Admiral MANGANARO. Yes, sir, because +1 such a large portion of the total claimed the value of Government responsibili+ clear indication of the Governmer Senator PROXMIRE. Do you h to which the considerations in holders are directed to the s claims? Admiral MANGANARO. I r Senator PROXMIRE. Adr of the 688-class, General profit for the company. the $840 million overr If Arthur Anderso the company's repo to your knowledge Dynamics claim? Admiral BRYA would since I a approached on Senator PË throughout t acterize pro Admiral Senator at Electric Admir was shu to pay Schoo of in have inve T the as arose. 5's $544 million to move very ed. for your testimony. have been extremely ve, and I think you mmittee adjourned, subject to ye ch la r t } OMICS OF DEFENSE PROCUREMENT: SHIPBUILDING CLAIMS FRIDAY, SEPTEMBER 8, 1978 CONGRESS OF THE UNITED STATES, SUBCOMMITTEE ON PRIORITIES AND ECONOMY IN GOVERNMENT OF THE JOINT ECONOMIC COMMITTEE, Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 5302, Dirksen Senate Office Building, Hon. William Proxmire (chairman of the subcommittee) presiding. Present: Senator Proxmire. Also present: Richard F. Kaufman, general counsel; Howard E. Shuman, administrative assistant, and Ron Tammen, legislative assistant, Senator Proxmire's staff; William Chastka, assistant clerk; and Mark R. Policinski, minority professional staff member. OPENING STATEMENT OF SENATOR PROXMIRE, CHAIRMAN Senator PROXMIRE. The subcommittee will come to order. This subcommittee has been holding hearings for many years on the subject of shipbuilding claims against the Navy. In the past I have criticized individual settlements because they were overgenerous and unsubstantiated by the facts. I have raised questions about claims that appear to be grossly inflated and have urged in several cases that they be referred to the Justice Department for investigation of possible fraud. I have watched the Navy change its claims review organization and procedures. I have often been bothered by the zigs and zags in Navy policy with respect to claims and its frequent failure to enforce its own contracts. There has never been more reason to be concerned than today. We stand at the edge of a new era but one that I believe we will all regret in future years. The era being ushered in today is one of capitulation to Navy contractors, which Herblock epitomized so well in his cartoon in the Washington Post only a few days ago, "We always put the guns in place first." "Pay us a few hundred million dollars or we shut down." That is what we are facing now. We see the Navy waving the white flag and we certainly want to get into that. Whether it is fair or not fair is what the Navy has to say about their contracts. The settlements that have been proposed by the Navy were reached not as a result of an analysis of the merits of the claims, but as a result of coercion and intimidation. The Navy has been on the receiving end of that process. This happens to be the period during which EB's claims arose. The facts throw further doubt on the validity of EB's $544 million claim and give greater reason for the Government to move very cautiously before any settlement agreement is reached. Gentlemen, I want to thank you very much for your testimony. As I said, I am most impressed by it. I think you have been extremely candid and helpful and cooperative and responsive, and I think you made a fine record. The subcommittee will stand adjourned. [Whereupon, at 12:20 p.m., the subcommittee adjourned, subject to the call of the Chair.] ECONOMICS OF DEFENSE PROCUREMENT: SHIPBUILDING CLAIMS FRIDAY, SEPTEMBER 8, 1978 CONGRESS OF THE UNITED STATES, SUBCOMMITTEE ON PRIORITIES AND ECONOMY IN GOVERNMENT OF THE JOINT ECONOMIC COMMITTEE, Washington, D.C. The subcommittee met, pursuant to notice, at 10 a.m., in room 5302, Dirksen Senate Office Building, Hon. William Proxmire (chairman of the subcommittee) presiding. Present: Senator Proxmire. Also present: Richard F. Kaufman, general counsel; Howard E. Shuman, administrative assistant, and Ron Tammen, legislative assistant, Senator Proxmire's staff; William Chastka, assistant clerk; and Mark R. Policinski, minority professional staff member. OPENING STATEMENT OF SENATOR PROXMIRE, CHAIRMAN Senator PROXMIRE. The subcommittee will come to order. This subcommittee has been holding hearings for many years on the subject of shipbuilding claims against the Navy. In the past I have criticized individual settlements because they were overgenerous and unsubstantiated by the facts. I have raised questions about claims that appear to be grossly inflated and have urged in several cases that they be referred to the Justice Department for investigation of possible fraud. I have watched the Navy change its claims review organization and procedures. I have often been bothered by the zigs and zags in Navy policy with respect to claims and its frequent failure to enforce its own contracts. There has never been more reason to be concerned than today. We stand at the edge of a new era but one that I believe we will all regret in future years. The era being ushered in today is one of capitulation to Navy contractors, which Herblock epitomized so well in his cartoon in the Washington Post only a few days ago, "We always put the guns in place first." "Pay us a few hundred million dollars or we shut down." That is what we are facing now. We see the Navy waving the white flag and we certainly want to get into that. Whether it is fair or not fair is what the Navy has to say about their contracts. The settlements that have been proposed by the Navy were reached not as a result of an analysis of the merits of the claims, but as a result of coercion and intimidation. The Navy has been on the receiving end of that process. Electric Boat and Litton used the threats to shut down their shipyards in order to extract financial bailouts from the Navy. The Navy has chosen to give up for their ships The Navy would rather quit than fight for its contractural rights. John Paul Jones would turn over in his grave. The Navy is willing to pay to the shipbui'ders $541 million over and above the value of the claims. That figure represents one of the largest bailouts ever proposed by the Pentagon. If experience is any guide, this bailout will be followed by others because contractors are being encouraged to threaten work stoppages in order to get reimbursed for their cost overruns. The Navy argues that the bailout is necessary although it prefers the term "relief" to "bailout" because it will "facilitate the national defense." It has not been demonstrated to my satisfaction how such a giveaway of taxpayers' money, as a result of a process of threats and ntimidation, can facilitate the national defense. These are some of the reasons I oppose the settlement proposals. I intend to introduce resolutions of disapproval today and I hope to be able to get rollcall votes on them. I am very pleased to welcome before us Hon. W. Graham Claytor, Jr., Secretary of the Navy, and Assistant Secretary Edward Hidalgo. You gentlemen know more about the settlements than anyone because you negotiated them I have Secretary Claytor's prepared statement and you are welcome to proceed in your own way and then I have some questions. Go ahead, Mr. Secretary. STATEMENT OF HON. W. GRAHAM CLAYTOR, JR., SECRETARY OF THE NAVY, ACCOMPANIED BY ASSISTANT SECRETARY EDWARD HIDALGO Secretary CLAYTOR. Thank you, Mr. Chairman. It is a pleasure and a privelege to appear before the subcommittee at all times. I have submitted a prepared statement for the record which I will not read, but I would like to make a brief oral summary of some of the background and highlights of our settlements. The primary task assigned to me by the Senate Armed Services Committee at my confirmation hearing was to try to find a solution. or what was generally recognized as the Navy's most difficult problem-the complex and longstanding litigation and controversies with the country's three largest naval shipbuilders-Electric Boat, Ingalls, and Newport News. This problem has had top priority from Assistant Secretary Hidalgo and me from the very beginning of our terms. In June of this year after many months of almost continuous negotiation we reached settlement agreements utilizing the provisions of Public Law 85-804 with two of the three yards-the Electric Boat Division of General Dynamics and the Ingalls Division of Litton. As previously reported, we are in what I hope are the final stages of negotiating a settlement with the third yard, Newport News. The details of the Electric Boat and Ingalls settlements are set out in my prepared statement and I won't take the subcommittee's time |