opportunity to install in some of the government's outstanding medical institutions.

I should point out that in the last 60 days, Physio-Control's marketing manager and our representative in the Washington area have made two calls on the GSA at which time discussions centered on the importance of the size of the discount offered to the federal government.

It should also be pointed out that our discussions with Senator Magnuson's office resulted in GSA Assistant Commissioner Robert T. Griffin asking them to ask us two questions: (1) Do we offer any better conditions to our com mercial customers than were proposed at that time? and (2) Would we object to giving GSA access to our books?

The answer to both of these questions was "No", although no direct requests from GSA resulted in regard to reviewing our current financial position.

I believe the foregoing statement basically covers our relationship with GSA in regard to contract negotiations. I consider GSA's responses and requests to be unrealistic and not in the best interests of the government procurement program. It should be pointed out, however, that the individuals involved representing the GSA have at all times been courteous and willing to listen although inflexible in their stand.

Mr. SIMPSON. I'm not really familiar with some of the issues that have been talked about here earlier this morning. My concern started to grow about a year ago; all of a sudden Federal institutions, hospitals, both civil and military, began to tell us that we couldn't bid on a coronary or an intensive-care monitoring system because we were not in the GSA contract, and this alarmed us

Mr. CORMAN. Mr. Simpson, the other members of the committee here and counsel are not aware of the kind of business you are in, if you will just tell us very briefly. It is a fascinating type of specialty, I think.

Mr. SIMPSON. Yes, sir.

Mr. CORMAN. You brought your $15,000 Pacemaker, I think perhaps the audience might like to take a look at it.

Mr. SIMPSON. We manufacture a broad line of instrumentation and systems that, when a man is placed on a line with them, they tend to continuously watch the patient. There are certain vital signs that must be watched by qualified personnel in order to see that man is doing well, whether he is a coronary patient or whether he is a postoperative, intensive-care type of patient.

There are not enough doctors and nurses in this world to constantly watch patients. Therefore these systems, when man is attached to them, literally continue to watch and when he gets in trouble through some catastrophic incident, these systems will alert the qualified people at the central nurses' station that the man in room 1 has approximate 32 minutes to go before there is irreparable brain damage, due to a coronary arrest.

So those are the kinds of instruments and systems we market. As all of you know there are many fine military and Federal hospitals in this country, staffed by outstanding professional people, doctors and nurses, so this becomes a very significant market to any company, particularly one of our size. There are many large and small companies in our industry. I have alluded to some of the better known, large companies.

It turns out that with my interest in attempting to be allowed to talk to Federal institutions that I was told that, "Well, you have to give special consideration to the Federal Government."

So I sat down with my financial people.

We decided that one thing to do, of course, was to pay the freight to the destination, something we do not do for our commercial customers. We said that we could, probably, based on the dollar size of the system, give some kind of a modest, sliding discount scale, keeping in mind these systems range anywhere from $10,000 to $50,000 per system.

In presenting this to GSA they said it was really not acceptable and they implied that perhaps a 5-percent discount across the board would get us in the ball park.

So we started to do our homework again in order to determine whether we could possibly live with this, based on commissions we must pay to our marketing group throughout the domestic marketplaces in the country.

We finally determined yes, we could because we were that interested in being allowed to do business with the Federal Government. When we did acquiesce to the 5 percent we were told, "Well, really, 10 percent is the percentage that will get you in the book." Based on the quantity of education, installation, and architectural support that the manufacturer or his representatives must give in order to put these systems on the air in a hospital, we could not give a 10-percent discount.

It was not fiscally possible to agree to that kind of a percentage. It was suggested that, "Well, one way that you people might be able to do it is to eliminate all of the software support-education, the installation assistance, architectural guidance"-when you modify hospitals and put in these kinds of monitoring systems.

And so my final offer to GSA, because I need to be allowed to do business with the Federal Government was:

Fine, we will grant the 10-percent discount, but all educational, all installation support, any architectural guidance will be at the rate of $125 a day, plus transportation costs of the technicians involved.

The Federal Government felt this was an acceptable proposition, even though basically, gentlemen, it discriminates against the Federal Government.

But they are more interested in a scoreboard of arbitrary discounts than they are in a rational, justified contract that works in the interests of both parties. That, basically, is my particular concern with this kind of procurement practice.

People with whom I have dealt in GSA have been at all times extremely courteous and willing to listen. They have their responsibilities, too, but for some reason, they demand discounts without any basic realism or any basic justification as to what does it do for the Federal Government.

Mr. Ward was, I think, pointing out a very significant fact that perhaps the General Services Administration does not recognize. In this exotic and sophisticated world of electronics, there is a continued requirement, not only for the advancement of the state of the art but also to maintain a competitive posture. These requirements in research and development are extremely expensive and money must be continually poured into this effort in order to come out with better products, maintain your competitive posture, and also do a better job for your customers.

Now, I happen to have a couple of examples just to drive this point home. This little box, happens to be a lifesaving device. It is an in

ternal, sensing demand pacemaker. Everybody has chambers in his heart, and your own pacemaker fires those four chambers of your heart. However, there are about 2 million Americans every year that suffer from some type of a coronary problem. A half a million of them die right away and another half million live to get to the hospital, but approximately 70 percent of those expire during the first 3 days.

The reason they expire is that their hearts stop. Now, there are many ways to get a heart going again. This little box, if connected with an internally planted catheter watches a coronary suspect's heart, and if it misses a stroke from its own pacemaker, then that little box fires. Perhaps the doctor says, "I'd like to have this patient run at 65 or 80 beats a minute," so we set the instrument at 65 or 80 beats a minute and it watches the patient's heart.

The moment that man misses an RR interval, which is a technical term, it fires, and then it sits and waits again.

Mr. CORMAN. What is RR?

Mr. SIMPSON. It is the difference between the R wave in each QRS complex of the heart's pumping cycle.

Well, I bring this up because this little box is important to our small company at this point in time. It has past the prototype stage, it has passed its clinical evaluation by a team of doctors who are on our advisory board, and yet there is $15,000 already invested in this little box.

Now, that's not much for a H/P, but it's a whale of a lot of money for a company our size.

I would call your attention to this device. Now, that device is an artificial heart valve, one of the areas of interest in the vascularimplant industry. That is an artificial heart valve that has been in development for 4 years. There is approximately $75,000 invested in that little piece of material.

Why do we think it is worth it? Well, I shall tell you why we think it's worth it. That valve, in our animal experiments and in our laboratory work, seems to have a quality that nobody else's has. When it is implanted, replacing a diseased, mitral or aortic valve, it worked better than anybody else's, from the pure standpoint that patents who have that valve installed, replacing one of their diseased valves, will no longer require lifetime anticoagulants.

Most persons that have artificial heart valves installed, and you would be amazed at the number, are committed to a life of taking a little heperin pill. This is done in order to have their blood not thrombose or coagulate, and, therefore, closing the valve, which is a catastrophic incident.

This is a contribution to medicine that is significant, but $75,000 has gone into that over 4 years, and that's the kind of investment that companies of our order must continue to make in order to service both the commercial aspect of the marketplace and the Federal aspect of the marketplace.

Mr. ROBINSON. Is that a shelf item?

Mr. SIMPSON. Well, it's really just entering the development stage right now so you cannot really say it's a shelf item. Ultimately it would be when it is in the clinical stage.

Mr. ROBINSON. Can you sell it to the Government hospitals directly, or do you have to go the GSA route on that.

Mr. SIMPSON. That is not included in the contract; I understand the contract covers our instrumentations and our systems only. It is still at a point where I should not want it widely used until our early, clinical consultations are complete, which are clanking along nicely.

Mr. ROBINSON. But if and when the time comes that you give it a number and put it in your catalog, that would make it a shelf item? Mr. SIMPSON. Yes, it would make it a shelf item, if I elect to go through the GSA contractual procedure with that valve. I rather think that in the case of the heart valve, the vascular surgeons that work in our fine Government institutions will care less about the GSA and more about what is the best answer for their patients, in the case of that implant article, right there.

Mr. ROBINSON. What about this box?

Mr. SIMPSON. That box will be a new product. It will go through the mill, get into the contract, when it's ready for production in about 45 days, but it's not in our pricelist of products today. We don't put them in until we see that they work very well.

I bring that out only, sir, to point out the requirement for many dollars of research.

Mr. CORMAN. Mr. Ward, is there another statement?

Mr. WARD. There is no other statement.

Mr. CORMAN. Very well; Mr. Burton, any questions?

Mr. BURTON. This has been an interesting morning, Mr. Chairman. I have just one question. I want to ask Mr. Simpson if he is still sitting on the second floor on a worn leather couch with the stuffing coming out?

Mr. SIMPSON. No, I'm glad to report that we arrived at a point where we decided to buy a new couch.

Mr. BURTON. Good. I'm pleased to hear that.

Thank you, Mr. Chairman.

Mr. CORMAN. Mr. Robinson.

Mr. ROBINSON. Mr. Ward, I should like to address this question to you: Do you have any complaints by members of your association that GSA, in addition to demanding an arbitrary, mandatory discount as a prerequisite to being listed on the Federal Supply Schedule, also expects a rebate, depending upon how much business is done at the end of the year?

Mr. WARD. No, I have no information that there is a secondary rebate.

Mr. CORMAN. We thank you very much, gentlemen, you have been helpful. As we stated earlier we shall be conferring again with General Services Administration. Thank you very much.

Off the record.

(Unrecorded discussion.)

BOLT, BERANEK & NEWMAN, INC.

(The subcommittee's invitation to testify follows:)

Mr. DAVID N. KEAST,

SELECT COMMITTEE ON SMALL BUSINESS,
HOUSE OF REPRESENTATIVES,
Washington, D.C., March 9, 1968.

Vice President, Bolt, Beranek and Newman, Inc.
Van Nuys, Calif.

DEAR MR. KEAST: This will acknowledge and respond to your March 6 letter requesting an opportunity to testify in the Los Angeles hearings of the Subcommittee on Government Procurement and Economic Concentration of the House Small Business Committee.

The Subcommittee is conducting a series of hearings in Washington, D.C. and other cities to review, among other things, the effect of procurement policies and practices of Federal departments and agencies upon small business.

A press release announcing the Washington, D.C. hearings is enclosed for your information. It is expected that the subject matter referred to in your letter will be reviewed in these hearings on March 13 in the testimony of Mr. Douglas C. Strain, President of Electronic Scientific Industries, Inc., Portland, Oregon, and in the Los Angeles hearings on March 23 by representatives of John Fluke Manufacturing Co., Inc., Mountlake Terrace, Washington, and others.

Since we would like to have you document your company's experiences and views in the matter, we are pleased to invite you to testify on March 23, 1968, at 10:00 a.m. in Room 1345 of the Federal Courthouse, 312 North Spring Street, Los Angeles.

Please forward to this office six copies of all prepared statements by March 18. If you have any questions, it is suggested that you contact Subcommittee counsel, Henry Robinson, at (202) 225-4881. Your cooperation is appreciated.

Sincerely yours,

JAMES C. CORMAN, Member of Congress,
Chairman, Procurement Subcommittee.

TESTIMONY OF D. N. KEAST, VICE PRESIDENT, BOLT, BERANEK & NEWMAN, INC., DATA EQUIPMENT DIVISION, LOS ANGELES, CALIF.

Mr. CORMAN. The next witness is Mr. D. N. Keast, of Bolt, Beranek & Newman. Our time is rather short, it might be helpful to us if you just proceed, we have not had an opportunity to read your statement ahead of time.

Mr. KEAST. Would you like me to read it?

Mr. CORMAN. I think that might be useful to us.

Mr. KEAST. Very well, I shall read it, otherwise it would save us all time if I just enter it in the record and simply make some summary comments. I have a feeling that if I read it I shall be repeating much of what you have already heard.

Mr. CORMAN. Very well, then, we shall make your entire statement a part of the record at this point, and shall be glad to hear you in whatever manner you should like to proceed.