas if the costsjhat the concern
will incur on account of manufacturing or production performed in such areas
(by itself or its first-tier subcontractors) amount to more than 50 percent of the
contract price.
(b) "Substantial labor surplus area concern" means a concern which will
perform, or cause to be performed, a substantial proportion of a contract in
substantial labor surplus areas. A concern shall be deemed to perform a sub-
stantial proportion of a contract in substantial labor surplus areas if the costs
that the concern will incur on account of manufacturing or production performed
in substantial labor surplus areas or in substantial and persistent labor surplus
areas (by itself or its first-tier subcontractors) amount to more than 50 percent
of the contract price.
§~ 1-1.801-2 Labor surplus area.
The term "labor surplus area" means a geographical area which is a persistent
labor surplus area or a substantial labor surplus area, or both, as defined below:
(a) "Persistent labor surplus area" means an area which (1) is classified by the
Department of Labor as an "Area of Substantial and Persistent Labor Surplus"
(also called "Area of Substantial and Persistent Unemployment") and is listed
as such by that Department in conjunction with its publication "Area Labor
Market Trends," or (2) is certified as an area of substantial and persistent labor
surplus by the Department of Labor pursuant to a request by a prospective
contractor.
(b) "Substantial labor surplus area" means an area which (1) is classified
by the Department of Labor as an "Area of Substantial Labor Surplus" (also
called "Area of Substantial Unemployment") and which is listed as such by that
Department in conjunction with its publication "Area Labor Market Trends,"
or (2) is certified as an area of substantial labor surplus by the Department of
Labor pursuant to a request by a prospective contractor.
§ 1-1.801-3 Small business concern.
For definition of small business concern, see Subpart 1-1.7.
§ 1-1.802 Labor surplus area policies.
§ 1-1.802-1 General policy.
It is the policy of the Government to aid labor surplus areas by placing con-
tracts with labor surplus area concerns, to the extent consistent with procure-
ment objectives and where such contracts can be awarded at prices no higher
that those obtainable from other concerns, and by encouraging prime contractors
to place subcontracts with concerns which will perform a substantial proportion
of the production in labor surplus areas.
§ 1-1.802-2 Specific policies.
To further the general policy, the following specific policies shall be applied:
(a) Best efforts shall be used to award negotiated contracts to labor surplus
area concerns. However, in no case may price differentials be paid for the
purpose of carrying out this policy.
(b) Procurements shall be set aside for award to labor surplus area concerns
in accordance with § 1-1.804.
(1) Where either a partial labor surplus area set-aside or a partial small busi-
ness set-aside can be appropriately made for any given procurement, the set-aside
shall be made for labor surplus area concerns.
(2) In order to accommodate both labor surplus area and small business
policies, labor surplus area set-aside awards shall be made in accordance with
the following order of priority: (i) Persistent labor surplus area concerns which
PAGENO="0082"
76 LMPACT OF DEFENSE SPENDING
are also small business concerns; (ii) other persistent labor surplus area concerns;
(iii) substantial labor surplus area concerns which are also small business concerns;
(iv) other substantial labor surplus area concerns; and (v) small business concerns
which are not labor surplus area concerns.
(c) Procurement agencies shall disseminate promptly to appropriate procure-
ment personnel available publications and other information identifying labor
surplus areas and production capabilities therein.
(d) The classification and certification of labor surplus areas by the Depart-
ment of Labor shall be considered conclusive with respect to the particular
procurement concerned.
(e) Concerns located in labor surplus areas, which are on appropriate bidders
lists, shall be given the opportunity to submit bids or proposals on all procure-
ments for which they are qualified, except where the procurement has been
set aside in its entirety for a specific class of firms, such as small business con-
cerns. Where less than a complete bidders list is to be used, pursuant to
§ 1-2.205-4, all prospective contractors in labor surplus areas shall be solicited,
except that only a pro rata number of prospective labor surplus area concerns
need be solicited when the bidders list is composed predominantly of labor surplus
area concerns and the estimated award is not expected to be more than $25,000.
(f) Subcontracting with concerns in labor surplus areas shall be encouraged
in accordance with § 1-1.805.
(g) In the event of equal low bids, preference shall be given to labor surplus
area concerns in accordance with § 1-2.407-6.
(h) Depressed industries shall be assisted in accordance with § 1-1.806.
(i) Procurement agencies shall cooperate with the Departments of Labor
and Commerce, the Small Business Administration, and the Office of Civil and
Defense Mobilization to achieve the objectives of this subpart.
(j) Procurement placed in labor surplus areas as a result of preference pro-
cedures shall be reported in accordance with § 1-1.807.
§ 1-1.802-3 Buy American Act.
Any preference under the "Buy American Act" due to performance in labor
surplus areas (see section 3(c) of Executive Order No. 10582 of December 17,
1954, which prescribes uniform procedures for certain determinations under
the Buy American Act) shall be in addition to the assistance accorded pursuant
to this subpart.
§ 1-1.804 Partial set-asides for labor surplus area concerns.
§ 1-1.804-1 General.
(a) In accordance with the policies set forth in § 1-1.802, a portion (total set-
asides shall not be made) of each procurement which is estimated to exceed
$10,000 shall be set aside by the contracting officer for labor surplus area concerns
if:
(1) The procurement is severable into two or more economic production
runs or reasonable lots; and
(2) One or more labor surplus area concerns, having the technical com-
petency and productive capacity to furnish a severable portion of the procure-
ment at a reasonable price, is expected to submit bids or offers.
(b) If deemed practicable by the contracting officer, procurements between
$2,500 and $10,000 may be partially set aside for labor surplus area concerns.
(c) In furtherance of the policy to assure that a fair proportion of the total
purchases and contracts are placed with small business concerns, each labor
surplus area set-aside shall provide that, in addition to labor surplus area concerns,
small business concerns not performing in such areas are also eligible for award of
any set-aside quantities not awarded to labor surplus area concerns (see § 1-
1.804-2).
(d) None of the following is, in itself, sufficient cause for not making a labor
surplus area set-aside.
(1) A large part of previous procurements of the item in question has been
placed with labor surplus area concerns;
(2) The item to be purchased is on an established planning hst under the
Industrial Readiness Planning Program;
(3) The item to be purchased is on a Qualified Products List;
(4) A period of less than thirty days from the date of issuance of invitations
for bids or requests for proposals is prescribed for the submission of bids or
proposals; or
(5) The procurement is classified.
(e) Where it is determined that a portion of a procurement is to be set aside
for labor surplus areas, the procurement shall be divided into a non-set-aside por-
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IMPACT OF DEFENSE SPENDING 77
tion and a set-aside portion. Insofar as practical, the set-aside portion will be
such as to make the maximum use of the capacity of labor surplus area concerns.
Delivery terms and other terms applicable to the set-aside portion of an item and
those applicable to the non-set-aside portion of that item shall be comparable.
§ 1-1.804-2 Notice to bidders or offerors.
(a) Invitations for bids or requests for proposals, involving set-asides pursuant
to this subpart, shall contain a notice substantially as set forth in either para-
graph (b) or (c) below. Where the definition of a small business concern for a
given industry differs from that set forth in the prescribed notices, the notice
used shall be appropriately modified to reflect such definition. The notice used
shall be made a part of each contract under the set-aside portion of the pro-
curement.
(b) Short-form notice.
NOTICE OP LABOR SURPLUS AREA SET-ASIDE
(a) General. A portion of this procurement, as identified elsewhere in the Schedule, has been set aside
for award only to one or more labor surplus area concerns, and, to a limited extent, to small business
concerns which do not qualify as labor surplus area concerns. Negotiations for award of the set-aside portion
will be conducted only with responsible labor surplus area concerns (and small business concerns to the
extent indicated below) which have submitted responsive bids or proposals on the non-set-aside portion
at a unit price no greater than 120 percent of the highest award made on the non-set-aside portion. Nego-
tiations for the set-aside portion will be conducted with such bidders in the following order of priority:
Group 1. Persistent labor surplus area concerns which are also small business concerns.
Group 2. Other persistent labor surplus area concerns.
Group 3. Substantial labor surplus area concerns which are also small business concerns.
Group 4. Other substantial labor surplus area concerns.
Group 5. Small business concerns which are not labor surplus area concerns.
Within each of the above groups, negotiations with such concerns will be in the order of their bids on the
non-set-aside portion, beginning with the lowest responsive bid. The set-aside portion shall be awarded at
the highest unit price awarded on the non-set-aside portion, adjusted to reflect transportation and other cost
factors which were considered in evaluating bids on the non-set-aside portion. However, the Government
reserves the right not to consider token bids or other devices designed to secure an unfair advantage over
other bidders eligible for the set-aside portion.
(b) Definitions.
(1) The term "labor surplus area" means a geographical area which is a persistent labor surplus area or a
substantial labor surplus area, or both, as defined below:
(i) "Persistent labor surplus area" means an area which (A) is classified by the Department of Labor
as an "Area of Substantial and Persistent Labor Surplus" (also called "Area of Substantial and Per-
sistent Unemployment") and is listed as such by that Department in conjunction with its publication
"Area Labor Market Trends," or (B) is certified as an area of substantial and persistent labor surplus
by the Department of Labor pursuant to a request by a prospective contractor.
(ii) "Substantial labor surplus area" means an area which (A) is classified by the Department of
Labor as an "Area of Substantial Labor Surplus" (also called "Area of Substantial Unemployment")
and which is listed as such by that Department in conjunction with its publication "Area Labor
Market Trends," or (B) is certified as an area of substantial labor surplus by the Department of Labor
pursuant to a request by a prospective contractor.
(2) The term "labor surplus area concern" includes persistent labor surplus area concerns and sub-
stantial labor surplus area concerns as defined below:
(I) "Persistent labor surplus area concern" means a concern that agrees to perform, or cause to be
performed, a substantial proportion of a contract in persistent labor surplus areas. A concern shall be
deemed to perform a substantial proportion of a contract in persistent labor surplus areas If the costs
that the concern will incur on account of manufacturing or production performed in such areas (by
itself or its first-tier subcontractors) amount to more than 50 percent of the contract price.
(ii) "Substantial labor surplus area concern" means a concern that agrees to perform, or cause to be
performed, a substantial proportion of a contract in substantial labor surplus areas. A concern shall
be deemed to perform a substantial proportion of a contract in substantial labor surplus areas if the costs
that the concern will incur on account of manufacturing or production performed In substantial labor
surplus areas or in substantial and persistent labor surplus areas (by itself or its first-tier subcon-
tractors) amount to more than 50 percent of the contract price.
(3) A "small business concern" is a concern that (i) is certified as a small business concern by the Small
Business Administration, or (ii) is independently owned and operated, Is not dominant in the field of oper-
ation in which it is bidding on Government contracts, and, with its affiliates, employs not more than 500
employees. In addition to meeting these criteria, a manufacturer or regular dealer submitting bids or
proposals in his own name must agree to furnish in the performance of the contract end items manufactured
or produced in the United States, its possessions, or Puerto Rico, by small business concerns: Provided,
That this additional requirement does not apply in counection with construction or service contracts.
(c) Identification of Areas of Performance. Each bidder desiring to be considered for award as a labor
surplus area concern on the set-aside portion of this procurement shall identify in his bid the geographical
areas In which he proposes to perform, or cause to be performed, a substantial proportion of the production
of the contract. If the Department of Labor classification of any such area changes after the bidder has
submitted his bid, the bidder may change the areas in which he proposes to perform, provided that he so
notifies the Contracting Officer before award of the set-aside portion. Priority for negotiation will be
based upon the labor surplus classification of the designated production areas as of the time of the proposed
award.
(d) Agreement. The bidder agrees that, if awarded a contract as a persistent labor surplus area concern
under the set-aside portion of this procurement, be will perform, or cause to be performed, a substantial
proportion of the production in areas classified at the time of award, or at the time of performance of the
contract, as persistent labor surplus areas; and that if awarded a contract as a substantial labor surplus
area concern under the set-aside portion of this procurement, he will perform, or cause to be performed, a
substantial proportion of the production in areas classified at the time of award, or at the time of perform-
ance of the contract, as substantial or persistent labor surplus areas.
[End of Notice]
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78 iMPACT OF DEFENSE SPENDLI~G
(C) Long-form notice. Where it is anticipated that bids may be received which
appear designed to take unfair advantage of other bidders, by devices such as
unrealistically low bids on mere-token quantities, the notice set forth below may
be used instead of the short-form notice in paragraph (b) above.
* * * * * * *
NOTE.-The longer form of the notice has been omitted.
§ 1-1.804-3 Award procedures.
(a) Awarding the non-set-aside portion. Awards on the non-set-aside portion
shall be made in accordance with normal procurement procedures.
(b) Awarding the set-aside portion.
(1) After all awards have been made on the non-set-aside portion, award of the
set-aside portion shall be effected by negotiation with eligible concerns as provided
in the applicable Notice used. To determine whether a concern is eligible for
preferential consideration as a labor surplus area concern the area classification
of the Department of Labor in effect at the time of the award shall be used. Con-
tracts for the set-aside portion shall specify the preferential status of the bidder
or offeror on which the award was based.
(2) If equal low bids were received on the non-set-aside portion from concerns
which are eligible for the set-aside portion, the concern which is awarded the non-
set-aside portion (under the equal low bid procedures of § 1-2.407-6) shall have
the first priority with respect to negotiations for the set-aside portion
(c) Non-awarded set-aside portion. If any part of the set-aside quantity can-
not be awarded by the method described in this § 1-1.804, any unawarded portion
may be procured by advertising or negotiation, as appropriate, in accordance
with existing regulations. A record of the reasons for failure to award the set-
aside portion to labor surplus area concerns shall be included in the contract file.
§ 1-1.804-4 Withdrawal of set-asides.
If, prior to the award of a contract involving a labor surplus set-aside, the
contracting officer considers that the set-aside is detrimental to the public interest,
e.g., because of unreasonable prices, the contracting officer shall withdraw the
set-aside and complete the procurement by advertising or negotiation, as appro-
priate, in accordance with existing regulations. A record of the reasons for the
withdrawal of any set-aside shall be made and included in the contract file.
§ 1-1.804-5 Contract authority.
Contracts for set-asides made under this subpart shall cite as legal authority
for negotiation section 302(c)(1) of the Federal Property and Administrative
Services Act of 1949 (41 U.S.C. 252(c) (1)), the revised Armed Services Procure-
ment Act of 1947 (10 U.S.C. 2304(a)(1)), or other applicable proper authority
(see § 1-3.201).
§ 1-1.805 Subcontracting with labor surplus area concerns.
[27 F.R. 62.5, Jan. 20, 1962)
§ 1-1.805-1 General.
(a) In furtherance of the general policy stated in § 1-1.802, procuring agencies
shall encourage certain prime contractors to place subcontracts with. concerns
which will perform a substantial proportion of the production in areas of labor
surplus, where this can be done consistent with efficient performance of contracts
and at prices no higher than are obtainable elsewhere. (See § 1-1.710 for sub-
contracting policies with respect to small business concerns.)
(b) As used in this Subpart 1-1.8, the term subcontractor includes a supplier
and applies at any level of performance of the contract; and the term subcontract
includes a purchase order.
[27 P.R. 625, Jan. 20, 19621
§ 1-1.805-2 Labor surplus area subcontracting program.
The Government's labor surplus area subcontracting program requires Govern-
ment prime contractors to assume an affirmative obligation with respect to
subcontraeting with labor surplus area concerns. In contracts which range from
$5,000 to $500,000, the contractor undertakes the obligation of using his best
efforts to place his subcontracts with concerns which will perform such subcon-
tracts substantially in areas of labor surplus, where this can be done consistent
with the efficient performance of the contract and at prices no higher than are
obtainable elsewhere. This undertaking is set forth in the contract clause pre-
scribed in § 1-1.805-3(a). In contracts which may exceed $500,000, the con-
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IMPACT OF DEFENSE SPENDL~G 79
tractor is required, pursuant to the clause set forth in ~ 1-1.805-3(b), tO undertake
a number of specific responsibilities designed to assure achievement of the objec-
tives referred to above and to impose similar responsibilities* on major subcon-
tractors. (The liaison officer required by the latter clause may also serve as
liaison officer for small business matters.)
[27 F.R. 625, Jan. 20, 1962]
§ 1-1.805-3 Required clauses.
(a) The Utilization of Concerns in Labor Surplus Areas clause, set forth below,
shall be inserted in all contracts in amounts which may exceed $5,000, except-
(1) Contracts with foreign contractors which, including all subcontracts there-
under, are to be performed entirely outside the United States, its possessions,
and Puerto Rico;
(2) Contracts for services which are personal in nature; and
(3) Contracts for construction.
UTILIzATIoN OF CONCERNS IN LABOR SURPLUS AREAS
It is the policy of the Government to place contracts with concerns which will perform such contracts
substantially in areas of persistent or substantial labor surplus, where this can be done consistent with the
efficient performance of the contract and at prices no higher than are obtainable elsewhere. The Contractor
agrees to use his best efforts to place his subeontracts in accordance with this policy. In complying with
the foregoing and with paragraph (b) of the clause of this contract entitled "Utilization of Small Business
Concerns," the Contractor in placing his subcontracts shall observe the following order of preference: (a)
persistent labor surplus area concerns which are also small business concerns; (b) other persistent labor
surplus area concerns; (c) substantial labor surplus area concerns which are also small business concerns;
(d) other substantiallabor surplus area concerns; and (e) small business concerns which are not labor sur-
plus area concerns.
[End of Clause]
(b) The Labor Surplus Area Subcontracting Program clause, set forth below,
shall be included in all contracts which may exceed $500,000, which contain the
clause required by § 1-1.805-3(a) and which, in the opinion of the procuring
activity, offer substantial subcontracting possibilities. Furthermore, prime con-
tractors who are to be awarded contracts which may not exceed $500,000 but
which, in the opinion of the procuring activity, offer substantial subcontracting
possibilities, shall be urged to accept this clause.
LABOR SURPLUS AREA SUBCONTRACTING PROGRAM
(a) The Contractor agrees to establish and conduct a program which will encourage labor surplus area
concerns to compete for subcontracts within their capabilities. In this connection, the Contractor shall-
(1) Designate a liaison officer who will (i) maintain liaison with duly authorized representatives of the
Government on labor surplus area matters, (ii) supervise compliance with the Utilization of Concerns in
Labor Surplus Areas clause, and (iii) administer the Contractor's "Labor Surplus Area Subcontracting
Program";
(2) ProvidQ adequate and timely consideration of the potentialities of labor surplus area concerns In all
"make-or-buy" decisions;
(3) Assure that labor surplus area concerns will have an equitable opportunity to compete for subcon-
tracts, particularly by arranging solicitations, time for the preparation of bids, quantities, specifications,
and delivery schedules so as to facilitate the participation of labor surplus area concerns;
(4) Maintain records showing procedures which have been adopted to comply with the policies set forth
in this clause; and
(5) Include the Utilization of Concerns in Labor Surplus Areas clause in subcontracts which offer sub-
stantial labor surplus area subcontracting opportunities.
(b) A "labor surplus area concern" isa concern which will perform, or cause to be performed, a substantial
proportion of any contract awarded to it in "Areas of Substantial Labor Surplus" (also called "Areas of
Substantial Unemployment"), as designated by the Department of Labor. A concern shall be deemed to
perform a substantial proportion of a contract in a labor surplus area if the costs that the concern will incur
on account of manufacturing or production performed in persistent or substantial labor surplus areas (by
itself or its first-tier subcontractors) amount to more than 50 percent of the price of such contract.
(c) The Contractor further agrees to insert, in any subcontract hereunder which may exceed $500,000
and which contains the Utilization of Concerns in Labor Surplus Areas clause, provisions which shall con-
form substantially to the language of this clause, including this paragraph (c), and to notify the Contract-
ing Officer of the names of such subcontractors.
[End of Clause]
[27 F.R. 625, Jan. 20, 1962]
NOTE.-The following sections of Title 41 of the Code of Federal Regulations require the clause set forth
in § 1-1.805-3 above to be included in procurement contracts:
(a) § 7-7.101-21-mandatory in contracts of the agency for International Development in the Depart-
ment of State.
(b) § 9-7.5005-9, 14 and 16-which states that such clause is not mandatory but should be used in Atomic
Energy Commission contracts.
(c) § 18-7.104-14, 20-requiring such clause in N.A.S.A. fixed-price supply contracts.
§ 18-7.203-9, 26-requiring such clause in N.A.S.A. cost-reimbursement type contracts.
§ 18-7.302.8 and 26-j-requiring such clause in N.A.S.A. fixed-price research and development contracts.
§ 18.7-402-9, 27-requiring such clause in N.A.S.A. cost-reimbursement research and development
contracts.
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80 IMPACT OF DEFENSE SPENDU~G
§ 1-1.805-4 Review of subcontracting program.
The adequacy of the contractor's "Labor Surplus Area Subcontracting Pro-
gram" shall be reviewed by the procuring agency concerned, and any deficiencies
shall be brought to the attention of the contractor's liaison officer with a request
for corrective action.
[27 P.R. 625, Jan. 20, 1962]
§ 1-1.806 Depressed industries.
§ 1-1.806-1 General.
When an entire industry is depressed, the Director of Civil and Defense Mobil-
ization may, under Defense Manpower Policy No. 4, establish appropriate
measures on an industry-wide, rather than on an area, basis. Designations of
such industries are made by Office of Civil and Defense Mobilization Notifica-
tions, and such industries will be given special treatment as specified therein.
Sections 1-1.806-2 through 1-1.806-5 reflect pertinent requirements of such
Notifications with respect to the industries indicated. No price differentials
will be paid to carry out policies of these Notifications. Executive agencies
shall report on procurement from these industries in accordance with § 1-1.807.
§ 1-1.806-2 Apparel industry (Notification No. 53).
(a) Notification No. 53, concerning the apparel industry, was issued July 19,
1952 (17 P.R. 6675). As used in this section, the term "apparel industry"
means all of the industry identified in the "Standard Industrial Classification
Manual," 1957 edition, issued by the Bureau of the Budget, under Major Group
23, except Group No. 239.
(b) There shall be no labor surplus area set-asides in this industry. Where
feasible, under the same invitation, bids should be requested for jackets or coats
and trousers as separate items so that bidders may bid in combinations of units,
and if requirements warrant, at least an equal quantity of trousers should be
included.
§ 1-1.806-3 Petroleum and petroleum products industry (Notification No. 58).
Notification No. 58, concerning placement of procurement contracts with the
petroleum and petroleum products industry, was issued October 10, 1952 (17
P.R. 9053), and exempts the petroleum and petroleum products industry from
the application of Defense Manpower Policy No. 4. Accordingly, there shall
be no labor surplus area set-asides in this industry.
§ 1-1.806-4 Shipbuilding industry (Notification No. 57).
(a) Notification No. 57, concerning placement of procurement contracts
with the shipbuilding industry, was issued August 28, 1952 (17 P.R. 7868) in
the interest of preserving the skifis and maintaining the productive facilities of
the shipbuilding industry. As used in this paragraph, the "shipbuilding industry"
includes establishments primarily engaged in building all types of ships, barges,
canal boats and lighters of five gross tons and over, whether propelled by sail
or motor power or towed by other craft. Establishments primarily engaged
in fabricating structural assemblies or components for ships, or subcontractors
engaged in ship painting, joinery, carpentry work, electrical wiring installation,
etc., are not included.
(b) There shall be no labor surplus area set-asides in this industry. In placing
shipbuilding contracts, preference shall be given, where practicable, to contractors
which can perform the contracts without substantial use of overtime labor and
without constructing new facilities. Also, to spread work among a larger number
of private yards, bids or proposals shall be invited, and contracts awarded, on
a small-lot basis rather than on a large-lot basis, to the extent practicable.
§ 1-1.806-5 Textile industry (Notification No. 38).
(a) Notification No. 38, concerning placement of procurement contracts
with the textile industry, was issued June 4, 1952 (17 P.R. 4993). As used in
this section, the term "textile insustry" means all of the industry identified in
the "Standard Industrial Classification Manual" under Major Group 22 (Tex-
tile Mill Products) and Industry Nos. 2391 and 2392 (curtains and draperies,
and house-furnishings), except that it does not include industry No. 2298 (cordage
and twine).
(b) No preference shall be given to any area or city in placing contracts in
this industry. For the purpose of maintaining the effective functioning of the
textile industry as a whole, procuring activities shall try to place contracts with
manufacturers whose weaving operations (in the case of weaving or integrated
PAGENO="0087"
IMPACT OF DEFENSE SPENDING 81
mills) or whose spinning operations (in the case of spinning mills) during the
period of performance of such contracts will not exceed 80 hours per week (not
including other supporting activities).
(c) In all procurements from the textile industry which are estimated to exceed
$10,000, partial set-asides exclusively for textile industry concerns whose "weav-
ing" or `spinning" operations (as described in paragraph (b) above) will not ex-
ceed 80 hours per week shall be made substantially in accordance with the pro-
cedures set forth in § 1-1.804, except that all "textile industry concerns whose
weaving or spinning operations will not exceed 80 hours per week" will be treated
as "labor surplus area concerns." The notice set forth in § 1-1.804-2 shall be
designated "NOTICE OF 80-HOUR WEEK SET-ASIDE" and appropriately
modified for use in accordance with this paragraph.
§ 1-1.807 Report on preference procurement in labor surplus areas.
(a) Agencies required to report. Each agency which places contracts to be
performed in surplus labor areas under this Subpart 1-1.8 and § 1-2.407-6 shall
report such procurement in accordance with this section. When procurement is
performed by one agency for, and at the request of, another agency, the agency
doing the procurement shall report.
(b) Frequency and due date. Reports shall be prepared quarterly and sub-
mitted, in triplicate, to the General Services Administration, Office of Finance
and Administration, General Services Building, Washington 25, D.C., within
45 work days after the close of each calendar quarter. Agencies having no
reportable procurement during any report period shall submit negative reports.
(c) Preparation of report.
(1) Procurement to be reported. Reports shall state the total dollar amount of
procurement awards placed in labor surplus areas as a result of preference
procedures under this Subpart 1-1.8 and § 1-2.407-6. Amendments and modi-
fications shall be included to reflect the total value of such actions. Agencies
entering into indefinite quantity contracts to be performed in labor surplus
areas as a result of preference procedures shall estimate, in accordance with
agency procedures, the total dollar amount of orders which will be placed there-
under and include such data in the report.
(2) Report format. No standard report form is prescribed. However, the
data reported should be arranged in columns as follows:
Column 1: An alphaboticallistlng of the States (include for this purpose Puerto Rico and possessions)
eontaimng persistent or substantial labor surplus areas in which contracts awarded during the report period
as the result of set-aside, tie-bid, or other preference procedure will be performed.
Column 2: An alphabetical listing, within each State, of persistent or substantial labor surplus areas iii
which such contracts will be performed. Underline the names of persistent labor surplus areas.
Column 3: For each area, the total dollar amount of such contract awards.
Total: Eater subtotal of all figures for persistent labor surplus areas and a grand total of Column 3.
(3) Procurement from textile industry (Notification No. 38). In addition to the
requirements of subparagraph (2) above, any preference awards placed with the
textile industry during the report period under the provisions of § 1-1.806-5,
shall be reported as an addendum, and include the following information:
(i) Dollar amount of such awards placed with concerns which will perform in
persistent or substantial labor surplus areas.
(ii) Dollar amount of such awards placed with concerns which will not perform
in persistent or substantial labor surplus areas.
[26 F.R. 6715, July 27, 1961, as amended at 27 F.R. 6929, July 21, 1962]
CHAPTER 1, PART 1-2-PRocUREMENT ~ FORMAL ADVERTISING
§ 1-2.407-6 Equal low bids.
(a) In furtherance of the small business and labor surplus area policies set
forth in Subparts 1-1.7 and 1-1.8, award shall be made in accordance with the
following order of priority when two or more low bids are equal in all respects
(taking into consideration cost of transportation, cash discounts, and any other
factors properly to be considered):
(1) Persistent labor surplus area concerns (as defined in section 1-1.801-1(a))
that are also small business concerns (as defined in Subpart 1-1.7).
(2) Other persistent labor surplus area concerns.
(3) Substantial labor surplus area concerns (as defined in section 1-1.801-1(b))
that are also small business concerns.
(4) Other substantial labor surplus area concerns.
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82 IMPACT OF DEFENSE SPENDING
(5) Small business concerns which do not qualify for any of the foregoing
priorities but which will deliver the required end items to the Government from a
plant, warehouse, or other establishment in a persistent labor surplus area at
which the end items are either produced or available from stocks on hand.
(6) Other concerns which do not qualify for any of the foregoing priorities but
which will deliver the required end items to the Government from a plant, ware-
house, or other establishment in a persistent labor surplus area at which the end
items are either produced or available from stocks on hand.
(7) Small business concerns which do not qualify for any of the foregoing
priorities but which will deliver the required end items to the Government from
a plant, warehouse, or other establishment in a substantial labor surplus area at
which the end items are either produced or available from stocks on hand.
(8) Other concerns which do not qualify for any of the foregoing priorities but
which will deliver the required end items to the Government from a plant, ware-
house, or other establishment in a substantial labor surplus area at which the
end items are either produced or available from stocks on hand.
(9) Other small business concerns.
(10) Any other concern.
(b) If the application of (a) of this § 1-2.407-6 results in two or more bidders
being eligible for award, the award shall be made to the bidder who will make
the most extensive use of small business subcontractors. If two or more bidders
still remain eligible for award, award shall be made by a drawing by lot limited
to such bidders. If time permits, the bidders involved shall be given an oppor-
tunity to be present at the drawing by lot. Such drawing shall be witnessed by
at least three persons and the contract file shall contain the names and addresses
of those witnesses.
(c) In each award where preference is to be given under this section, the con-
tracting officer shall, prior to award, obtain from such concern a written state-
ment that it will perform, or cause to be performed, the contract in accordance
with the circumstances justifying the priority.
[26 F.R. 6720, July 1961, as amended at 27 P.R. 625, Jan. 20, 1962]
CHAPTER 2-FEDERAL AVIATION AGENCY
SUBPART 2-AGENCY PROCUREMENT REGULATIONS SYSTEM
SUBPART 2-1.7-SMALL BUSINESS CONCERNS
SouRcE: II 2-1.710 to 2-1.710-4 appear at 26 P.R. 9675, Oct. 13, 1961.
§ 2-1.710 Subcontracting with small business concerns and labor surplus area
concerns.
§ 2-1.710-1 General.
(a) When the contractor is required to establish and conduct a "Small Business
and Labor Surplus Area Subcontracting Program", the invitation for bids (IFB)
or the request for proposals (RFP) will require that the name of the prospective
contractor's designated liaison officer be furnished with the bid or proposal.
Immediately after award of contract, the representative of the Small Business
Administration serving the area should be given the name of the contractor's
liaison officer for small business matters.
(b) The IFB or RFP should also advise prospective contractors that labor
surplus areas are listed in the publication "Area Labor Market Trends", copies
of which may be secured from the Bureau of Employment Security, Department
of Labor, Washington 25, D.C.
§ 2-1.710-4 Responsibility for reviewing subcontracting program.
The contracting officer shall be responsible for the review required by § 1-1.710-4
of this title. A review shall be made as soon as possible after the award of a con-
tract, and periodically thereafter. Written reports of all such reviews shall be
included in the contract file.
SUBPART 2-1.8-LABOR SURPLUS AREA CONCERNS
§ 2-1.801 Definitions.
§ 2-1.801-2 Labor surplus area.
To assist Agency procurement offices in identifying labor surplus areas, arrange-
ments have been made for each office to receive, directly from the Department of
PAGENO="0089"
IMPACT OF DEFENSE SPENDING 83
Labor, their publications, "Directory of Important Labor Market Areas" and
"Area Labor Market Trends". Failure to receive these publications, or require-.
ments for additional copies should be called to the attention of the Materiel
Policy Division, Office of Management Services.
§ 2-1.802 Labor surplus area policies.
(a) The Agency policy on assistance to labor surplus areas is expressed in
Agency Order 65. In essence this order stipulates that FAA will do everything
possible, consistent with efficiency and within the framework of existing law and
regulation to assist labor surplus areas. This policy shall be applied in the
implementation of the regulations set forth in Subpart 1-1.8 and in § 1-1.710 of
this title.
SOURCE: §1 2-1.801 to 2-1.807 appear at 26 FR. 0675, Oct. 13, 1961.
(b) Pursuant to the Buy American Act (41 U.S.C. lOa-lOd) and section 3(c) of
Executive Order 10582 of December 17, 1954, the bid or offered price of materials
of domestic origin shall not be considered unreasonable for purposes of establish-
ing Buy American Act preference, if substantially all the domestic material will
be manufactured in a labor surplus area andrthe price does not exceed the price
of like material of foreign origin by more than 12 percent. In such situations,
award shall be made to the labor surplus area concern unless the price differential
thus established exceeds $10,000. Where the price differential exceeds $10,000,
the matter shall be referred to the Deputy Administrator for Administration for
determination. Any such referral shall be accompanied by a summary of the
public interest and other relevant factors involved, and by a recommendation of
the course of action to be taken.
§ 2-1.807 Report on preference procurement on labor surplus areas.
Reports required pursuant to § 1-1.807 of this title shall be prepared by each
procurement office and submitted in quadruplicate through channels to the
Materiel Policy Division, Office of Management Services, within 30 days after
the close of each calendar quarter.
Norx.-Similar statements of policy may be found at 41 C.F.B. § 9-1.802 which states that cost-type
contractors with the Atomic Energy Commission should be encouraged to adopt policies and procedures
sinillarto those set forth at 41 O.F.R. § 1-1.8 above.
0