GOVERNMENT USE OF SATELLITE COMMUNICATIONS WEDNESDAY, AUGUST 17, 1966 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MILITARY OPERATIONS OF THE COMMITTEE ON GOVERNMENT OPERATIONS, Washington, D.C. The subcommittee met, pursuant to adjournment, at 10 a.m., in room 2247, Rayburn Office Building, Hon. Chet Holifield (chairman of the subcommittee) presiding. Present: Representatives Holifield, Frank Horton, and William L. Dickinson. Also present: Herbert Roback, staff administrator; Douglas G. Dahlin, counsel; and J. P. Carlson, minority staff. Mr. HOLIFIELD. The committee will be in order. Mr. Roback? Mr. ROBACK. We were discussing in some detail, General Starbird, the details of contract arrangements and we also made some requests for information. Do you have any information that you can supply the committee this morning? STATEMENT OF LT. GEN. ALFRED D. STARBIRD, U.S. ARMY, DIRECTOR, DEFENSE COMMUNICATIONS AGENCY; ACCOMPANIED BY REAR ADM. FRANCIS D. BOYLE, U.S. NAVY, DEPUTY DIRECTOR, DEFENSE COMMUNICATIONS AGENCY; COL. LEE PASCHALL, U.S. AIR FORCE, DEFENSE COMMUNICATIONS AGENCY; AND WALTER H. MORSE, COUNSEL-Resumed General STARBIRD. I brought with me, sir, two things. You asked for details on the contracts and contract amounts on the IDCSP. That I have given to the committee. (The information referred to appears on p. 109.) General STARBIRD. You also asked for a discussion on the assignability clause, and I think we have given that to the committee. I can go on, if you would like, on the other question you had which was what was the nature of the several proposals that were made by the carriers in connection with the request for proposal. Mr. ROBACK. Are we in a position now to talk about the prices on these offers? PRICES QUOTED IN NEGOTIATIONS General STARBIRD. We can talk on the prices on the up-link, and by the up-link I mean the link which is controlled by the-the costs of which are controlled by the U.S. carriers, and the FCC. On the down-link-in other words, the link from the satellite to the foreign entity station, or foreign nation-the prices themselves are controlled by the foreign nation rather than our own carriers and our Federal Communications Commission. The final agreements on those are still in the state of negotiation. I would prefer, therefore, not to make those public at the present time. We did something in contract evaluation in connection with those down-links, realizing that they were still subject to negotiation but they would become the same in all probability no matter the carrier furnishing the service to the United States. We informed all carriers on the 13th of June when we asked if they desired to submit further proposals that we would equalize in their bid the cost of the down-link. In other words, the effect of this would be in the evaluation dollar-wise of the proposal we would be disregarding the cost of the down-link. Mr. ROBACK. Would the presumption on the down-link be that carriers, depending on who it might be, each one might have a different negotiation, or would the down-link costs be the same whoever was the carrier? General STARBIRD. The logic was about like this, Mr. Roback: That once a rate was negotiated with any carrier, that same rate would apply for the other carriers involved and, therefore, we could afford to make a fair evaluation, we could disregard any preliminary figures that were contained in the proposal. Mr. ROBACK. On that presumption the foreign entity wouldn't necessarily object to an assignability clause, they would get the same price whoever was involved. General STARBIRD. Presumably not. They would get the same in any case. This is Colonel Paschall who did the detailed negotiation and discussion with the carriers, and I would like to have him elaborate, please. Colonel PASCHALL. One addition to General Starbird's statement is that this equalizing the down-link charges applies to the recurring charges, the monthly charges. There are other liabilities that were not equalized. Secondly, by a condition of the CSA, that is a part of the CSA which takes the form of a contract, any reduction in charges of the foreign entity are passed directly to the Government. General STARBIRD. Let me clarify one thing more on these recurring charges. In connection with the recurring charges, they are the costs which apply month to month for the service. Now, in connection with the installation of facilities to meet this governmental requirement there were certain termination liabilities if we did not go through with the full contract until the termination liabilities were exhausted. Naturally, carriers would have different methods of approaching the putting in of the temporary ground station or possibly even the permanent ground station. So Colonel Paschall is right. What I was referring to was the monthly recurring charges and not the termination liabilities. Mr. ROBACK. How did you standardize, in the bid evaluation, the down-link? Was that in terms of making an estimate of what the cost would be and in keeping that cost with the different bids? General STARBIRD. We just disregard the recurring Mr. ROBACK. Just disregard? General STARBIRD. The recurring charges, and considered only the termination liability. Mr. HOLIFIELD. On the basis they would be controlled by the foreign nation? General STARBIRD. Right, sir. Mr. HOLIFIELD. And would probably be the same to whatever carrier had the contract; is that right? General STARBIRD. That is exactly right. Mr. HOLIFIELD. Then you were convinced that there would be no differences in ability to negotiate by the carrier with each nation? General STARBIRD. This is correct, that there was some ultimate price that would be negotiated, and no matter what that price was it would apply to any carrier that was leasing service from them. Mr. HOLIFIELD. Well, it seems like a reasonable procedure to me. I can't see how you could factor into a bid, prices which are in the control of some other nation than the United States and also which were in the process of negotiation. So you really made your determination on the up-link General STARBIRD. On the up-link, sir. Mr. HOLIFIELD (continuing). Alone and ignored the other. General STARBIRD. We did consider termination liability that the U.S. carrier would be passing on to us in connection with any fixed installation in the far end, transportable or fixed in the far end. Mr. ROBACK. Under those circumstances, and without any wish on the part of the committee to compromise any negotiations which have not been completed with any foreign entity, what can you tell us now about the bid prices? General STARBIRD. I can give you a summarization of the bid prices. For the up-link Comsat initially in its May 31 proposal, bid $4,200 per month. That is including both the cost of the lease proper and a service charge, the service charge being about $200 of that a month. However, Comsat revised that downward on the 22d of June in its quote both to the Government and to all other carriers. So that the rounded Comsat number, the number, became $4,000 including the service charge per month, per voice grade circuit, and you will remember there were 30 circuits involved. Mr. ROBACK. Are we talking about half circuits now? General STARBIRD. We are talking about full duplex circuits now. Mr. ROBACK. Full circuits? General STARBIRD. Full duplex circuits. Hawtelco, and you will remember they were judged nonresponsive on certain other conditions, but for, the Hawaiian Telephone Co. for the up-link bid $12,500 per circuit per month. ITT World Communications bid $10,000 per circuit per month, and Western Union International bid $11,195 per circuit per month. To clarify what you said, Mr. Roback, it is the half circuit up to the satellite and not down. Mr. ROBACK. You are talking about up-link now, these are half-link prices? General STARBIRD. That is right. Now, RCAC, in its initial bid, bid $11,000 per circuit per month. You will remember from yesterday that we stated that the carriers were informed that they were high and given an opportunity to submit new proposals. Only one submitted a new proposal. That was RCAC. They submitted a proposal on the 17th of June, and in that proposal they quoted a price of $3,690. However, they had a contingency in their quote. They stated this was based on the assumption or contingency, they used that word, that-I think that is right, they used contingency-in any case Mr. ROBACK. It was a conditional offer. General STARBIRD. This was based on the assumption that their filing before the FCC would be granted, whereby they would be given part ownership in the Hawaiian ground terminal. Now, by an earlier FCC action, an interim action only, the FCC had granted to the Comsat Corp. the right to design, engineer, install, and operate the station and called for a hearing at a later date, I think, to begin in May of next year, on the actual ownership basis. So this was a contingent bid and as such we could not accept it. Mr. ROBACK. Contingent bid based upon an action of an agency over which you had no control? General STARBIRD. Had no control and the facts as they existed at the time appeared to make questionable whether or not that contingency was real. We, therefore, went back to RCAC and told them they would have to clarify the situation. They would either have to quote us prices based not on that contingency or give us a basis for making sure that the contingency was a fact rather than a contingency. They then came back and quoted to us two prices. They repeated the quote of $3,690 in case of shared ownership, but stated that the costs would be $4,868.33 if the contingency did not apply. Incidentally, in the attempt to clarify, too, with RCAC we had several other conditions that we wanted to get straight, and there was exchange of letters and it still was not clear exactly what the RCAC proposal was with all the conditions answered. And, therefore, on the 15th day of July the contracting officer resorted, in an attempt to clarify, to the procedure of giving a draft CSA, communications service authorization, with all of the conditions written in there but with the prices left out, to RCAC, asking that they fill in the blanks and indicate wherein, if any place, they disagreed with the conditions that were there set forth. On the 21st of July they turned that CSA back and at that time they also gave us a letter indicating that to resolve this issue they would quote a price of $4,000 per circuit, in other words, the same price as had been quoted by Comsat. This was accompanied by a statement, however, that this was being done in an effort to resolve this issue, and they were quoting us a nonprofit price for the service. Mr. ROBACK. Meaning they would be buying at the same price from Comsat? General STARBIRD. They would be buying from Comsat at that price. Mr. ROBACK. Right. General STARBIRD. And charging us at that price. Colonel PASCHALL. May I correct that statement just slightly? |