I first might mention to you how we have organized it for presentation, if it meets with your approval.

The CHAIRMAN. All right, sir.

Mr. PETTIBONE. First would be the reading of the letter to which you just referred. That would be followed immediately by a series of charts which go right into the question of what we have labeled the California complex, why we did what we did, and some comparative

The CHAIRMAN. Wait 1 minute.

In view of the fact that we have to adjourn at 12 o'clock and go to the floor, suppose we wait until 2 o'clock and start fresh?

Mr. SHORT. Fresh.

The CHAIRMAN. At 2 o'clock.

Mr. PETTIBONE. Yes, sir.

The CHAIRMAN. Now, members of the committee, we will take a recess, and I trust every one of you will be back here. You have a responsibility and you can live up to it.

(Whereupon, at 11:50 a. m., the committee adjourned until 2 p. m.)

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ARMED SERVICES,

Washington, D. C., Tuesday, March 15, 1955. The committee met at 2 p. m., Hon. Carl Vinson (chairman) presiding.

The CHAIRMAN. Let the committee come to order.

Now, Mr. Pettibone, you may proceed.

Mr. PETTIBONE. Mr. Chairman, it occurred to me that it might be rather helpful to you and the committee if I would just mention briefly the manner in which we have organized this material so as if you were thinking of questions you might decide at what point to put the questions.

If I have your permission, I will go that way.

The CHAIRMAN. You may proceed in your own way.

Mr. PETTIBONE. The first we have was the brief introductory statement which we presented this morning.

The second heading we have styled the California Complex. In that connection we will first read a memorandum sent to you, sir, in response to your inquiry about the objection of Minnesota Mining and Pauley. We will then present for your inspection four charts which will show not only the manner in which the negotiations were handled at California, but for reference, and to show the way they compared with negotiations elsewhere, two other charts.

We will then present memoranda from our files with interviews with the objector in this case, Minnesota Mining, designed to show you in our judgment they were fully informed about the technique being followed, and suffered no damage as a result of our procedure.

The final is the conclusion with respect to the Commission's judgment on the importance of the Shell contract.

The next major division is our formal answer, prepared in response to your request, sir, to the presentation made here by Representative Yates.

And the final is the Commission's answer to the 16 questions propounded by your committee.

If I have your approval, then, I will proceed that way.

The CHAIRMAN. Proceed in your way.

Mr. PETTIBONE. The first item-do the members have copies of this?

The CHAIRMAN. No, we haven't copies. Pass them around, Mr. Blandford, please, sir.

Mr. BLANDFORD. I haven't them, Mr. Chairman.

The CHAIRMAN. There they are.

(Copies handed to staff and distributed to the committee.)

Mr. PETTIBONE. Mr. Chairman, our effort in this first memorandum is just a brief statement of the legal principle which guided the Commission. I think it applies. The next are pertinent facts that we deem to have a bearing. And, third, are our conclusions with respect to the matter.

I will read the text as you have it.

Reference is made to the letter of February 23, 1955, from Chairman Vinson of the Committee on Armed Services, House of Representatives, transmitting letter of February 22, 1955, from Minnesota Mining & Manufacturing Co. contending that the Shell Chemical Corp. proposal did not conform to the standards prescribed by the Congress in the disposal act and, therefore, was improperly considered by the Commission.

Minnesota's bid was a joint bid in which the other participants were Midland Rubber Corp., a wholly owned subsidiary of Minnesota, and Edwin W. Pauley, an individual. The bid proposed to purchase Plancor 611, the Los Angeles copolymer plant, at a price of $2,500,000. The bid was not dependent in any way upon the proposal filed by Edwin W. Pauley, as an individual, for the butadiene plant at Torrance, Plancor 963, for which the sum of $4 million was offered. Minnesota, speaking for itself and Midland, requests that the recommended sale to Shell be disapproved and that legislation now be passed to enable the Commission to receive new proposals and negotiate new contracts for the sale of the three plants concerned under the same terms and conditions presently set out in the Disposal Act. Shell's proposal called for the purchase of the foregoing copolymer and butadiene plants, plus the styrene plant at Los Angeles, for an integrated operation, at a price of $27 million. The plants had been operated on such an integrated basis by the Government. In its proposal Shell made clear that it was interested only in acquisition of the three plants as a package and that it did not propose to purchase individual facilities.

May I insert, Mr. Chairman, at this point-this memorandum was all prepared before we heard the testimony of Mr. McCurdy.

Shell was declared eligible to negotiate for the purchase of the plants upon the basis of its proposal which was found to have met the requirements of the act and the Commission's instructions. Minnesota asserts that the failure to break down the bid into individual prices for the individual plants comprising the package is fatal.

The Commission concurs with the view of the Comptroller General. Section 7 (b) (4) of the Disposal Act provides that proposals shall contain

the amount proposed to be paid for each of the facilities, and, if such amount is not to be paid in cash, then the principal terms of the financing arrangement proposed.

Broadly speaking, this section, procedural in nature, is designed to inform the Commission as to how much a bidder proposes to pay and how he proposes to pay it. The House report on the Disposal Act described the section as follows:

Paragraph 4 of subsection 7 (b) is mechanical in nature and requires the bidder to indicate the amount proposed to be paid for each of the facilities and the manner in which the facilities will be financed (H. Rept. 593, 83d Cong., 1st. sess., p. 9).

Where a proposal covers more than one facility and the bidder desires to purchase any one separately if he cannot get the integrated whole, the proposal is expected to state the amount proposed to be paid for the facilities on an individual basis. This test did not apply in the Shell case. Where a bidder has no intent to purchase individual facilities a clear statement to that effect satisfies the statute by giving a negative answer to the question of section 7 (b) (4). Shell's proposal made clear that the bidder was uninterested in the individual purchase of 1 or 2 of the components of the whole. Shell's statement to that effect in its proposal satisfied the statute since it left no doubt that no amount was proposed to be paid "for each of the facilities," because there was no intention to purchase each of the facilities individually.

Any attempt by Shell to assign individual prices to the three plants would have been a misrepresentation. The Commission does not view this section of the statute as compelling absolute uniformity of intention of all bidders. The history of the statute is one of requiring full disclosure of individual intentions in regard to purchase to enable the Commission to evaluate the proposals it received. In view of the complexity of the disposal program, it was to be expected that many different methods of sale could be broached. The Commission welcomed them. In the light of Shell's explicit statement of intent, there can be no question that the Commission was afforded a full disclosure of Shell's state of mind with respect to its participation in the disposal program.

Paragraph 4 of the Commission's Release No. 1 restated the requirement of section 7 (b) (4) of the Disposal Act, calling for a statement of the price proposed to be paid for each facility. It added that where a proposal contemplated acquisition of several facilities for integrated operation, the proposal should state separately the aggregate amount proposed to be paid on the integrated basis, and the amount otherwise proposed to be paid on an individual basis.

"Otherwise," is underscored.

This language was designed to obtain for the Commission complete and accurate disclosure of all essential information in proposals to be filed with it. Because this section was a restatement, in the instructions, of the requirement of section 7 (b) (4) of the statute, the reasoning applicable in the discussion above pertaining to the statutory provision likewise applies here. Shell's proposal, clearly negativing interest in anything but the entire package, made clear that there was no amount "otherwise to be paid" as to individual plants since no interest was present for the purchase of individual plants.

In net effect, Shell's proposal would have been no different had it, for solely formal reasons, assigned values to the individual plants

but interconditioned the offers by a statement that Shell wished only to purchase all 3 and that, therefore, the purchase of any 1 plant was conditioned on the purchase of the other 2. Such a proposal would have differed from the one actually filed only in the price breakdown. But that would have in no way aided any other bidder in view of the Commission's general negotiating policy of not divulging bid amounts. Minnesota has not contended that conditioned proposals are invalid. In fact, counsel for both Minnesota and Mr. Pauley have admitted their validity. In view of the geographical and technological factors favoring integrated purchases, they are to be expected. And many were received. The proposals of Copolymer Corp., Goodrich-Gulf, Texas-U. S. and Humble were all conditioned in one fashion or another. Conditioned bids being valid, there can be no objection to a package bid as, in ultimate effect, they are the

same.

The act is not a strict high-bid statute which would preclude the Commission from selling the plants in question on an integrated basis, even had the proposal spelled out individual prices for each plant in the group and the purchaser was not the high bidder on one of the plants. The Commission was explicitly permitted to sell for less than the high offer. This being so, and in light of what has been said above in reference to conditioned proposals, Minnesota could not have been prejudiced by Shell's failure to break down its proposal.

In the Shell case, the package offer, which during negotiations was increased from 27 to 30 million dollars, exceeded the sum of the individual high offers. The Commission was nowhere prohibited from obtaining the benefit of whatever additional price a buyer might be willing to pay for an integrated operation.

There can be no question of the bona fides of the Shell proposal. The plants were worth a certain sum to Shell on its premise, and the Commission would have been open to most serious objection had it, following the thesis of the objector, ruled the proposal ineligible. The question of obtaining the greatest financial return for the Government, consistent with the establishment of a competitive industry and the protection of the national security, was stressed by the Congress as of primary concern.

It would seem clear that the mere qualification of the proposal as eligible, was of itself in no sense prejudicial to other bidders for the plants comprising the complex. As the Commission's report to the Congress makes clear, Shell declined to break down its composite bid. The question, therefore, is whether continued negotiations on this basis prejudiced other bidders on the plants involved. The answer to this question is found in the negotiating procedure followed by the Commission. The Commission negotiated with bidders in the light of their offers and, finally, on the basis of the Commission's view of the appropriate price for each plant. Minnesota was told by the Commission that in the Commission's view the appropriate price for the Los Angeles copolymer plant was $3,500,000. Minnesota was fully negotiated with on this basis. Its original bid was finally increased to $3 million. This procedure was followed in other cases where, as here, there was more than one bidder for a facility. Examples are the Houston, Lake Charles, and Port Neches butadiene

plants. In none of those cases was a package proposal involved. Yet the Commission's basic procedure, modified as to technique where required by special circumstances, was the same as that followed in regard to the Los Angeles copolymer plant. The Commission's idea of an appropriate price was set as a negotiating target. Therefore, any breakdown by Shell would have had no effect on the position of other west coast bidders. With no breakdown, the Commission followed its standard procedure. A breakdown would have made no difference. The Commission would have followed the same procedure.

The one change in west coast negotiating procedure involved fuller disclosure of the Commission's position and thus was an aid to bidders on those facilities. They were put on notice of the possible existence of package proposals and were told the procedure to be employed by the Commission in such situations. The Commission said that it would consider the total of the amounts which it would receive on an individual basis in relation to the amount represented by a package bid.

Furthermore, the Commission had a large number of individual bids on the styrene plant, and several bids on the butadiene and copolymer plants. It had, therefore, measures of value expressed by bidders with which to test prices. It negotiated with all bidders. At no time did Minnesota ever become high bidder, never reaching, for example, the initial proposal of Standard Oil Co. of California which offered $3,500,000 for the copolymer plant.

Minnesota was made fully aware, as were other bidders on the west coast plants, that the disposal of these plants presented one of the most difficult problems confronting the Commission. A principal concern to bidders on the copolymer plant was the absence of an assured market for its production. Standard of California made the assurance of such a market an absolute condition of its offer to purchase, and Minnesota suggested that to meet this problem the Commission should obtain an agreement from purchasers of other Government-owned rubber-producing facilities that they would, for a minimum of 5 years from the effective date of sale, purchase their west coast GR-S requirements from the Los Angeles copolymer plant at current market prices.

This suggestion could not be complied with by the Commission. The question of finding markets was left entirely to the bidders. The Shell proposal was the only one which freely accepted this burden. Shell was willing to take its chances on finding and developing markets. This factor, therefore, loomed increasingly important in the Commission's thinking as the program progressed. As the Commission's report states, sale of the west coast plants was clearly necessary to safeguard the competitive position of west coast fabricators. The vertical integration question posed by the Shell proposal was resolved by the Attorney General who approved the sales. The introduction of a strong company into the styrene business as a newcomer was thus regarded satisfactorily, as was entrance into the synthetic rubber field of a company independent of connections with rubber fabrication. The needs of small rubber fabricators were protected. In sum, in recommending the Shell sale, the Commission fulfilled its basic responsibilities by obtaining the maximum dollar return,