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ON AUDITS OF DEFENSE CONTRACTS

HEARINGS

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON
GOVERNMENT OPERATIONS
HOUSE OF REPRESENTATIVES

EIGHTY-NINTH CONGRESS

FIRST SESSION

MAY 10, 11, 18, 19, 20, 25, 26, 27; JUNE 1, 3; AND JULY 8, 1965

Printed for the use of the
Committee on Government Operations

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 1965

48-132

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C., 20402 - Price $3.25

47 9257

XL2

LOS

03/94 53-005-00

COMMITTEE ON GOVERNMENT OPERATIONS

WILLIAM L. DAWSON, Illinois, Chairman CHET HOLIFIELD, California

CLARENCE J. BROWN, Ohio JACK BROOKS, Texas

FLORENCE P. DWYER, New Jersey L. H. FOUNTAIN, North Carolina

ROBERT P. GRIFFIN, Michigan PORTER HARDY, JR., Virginia

OGDEN R. REID, New York JOHN A. BLATNIK, Minnesota

FRANK J. HORTON, New York ROBERT E. JONES, Alabama

DELBERT L. LATTA, Ohio EDWARD A. GARMATZ, Maryland

DONALD RUMSFELD, Illinois JOHN E. MOSs, California

WILLIAM L. DICKINSON, Alabama DANTE B. FASCELL, Florida

JOHN N. ERLENBORN, Illinois HENRY S. REUSS, Wisconsin

HOWARD H. CALLAWAY, Georgia JOHN S. MONAGAN, Connecticut

JOHN W. WYDLER, New York
TORBERT H. MACDONALD, Massachusetts
J. EDWARD ROUSH, Indiana
WILLIAM S. MOORHEAD, Pennsylvania
CORNELIUS E. GALLAGHER, New Jersey
WILLIAM J. RANDALL, Missouri
BENJAMIN S. ROSENTHAL, New York
JIM WRIGHT, Texas
FERNAND J. ST GERMAIN, Rhode Island
DAVID S. KING, Utah
JOHN G. DOW, New York
HENRY HELSTOSKI, New Jersey

CHRISTINE RAY Davis, Staff Director

JAMES A. LANIGAN, General Counsel
MILES Q. ROMNEY, Associate General Counsel

J. P. CARLSON, Minority Counsel
RAYMOND T. COLLINS, Minority Professional Staff

MILITARY OPERATIONS SUBCOMMITTEE

CHET HOLIFIELD, California, Chairman EDWARD A. GARMATZ, Maryland

FRANK J. HORTON, New York WILLIAM S. MOORHEAD, Pennsylvania DELBERT L. LATTA, Ohio WILLIAM J. RANDALL, Missouri

HOWARD H. CALLAWAY, Georgia JIM WRIGHT, Texas FERNAND J. ST GERMAIN, Rhode Island

HERBERT ROBACK, Staj Administrator

PAUL RIDGELY, Investigator
ROBERT J. MCELROY, Investigator
DOUGLAS G. DAHLIN, Attorney

DANIEL W. FULMER, Attorney
CATHERINE KOEBERLEIN, Research Analyst

II

CONTENTS

Hearings held in Washington, D.C., on-

Monday, May 10, 1965.

Tuesday, May 11, 1965.

Tuesday, May 18, 1965.

Wednesday, May 19, 1965-

Thursday, May 20, 1965-

Tuesday, May 25, 1965

Wednesday, May 26, 1965.

Thursday, May 27, 1965.

Tuesday, June 1, 1965.-

Thursday, June 3, 1965.

Thursday, July 8, 1965.

Statement of

Abbadessa, John P., Controller, Atomic Energy Commission; ac-

companied by Joseph L. Smith, Director, Division of Contracts;

Joseph P. Gerdes, Assistant Controller for Auditing; and William

J. Minsch, Jr., Assistant General Counsel

Bannerman, Graeme C., Assistant Secretary of the Navy (Instal-

lations and Logistics); accompanied by M. Eugene Jones, Director

of Procurement; John Phelan, Deputy General Counsel; and

George W. Markey, Office of General Counsel

Barnes, Kendall M., General Counsel, Army Materiel Command.

Campbell, Hon. Joseph, Comptroller General of the United States;

accompanied by Robert F. Keller, General Counsel, General

Accounting Office; William A. Newman, Jr., Director; and Charles

M. Bailey, Deputy Director, Defense Accounting and Audit Di-

vision:

May 11, 1965.

May 19, 1965-

Carr, John F., general counsel, Grumman Aircraft Engineering Corp.;

accompanied by Patrick J. Cherry, comptroller--

Charles, Robert Ħ., Assistant Secretary of the Air Force (Installations

and Logistics); accompanied by William Munves, Assistant General

Counsel for Procurement; Aaron J. Racusin, Deputy for Procure-

ment Management; Dale R. Babione, Assistant Deputy (Procure-

ment); and Frank S. Howell, Assistant Auditor General for

Contract Audits

Derr, Charles I., senior vice president, Machinery & Allied Products

Institute; accompanied by William J. Healey, Jr., staff counsel ---
Douglas, John W., Assistant Attorney General, Civil Division, Depart-

ment of Justice

Hannah, Paul F., Esq--

Harr, Karl G., president, Aerospace Industries, Inc.; accompanied

by Morton Wilner, general counsel ---

Haughton, Daniel J., president, Lockheed Aircraft Corp.; accom-

panied by John E. Cavanagh, counsel, Lockheed Missiles & Space

Co...

Heflin, William H., president, Western Electronic Manufacturers

Association; accompanied by E. E. Ferrey, executive vice president;

and Neil D. Naiden, special counsel..

Horner, H. M., chairman, United Aircraft Corp.; accompanied by

C. B. Preston, assistant controller; and R. E. Beach, vice president
and corporation counsel.

[graphic]

491

88

538

425

253

481

452

575

Statement of Continued

Ignatius, Paul R., Assistant Secretary of Defense (Installations and

Logistics); accompanied by Graeme C. Bannerman, Assistant

Secretary of the Navy (Installations and Logistics); and John M.

Malloy, Deputy Assistant Secretary of Defense (Procurement).

Kennedy, John R., Assistant General Counsel for Military Construc-

tion, Office of Chief of Engineers..

Luevano, Daniel M., Assistant Secretary of the Army (Installations

and Logistics); accompanied by Brig. Gen. John Goshorn, Director

of Procurement; and Brig. Gen. H. H. Miley, Director of Procure-

ment and Production, Headquarters, U.S. Army Materiel Com-

mand.

Moore, William H., vice president, Government products division,

Electronic Industries Association; accompanied by Loven K.
Olson, counsel; and Richard Godown, manager, Government
procurement relations department...
Neffner, Howard W., vice president of Government contracts, the

Boeing Co., accompanied by Victor F. Knutzen, controller-----
Noll, William T., vice president and general manager, Honeywell, Inc.,

Aeronautical Division; accompanied by Kenneth Figge, chief

accountant.

Roe, Austin G., house counsel, Melpar, Inc.-

Rosen, Harry, auditor, Army Audit Agency -

Staats, Elmer B., Deputy Director of the Bureau of the Budget;

accompanied by Arthur B. Focke, General Counsel; Ellis H.

Veatch, Chief, Military Division; and George Mullins, Chief,

Property and Supply Management Branch -

Weitzel, Frank H., Assistant Comptroller General of the United

States; accompanied by Robert F. Keller, General Counsel;
Ellsworth H. Morse, Jr., Director, Accounting and Auditing Policy
Staff; and Charles M. Bailey, Deputy Director, Defense Accounting

and Auditing Division---

Letters, statements, etc., submitted for the record by-

Abbadessa, John P., Controller, Atomic Energy Commission:

Letter from John V. Vinciguerra to Hon. William L. Dawson,

dated November 3, 1964, re negotiations with Alcoa on volun-

tary price adjustments.

Letter from R. E. Hollingsworth to S. T. Gustine, dated October

21, 1964..

Letter from John W. Douglas to Atomic Energy Commission,

dated March 22, 1965, re Wyman-Gordon case-

Memorandum of understanding between AEC and Alcoa re pric-

ing of negotiated procurements, dated February 5, 1965.-

Bannerman, Graeme C., Assistant Secretary of the Navy (Installa-

tions and Logistics) :

Letter from L. C. Malley, division president, Pratt & Whitney

Aircraft to Joseph Campbell, February 5, 1964.-

Citation of ASPŘ sections requiring better documentation of

negotiations

Documents related to settlement of GAO case B-146733 of

September 20, 1963—Westinghouse contingency case in Navy

nuclear propulsion contract.-

Public Law 87-653..

Letter from the Comptroller General to the Assistant Secretary

of Defense (Installations and Logistics) dated May 14, 1964, re

ASPR provisions on securing cost of pricing data pursuant to

Public Law 87-653---

Letter from Assistant Secretary of Defense (Installations and

Logistics) to the Comptroller General dated June 17, 1964, re

ASPR provisions on securing cost or pricing data pursuant to

Public Law 87-653.

Bendix Corp.: Letter to Chairman Holifield with statement for the

record by A. P. Fontaine, chairman, dated June 15, 1965.-

Callaway, Hon. Howard H., a Representative in Congress from the

State of Georgia:

Excerpt from Lockheed testimony.

219

567

Letters, statements, etc.—Continued

Campbell, Hon. Joseph, Comptroller General of the United States: Page

Excerpt from section 312 of the Budget and Accounting Act of 1921.

Excerpt from section 111(d) of the Accounting and Auditing Act of

1950.-

41

Excerpt from section 111(a) of the Accounting and Auditing Act

of 1950.-

41

Excerpt from 65 Stat. 700-

41

Date of completion of work on Andrews Air Force Base contract

by Lane Construction Co.--

55

GAO reports on defense matters as compared to reports on civil

matters.

61

Statement for the record re effect of two GAO reports on subse-

quent business of companies reported on..

Date when practice of circulating GAO draft reports for comment

was begun.

141

Statement on a GAO report in which Defense contract methods

were praised

149

Statement re approvals of all scheduled contract audits in

Washington.-

153

Statement containing comments on the testimony of Assistant

Secretary of Defense Paul R. Ignatius of May 10, 1965.-

166

Carr, John F., general counsel, Grumman Aircraft Engineering Corp.:

Letter for the record with statement re added costs arising from

certain GAO recommendations ----

520

Charles, Robert H., Assistant Secretary of the Air Force (Installations

and Logistics):

Excerpts from GAO report B-146732, dated January 7, 1965.--- 366

Statement for the record on extent of Air Force access to Alcoa

cost or pricing data.-

382

Statements for the record on contracts in GAO report on Air

Force-Cessna T37 contracts (B-146918) -

386, 388

Statement for the record re status of payments in Boeing KC-135

contracts cited in GAO report B-146717, dated May 25, 1964.. 404

Quotation from a statement by the Secretary of Defense re

deficiencies in DOD due to human error.

406

Dahlin, Douglas G., attorney, Military Operations Subcommittee:

Excerpts from GAO report B-118695, February 7, 1964 re Melpar
subcontract on B-58 system..-

398

Derr, Charles I., senior vice president, Machinery & Allied Products

Institute: Full text of prepared statement for the record.

504

Douglas, John W., Assistant Attorney General, Civil Division, De-
partment of Justice:

Excerpt from Senate Report No. 1884, 87th Congress, 2d session.. 91
Excerpt from 32 Code of Federal Regulations, section 3.807-1.- 91
Letter dated June 7, 1965 to Chairman Holifield re comments on
matters referred to in testimony -

128

Ford Motor Co.: Letter from Fred G. Secrest, vice president-con-

troller, to Chairman Holifield with statement for the record, dated

June 18, 1965.-

571

Hannah, Paul F., Esq: Full text of prepared statement for the record. 544

Heflin, William H., president, Western Electronic Manufacturers

Association:

Except from a letter from the Comptroller General to Hewlett-

Packard Co., dated January 18, 1962.

525

Full text of prepared statement for the record..

533

Holifield, Hon. Chet, a Representative in Congress from the State of

California, and, chairman, Military Operations Subcommittee:

Opening Statement-

1

Letter from Hon. Joseph Campbell, Comptroller General of the

United States, to Hon. Chet Holifield, May 7, 1965, re GAO

reports referred to the Department of Justice-

120

Legal memorandum on duty of cost-type contractor to exercise

due care in making reimbursable expenditures, prepared by the
Office of General Counsel, General Accounting Office.

128
Letter from John L. Howland, assistant general counsel, West-

inghouse Electric Corp., to Hon. Chet Holifield, June 23, 1965. 362

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