go to the bother to do this? I mean, it sounds like to me they are working for the Government.

Mr. ALTO. It sounds like dedicated public concern, Senator, on the face of it.

Senator CHILES. Well, you are in the process now. The contracts that we have give us the right to look at their books. Do we have that coverage of the contract?

Mr. DAVIA. Yes, sir.

Senator CHILES. Are you in the process of doing that?

Mr. DAVIA. Do you mean auditing their overall financial condition? Senator CHILES. Yes, sir.

Mr. DAVIA. No, we are not. When we audit the books we audit material which is relevant to their claim and so far—

Senator CHILES. Well, if 86 percent of their business is Government business and if you have a right to audit that, you ought to be able to tell from that audit whether they are making money or not or what's happening to the funds, should you not?

Mr. DAVIA. I'm not quite sure. One of the problems in auditing Government contractors is where they have competed successfully on an advertised bid, and are given a fixed price contract, those costs are not subject to audit. What is subject to audit are those costs which subsequently arise because of modifications and that sort of thing.

Senator CHILES. So even though you deal with specifications like this where you turn out only having one or two bidders, if somebody gets the low bid then you are cut off from being able to go in and audit them except on the changes and those kinds of items.

Mr. DAVIA. That is correct. It is assumed that he is the lowest bidder and these fixed price costs are not subject to audit.

Senator CHILES. It sounds like we handicap ourselves in the Government if we don't have the ability to do that. Maybe we're talking about a need for a change there in the Government's ability to do that.

Recently, I understand Art Metal has gotten a contract for making double-shell chairs. Had they ever made chairs for the Government before?

Mr. CLINKSCALES. No, sir; not to our knowledge, they did not. Senator CHILES. What is a double-shell chair?

Mr. CLINKSCALES. I think you could describe a double-shell chair as a new design that's supposed to be more pleasing to the eye, more modern in concept and it would make for an improved working environment.

Senator CHILES. We asked you to bring the standard specialists. with you who examined the chairs. Would you ask them to come. forward, please.

Mr. CLINKSCALES. Yes, sir.

Senator CHILES. Would you give me your names, please?

Mr. HYDE. My name is Frederick Hyde, H-y-d-e.

Senator CHILES. All right.

Mr. MONDAY. Paul Monday.

[Thereupon, Frederick Hyde and Paul Monday, having been first duly sworn, were called as witnesses.]

Senator CHILES. Will you explain briefly what these chairs are

you are going to have to speak up so our court reporter and we can hear.

TESTIMONY OF FREDERICK HYDE AND PAUL MONDAY, STANDARD SPECIALISTS

Mr. HYDE. Well, as you mentioned, these are recently designed double-shell chairs. They have an inner and outer shell.

Senator CHILES. Hold on a minute. I can't hear you and I'm afraid no one else can. You might have to hold a mike.

Mr. HYDE. These are what we identify as our double-shell chairs. It's a recently instituted design to go along with and enhance our steel contemporary office furniture, which we started putting into the Federal Supply System about 1971; these are exponents of that style of chair.

These particular chairs were, I understand, obtained from the GSA Depot at Middle River, Md., on a random basis. I, myself, did not select the chairs. I was asked to examine the chairs to see if they complied with the specification requirements; with the help of Mr. Monday, my assistant here, I did just that.

Senator CHILES. So they were picked on a random basis. You didn't pick them, and you don't know but you think they were picked on a random basis.

Mr. HYDE. I believe so, but I had nothing to do with that
Senator CHILES. Who manufactured these chairs?

Mr. HYDE. Well, we have really one manufacturer of these particular chairs; they were produced by Art Metal.

Senator CHILES. Are they shellback chairs as required by the specifications?

Mr. HYDE. They are double-shell chairs. They are not in total compliance with the specifications.

Senator CHILES. Are they made out of the material called for in the specifications?

Mr. HYDE. Yes; with the exception of the outer shell, which is the plastic component you see there.

Senator CHILES. Point that out for me, if you will, or have your assistant point that out and tell me what is different about that, if you will.

Mr. MONDAY. The black part is the outer shell. It is a different material than specified in the specification.

Senator CHILES. So this is not a material that was specified in the specifications?

Mr. MONDAY. No, sir.

Mr. HYDE. No, sir.

Senator CHILES. Is it better?

Mr. HYDE. I don't know. It is claimed to be as good or better than the specification requirements. It would take better research to determine if it is better. By observation you could not tell this. Incidentally, our inspection or our examination of these particular items was visual, with the exception of the plastic components that you see here and the foam which you see on the floor there. Samples of those were sent over to the GSA Material Evaluation and Development

we could determine whether they did, in fact, comply with the specifications.

Senator CHILES. Did they comply with the specifications?

Mr. HYDE. All components on display here complied with the specifications except in two areas. The black components are what is known as ABS Cycolac, which is not one of the specified materials. Senator CHILES. That was not specified?

Mr. HYDE. Yes, sir.

Senator CHILES. Mr. Clinkscales, do these meet the specifications or not?

Mr. CLINKSCALES. It was my understanding that there were several areas in which they did not, including the foam rubber and, if you will note, I believe these gentlemen can confirm, the executive model of the chair with the patch on the top, I believe that's supposed to be one single piece of molded plastic; is that not right?

Mr. HYDE. Yes, sir. According to specification requirements, a high-back chair is supposed to be made of one piece; this, obviously, is made of two pieces.

Mr. CLINKSCALES. Is not the foam rubber at variance with the specifications?

Mr. HYDE. The foam rubber is at variance with the specifications only in terms of the characteristics of the foam. This foam does not comply with what we call a 25 percent indentation load test. It is below the requirements on that.

Mr. CLINKSCALES. How about the metal brace in the arm. Is there a metal brace required in the arm?

Mr. HYDE. Yes, sir, it is required; and, no, sir, it isn't there.
Senator CHILES. Where would the metal brace be?

Mr. HYDE. It would be molded into the inside of the arm.

Senator CHILES. Inside the arm is supposed to be a metal brace but there is no metal brace?

Mr. MONDAY. Excuse me. It doesn't have to be a metal brace. It can be solid plastic, but the arm must be attached to the inner shell, not to the outer shell.

Senator CHILES. But it is not?

Mr. MONDAY. No, as you can see.

Senator CHILES. When did we know that these chairs didn't meet the specifications?

Mr. HYDE. Well, the first indication to me that they might not meet the specifications was when I saw a plant facility report indicating that some were made of a material which was not specified, but which could possibly be considered an equivalent.

Senator CHILES. When was that?

Mr. HYDE. I believe the plant facility reports are issued prior to the issuance of a contract, but as I'm not in procurement, I'm not positive about that.

Senator CHILES. Even prior to the contract there was some indication then that they were not going to meet the specifications?

Mr. HYDE. There was some indication to that effect. However, it was also possible that by the time the company expected to sign the contract it would be able to meet the required specifications.

Senator CHILES. I thank you very much. I think we can have you

Mr. Clinkscales, was this reported that they were not meeting the specifications and, if so, to whom?

Mr. CLINKSCALES. The results of our tests were reported to Mr. Alto. I believe Mr. Alto included them in that report that he indicated he recently made to the Federal Supply Services.

Senator CHILES. But even when there was the earlier indication, wasn't that reported to the quality people? Wasn't there a time when they weren't going to award the contract?

Mr. CLINKSCALES. We have heard such from witnesses, yes, sir. Senator CHILES. Well, my understanding is that it appeared that they weren't going to meet the specifications and someone had to say they meet the spirit and intent of the specifications.

Mr. CLINKSCALES. We have heard that from witnesses, sir.

Senator CHILES. Who would be the person that would make that determination? Would that be Mr. Roger Carroll?

Mr. CLINKSCALES. That is my understanding, that that is Mr. Carroll's function.

Senator CHILES. Is Mr. Carroll here?

Mr. CARROLL. Sir, sir.

Senator CHILES. I would like to have you come forward, Mr. Carroll.

[Thereupon, Roger Carroll, having been first duly sworn, was called as a witness.]

Senator CHILES. Mr. Carroll, there was some indication made to you that these chairs do not meet the specifications prior to the contract award.

TESTIMONY OF ROGER CARROLL

Mr. CARROLL. No, sir.

Senator CHILES. There was not?

Mr. CARROLL. No, sir.

Senator CHILES. So, as far as you knew, they met all of the detailed specifications?

Mr. CARROLL. I didn't know that, either, sir.

Senator CHILES. Well, I'm just trying to find out if there was anybody at any time that said that even though they don't appear to meet all of the specifications, they meet the intent of the specifications, so you can go ahead.

Mr. CARROLL. That, I don't know; but I do know there was a meeting held prior to award of the contract, in which there was a discussion by

Senator CHILES. Who was present at that meeting?

Mr. CARROLL. The Commissioner of Federal Supply Service.
Senator CHILES. And who would that be at that time?

Mr. CARROLL. Robert Graham, Robert Hughes, who was the director of the National Furniture Center, which is responsible for the specifications, and the inventory management and procurement of furniture; our quality control specialist for furniture, William Mucci; the director of quality control, Lou De Prospero; the Federal Supply Service procurement counsel, Edward Duignan.

Now there were others, Mr. Chairman.

Mr. CARROLL. Yes, sir. I was there.

Senator CHILES. Tell me what took place at that meeting.

Mr. CARROLL. To the best of my knowledge, there was a discussion on the bidder's proposal to offer a product that, in their opinion, was better than what the specification required. It centered around the ABS Cycolac, which is the plastic that is required on the arm. They proposed to use it as one molded piece. The specifications at that time provided for three different types of plastic, each of which was used by a specific manufacturer. As I recall, one was used by Steelcase, the other by General Fireproofing, and the third by Metal Stand.

This company's bid was for a fourth alternative type of material. We had our quality control specialist give us his evaluation of the potential of the plastic and the basis for his evaluation. I don't recall the reason, but the Commissioner then had to leave the meeting. Prior to his departure he directed Mr. Hughes to make the decision. Following his exit, Mr. Duignan, who is the counsel for Federal Supply Service, counseled the contracting officer and Mr. Hughes that in his opinion, if an award was to be made, he should direct that the contractor comply with all the contract requirements and not enter into any discussion as to the validity of the quality of the material that they could use.

Senator CHILES. It sounds like to me the counsel said you should follow the specifications.

Mr. CARROLL. Follow the solicitation and specification, yes, sir. Senator CHILES. Well, is that what happened?

Mr. CARROLL. Well, you are asking me questions that pertain to areas I am not familiar with, Mr. Chairman; by this I mean the award of the bid, the records of the staff themselves, I don't know: Yesterday afternoon I did see a copy of the contracting officer's letter in the file. Senator CHILES. No one ever asked you whether this meets the spirit and intent or you didn't ever say this meets the spirit and intent? Mr. CARROLL. No, sir.

Senator CHILES. Well, it would be after the bids, would it not?
Mr. CARROLL. As I recall it would be after the bids.

Senator CHILES. So if you did go in and make changes at that time, or allow things that weren't specified in the bid, those would be changes that someone else might think "I don't want to bid on this because it has three different kinds of plastic and it has a straight back form and it has this and that so let's don't bid on that. We can't comply with that. We can't make money doing that." That would sure change the ballgame, would it not, if you went in and changed things after the bid?

Mr. CARROLL. Yes, in many instances that would be true, Mr. Chairman. Now, it would depend on what you are talking about, relatively speaking. If you are talking about changing a ball bearing from a steel ball bearing to a nylon ball bearing, you have a significant change and a cost, different yes.

Senator CHILES. Mr. Carroll, as the chief specifications writer for GSA, I think you have been less than enthusiastic about the functional specifications that I wrote into S. 1264, the Procurement Act of 1977. Now I believe your view is that detailed specifications protect the Government's interest by making sure that all contractors bid on the same thing and are effectively prohibited from substituting lesser