No. 94-381 

IN THE SUPFtEPE COURT OF THE STATE OF MONTANA 

1985 

DAVID L. HUNTER, Commissioner, 

Dept. of Labor and Industry, 

State of Montana, et al., 

Plaintiff and Respondent, 

THE CITY OF BOZEMAN, a Flunicipal 

corporation; THE CITY OF BOZEMAN 

STREET DEPARTMENT, et al., 

Defendants and Appellants. 

PEAL FROM: District Court of the Eighteenth Judicial District, 

In and for The County of Gallatin, 

The Honorable Thomas Olson, Judge presiding. 

For Appellants: 

Landoe, Brown, Planalp, Kommers & Johnstone; J. Robert 

Planalp argued, Bozeinan, Montana 

For Respondent: 

William P. Richardson argued, Labor Standards Div., 

Helena, Montana 

Submitted: April 16, 1985 

Decided: May 30, 1985 

Filed: MAY 3 u 1985 

Clerk 
Mr. Justice Frank B. Morrison, Jr., delivered the Opinion of 

the Court. 

This is an appeal from an award of $17,554.76, against 

the City of Bozeman for unpaid wages mandated by §§ 18-2-401, 

et seq., MCA. 

David L. Hunter, Commissioner of Department of Labor, 

filed a complaint against the City of Bozeman on June 3, 

1982, seeking the difference in those wages paid and those 

wages which should have been paid pursuant to Montana's 

Prevailing Wage Law, referred to as the Little Davis-Bacon 

Act. The City's motion to dismiss based on the unconstitutionality of this Act was denied. Following a non-jury 

trial, the Honorable Thomas A. Olson entered findings of fact 

and conclusions of law on November 21, 1983, awarding damages 

in the amount of $17,554.76, against the City. 

During the summer of 1981, the City of Bozeman submitted 

specifications for the construction of a vehicle storage 

building on land owned by the City. Advertisement for bids 

on the project resulted in only one bid, which was rejected 

for being too costly. Thereafter, Pollard Finance, Inc., an 

Idaho corpora tion, approached the City of Bozeman proposing 

the lease of a building which Pollard would construct. On 

November 10, 1981, Pollard and the City of Bozeman entered 

into a lease for the proposed storage building. 

Pollard negotiated a contract with W. R. Henderson for 

the construction of the building. All contractors and subcontractors were hired and paid by Henderson. The City of 

Bozeman was not a party to the construction contract. The 

lease agreement between Pollard and the City of Bozeman and 

the Pollard-Henderson construction contract were distinct and 

independent contracts. In sum, the City of Bozeman owned the 
land upon which Henderson constructed the storage warehouse, 

which Pollard owned and leased back to the City. 

The following issues are presented on appeal. 

1. Is the Little Davis-Bacon Act, contained in 

S5 18-2-401 through 18-2-405, MCA (1981), unconstitutional in 

that the method devised by the Montana Legislature to set the 

prevailing wage for public contracts constitutes an improper 

delegation of power to private groups? 

2. Is there substantial credible evidence to support 

the finding of the trial court that the lease between the 

City of Bozeman and Pollard Finance, Inc., is a public works 

contract for the purposes of SS 18-2-401 through 18-2-405, 

MCA (1981)? 

3. Did the trial court err in allowing proof of wages 

from hearsay letters compiled by persons not called to testify in the case? 

4. Did the trial court err in assessing penalties 

against the appellant? 

Appellant contends that the prevailing wage rate scheme 

established by the Montana Legislature involves an unconstitutional delegation of authority from the Legislature to 

private parties. The crux of this argument is that, since 

the Little Davis-Bacon Act as it exists in Montana, mandates 

that the prevailing wage rate be determined by collective 

bargaining agreements, it is unconstitutional. 

Reliance is placed upon S 18-2-401(5) (b), MCA, which 

provides : 

"(b) When work of a similar character is not being 

performed in the county or locality, the standard 

prevailing rate of wages, including fringe benefits 

for health and welfare and pension contributions 

and travel allowance provisions, shall be those 

rates established by collective bargaining agreements in effect in the county or locality for each 

craft, classification, or type of worker needed to 

complete the contract." 
The section quoted above is not applicable to the facts 

at bar. This case is governed by S 18-2-401(5) (a), MCA, 

which provides: 

"(5) (a) 'Standard prevailing rate of wages, 

including fringe benefits for health and welfare 

and pension contributions and travel allowance 

provisions applicable to the county or locality in 

which the work is being performed,' means those 

wages, including fringe benefits for health and 

welfare and pension contributions and travel allowance provisions, which are paid in the county or 

locality by other contractors for work of a similar 

character performed in that county or locality by 

each craft, classification, or type of worker 

needed to complete a contract under this part." 

The following statute, $$ 18-2-402(1), MCA, provides 

guidelines for establishing the prevailing rate of wages. 

The section states: 

"Standard prevailing rate of wages. (1) The 

Montana commissioner of labor may determine the 

standard prevailing rate of wages in the county or 

locality in which the contract is to be performed. 

The commissioner shall undertake to keep and maintain copies of collective bargaining agre~ments and 

other information from which rates and jurisdictional areas applicable to public works contracts 

under this part may be ascertained (emphasis 

supplied) . " 

Statutes which make the union scale absolutely determinative of prevailing wages have been held to be invalid. 

Bradley v. Casey (Ill. 1953), 114 N.E.2d 681; Wagner v. City 

of Milwaukee (Wisc. 1922), 188 NW 487; Industrial Commission 

v. C & D Pipeline, Inc. (Ariz.App. 1979), 607 ~.2d 383. 

On the other hand, a prevailing wage law with a union 

scale provision has been held constitutional where the union 

rate of wages merely assists in ascertaining the prevailing 

wages and the public authorities are vested with the ultimate 

determination as to what constitutes prevailing wages. 

Baughn v. Gorrell & Riley (Ky. 1949), 224 S.W.2d 436; Union 

School District of Keene v. Commissioner of Labor (N.H. 
Montana's Little Davis-Bacon Act authorizes the 

Commissioner of Labor to establish standard prevailing rates 

using union contracts and "other information" as guidelines. 

Therefore, collective bargaining agreements are advisory, but 

not compulsory where there is other evidence of prevailing 

wage rates in the community as there was in the Bozeman area. 

No unconstitutional delegation of authority has occurred in 

§ 18-2-401 (5) (a) , MCA. We do not reach a decision with 

respect to the constitutionality of (b) of the same statute, 

as it is not applicable to the facts at bar. 

In its second issue, appellant attacks the trial court's 

finding that the lease was in fact a public works contract. 

This is a substantial credible evidence question. Robinson v. 

Schrade (Mont . 1985) , P. 2d -I - , 42 St.Rep. 401, 

403. We must view the evidence in a light most favorable to 

respondent, Mountain West Farm Bureau Mutual Ins. Co. v. 

Girton (Mont. 1985), P. 2d -I -8 42 St.Rep. 500, 

501, and determine whether or not a factual issue was presented to the trial court. 

At the end of twenty years, the City acquires absolute 

ownership of the "leased" building for $10 and retains ownership of the land. Pollard, at the end of the 20-year term, 

must transfer it to the City for $10. Furthermore, the 

penalty provision for nonrenewal of the lease is highly 

suggestive of a sale to the City. Provision 23 of the lease 

contains a provision for liquidated damages in the event that 

the City failed to exercise five-year renewal options running 

the full term of the lease to 20 years. That provision 

states: 

". . . in the event the Tenant fails to renew the 

lease at the end of the original term of the lease 

or after the first and second renewal periods (five 

years each), the Tenant shall deposit with the 

escrow agent the sum of $175,000 cash as liquidated 
damages for the failure of the Tenant to renew said 

lease. 'I 

There is substantial credible evidence to support the 

finding by the trial court that the "lease" was in fact a 

sale of the building to the City and that this was in effect 

a public works project. 

Appellant claims error in the trial court's admission of 

certain documentary evidence. Of the total $8,777.39 damage 

award, only $1,365.27 was based upon oral testimony of witnesses. The balance was proven by evidence admitted under 

exceptions to the hearsay rule. The Commissioner introduced 

unverified letters of Henderson Construction, Lipka Door 

Company and McBride Construction pursuant to the "catch-all" 

exception to the hearsay rule found in Rule 803(24), 

M.R.Evid. These letters are not business records as they 

were not kept in the ordinary course of business, but were 

compiled for litigation purposes. Sufficient guarantees of 

trustworthiness do not exist when documents are compiled for 

litigation purposes. 

Respondent argues that the three letters in question 

were summaries of payroll records supplied by the appropriate 

personnel in response to administrative subpoenas issued by 

the Department of Labor. As such, it is contended the documents possess the "comparable guarantees of trustworthiness" 

required by Rule 803 (24) , M. R. Evid. , because a person responds truthfully and accurately to judicial requests knowing 

that an untruthful response results in penalty imposed by the 

court. This same argument could be made in support of other 

forms of inadmissible hearsay. Cross-examination serves a 

useful purpose in testing the credibility of evidence. It 

should be sparingly denied. 
We find as a matter of law that the letters here 

admitted were hearsay and should not have been received in 

evidence. A substantial part of the damage award was based 

upon this hearsay evidence and therefore the judgment must be 

vacated and the matter remanded for trial on the damage issue 

only. 

Appellant asserts error in the trial court's assessment 

of a penalty. Section 39-3-206, MCA, provides that if an 

employer on a public works project is delinquent, his obligation to pay prevailing wages includes a civil penalty. 

Section 18-2-403, MCA, provides that if a provision for the 

payment of the prevailing wage rate is not included by the 

public contracting body in the contract with the contractor, 

then the obligation to pay the prevailing wage rate is on the 

public contracting agency and not on the private contractor. 

However, this statute is silent as to the shifting of civil 

penalties. 

Penalties are imposed upon the culpable party as a 

deterrent to discourage repetition of unlawful practices. 

The purpose of Montana's Little Davis-Bacon Act is to protect 

laborers from wage cutting practices by public employers. 

Imposition of a penalty upon the culpable party who fails to 

compensate with a standard prevailing wage rate deters other 

public contracting agencies similarly situated from committing the same error. This tends to fortify the underlying 

policy intended by the enactment of the statute. 

While § 18-2-403, MCA, is silent as to the shifting of 

penalties, we find that an interpretation of the statute 

allowing civil penalties against the contracting agency 

accords with the underlying purpose of the statute. 
We vacate the judgment and remand for a new trial on the 

damage question only. In all other respects the rulings of 

the trial court are affirmed. 

We concur: