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Mr. SIDMAN. It varies, depending on the condition and the time. The present price is about $450 each, roughly. I know we have gotten as high as $700 for them and have gotten lower than $450. It depends on the quantity, the time, the condition.
Mr. ROMNEY. I have no further questions.
(Subsequently, the Department of Defense furnished a number of sales catalogs issued by FESO in Paris during fiscal year 1967. The sales in question have all been held. Accompanying the catalogs were lists of the successful bidders, showing their
names and the prices paid by item. A number of these lists, modified by adding acquisition cost and condition data for each item, are printed as app. 6, infra.)
Mr. MONAGAN. Mrs. Heckler, do you have any questions?
Mr. SIDMAX. At the present time we are at 32 Rue Marbeuf in Paris. On the 12th of June we expect to move in the MLS Headquarters.
Mrs. HECKLER. And you have 15 disposal yards, did you say?
Mr. Sidman. We had about 20 but only five are really active now. I would think by the end of July they would be zeroed out.
Mrs. HECKLER. How many FESO employees do you have?
Mr. Sidman. There are 32 employees in our organization, inspectors and sales personnel. One thing I omitted to state, we have four officers, the chiefs of the Merchandising Section, Contracting Section, and MAP Section. We have four United States and 28 French.
Mrs. HECKLER. Do you keep a customer list?
Mr. SIDMAN. Yes. We have an automatic mailing list. We have approximately 1,600 customers at the moment.
Mrs. HECKLER. Since the French deal with Communist nations, is it possible some of this property could get into Communist hands?
Mr. SIDMAN. We have terrific security measures.
Mr. Sidman. For example, we have a security strategic list. First, there is the coordinating committee agreement on what items they would restrict in sales to the Communist countries.
Mrs. HECKLER. By restricting you mean we allow some sales to the Communist countries?
Mr. SIDMAN. No, we don't allow any sales to the Communist countries in our office; but we have a situation where control is exercised by the participating country in effecting these security measures. For example, if we sell a strategic truck to a Belgian buyer, he must get an international certificate whereby the Belgium Government agrees to govern that truck if the buyer decides to export it from Belgium. Every member of the coordinating committee has agreed to take these measures to control certain restricted items. We in our office try to control all items from getting into the Communist countries.
Mrs. HECKLER. Your customers are bound by the same security measures?
Mr. Sidman. Yes. Before we sell anything over $1,000 we have what we call an integrity and reliability check, which means we go to the Embassy of that country and ask for information on the customer before we make the contract. In Germany we have a clearinghouse for that kind of thing at Mainz-Kastel called the security trade control.
Mrs. HECKLER. There must be French customers for this property also ?
Mr. SuDMAN. Most of them are French.
Mrs. HECKLER. And they would have to get the same certification from the French Government?
Mr. SIDMAN. Yes. At times the French disagree with us and don't think the item should be controlled. We contact the Embassy and ask. them to check out the end use of the item. ':
Mrs. HECKLER. Why don't we, as a policy, have this check on all items?
Mr. SIDMAN. This is on sales of over $1,000. There is no use checking out piddling handfuls of property.
Mrs. HECKLER. That is sales at one time of $1,000? Mr. SIDMAN. Contracts for $1,000 or more, and then we have complete control of a customer.
Mrs. HECKLER. Isn't it possible for a buyer to buy in lots and then sell to others and circumvent your security regulations!
Mr. Sidman. It is possible, but we have seen no signs of it. Any time we have any suspicion we forward it to the proper channels to check.
Mrs. HECKLER. Have you had many disagreements with the French Government on this matter of security!
Mr. SIDMAN. No; not many. It probably runs in the 2 or 3 percent
Mrs. HECKLER. And why do they object to this?
Mr. SIDMAN. It is an interpertation of the list. The list is so copious I think any five people would disagree.
Mrs. HECKLER. And they are not willing to observe our restrictions?
Mr. SIDMAN. They agree to them but the interpretations are different. This list is in such general terms it creates difficulty even for us.
Mr. Monagan. I think we are getting far afield.
Mrs. HECKLER. Mr. Chairman, I feel it is important. I don't want the property to get to Communist countries.
Mr. MONAGAN. We all agree; but I don't think it is relevant to this inquiry.
Mrs. HECKLER. What is your volume of sales in tonnage or whatever measure you wish to use?
Mr. SIDMAN. Acquisition costwise the U.S.-generated would amount to $85 million a year, and the French MAP property, $200 million a year. This figure has changed because there is no more stock here except this RPP business.
Mrs. HECKLER. You don't have the volume in tonnage ?
(Subsequently, the following information was supplied by the Department of Defense :)
FESO VOLUME OF SALES IN TOXXAGE
FISCAL YEAR 1967
U.S. generated excesses, approximately 42,000 short tons.
Mr. MONAGAN. Do you have any figure on the average age of MAP property?
Mr. SIDMÄN. Not precisely; but from experience I can tell you it has varied. As we sell more and more it gets better and better. At the present time the average age would be approximately 13 or 14 years or 15 years old. It would date from about 1952.
Mr. MONAGAN. With respect to Communist countries, this property would not have much value to them, would it?
General Clay. They would have a tremendous job getting spare parts.
Mr. SIDMAN. The main thing is spare parts. I think there is a demand for it. One man was selling spare parts to Cuba, for example. As a general rule I don't think any Communist country would want this MAP property.
Mr. BARASH. Mr. Sidman, it is our understanding that a cost analysis is in the process of being prepared which would relate the cost of sales to anticipated returns for RPP at some of these bases in which the French are not interested, the thought being in some instances it might be more expensive to carry on the sale than you could get back. Has that analysis been made?
Colonel REGAN. I will address myself to that. The analysis has been made. It has not been approved to date.
Mr. Barash. Mr. Chairman, with your permission, could we receive a copy of that analysis
Will this be an analysis for each installation !
Colonel Regan. It requires one for each installation. There is a general overall formula and policy for the making of economic analyses. This will apply to all installations and be used as a guide for sales. The policy has not been approved. I would rather wait until it is approved.
General Clay. In that respect, I think the economic analysis of each installation will be included in the property records when MLS closes out.
Colonel REGAN. Yes.
(Subsequently, the following information was supplied by the Department of Defense :) Cost ANALYSIS OF RELATED PERSONAL PROPERTY SALES TO ANTICIPATED RETURNS
An economic analysis is made on those bases for which the Government of France has not expressed an interest. This analysis may indicate a net gain or a net loss will occur if Related Personal Property were to be sold. Should the analysis show a loss, from the strictly theoretical financial standpoint of that installation, it would appear to be logical to leave the property for residual value negotiations. However, premature action may have, in the long run, an adverse effect on our total return. First, although the Government of France has been applying some pressure for the release of installations of no interest, they are beginning to indicate interest in buying installations which were, at first, identified as having no interest. This interest would probably not have occurred if sales of Related Personal Property had been opened at or near scrap value or the installations had been returned for residual value. It is anticipated that the Government of France has an interest in many more installations than was at first indicated.
Secondly, implicit in any form of economic analysis used to make a decision to sell or return property for residual value negotiations is the assumption that certain major costs can be avoided if the latter decision is made. In fact, this assumption is largely fallacious in that the bulk of our costs are semi-fixed in nature, primarily in the form of salaries to civilian and military personnel. In the case of civilian personnel (the largest portion of our funded costs), we have
an elapsed time of about 90 days from the date of reduction in force notice until the time we actually avoid personnel costs. In this connection, the experience of the Foreign Excess Sales Office indicates that the sales cycle for Related Personal Property consumes from 90 to 120 days. In other words, the bulk of the costs associated with the sales of Related Personal Property will be incurred whether or not sales are undertaken. This factor argues strongly for making sales of Related Personal Property, wherever feasible, in order to recoup some revenue to help offset the unavoidable costs.
BASIS FOR ARRIVING AT ESTIMATED FAIR MARKET VALUE
The following is an example of the rationale used in prenegotiation computations. The attached spread sheet, showing the columns under discussion, contains Confidential Noforn information pertaining to the US maximum/minimum estimated return for each system or facility. A tight control on this type of information is maintained so as not to jeopardize the negotiation efforts. Verdun Hospital
The average year of construction for this installation was 1958. You will note in the first column (see inclosure) the various categories of equipment and systems which were the subject of negotiations. For the most part, the replacement value (Column 2) was established by first determining from existing records the actual contract expenditure for each line item and multiplying by the coefficient of 1.43. This factor is based on increased cost of construction 1967 vesus 1958 as established by the French National Institute of Statistics. For those line items where the original contract costs are not available, replacement value is computed at current costs. Column 3 is the standard depreciation rate based on a 20-year life. We can assume that under normal conditions, with average maintenance, the systems and equipment involved will have a life expectancy of 20 years. Column 4 shows the depreciated value on the basis of this 20-year life. The total of this column is usually the basis for the first counteroffer by the United States. Column 5 rates a more realistic evaluation of depreciation and life expectance of the systems. Although it is recognized that the systems and the installations have an average of 20 years' life, many of the components of the systems, such as pumps, light fixtures, sanitary equipment, have an expected life of anywhere from 7 to 12 years. On-site inspections may also reveal that due to lack of proper care and preservation, some of the systems and equipment are deteriorating at a faster rate.
In effect, the revised depreciated value, as shown in Column 6, is the actual current value to the United States for the systems in questions. Column 7 reflects a spread of the estimated buyer's coefficient of utilization. As a factor in arriving at an equitable sales price, a maximum/minimum coefficient of utilization is used to reflect the buyer's needs as well as the intended use of the facility. The coefficient of utilization takes into consideration the higher standards of construction used by the United States Government for the construction of these particular facilities. Examples are the heating and electrical systems that exceed French standards by anywhere from 50 to 70 per cent. That is to say, if the Government of France had constructed the hospital at Verdun for the same designated purpose, the heating, electrical, water systems, etc., would have been tailored to relatively lower standards to meet their accustomed needs. The coefficients also take into consideration the intended use of the hospital hy the Government of France. In this particular instance, the hospital at Verdun will be used partially as a general hospital, but also as a home for retarded children. Therefore, it will require extensive modifications to the various utility systems in order to adapt the facility to the configuration desired. It must also be recog. nized that a 1,000-bed hospital for a city of 26,000 is much too large. Considering all these factors, the coefficient of utilization spread is computed and, when applied to the revised depreciated value in the case of each system, we arrive at the minimum and maximum estimated expected return as shown in Columns 8 and 9. The final column shows the original Government of France offer for the various components of the hospital.
It is considered in the best interest of the United States Government to accept a negotiated sales price that falls somewhere within the range of this established maximum and minimum. To date we have been quite successful in concluding sales within these limits, and we hope that continued negotiations along these lines will result in similar sales for the other bases of interest to the Government of France.
1, 141, 052
1 Included in item VII.
Mr. BARASH. In talking about the number of bases in which the French have expressed an interest and the number that have been sold and turned over, I get a total of 152. At the outset you mentioned 311 facilities, so we are missing over 100 facilities here. What is the status of those facilities?
Colonel Regan. You mean those in which the French have expressed no interest?
Mr. Barash. No. You said the French have expressed an interest in 43.
Colonel REGAN. Yes.
Mr. BARASH. That is a total of 152. We talked about a final total of 311.
Colonel REGAN. The others are bases in which the Government of France has expressed no interest and in which we will ultimately dispose of the related personal property or turn it over to the French for residual value.
Mr. BARASH. Have you any date on which you will turn this property over to FESO?
Colonel REGAN. No, sir. But I would say if we complete all negotiated sales say by July 1, which is an estimate, we would turn it over to FESO for disposal of RPP by the 1st of July. But this is just an estimate on my part.
Mr. BARASH. That figure of $1.5 million as a yearly cost for MLS, does this actually include all the caretaker services at the bases?
Colonel REGAN. With the exception of the air police, with the exception of military pay, because they are on TDY from USAFE. We had hoped to get local nationals but we couldn't hire them and we found a contract would be too expensive, so we pay the TDY cost of these police, but the component command pays their normal pay.