Beardsley, Vice Adm. George F., USN. Chief, Naval Materiel, to chair- man, Subcommittee for Special Investigations, August 15, 1961--- Comptroller General to Hon. Frank Kowalski, House of Representa- GAO to Speaker of the House, May 10, 1960 (Re AF-10-(601)-20268 with Thompson-Ramo-Wooldridge, Inc., Cleveland, Ohio)_. Hébert, Hon. F. Edward, chairman, Subcommittee for Special Investi- gations, House Committee on Armed Services, to Assistant Secre- tary of Defense (Installations and Logistics). Lyle, Rear Adm. J. F., USN, commanding officer, ASO, to chairman, Subcommittee for Special Investigations, July 24, 1961----- Lyle, Rear Adm. J. F., USN, commanding officer, ASO, to chairman 523 3, app. I Shepard, H. A., vice president, Thompson-Ramo-Wooldridge, Inc., to Hon. Philip B. Taylor, Assistant Secretary of the Air Force for Taylor, Philip B., Assistant Secretary of the Air Force for Materiel, to H. A. Shepard, vice president, Thompson-Ramo-Wooldridge, Inc., Taylor, Philip B., Assistant Secretary of the Air Force for Materiel, Noncompetitive procurement of spare parts partially or complete- Competitive procurement of spare parts-overtime premium charged to Navy contracts during strike at Pratt & Whitney---- SECNAV 4120.12 (establishment of requirements for engineering drawings, associated lists, and additional data)‒‒‒‒‒‒‒ GAO Report No. B-133396 (review of noncompetitive procurement of aeronautical replacement spare parts within the Department of Progress payments_ app. III SOLE SOURCE PROCUREMENT Part I WEDNESDAY, MAY 24, 1961 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON SPECIAL INVESTIGATIONS, Washington, D.C. The subcommittee met at 10 a.m., Hon. F. Edward Hébert (chairman of the subcommittee) presiding. Mr. HÉBERT. The committee will be in order. The chairman desires to read a preliminary statement. At the last meeting of this subcommittee on April 28, it was announced that we would pursue our inquiry into procurement practices and policies by reviewing "sole source" procurement. This is defined as purchasing from a single manufacturer to the exclusion of his competitor, potential or otherwise. Section 2304 (a) (10) authorizes the head of an agency to procure articles or services by negotiation when— the purchase or contract is for property or services for which it is impracticable to obtain competition. There are 17 specific authorizations for negotiated procurement which may be utilized instead of advertised competitive procurement. Two other exceptions, 14 and 16, are available for the selection of a single contractor to the exclusion of his competitors. These are exception 14, which provides: (14) the purchase or contract is for technical or special property that he determines to require a substantial initial investment or an extended period of preparation for manufacture, and for which he determines that formal advertising and competitive bidding might require duplication of investment or preparation already made or would unduly delay the procurement of that property— and exception 16: (16) he (the head of an agency) determines that (a) it is in the interest of national defense to have a plant, mine, or other facility, or a producer, manufacturer, or other supplier, available for furnishing property or services in case of a national emergency; or (b) the interest of industrial mobilization in case of such an emergency, or the interest of national defense in maintaining active engineering, research, and development, would otherwise be subserved. Now, as to these exception, we shall take testimony following the hearing. The magnitude of "sole source" procurement and the use of these exceptions is apparent from the fact that 50.7 percent of all military hardware dollars were spent under this authority in 1959 and 51 percent was spent under this authority in fiscal year 1960. The dollar value of procurements of this character exceed $8 billion in each of the 2 years to which reference is made. Exception 10 is segregated out of a total procurement by negotiation of $19.7 billion under the authority allegedly derived from the 17 exceptions or circumstances in which negotiation without competition is permitted. In total, negotiation accounts for 86 percent of all moneys spent for military hardware during this period of time. The particular authorization or exception with which we are to deal this morning accounts for $3.3 billion, or 1 dollar in every 6 spent by the service in negotiated procurement in the year 1960. The subject of the procurement which we will consider this morning is spare parts. Using a rule of thumb, spare parts or replacement parts, usually represent about 25 percent of the total value of the component of which they are destined to be a part. Using the same average, this would mean that approximately $2 billion of procurements in each of the fiscal years to which I have referred, are represented in the purchase of spare parts. This morning we are to hear from the Comptroller General upon his review of "sole source" procurement accomplished by the three military departments under the authorization and with the authority presumed to be contained and delegated in exception 10. That is to say, the articles purchased which will be discussed are those which the head of the agency and his procurement officers hold up to be articles which could not be purchased competitively but which could only be furnished by one single source. The Comptroller General has been kind enough to present for the information of the subcommittee a study which his Office has made of the purchase of aeronautical replacement spare parts. It encompasses a total area of about $500 million in parts. It is referenced specifically to procurements of the estimated cost value of $106 million and represents the examination of some 2,770 spare parts in many depots, stations, and procurement centers throughout the United States, a portion of which are here for viewing today on these boards which have been placed to give a very graphic description of the articles to which we address ourselves this morning, I shall not intrude upon the time of the Comptroller General who, in his very careful and detailed way, will present to you both visually and factually the detail and comprehensive inquiry which he has conducted in this field. Suffice it to say that here he has presented for the judgment of the subcommittee and of the public evidence upon which it may be determined as to whether or not the services are complying with the letter and the spirit of the Armed Services Procurement Act, and whether or not economy or waste is the result of the use or abuse, as may be found, of the authority contained in exception 10. I shall not express an opinion at this time, but I am sure we will all attentively view the exhibits and listen with interest to the details presented by this comprehensive study of the Comptroller General who is, after all, the agent of the Congress. The Assistant Secretary of Defense for Supply and Logistics has indicated an interest in the auditing of this hearing, and has stated that at some time after June 21 his Office will be prepared to respond to the questions which will be raised as a result of the testimony and exhibits presented here this morning. Should manufacturers-I specifically emphasize this should manufacturers whose material is displayed here desire to be heard, they, too, will be heard as to the prices which appear in the findings of the Comptroller General. At a later time we will consider exceptions 14 and 16, the text of which I have previously given. But this is the beginning of an orderly review and examination into why 86 percent of defense dollars must be negotiated, and why $8 billion in material is being purchased from a "single source." I am delighted to welcome, on behalf of the subcommittee, the Honorable Joseph Campbell, the Comptroller General of the United States, who has kindly consented to present the findings of his Office; and, with him, his assistants, Mr. J. Edward Welch, Assistant General Counsel, Mr. Charles Bailey, and Mr. Hassell Bell, of the Defense Accounting and Auditing Division of his office. I want to take this occasion to again publicly repeat to you, Mr. Campbell, our appreciation of the presence of yourself and your staff and the splendid public service that you have rendered and are rendering, and the close cooperation which you have given not only to Congress but in particular this subcommittee. Mr. CAMPBELL. Thank you, Mr. Chairman. Mr. HÉBERT. Now, before we hear you, Mr. Campbell, Mr. Courtney, I would suggest that you read into the record the letter which was received from the Assistant Secretary of Defense for Supply and Logistics, in connection with this hearing. Mr. COURTNEY. Mr. Chairman, may I, before doing that, suggest that in addition to the members of Mr. Campbell's staff, who are named and who were on the original list, Mr. William Newman, the head of the department in which this work is conducted, is with Mr. Campbell. On his left at the table, are Mr. Miller and Mr. Thompson, Mr. Miller of the legal staff and Mr. Thompson of the liaison staff of the Comptroller. I don't know whether I have missed any counsel. Mr. HÉBERT. Anybody been missed? Mr. BAILEY. Mr. McElyea. Mr. COURTNEY. I beg your pardon, Mr. McElyea. Mr. HÉBERT. Anyone else at the table? (No response.) Mr. COURTNEY. No one else. This letter is dated May 18, 1961. DEAR MR. HÉBERT: I am writing with reference to the invitation extended to the military departments to testify at hearings before your subcommittee on the GAO draft report of April 21, dealing with noncompetitive procurement of aeronautical replacement spare parts within the Department of Defense. I can assure you of the deep concern of Secretary McNamara and the materiel secretaries in the types of questions dealt with in the report. Inmmediately upon its receipt Secretary McNamara reviewed its findings and conclusions with a number of detailed illustrations of the problems. GAO has asked us to comment fully on the details before they put the report into final form for official release. The military departments are now engaged in verifying and commenting on the specific cases cited. The time-consuming task of collecting the necessary information and evaluating it to determine its accuracy will not be completed until about June 21, which is the date we agreed upon with GAO for submission of our comments to them. Of course, we will complete this step as soon as possible. As a result, the departments will not be in a position next week to provide the subcommittee with all essential details necessary for full evaluation. How ever, I would be glad to appear before your subcommittee personally to testify as to the policies of the Department of Defense in this area and our plans for corrective measures being undertaken at the instruction of Secretary McNamara. I am sure the materiel secretaries of the military departments will be equally happy to do the same. If, in your judgment, testimony directed toward a review of our policies and objectives is not adequate to obtain a full discussion of the report in question, I respectfully suggest that you give consideration to a postponement of the hearings on this report until GAO and ourselves have completed our investigation and evaluation. At this time after the full information is available, we shall be pleased to provide you with the data you desire to assure that any hearing on this subject is fully responsive. Sincerely, THOMAS D. MORRIS, Assistant Secretary of Defense, Installations and Logistics. It is addressed to the Honorable F. Edward Hébert, House of Representatives. The response to that, on May 22-the letter was received on May 22, Mr. Chairman-a letter was directed to the Assistant Secretary: I thank you for your letter of May 18, 1961, in reference to hearings to be conducted by our subcommittee opening on May 24, 1961, concerning procurements under exception 10 of section 2304 (a) of title 10, United States Code, of the ASPA. The subcommittee would be delighted to have you or a representative of your office present during hearings. In view of the statement in your letter that you would be unprepared to respond to the subject before June 21, the subcommittee would be glad to await your advice. Thank you for your cooperation. F. EDWARD HÉBERT, Chairman. Mr. HÉBERT. Was it indicated that somebody from Mr. Morris' office has accepted the invitation to be present this morning, Mr. Courtney? Mr. COURTNEY. No further response, other than the exchange of correspondence. Mr. HÉBERT. Is there present in the room somebody from Mr. Morris' office? Mr. SATENSTEIN. Yes, I am Mr. Satenstein Mr. HÉBERT. Please stand and identify yourself. Mr. SATENSTEIN. My name is Leon Satenstein. I am in the office of Mr. Morris, in the immediate office of Mr. Bannerman of the Office of Procurement Policy. I am quite sure that Mr. Morris and representatives of the Department of Defense do not intend to testify today, but will testify immediately upon completion of their investigation. Mr. HÉBERT. We understand that. I just wanted to be sure that somebody was present. And also will you relay to Mr. Morris the rather open end of his letter, what June 21 means? Does it mean 1965 or does it mean 1961? Mr. SATENSTEIN. I will inform him of that. Mr. HÉBERT. That is important. And also there is no use of an interchange of letters and a continual writing contest of essays. But inform him also that the committee will expect specifics and not generalities, and policy and hopeful utopias. |