Mr. GLENDENING. Yes, sir. If you will look on page 26 of the budget, you will see a chart outlining the break-even point of the purchase against cumulative rental for the computer.

Senator MAGNUSON. Are we improving the memory of this computer?

Senator ALLOTT. We have not gotten to that. This is a new one.

COMPTROLLER GENERAL'S REPORT ON COMPUTER PURCHASE

Mr. GLENDENING. You will recall last year the Comptroller General put out a very comprehensive report to the extent that if a computer can be purchased and the break-even point is within 7 years, it is indicated that purchase should be made. Our break-even point is within 2 years after purchase. We will be saving the Government a minimum of $41,000 a year over the rental price, and had we not converted, if we had kept EAM equipment, the cost would be considerably in excess of $41,000 a year. As I told you before, we are now operating with the same personnel that we had with the other equipment, but with vastly improved productivity.

COST INCLUDING SERVICE

Senator ALLOTT. Well, I see this chart, and it looks beautiful, but I do not quite see the logic of it. What is the cost if you purchase this outright? What would be the cost of maintaining it and servicing

it?

Mr. GLENDENING. The cost would have been

Senator ALLOTT. I am not talking about operation. I am talking about

Mr. GLENDENING. This includes service.

Senator ALLOTT. Service.

Mr. GLENDENING. This includes service. The cost would have been approximately $143,000. It has just been reduced from about $189,000. But the cost would be about $143,000, if we purchase at the end of the first year, which is more advantageous to the Government. We will receive a credit of 65 percent of the first year's rental on the purchase price of the equipment, which means that when that is applied, our net cost for purchase in October of 1965, next year, would be $114,000.

Senator ALLOTT. Well, now, either I did not ask my question plainly or you did not answer it. If we bought this today, what would be the costs, the service costs, not the operating costs but the service costs, to the U.S. Government? If we just bought it flat outright.

Mr. GLENDENING. The service cost is about-it varies with the age, but it would start out at just under $3,000 a year.

BREAK-EVEN POINT ON COST

Senator ALLOTT. Well, for the life of me, I do not see how the break-even point on this chart of yours gets up to, let us see, about one-third. Way through 1967 under these circumstances.

Mr. GLENDENING. Page 27, the next page, shows the dollar figures showing that the cumulative cost at the end of 1965 would be $155,000

and a lease basis would be $65,000. In 1966, your totals are running closer together, and the break-even is in the middle, in the early part of 1967-155 to 164. About 2 months difference there. Two or three months difference. It hits your break-even point.

Senator ALLOTT. Whose figures are these?

Mr. GLENDENING. These are mine. We had to go into a very detailed study and justification under the Bureau of the Budget's regulations in order to get permission on this.

Senator ALLOTT. Now, these figures on page 27 and the chart do not take into consideration the savings. These are just upon the machine itself.

Mr. GLENDENING. That is on the machine itself which in and of itself is a saving. If I had not installed a computer last fall, the rental costs for card handling equipment in 1965 would have been somewhere in the neighborhood of $70,000 plus additional personnel to operate the additional equipment.

Senator ALLOTT. I am not quarreling about that at all. I just want to be sure what these figures do and do not include, and they do not include

Mr. GLENDENING. If you will look on the very next page, Senator, there is exact dollar breakdown which I think is what you were probably asking for.

Senator ALLOTT. No. I was not asking for that at all. I just wanted to be sure that these figures reflect just the cost of the computer.

Mr. GLENDENING. That is all.

SAVINGS NOT INCLUDED IN COST STUDY

Senator ALLOTT. And not the savings, that is all.

Mr. GLENDENING. No, Just actually computer costs.

Senator ALLOTT. Savings is another matter, and you do not have to persuade me about that, but I just wanted to be sure what these figures do and do not include. That is all.

Mr. GLENDENING. Just exactly the computer.
Senator ALLOTT. That is all I have, Mr. Chairman.

LEASING COMPUTERS

Senator MONRONEY. In the leasing matter, is there any competitive bidding or any way that this is put up to the departments?

Mr. GLENDENING. We looked over the field completely, about half a dozen or so different manufacturers. We went into the hardware field very thoroughly in order to decide and determine exactly what piece of equipment or what type of equipment we wanted. We have what is considered in the industry an extremely small installation. It is one of the smaller installations.

COST OF INSTALLED COMPUTER

Senator MONRONEY. $147,000.

Mr. GLENDENING. Purchase cost; yes. Many of these computers cost much more than that per month.

Senator MAGNUSON. Oh, you have a modest request for computers compared to some other agencies.

Mr. GLENDENING. This is strictly a barebones installation, too.

Mr. DIXON. And after we really got started, got into this, Mr. Glendening prepared a complete evaluation for the Budget Bureau in order to get approval. We had experts from the National Archives Records Service that came in. We were very lucky. That machine was brought in, and it is in operation today." It usually takes 6 or 7 months to get one.

Mr. GLENDENING. We were on top of the operation to the extent that we actually had the machine in operation on our programs prior to the time it had been turned over to us by the manufacturer. So that it was actually in operation at the time the manufacturer turned it over.

QUESTION OF COMPETITIVE BIDDING

Senator MONRONEY. What concerns me is whether we are moving toward a competitive condition which will permit the evaluation on a competitive bid basis or submission of price basis for the agencies buying this very expensive equipment to take the best and lowest bid or whether by the terms of the lease and these other matters of purchase at certain times and all that, it has been diffused as an industry to where the direct comparison and low bid, best bid basis is frustrated. Now, you deal in these kinds of things in the commercial field all the time. I would like your impression.

Mr. DIXON. This is one of the things that impressed us. I think this is one of the things that the Bureau of the Budget is on top of in these various departments and bureaus. I think what impressed me most of all was that no matter what you have in mind doing, you are going to have to prove that it will not only do what you have in mind but it is the best machine to do it with and that if you do get this machine, that 5 years from now you won't come along and say, we have to throw it out because if we had been smart enough we would have gotten-what was that thing you said? Somebody needed money for new memory

COST OF "IMPROVING COMPUTER MEMORY"

Senator MAGNUSON. Improve the memory.

Mr. GLENDENING. We went into this area carefully.

Senator MAGNUSON. They wanted $150,000 just to improve the memory of an existing machine.

Mr. GLENDENING. I feel very strongly, and I am completely convinced that this machine is adequate for the needs of the Federal Trade Commission for the foreseeable future. We have looked over and received bids from several other manufacturers, and this machine within its price range and within the money we had and the job we had to do. was the best and the most efficient machine and the least costly.

Mr. DIXON. I do not know whether the machine will ever take the place of a lawyer. I do not believe it can.

Senator MONRONEY. I thought you were proposing that these machines would research the legal questions.

Mr. DIXON. When they begin to pile up knowledge, I could see some benefit, additional benefit from such a machine for recapture of legal research. I can see that. But no two cases seem to be exactly alike, but it may take the place of Shepherd, I do not know.

INTERFERENCE WITH COMPETITIVE BIDDING

Senator MONRONEY. You are satisfied not just on your own purchase but we are looking at Government-wide because this comes in on almost every appropriation, that there is a competitive situation existing. Mr. DIXON. I am satisfied we are saving money.

Senator MONRONEY. That the leasing program does not frustrate the competitive condition that would exist if they were on sale instead of lease.

Mr. GLENDENING. We can terminate the lease at any point.
Senator MONRONEY. Can you buy it originally without lease?
Mr. GLENDENING. Yes, sir.

Senator MONRONEY. Can all computers be bought without lease or are some held to the leases?

Mr. GLENDENING. Yes, but there are certain restrictions. Some manufacturers have what they call the lease-purchase contract that requires a determination at the time of lease that purchase will be made later, and a certain downpayment has to be made against that.

Mr. DIXON. Generally, when that started, one of the manufacturers had practically the whole field and the only way the Government could get it was by lease. I think that arrangement has ceased, and others have come in. As they come in, they would come in with different kinds of offers, different kinds of competitive machines, and I think generally speaking that you can take your choice now, either lease or buy.

Mr. GLENDENING. Or both.

Mr. DIXON. Or both. Then I would assume that what those responsible for the appropriations must evaluate is as to whether or not it is a good thing, because certainly if you lease, something new comes along, and you say take it out and put something else in. I think that is the question, the thing we have to go through, to be sure we are getting what will serve us and serve us in the foreseeable future so that this evaluation could sensibly be made.

Now, the experts that came in there not only agreed but they were very enthusiastic about the type of equipment.

ANNUAL MAINTENANCE CHARGE

Senator MONRONEY. What is the annual service charge on this, maintenance?

Mr. GLENDENING. It is a sliding scale, and it goes up a little bit as the machinery gets older on the theory the older it is the more repairs it needs. The first 3 years is approximately $3,000 a year.

Mr. DIXON. If we own.

Senator ALLOTT. Is that as long as

Mr. GLENDENING. As long as we own it.

Senator MONRONEY. $3,000 built into the lease project.
Mr. GLENDENING. The $3,000 is built into the purchase.

Mr. DIXON. Right now we are not paying a service charge because we are under a lease arrangement which can be converted, though, at the savings, if you approve.

Senator MONRONEY. I have no further questions.

Senator MAGNUSON. I have none on that. I wanted to, if I might— I want to apologize, Mr. Chairman, for not being here, but I see Senator Hayden-Senator Hayden and I had a conflict of interests this morning, Bonneville Power Administration. We had a hearing at 8 o'clock. And I think everybody knows how important that is to me.

COST OF PAY RAISE

But you have got $1,055,000 over last year.

Mr. DIXON. That is correct.

Senator MAGNUSON. And you have broken that-you have broken that down. You have got $250,000 for a half year cost of the pay raise.

Mr. DIXON. That is right.

Senator MAGNUSON. Now, that comes from the fact that the bill, independent offices appropriation bill, was not signed, actually did not take effect until late December of last year.

Mr. GLENDENING. No, sir. The pay raise bill, the second phase of the pay bill

Senator MAGNUSON. I mean your appropriation did not take effect until after December 19 of last year.

Mr. GLENDENING. That is true, but the second phase of the last pay bill went into effect last January, so next year we have the period from July to January.

Senator MAGNUSON. Half year.

Mr. GLENDENING. Yes, sir.

Senator MAGNUSON. All right. Now, we can understand that. Now, you have got $221,000 to restore personal service and travel funds that had to be taken out of the enforcement programs in 1964. Is that because we did not pass the bill for 6 months?

Mr. GLENDENING. Some of it, sir. The rest of it, the majority of it is that that was the absorption between the Congress and the Bureau of the Budget we were required to make of the pay raise costs during last year and this year.

Mr. DIXON. Really, Senator, to say it another way, we had been authorized by Congress for over 2 years to have a ceiling of some 1,178 employees. We presently have 1,148. And we had almost exercised some very stringent economies to keep from having the RIF program before July of this year. What we are talking about here, the extra sum is to get-is to get back to where you expect us to be. You told us last year you did not expect to cut us any. Now, each of my bureau heads comes to me and says when can I get the manpower. Senator MAGNUSON. All right. You have got $80,000 for withingrade increases under your pay raise.

Mr. DIXON. Yes.

Senator MAGNUSON. $60,000 for promotions necessary to keep the most able of your young attorneys from being lured away by too tempting salaries in private business. We will discuss that later; $114,000 to purchase the computer which we have been talking about.