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to evaluate it and go to hearings, because remember, this will then become a hearing matter in which there will be interrogations and cross questions, and that kind of a procedure. It could be done sooner. I don't know.
Mr. DINGELL. Well, if my assumption is correct, then, on the conclusion of your hearings, you'll have opinion writings and so forth, which will take further time, and then following that you will have judicial review.
Now, it sounds to me like we're talking about a 5-year contract at the very minimum.
Mr. BREWER. I wish we had started 5 years ago.
Mr. DINGELL. But I wish you had continuing in-house capability so we wouldn't have to be fiddling with questions like this up here today.
Mr. BREWER. It's very necessary because the problems that we have in ratemaking today, we do not have the kind of empirical knowledge that we need in order to judge whether or not these railroads need increases, whether they are holding down too much on one commodity and not enough on another commodity, whether or not their rate base is right, what their return on investment ought to be
Mr. DINGELL. If Chairman Stafford will recall, I pointed out the ICC inability to meet that problem when we had the Penn Central bankruptcy, but he will also remember that I pointed out to himI don't know whether you were there or not, Commissioner Brewerbut I also pointed out the fact that I wanted your Agency to have an in-house capacity to do this on a continuing basis, which, even at the conclusion of this you are not going to have.
Mr. POWERS. So, it's anticipated this is going to go on over a number of years, subject to authorization and appropriation from Congress.
Mr. BREWER. I don't know that. I'm just making merely from my own guess. I would like to ask the other, more senior members of our group here if they feel that. It probably can be done in 2 years, but I doubt it personally. Others may feel that it can.
Mr. DINGELL. Well, wasn't this sold to the Appropriations Committee as a 2-year study?
Mr. BREWER. We told them, if I remember correctly, that we hoped it could be done in 2 years, but that it might be that we would have to come back and ask for more money. That is what the chairman testified here today in his testimony.
Mr. DINGELL. You testified last week?
Mr. STAFFORD. I believe I testified that a year ago, also. I know I testified to that just the other day. I can go into that for you.
Mr. BREWER. It's also recognized-maybe if I can add this. This doesn't mean the whole thing has to be finished. It very well could be that some investigation of this kind could be carried on in phases. Out of this we expect there will be a number of conclusions that we can put into effect. For example, adequacy of freight rates, sub-2, is going along well and nicely. These don't all have to go along together.
Ex Parte No. 271, which is a rate base, can get difficult, and that is on-going now. For example, Congress many times has said to us we ought to try-some Members of Congress have said we ought to tryto establish a rate of return for railroads somewhat similar to the utility companies. It would be so much easier to be able to find out what we can do there, but before we can do that, we have to find out what their investment is, what is the net worth of a railroad today, and then what kind of a return should they have, and that's 271, which is a part of this.
Mr. POWERS. Which is a major study, and what we all come back to is that this contract with Senator Allott is not just a $60,000 a year salary for 2 years, at the end of which you will no longer have his services. It is anticipated it will last longer than a 2-year period, and, in addition, though you're not sure about the amount of his annuity, I have been informed it's in the neighborhood of $25,000 a year he's going to draw from Civil Service retirement. This will be approximately $85,000 a year. If it goes on for 5 years, there is half a million dollars.
Is that correct or not?
Mr. BREWER. I think they are totally unrelated. I have income from private sources, but we're not talking about helping Gordon Allott. We're talking about can we get a man to make a product for us. It really doesn't matter to us what other kind of income he has. We shouldn't consider that.
Mr. POWERS. It does on the type of contract you have, because normally on other types of contracts which I discussed with other agencies, any Civil Service annuity would be subtracted from that amount.
Mr. BREWER. That's under a straight consulting basis, not on a contract basis.
Mr. POWERS. Or personal service, the class or function of a lawyer being a personal service as you have alluded to. If you hired Mr. Allott as an attorney, first of all, you couldn't get the $60,000 through.
Mr. BREWER. You couldn't get him for the amount that you have, which is $115. You couldn't possibly attract a man of that caliber.
Mr. POWERS. And from that you subtract the civil service annuity.
Mr. BREWER. And that would give him that much less than that, and you couldn't get a man for this.
Mr. POWERS. So it's very important how you construe what this annuity is.
Mr. BREWER. Well, I don't follow you. I don't follow you at all on that one.
What we pay a man, it seems to me, to produce a product, what other outside income he has from other sources is totally irrelevant; if he can produce the product we want, if he's the best man we can find to produce that product.
Mr. DINGELL. Well, let me ask you this question.
At the conclusion of the 2 years, if this contract goes on, what will you gentlemen do with Mr. Allott? Are you going to renew his contract? Ís his contract an open-ended contract for a longer period than 2 years?
Mr. BREWER. It can be terminated at any time.
Mr. DINGELL. Well, what is the end period of the contract? Is it 2 years?
Mr. BREWER. It's 2 years now.
Mr. BREWER. Or, if the money is exhausted before that time, then that is the end of it.
Mr. DINGELL. If the money runs out before the end of that time---are you assuring this committee that if the money runs out before the end of that time, that the thing is going to be terminated, or are you going to be before the Congress for some supplementary appropriations?
Mr. BREWER. It would be highly speculative. It might be at the point we'd be in a position to carry it on ourselves.
Mr. DINGELL. Well, dear friend, let me tell you one thing. This whole thing has me, as you can well observe, intensely suspicious.
Mr. BREWER. I am not at all.
Mr. DINGELL. Well, I think you've observed that, and I am trying to get here on the record-because I'll be truthful; years ago I made a mistake---and I just want to tell you I was very suspicious about a project dealing with the MOHO. They were going to drill a hole in the Earth's crust down, and they had a wonderful panel of people who were fully capable of doing the work, experts. They adapted deep sea drilling equipment so that they could stay on station and drill this hole in the most incredible way. It looked great.
When it all got done, some big, influential folks came in, got the people who had done the preliminary drilling and developed the techniques kicked out, and the project costs jumped 30 times. I didn't have the prudence, having the matter under the jurisdiction of my subcommittee, to have all of the understandings that I had with those folks on record. That is one of the reasons we've been very prudent to have a record today because I intend to be looking at this matter as we go forward, and I intend to be watching what transpires.
That's why I'm curious to know whether Mr. Allott's going to be on the payroll for 2 years or less or more, and what the contract is going to say with regard to that 2-year period.
Mr. BREWER. At the present time I can tell you he will not stay on for more than 2 years, unless, at that time, conditions are such that it may be necessary to use him further, and that he has demonstrated
Mr. DINGELL. All that tells me, Mr. Commissioner, is that he's liable to be on when you and I have our grandchildren.
Mr. BREWER. It would be up to the Commission and the conditions that exist at that time.
Let's talk for just a moment, if we may, while we're just loose here, that if we grant-we have granted increases to railroads that amounted to as much as $2 billions that we transferred, in effect, from the shipper to the carrier.
Mr. DINGELL. I am not unaware of that.
Now, if you're talking about $1.5 million total, if out of that we can find a better way to fix rate structures more equitably, more fairly, and improve the economy of this country, it will be the best little money ever spent in the world. It would be totally diminimis to the total.
Mr. DINGELL. We pay you gentlemen $35 million a year down there to do that, and you're essentially telling this committee that you can't do that, so you have to go out and get Mr. Allott at $60,000 a year on a $650,000 contract to do it for you.
Mr. BREWER. We're not quite saying that. We're saying that we're doing it and it's working pretty well, but we want some independent people to examine it and say that you're doing it right or you're doing it wrong.
Mr. DINGELL. Well, you're going to be up to your ears in railroad and truck and bargeline lawyers who are going to be telling you—and we are paying you to make the objective judgment on behalf of the people.
I am still not clearly able to understand why you've got to go out and get yourself a former member of this establishment to tell you where the public interest lies, especially when you confess that you don't have the capacity, in-house, to perform the economic studies that you are going to give him $350,000 to perform for you.
Mr. BREWER. I hope that isn't the impression that we left.
Mr. DINGELL. Oh, it is, in this hearing and many others. And the chairman is well aware of my strong views.
Mr. BREWER. No, it's the $350,000 you're talking about in addition to the other, I think this is probably a misapprehension. We're not going to go down the road twice and do the same study side by side.
Mr. DINGELL. Well, I don't see how you're going to coordinate it. But we're being argumentative.
Mr. POWERS. In the information that was provided to the committee in a letter addressed to Mr. Dingell, you summed together questions 3 through 7 in responding to them, and on that page you state that certain individuals declined to participate as special counsel.
We covered the extent of those that declined in this mornings testimony. There's no one else that declined to take this and no one else was eliminated except for those private practitioners whose names you will submit to us later, is that correct?
Mr. BREWER. [Nods in the affirmative.]
Mr. POWERS. And you say the definitive contract will provide the amount of time that Mr. Allott is to spend on this contract.
Mr. BREWER. [Nods in the affirmative.]
Can you gentlemen tell us whether or not this contract is going to bar him from political activity during tha period?
Mr. BREWER. I wouldn't think so, but from what I gather he's pretty well finished with that.
Mr. DINGELL. I don't know whether he's finished or not. I'm just curious whether he's going to be out running for the Senate.
Mr. BREWER. I don't know how you can bar a man from political activities.
Mr. DINGELL. Well, you could sign a contract with him saying that during the pendency of this contract your duties to us are so important, you're not to engage in any political activity, or you are not to seek office.
Mr. BREWER. It is not in there.
Mr. DINGELL. All right. What would you folks say if all of a sudden he turned up a candidate for governor out there?
Mr. BREWER. I'd say we'd cancel his contract.
Mr. BREWER. No, $55,000 will be the maximum that he will have spent. If he spends more than that, it's his responsibility. That's for our protection, the maximum indemnity that we could have is $55,000.
Mr. Powers. That's under the letter contract, though.
What happens if you wanted to cancel him after a definitive contract has been entered?
Are there any grounds under which you can, No. 1, cancel him?
Mr. BREWER. We would write a termination clause in a definitive contract.
Mr. POWERS. Will it allow you to cancel him for cause or will it be just plain cancellable, if you desire to
Mr. BREWER. That's speculative. We'd have to get our people to to know what to do on that one. I don't know.
Mr. POWERS. Would there be clauses in there under which you would be able to cancel him out?
Mr. BREWER. Of course.
There are two clauses in the contract. One clause is called termination for default and the other clause is a clause called termination for convenience of the Government. So, if the contract was to be terminated, if the contractor was not in default, we would terminate it at the convenience of the Government, this being a pure cost type, no fee contract. The only thing that he would get out of that would be what costs he had incurred to date plus whatever allowable termination costs may be involved.
Mr. DINGELL. Well, the $55,000 figure, then, is not a termination cost. It is simply a ceiling on the amount that he can draw.
Mr. BREWER. That is precisely right.
Mr. WILSON. The $55,000 figure is simply a ceiling in the letter contract. It's against the law to contract on a cost plus percentage basis. The letter contract, the entire purpose of the letter contract, is to allow him to proceed to a point where we can get sufficient information to enter into a definitive contract.
Now, the definitive contract figure, I think, is anticipated to be $650,000.
Mr. POWERS. Now, you stated one of the things he could be terminated for would be default. Now, without going into details at this point, would you submit for the record an enumeration of what you would consider termination for default since these are general terms that Mr. Allott is to perform under by acting as special counsel as to the studies?