Page images

rency they call it. We found $1,300,000 had been paid out in dollar appropriations that should have been reimbursed by the Federal Republic of Germany. As a result of our examination we recovered that.

Mr. FASCELL. That is not in this report. That is another $1,300,000 you saved the United States Government?

Mr. BLAIR. That is right. We submit the details in what we call an accomplishment report to Washington. If they approve, or endorse our accomplishment, then we report it in these figures we are looking at in exhibit K.

Mrs. HARDEN. How often do you submit those reports?

Mr. Blair. As the accomplishments are recorded. It may be that the examination started back in 1954 and we have kept after them. As a matter of fact, we sent one in the other day which was initiated in 1953.

Is that in the file, Bob?
Mr. ROSENBERGER. We sent one in yesterday on procurement of

spare parts under the offshore procurement program.

Mr. FASCELL. Offshore procurement ? Mr. ROSENBERGER. Yes, sir. We found that we were procuring about $925,000 of spare parts that were going to be excess to the requirements of the countries in NATO. As a result of our examination, they canceled the procurement of those items and substituted, in turn, spare parts that they could use.

Mr. FASCELL. That is helpful.
Mr. ROSENBERGER. We did not get any money back.

Mr. BLAIR. That examination was initiated back in 1953 and was continually followed through. Mr. FASCELL. You fellows did not find any buried spare parts, Mr. BLAIR. I understand they buried some in Germany. Mr. POLAND. Was the General Accounting Office responsible for that adjustment made in the procurement of planes where the base price was a price for a mixed variety of high-priced planes and low-priced planes and the procurement furnished only the low-priced ones, so that at the end you got 13 new planes to make up the difference?

Mr. ROSENBERGER. I believe you are speaking of the SA-6 and SA-7 Sapphires in Britain. We were instrumental in that. We procured the engines for Britain under MDAP. The agreement was that we were supposed to get half of the less expensive and half of the more expensive engines, but we found out we only got the less expensive

Mr. POLAND. As a result of your investigation you got 13 new engines to make up the difference?

Mr. ROSENBERGER. That is right. There, again, no money came back to the United States.

(A more complete statement of this case was furnished for the record as follows:)

did you?




As part of our planned effort to review the offshore procurement actions of respective military procurement agencies, we undertook in the early part of calendar year 1956 a review of the procurement actions of the Air Materiel

Force, European Area, United States Air Force. This assignment was to bring up to date our prior review of the 1953 fiscal year procurement actions of this and its predecessor organization.


On June 28, 1954, the Air Force awarded contract AF-61(514)-771 to the British Government for the purchase of 120 Sapphire engines at a unit price of $74,410_total contract price, $8,929,000. The negotiation files indicated that it was determined that the price was reasonable because at least 80 of the engines to be delivered were the Sapphire engine SA-7 instead of the Sapphire engine SA-6. The SA-7 engine was estimated to cost about $11,000 more than the SA-6. The contract, however, gave no guaranty that any SA-7 engines were delivered.

Our examination of this contract in April 1956 disclosed that the deliveries had been completed and that deliveries consisted only of SA-6 engines.


We brought this to the attention of the Chief of the London Air Procurement District, who is responsible for administering the contracts on May 7, 1956; he agreed to bring the matter to the attention of the British Ministry of Supply.


The Chief of the London Air Procurement District contacted the British Ministry of Supply and by letter dated May 16, 1956, formally requested an explanation from the British Ministry. On June 20, 1956, the British admitted that the price of the SA-6 engine was only $67,281 and agreed that, since no SA-7 engines had been delivered, the contract should be adjusted. The British offered to deliver 13 additional SA-6 engines at no increase in contract price. This adjustment was consummated in supplemental agreement No. 1 dated October 3, 1956, to contract 771 which increased the number of engines to be supplied by the British from 120 to 133 at no additional cost.

Mr. FASCELL. If there is no objection, I think we ought to include in the record at this point the report entitled “Report on History, Organization, and Operations of the European Branch, United States General Accounting Office, May 31, 1957," with such additions as the European branch desires to make to this report to bring it up to date.

(The report referred to is included in the appendix as exhibit 1.)

Mr. FASCELL. The committee would also be particularly interested in bringing up to date whatever recovery reports are in the mill or that you

think you can add to this, Mr. Blair. I have some examples that I would like to call to your attention, Mr. Chairman.

(The examples referred to are as follows:)

Examples of European branch accomplishments through September 15, 1957

Savings Increased billing to Germany for additional military assistance

expenditures eligible for reimbursement from funds contributed by Germany toward such expenses.

$1, 397, 662.00 USAREUR canceled requisitions on United States depots for

$188,14.5 worth of wauthorized items erroneously ordered for a special reserve program.--.

() Substitution of required military spare parts for spare parts

being ordered under contracts to supply France that would have been excess to French requirements..

949, 189.00 Sale of vehicles and parts to NATO countries who have known need for these items rather than on-spot bid sales at lower prices

164, 667.00 Consolidation of Bordeaux Air Depot with operations at Chateau

roux Air Depot, eliminating necessity for maintaining the former (annually)

1, 358, 000.00 See footnote at end of table.

Examples of European branch accomplishments through September 15, 1957–




$229, 000.00

93, 191.00


165, 800.00

41, 720.00

125, 248.00

90, 427.00


52, 585. 00

Cancellation of Chateauroux Air Depot requisitions on United

State depots, totaling $7.8 million for items erroneously ordered ; $5.4 million on initial review and $2.4 million on follow-up

review Return of USAREUR, Quartermaster, stocks erroneously placed in

disposal channels as excess to requirements. Also erroneous

requisitions from United States depots canceled---Reduction in cost of technical supervision and inspection by archi

tect-engineers under lump-sum contracts related to construction in France. Savings resulted from closer analysis of contractor

bid submission--Charge to British Government for repair expenses which British

had agreed to assume burden of but which had been erroneously

charged to mutual defense assistance funds.--. Increased interest income through desposit to time desposit rather

than checking accounts of local currencies generated in

Price reductions in contracts with British Ministry of Supply for

signal equipment through comparison of price lists on later con

tract with prices charged on prior contract---Reduction in contract price for Energa grenades due to erroneous

inclusion of royalties and of taxes from which United States was exempt. Also, no recognition was given to most-favored-cus

tomer clause-Redistribution of AS-133/APX antennas which MAAG/UK

personnel had considered impractical due to erroneous under

standing as to how items were packed--Additional consideration for change in contract terms allowing

packaging of ammunition in wooden rather than metal crates-Reduction in cost of printing services through analysis of require

ments and recommendation that other suppliers be contacted-Reduction in USAFE contract price through elimination of royal

ties improperly charged.Collection of taxes, from which United States was exempt, erro

neously included in Navy contract with Italian supplier-Assistance to USAFE in recovering taxes erroneously included

in contract with Italian supplier--Reduction in contracts for USAFE bus hire from British con

tractor due to United States exemption from United Kingdom

gasoline taxes --Shipment of general military supplies destined for France through

French ports rather than through German ports as was pre

vious practice----Reduction in cost of heating and custodial services for leased

building through analysis of contract terms. Recovery of proceeds of sale of POL products, USAREUR,

erroneously deposited to a suspense account-Cancellation by USAFE of a requisition for a $195,000 rock crush

ing and screening plant not required in United Kingdom-Collections of overpayments of station travel per diem allowances

(disturbance pay) to military personnel in European area---Inspection of fiscal operations in USFA command, Austria, re

sulted in the elimination of a disbursing office in Vienna, with

annual savings of from $6,300 to $28,000.-Preliminary investigation of BAQ payments to military personnel

51, 964. 00


153, 375.00



20, 000.00

13, 368.00


17, 112.00


in European area resulted in collection of overpayments totaling

$67,720 as of March 25, 1955_--
Deobligation of German deutschemark funds for personal services

furnished by German Federal Republic. Amount obligated was
in excess of requirements and if they had not been deobligated
and used elsewhere, these funds would have been lost to the
United States.----
See footnote at end of table.

67, 720.00

595, 238.00

[ocr errors]

Examples of European branch accomplishments through Sept. 15, 1957Con.

Savings Overpayment for shipping charges on contract administered by

the Ordnance Procurement Center due to typographical error in contract terms...

$18, 466.00 Renegotiation of contract to obtain consideration for revised delivery schedule based on GAO recommendations.

450,000.00 Elimination of duplicate stock records at USAREUR rebuild plants---

6, 600.00 Recovery of taxes credited contractor by Italian law in excess of taxes deducted from contract price-

21, 210. 64 Reduction in contract price for F-86 aircraft assembly due to

elimination of excessive subcontractor profits on aircraft parts (estimated)

670, 000.00 Assistance to Army Audit Agency in recovering taxes erroneously charged under 2 Army contracts with Italian suppliers-

21, 300.00 1 Amount of savings indeterminable.

Mr. BLAIR. Mr. Chairman, we could summarize for the record at a later date, if you would like, a synopsis of our accomplishments. I could give you at this time certain specifics if you would like that.

Mr. FASCELL. Yes, I think we would like to get into specific cases in the discussion of that report.

Mr. BLAIR. I have one example here where we felt that the Branch examination resulted in savings of some $125,000 to the Government in procurement of grenades by the Ordnance Procurement Center in fiscal year 1951, 1952, and 1953.

Mr. FASCELL. Is this the subject matter of a report?
Mr. BLAIR. Yes, it is.
Mr. FASCELL. Is it one that has been submitted to headquarters?
Mr. BLAIR. Yes.

Mr. FASCELL. Is that in the list which appears on page 51 of the report?

Mr. BLAIR. It is listed on page 53.
Mr. FASCELL. Do you have the number of it there?

Mr. Blair. At the time this report on the history of the European Branch was prepared, Report EU-135-6 was in Washington for processing. It is my understanding that they just recently issued report EU-135–6 to the Department.

Incidentally, that asterisk means that it is contemplated that this report will be issued to the Congress.

Mr. FASCELL. Fine. Suppose you tell us about it. It sounds interesting.

Mr. BLAIR. During fiscal years 1951, 1952, and 1953, the Ordnance Procurement Center of the United States Army in Europe awarded 5 contracts to a Belgian firm and its subsidiaries for grenades in the aggregate amount of approximately $45.5 million. These contracts involved the Department of the Army.

Mr. FASCELL. Let me see if I understood that. We let out contracts for $45.5 million worth of hand grenades?

Mr. BLAIR. Antitank grenades.
Mr. HUNTER. I believe they are rifle grenades.

Mr. FASCELL. I had a vision of 1890 instead of 1957. These were rifle antitank grenades?

Mr. HUNTER. I believe that is correct.


Mr. BLAIR. There were five contracts involved in the total award and they involved Department of Army funds and directed procurement. The Department directed that the contracts be placed with this Belgian firm because it had the proprietary rights to grenades under various patents. The contracts were fixed-price contracts without any provision for price redetermination.

Our review of basic contract files and other available records at the ordnance procurement centers, and in discussions with responsible procurement personnel, disclosed that these contracts had been awarded without establishing, in our opinion, whether a fair and reasonable price had been obtained. Further evidence brought to light during our review disclosed that overcharges may have been made by the company. We brought this matter to the attention of the Deputy Chief of Procurement of G-4 in USAREUR as to the possibility of excessive costs in this procurement. He advised that he had no knowledge of the facts but thought that the only manner in which it could be determined would be by this office making an examination of the contractor's records under the authority of the records examination clause contained in the contract. He stated at that time that if we felt we could accomplish anything by such an examination, he would interpose no objection. In view of the possibility of the recoupment of overcharges, and in spite of the fact that these contracts were fixed price and had been completed, we did invoke the Comptroller General's right to examine the records of the contractor.

In September 1954, represenatives of the Branch began an examination of the contractor's books and after a brief visit we were informed by the Managing Director that the firm could not allow such an examination.

On the grounds that this refusal constituted a default on the part of the firm in not adhering to the terms of the contract, we presented the matter to Army Headquarters and two courses of action were decided upon: (1) USARĖUR agreed to withhold about $200,000 due to the company on another contract; and (2) to bring this case to the attention of the United States Embassy in Brussels. The Embassy was requested to —

Mr. FASCELL. That was to give you a letter so that you could examine the books?

Mr. BLAIR. Yes.
Mr. FASCELL. Of the civilian contractor?
Mr. BLAIR. That is right; the Belgium firm.

So these two courses of action were followed: Army withheld money due on another contract and the Embassy contacted the foreign government to request the foreign contractor to permit us to examine his books. Discussions were then carried on with officials of the Embassy and the Minister of Foreign Affairs and Foreign Commerce of Belgium over a period of time and this culminated in a meeting on January 6, 1955, between the American Ambassador and the Belgium Minister of Foreign Commerce. Shortly thereafter the managing director of the company requested a meeting with representatives of the Embassy and our office. This meeting was held on January 14, 1955, and resulted in the company allowing the Branch to audit certain pertinent records. The audit was completed in February 1955, and disclosed questionable charges in the area of taxes.

« PreviousContinue »