Mr. CURTIS. The items from GSA are pretty well known from the standpoint of usage and repairability and replacement, and that makes it easy from that angle. But a lot of these items, new things like that, you don't know about; you haven't got usage figures on. Lieutenant General RAWLINGS. That is right.

Mr. BONNER. They are more or less common-use items. Over a period of years, your requirements might diminish, and they could supply another Government agency over the years from these stocks of goods in their warehouses.

Lieutenant General RAWLINGS. The determination of the items forms the difficult problem. The problem is great. And another difficult problem is the timing of that task.

Mr. BROWNSON. Those items are all reimbursable to GSA from Air Force funds?

Lieutenant General RAWLINGS. Yes, sir; we pay for everything they buy for us.

Mr. BROWNSON. The problem is their stockage level?

Lieutenant General RAWLINGS. We have a number of items

Mr. BROWNSON. They have advanced the item to the Air Forces, and they are reimbursed, and that can be repurchased?

Lieutenant General RAWLINGS. I believe it gets a little more complicated. They have to have an organization with personnel in it to perform the function that they are going to do for us.

Mr. BROWNSON. Yes; of course. Stockage levels determine the size of their overhead personnel.

Lieutenant General RAWLINGS. That is right.

Mr. BONNER. You see, we eliminated the difference in cost. You might have been able to purchase at times more economically than GSA. That has been straightened out now.

STATEMENT OF MAJ. GEN. M. E. BRADLEY, JR., DIRECTORATE OF PROCUREMENT AND PRODUCTION

GENERAL SERVICES ADMINISTRATION HAS NOT BEEN GIVEN OVER-ALL

REQUIREMENTS

Major General BRADLEY. That is definitely true in many cases. In many cases, GSA has not known the whole over-all requirement. For, say, chairs, they have not been able to go out and buy a number of chairs where they would get a cheaper price. They have bought small quantities, bits and pieces of orders by each Government service filtering in their requirements. We have been able to go out and buy in quantity, and our price on the chairs was considerably lower than they were able to furnish them to us. That is just one example.

WAREHOUSING COMMON ITEMS IS COSTLY

Mr. CURTIS. You probably save money by not having them warehoused all that time.

Major General BRADLEY. There is something there, too. We would like very much to get out of that kind of business and get the stuff furnished by an agency that was furnishing it to everyone.

Mr. CURTIS. I think we sometimes make a mistake in overlooking the economy of our tremendous civilian distributive system. Where

we think we are saving money by buying direct from the factory, we have to set up in turn a distributive system that functions as they do with their outlets. A hammer bought in a retail hardware store for a dollar might be a whole lot cheaper than one bought in quantity for 50 cents.

NEED FOR COMMITTEE HELD

Lieutenant General RAWLINGS. I believe the committee can be helpful on that. It is hard to develop the data. There is no question but what if we do a lot of local purchasing we can save the Government money, although the individual item price will be higher. We always have the problem of someone taking an individual item that was bought locally and cost maybe 10 or 15 or 20 percent more than a centrally procured item that does not have the cost of warehouse services and distributive services added to it. I think the committee can be most helpful to the service in helping us in that direction. Mr. CURTIS. It is an eduational thing. I think we have got to educate the public on that.

WAREHOUSING COSTS

Mr. BROWNSON. Do you have any over-all appraisal that you use as a rule of thumb for warehousing costs? I understand some of the large chain outlets in the country use a figure of 1 percent a month as an approximation of their warehousing and the depreciation cost. Have you developed any comparable figures that would be applicable to common-use items?

Lieutenant General RAWLINGS. General Parker, do we have such a thing? I am personally not aware of it.

STATEMENT OF BRIG. GEN. L. R. PARKER, DIRECTORATE OF SUPPLY AND SERVICES

Brigadier General PARKER. We have the figures that you recall General Rawlings mentioned about the cost of warehousing together with the transportation and some other factors. Those could very easily be developed.

(The figures referred to follow :)

6 PERCENT ESTIMATE OF DISTRIBUTION COSTS

The over-all rule of thumb is that with respect to the standard stock commonuse items the cost of distribution through the depot system (including transportation in and out, and interest on investment for land, buildings, and equipment) is approximately 6 percent per year of the dollar value of Air Force property.

Mr. BROWNSON. That type of figure would be very helpful to us in trying to explain and trying to create a basis for an understanding of local procurement, even at a higher price.

You were speaking of transportation costs in connection with your purchasing policy here. Are transportation costs taken into consideration on these contracts?

Lieutenant General RAWLINGS. Yes, sir.

Mr. BROWNSON. Are they entered right in with the total price on those contracts? That is, would a bid from a remote point where there

would be considerable transportation cost to the point of usage would be weighed against a bid that might be a little higher from a point that was closer and where the freight factor was not so much?

Lieutenant General RAWLINGS. Yes, sir; we do. And we have had a couple of bitter experiences where we made a mistake, where the low bidder was the high-cost man and we gave it to someone else. We do attempt to weigh the transportation cost as a part of the bid in addition to the bid price in arriving at the determination of who gets the job.

Mr. CURTIS. That gets into the problem of your utilization, if you warehouse it and distribute it yourself.

Lieutenant General RAWLINGS. Yes, sir.

COSTLY WAREHOUSING

Major General BRADLEY. There is another factor that enters into this thing of depreciation and warehousing. Some companies have found that the buying of business machines and things of that nature and stocking them and then reissuing them runs into high depreciation and wastage. They also lose the benefit of local servicing which you get when you buy them at the local places.

Mr. BROWNSON. That is right.

Major General BRADLEY. We are seriously considering the same factors in those kinds of items.

USE OF INDUSTRY'S DISTRIBUTIVE SYSTEM

Mr. CURTIS. I see it, too, being on the Small Business Committee, where we have this problem of keeping our economy intact when we have an impact, such as we have now, of mobilization, of keeping small business alive, because they are needed in the event of all-out war or mobilization. We frequently find one thing that seems to be too common in the public thought is the overlooking of the tremendous distributive system we already have set up in this country.

Mr. BROWNSON. Of course, on the other side of the matter, the General has the problem of some isolated committee or investigator going out and getting some item for which he paid 24 cents, using our civilian distributive system, where somebody else could buy it for 21 cents. Some committees have made a chamber of horrors out of the thing, largely on this basis.

REDUCING TRANSPORTATION COSTS

Lieutenant General RAWLINGS. There is one thing I want to add that we try to do to minimize this transportation problem within our own supply system, and that is: instead of having each depot stock a complete range of all these supplies, we have a two-zone system. We have one west of the Mississippi and one east, and in that way we can minimize the amount of transportation involved. If you had to completely handle it from each depot on the whole range of items, it would be very costly. That is one of the things we have to handle ourselves.

AIR MATÉRIEL COMMAND PURCHASES, FISCAL YEAR 1952 Colonel FULTON. This chart indicates what Air Procurement dollars handled during fiscal year 1952. Of the $14,485,725,000, the Air Matériel Command handled $11.5 billion on 17,105 purchase requests. The Army, Navy, and joint agencies handled $2.9 billion-that is, against Military Interdepartmental Purchase Requests-and General Services Administration handled $85,725,000 against 50,000 purchase requests, which constituted both the purchase orders and the requisitions that were placed against the service center.

SINGLE SERVICE ASSIGNMENTS AND PLANT COGNIZANCE

I would like to cover the procurement cooperation that is accomplished between the services. This is accomplished through the single service procurement procedure, in which there is an assignment of commodities to one service; that service procures for all of the three services. These assignments, as I stated, are made by the Munitions Board on the basis of commodity groups. An extension of the single service procurement procedure is accomplished in the aeronautical industry through plant cognizance assignment where either the Air Force or the Navy has been assigned cognizance over specific aircraft engine or propeller plants by the Munitions Board. Through that cognizance the cognizant agency handles the procurement, the production, the facilities, the quality control tests, the security and auditing functions for the entire organization, thus obviating the duplication of two services in the same plant.

JOINT AGENCIES

We then have the joint agencies, the armed services petroleum purchasing agency and the armed services medical purchasing agency and the new armed services textile and apparel purchasing agency which is being set up in New York and is scheduled to be implemented on the 1st of October of this year. And, of course, you have GSA, which all services utilize.

Mr. BROWNSON. That question of plant cognizance-how does that enter into the picture? Is that used to coordinate purchasing where the Army and Navy may be buying propellers from the same plant? Colonel FULTON. If the plant is under the cognizance of the Air Force, for example, and the Navy requests some propellers from that plant, they develop the MIPR and submit it to the Air Force and we buy the propellers for them. If the plant is a Navy plant, we send the MIPR to them.

PLANT COGNIZANCE ASSIGNMENTS

Mr. BROWNSON. In actual practice, how does it work? In effect, does it mean that you have established squatters' rights for the Air Forces to certain groups of plants, or is there quite a lot of interchange?

Colonel FULTON. I don't understand what you mean by "squatters' rights” in this particular instance.

Mr. GILPATRIC. The plant cognizance assignments are made by the Munitions Board. The assignment of Pratt & Whitney to the Navy for cognizance is done by the Board. I am sure we buy many more engines than the Navy does, but we buy them through the Navy because the Navy has cognizance of that plant. Whereas, in the case of North American, which is assigned to the Air Force, when the Navy wants to buy aircraft from one of the plants of North American, they will buy them through the Air Force. But it is all done in the same way under the single procurement system.

Mr. BROWNSON. Is it done at the instigation of the service which desires to have cognizance over that plant?

Mr. GILPATRIC. Well, to start with, after the Unification Act, the Security Act, of 1947, there was a division of the plants that were then making aircraft and related equipment for the two services. Then, as time goes on and new plants are built or come into the aircraft industry, the Air Force may request it and the Navy may request it, and we do not always agree. Sometimes we have to have an umpire, but those instances are not very frequent, and the Munitions Board has to make the assignment.

RETIRED MILITARY PERSONNEL AND EFFECT ON PLANT COGNIZANCE

Mr. BROWNSON. I have a constituent who brings up what he claims is a curious coincidence, which I haven't been able to look into. He has made the point that a lot of the plants with Navy cognizance have retired Navy personnel high in the management of the plants, and a lot of the plants with Air Force cognizance have high ranking Air Force retired personnel, some on the boards of directors of the plants. Whether that is correct or not I do not know, but I just was curious to go further and find out how the cognizance assignments are made.

Mr. GILPATRIC. General McNarney, former Air Force officer, is now located at the San Diego plant of Convair, which is a Navy cognizance plant. I don't think there is any pattern in that way, Mr. Brownson.

COMMITTEE INFLUENCE ON JOINT TEXTILE PROCUREMENT AGENCY

Mr. BONNER. As to that joint agency there that was a result of the efforts of the textile agency that you remember this subcommittee has been greatly interested in, has that actually gotten under way yet? Mr. GILPATRIC. It has been set up, and it is being staffed.

Mr. BONNER. That was in lieu of the collaborative arrangement. Mr. GILPATRIC. That is correct. There is a definite relevancy between what the committee said and getting that agency going. We were more or less innocent bystanders in that transaction, because we never did any procuring of textiles. The issue is between the Army and the Navy. We did not care how it was done, but it was resolved last summer finally, and the Army was given the job as executive agent to run the joint agency. As the colonel says, the agency will actually take over and run the show in this field from the 1st of October. The Air Force has personnel who are assigned, as does the Army and Navy, and, so far as I know, that work is right on schedule.

Major General BRADLEY. We are furnishing some personnel, although we never had any responsibility before. We are having procurement personnel to take over our share of the burden.