(9) Handling and testing equipment.

Additional travel to storage and other sites will be required under the expanded program. An increase of $6,000 in the limitation placed on such expenses in the regular 1959 act is requested.

EXHIBIT B

OE, PGS-National industrial equipment reserve-analysis of inventory changes 1957, 1958, and 1959

Mr. JONAS. Mr. Holtz probably has a statement he would like to make.

Mr. HOLTZ. I don't have a formal statement. When we were here in February, Mr. Floete told you he had attended a meeting over in the Department of Defense, at which time they indicated that there would be a substantial increase in the number of machines that were going to be transferred to us out of the Department of Defense reserves or out of their excess.

About 2 weeks after we were here, we got formal notice that, instead of the 600 or so that we had used as a basis for our presentation in February, the figure would be on the order of 5,000.

The basis of our request for supplemental appropriation is built around that fact. I know you are all aware, too, that the scope of this program is something that GSA does not control. This originates in the Department of Defense; and, in order to be sure that someone could answer any questions with respect to what happens in the early stages of this thing, I have asked Mr. John Williams and Mr. Jim Nash from the Department of Defense to be here available for questioning

The fact of the matter is that when these selections are made, we are required under Public Law 883 of the 80th Congress, the act which created the national industrial equipment reserve, to accept certain responsibilities. That is the custody and care of the tools that come out of this.

Mr. THOMAS. It is my understanding these people are no more than a service agency.

Mr. HOLTZ. That is correct. We are on the end of this line. What we are told to do, we are obliged to do; and on that basis we are obliged to come here and ask you for the money to pay for what we are directed under the law to do. These selections are made by the Department of Defense. When they are offered to us something has to be done with them. We are here from my own shop to defend the figures that we are presenting as the cost of this operation but with respect to the philosophy behind it that is something we have no control over.

Mr. JONAS. What is the long-range objective?

Mr. HOLTZ. With respect to the number of tools?

Mr. JONAS. Acquisitions of tools.

Mr. HOLTZ. I have asked that same question myself, sir, and I do not know. That is the kind of question I think our friends from the Department of Defense are perfectly qualified to answer. These tools are generated out of military or departmental excess. As these tools come in to them, if they are not required for a foreseeable program within the various military departments, they are declared excess. At that time some portion of those tools are selected for long-term storage.

Mг. THOMAS. They have their own program, too.

Mr. HOLTZ. They have a departmental reserve, that is correct, sir. To be specific in reply to your question, Mr. Jonas, I would like to go through what makes up this $3.5 million total we are asking as an increase. It starts out with personnel services, the increase is $277,800; $6,000 increase in travel, $707,300 for transportation costs, $500 for communications; $35,000 for rents and utilities; $200 for

printing; $2,049,300 for contractural services-and I will break that down further to answer your question-supplies, $30,900; handling equipment, $375,000; grants, $18,000. The sum of those items is $3,500,000.

The $2,049,300 is broken down into $620,000 for building repairs, site improvements and processing areas; $19,100 is for guard service; $36,200 is for unloading; $1,374,000 is for dehumidification.

The dehumidification is to be applied partially to existing warehouses, warehouses that we now have, the one in New Jersey and the one in Dixon, Ill. Because of this influx of tools we are presently having to go out and develop another warehouse for this thing. We are currently thinking and have gone pretty far toward selecting a site in Indiana, a Military Establishment that is being declared excess. As of today I think it can be said that requests have gone out which will formalize our use of some of that space; it has all been examined; 500,000 square feet of the dehumification will be at that installation; 388,610 square feet will be the 2 existing sites. The estimated cost is $1,374,000.

Mr. JONAS. I understand you have run out of storage space.
Mr. HOLTZ. We are about to.

SELECTION OF EQUIPMENT FOR RETENTION

Mr. JONAS. You have to acquire new storage facilities to take care of the prospective increase in the tools that you take over.

Mr. HOLTZ. That is right.

Mr. JONAS. These tools and this equipment are now in Army or military storage; is that right?

Mr. HOLTZ. I do not think it is in military warehouses. It is coming out of contractors' plants. As contracts are terminated, as I understand the process, the military people examine that list of tools themselves to determine whether they have a mobilization requirement, a firm mobilization requirement, or a foreseeable requirement for it. They have to divest themselves of those for which they cannot justify retention in their own departmental reserve. These tools are over and above that. Certainly not all of them will come into our reserve. There is a selective process with respect to those that are ultimately going to be transferred to us.

Mr. JONAS. What will happen if you did not take them?
Mr. HOLTZ. I expect they would be sold on the market.

Mr. JONAS. You say the bulk of these tools are not in storage but they are in use at the present time on jobs that are under contract? Mr. WILLIAMS. This equipment that is declared excess can come from two sources. Termination of a military contract and would be in a contractor's facilities, or it could come from a central storage site of the military departments as they review their programs in the light of new strategic concepts.

Mr. JONAS. Can you give us an idea as to what percentage comes from each of those classifications?

Mr. WILLIAMS. No, sir.

Mr. JONAS. The reason I would like that information is I cannot see much advantage in taking this equipment out of a military warehouse where guard service is already provided, where the building is already available, and paying transportation charges to some new

location acquired by GSA at which site you will have to provide guard service and all of the other supplemental services that go with safeguarding this equipment. That does not seem to me to be a very efficient and economical operation.

Mr. THOMAS. If he does not know where it is coming from, how does he arrive at this estimate?

Mr. JONAS. He has to have some basis for the estimate.

Mr. THOMAS. One of the big items of the estimate is transportation and handling charge.

BASIS FOR DEPARTMENT OF DEFENSE DETERMINATION OF 5,000 MACHINE

TOOLS

Mr. WILLIAMS. I can cast some light on the 5,000 figure. In 1956 and 1957 and prior years the type of excess equipment that was generated by the military departments was primarily the type that was specialized single purpose for a specific military end item or it was of a type of age and condition that it had served its useful purpose.

With the changes in the military concept and the clearing of the excess property, it appeared as though in future years the type of property that would be generated would be more serviceable and more of a general type. We felt we needed some guidance as to the quantities of equipment that should properly be included in the national industrial equipment reserve. We wrote to the Office of Defense Mobilization and requested such guidance.

The Office of Defense Mobilization then came back and asked us to obtain for them some figures relative to the expected quantities. This is a pretty difficult thing to do, to forecast for a period of 12, 24, or 36 months what is going to be excess, because excessing is something that happens only at the time of the review.

Nevertheless, we did conduct an investigation or query of the departments. It came to us as about 12,000 items for 1958.

On the basis of the 12,000, we started to look at the different types of equipment based on past experience. That is, what percentage of a thousand items would be special for military, what quantities would be in such condition that they should not be retained, and how many of them were manufactured in years back so that they were obsolescent any particular utilization in the future.

for

From that particular review, it appeared as though the quantity might be in the neighborhood of 5,000 items. In breaking down this 5.000 items a review was made of the types and quantities of tools that were currently available in the civilian economy. Those percentages were set up for those particular categories.

There was a review made by technicians of General Services Administration, Department of Commerce, and the Department of Defense as to the specific types which each of these categories which were the most commonly used and which ones and the percentage of selections in that respect.

On the basis of that, the 5,000 figure was developed. When this was discussed at the meeting with ODM, using the predetermined figures and the percentages, it was explained that it was doubtful in our mind that there would be sufficient tools in all of these categories to meet this overall 5,000 figure.