pruning and rationalizing of existing railroad plant through abandonments, routing, merger, and the establishment and best utilization of needed railcar equipment.

Additionally, there is a continuing need in the economic area for (1) more timely and penetrating observation and interpretation of industry performance and trends, (2) better identification of underlying cases of carrier distress and shipper problems, and (3) greater evaluation of the economic consequences and effectiveness of regulatory action or inaction.

These are the current constant demands on the Commission with a budget which provides for employment of approximately 1,800 persons. To devote the number of man-hours required to conduct the economic studies and carry out the functions of special counsel as is required in Ex parte 270 and related cases would so seriously tax our staff's ability to carry out the many functions assigned to them that many areas of administering important provisions of the act would come to a complete or so substantial a halt that there would be, in effect, no regulation at all. In-house handling of the work required was simply inappropriate, since it would prevent effective regulation in other areas committed to our jurisdiction.

Second, and most importantly, when we requested the necessary funding to complete our investigations, a Presidential freeze on hiring new employees existed. As a necessary condition to our obtaining the funding, we agreed to use the funds to contract with outside sources and in no manner increase our employment.

In long-term costs and benefits to the government, this is an eminently sensible solution. It would be difficult to obtain qualified and competent employees for the limited duration required to conduct the extraordinary research requirements involved in the economic studies. Consequently, it was more conducive to contract for these economic studies rather than augment the Commission's staff on a temporary basis.

Insofar as special counsel is concerned, many of the above reasons are applicable. More significantly, however, the independent and impartial participation required of a special counsel representing the the best interests of the Nation as a whole could best be performed by an outside source having no prior affiliation with the parties to the proceedings.

We required a lawyer of unquestioned integrity and judicious temperament with broad knowledge of national economic problems and policy. To provide for this objectivity, it was decided at the initial stages of the proceedings that special counsel should be an independent contractor, free from control, direction, or supervision of either the Commission or the parties.

As we previously made known to you, our search for a man with the unique qualifications we deemed required of special counsel was a difficult task. The necessity to offer compensation for special counsel equal to the demands of the duties involved required that we be practical as well as realistic.

The proposed definitive contract will be a cost-reimbursement type of contract, under which the contractor receives no fee.

Accordingly, the contract will contain those standard provisions which implement the requirements for such contracts set forth under

the cost principles in the Federal Procurement Regulations, subpart

1-15.

Briefly stated, subject to the specific limitations of the cost principle regulations, the allowability of cost also depends upon reasonableness, allocability, and consideration of generally accepted accounting principles.

Within the above framework, we believe that the cost of the special counsel and his staff will be much less than one would expect to incur under the usual contract arrangement with a firm providing services requiring highly qualified professional personnel.

Our judgment, in part, is based on the fact that costs under the contract will be primarily salaries and minor allowable actual expenses with little, if any, overhead. The overhead alone for firms routinely providing highly professionalized services is often in excess of 100 percent of direct salaries which would in itself double the final cost to the Government.

A condition of the letter contract is that the general counsel is to receive compensation not to exceed $60,000 a year. This compensation includes all fringe benefits and deferred compensation, to which persons both in Government and the private sector are entitled.

We cannot precisely equate the compensation of the special counsel with others in positions of high responsibility. We are aware, however, that the compensation of general counsel for a number of the major railroads, for instance, who practice before us, range from $60,000 to $90,000 a year, exclusive of fringe benefits.

We are also aware that the billing rates for highly qualified professional personnel in the major management accounting firms routinely providing services to the Government under contract far exceeds the compensation of the special counsel. We believe that compensation for the special counsel not to exceed $60,000 a year will stand the test of reasonableness. There is no fixed rule; good judgment and a clear conscience are the ultimate standards.

In closing, I wish to assure you that the independence of the Interstate Commerce Commission as an arm of Congress has been maintained throughout our contracting for special counsel and for economic studies. Neither the White House nor anyone else was in any way involved in our selection.

We should note for the record that the Commission and its staff have cooperated fully and made full disclosure to this committee and to the General Accounting Office.

We will be happy to answer any questions we can.

Thank you, sir.

Mr. DINGELL. Thank you, Mr. Chairman.

The Chair, if you wish, Commissioner Brewer, will be happy to recognize you for a prepared statement or any comments you wish to make at this time.

Mr. BREWER. I have no statement at this time.

Mr. DINGELL. The Chair also notes the presence of the other commissioners in the room this morning and expresses the thanks of the committee to them for being present, and to you ladies and gentlemen, if you have any statements or comments you would like to submit, the committee will be pleased to receive them at such time as is appropriate.

The committee does intend to call upon members of the ICC staff in relation to the contracts in question as appropriate.

Mr. Conte?

Mr. CONTE. Well, Mr. Chairman, how do you classify these investigations that the committee has instituted in terms of the national economy?

Mr. STAFFORD. I would classify these investigations as matters of national urgency. Discrimination and prejudice may have crept into the present rail-rate structure due to the general rate increases which the railroads have justifiably sought and received to partially offset increased wage and other costs.

The justification for the manner in which the pricing of transportation service operates today and its long history of development must be examined. The economic health and marketing structure of thousands of small as well as large industries rest upon the stability and reasonableness of the rail rate structure.

The adequacy of rail service depends upon a rate structure which permits the railroads to operate in a ratio of costs to earnings which will permit continual maintenance and provide innovations to meet the changing competitive needs of shippers.

Mr. CONTE. I will have to ask you this question.

Will this person go into the rate structure.

I have already complained about the grain freight rates from Toledo, Ohio, to Fitchburg, Mass., which are $12.20 a ton, as compared to grain freight rates, from Cincinnati, to High Point, N.C., at $5.07 per ton.

Now, will you go into something like that?

Mr. STAFFORD. Mr. Congressman, I recall well that you have made this point for the last 2 or 3 years before your committee and we feel this will give us an opportunity to see whether such a study as this cannot help us in determining if there is a deficiency and distortions in this rate structure with which you are primarily concerned at the moment.

Mr. CONTE. Well, if you can correct this inequity, then the whole position may be worthwhile.

Do you anticipate that these investigations will permit the Commission to correct deficiencies discovered?

Mr. STAFFORD. This is pretty much in line with the problem you have been involved with for a number of years and we hope that it will. Mr. CONTE. My special case

Mr. STAFFORD. When we are presented with a record relating to the divers subjective interests of the shippers as compared to those of the railroads and the objective evidence and considered analytical opinion of the special counsel, we hope to find adequate remedies through revised rate policy determinations or programs even amending legislation, sir.

Mr. CONTE. Most of the people in my district are small businessmen. What does this all mean to the small businessman?

Mr. STAFFORD. Well, this will be just as pointed to the small businessman as it will to the large businessman. One of the first objectives of this investigation is to minimize, if there is such, unfair discrimination and preference that may have crept into the rate structure as a result of those general rate increases.

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Small shippers and receivers, of course, are particularly vulnerable to distortions and disparities in the rate structure as they compete with larger businesses in the marketplace. Of course, we hope that this will help straighten that out.

Mr. CONTE. Does this contract for the special counsel give the Commission control over the costs incurred by this special counsel? Mr. STAFFORD. Yes. This gives full control to the Commission over his costs and whether he is spending this-Mr. Brewer would like to speak to it.

Mr. BREWER. He will prepare a bill which we will have to approve and our auditing people will maintain a constant audit on the expenditures to see that they are within the contract rules and if they are being exceeded and there will be a constant monitoring.

Mr. DINGELL. Has the contract been signed?

Mr. BREWER. Not the definitive contract. As a result of your requests, we did not complete the definitive contract.

Mr. DINGELL. I see.

Have you got a copy of what you proposed to sign with you? Mr. BREWER. No, sir. It is being worked upon, but we don't have it finished yet.

Mr. DINGELL. I am curious to know how you know what is going to be in the contract when it is not yet signed.

Mr. BREWER. It is in the drafting stage and we will have the responsibility of seeing that the proper things are in there before it is signed; and that is one of the conditions we will put into the contract. Actually, the letter contract covers most of the things.

Mr. DINGELL. Do you have a copy of the letter contract?

Mr. BREWER. That is right. We refined that by such things as budgeting, number of people, salaries, and all the other things. Mr. DINGELL. Do you have the letter contract with you this morning?

Mr. BREWER. Yes, sir.

Mr. DINGELL. I don't believe that is submitted.

Mr. BREWER. We submitted that to you

Mr. DINGELL. Does the letter contract provide for this?

Mr. STAFFORD. Provide for what?

Mr. DINGELL. Does the letter contract provide for the accounting, costs, et cetera? It does provide for that?

Mr. CERRA. It does provide for that.

Mr. Conte?

Mr. CONTE. If I correctly remember, when you appeared before our Appropriations Committee last week, you discussed the functions of the special counsel. You didn't discuss it here today.

He would be independent and disassociated from the ICC.

Would you elaborate on that? You went into a great deal more on that before the other committee.

Mr. BREWER. I would be very happy to.

With your indulgence, I would like to ask our general counsel to comment on that in more legal terms, if I may. It has to do with the protection, the privacy, the sanctity, free from taint, unbiased, nonprejudiced kind of investigation, keeping the commissioners themselves separate and apart so that they can be free to vote upon the result without having ex parte communication.

Mr. CERRA. The function primarily will be to act as a party participant in the proceedings.

Mr. DINGELL. If it is all the same, we have not sworn you. I would rather have it come from these commissioners or the Chairman. If you want to testify, we would be glad to administer the oath.

Mr. STAFFORD. We would like to have our counsel able to speak on the issue.

Mr. DINGELL. Very good.

Do you sloemnly swear that you will tell the truth, the whole truth, and nothing but the truth, so help you God?

Mr. CERRA. I do.

Mr. DINGELL. You are recognized.

Mr. CERRA. As I started to indicate, the purpose of the special counsel is to appear as a party to the proceeding representing the public interest. His mission will be to assure that the record is complete, as complete as can be possibly made, to permit the Commission to make a determination as to what adjustments need to be made in the rate

structure.

As a party to the proceeding, he will be obligated to conduct all his communications with the Commission on the record. This means that he cannot behind closed doors, without the presence of the other parties to the proceeding, shippers and railroads, communicate ideas, discuss evidence that was put in the record. His objective is to present the evidence and list the evidence, to cross-examine the experts of the other parties and to recommend what he believes will be best in the national interests in the form of revisions to the rate structure.

That, in a sense, in essence, is what his mission is in this proceeding. Mr. BREWER. If I may add to that, it will go to a formal hearing procedure in which there will be an opportunity for those who differ with the recommendations of the special counsel to cross-examine in a hearing procedure and to as in any other proceeding we have.

Mr. CONTE. One last question. Before the Appropriations Committee, you mentioned that you had a very difficult job trying to find an individual of the right caliber, the right background, to fill this job.

You gloss it over here in this statement. Could you expand on that? Mr. BREWER. I would be very happy to.

I got into this matter—as you know, I am on the Commission now about 3 years. Commissioner Walrath handled this matter for the time up to then when I came on board and after I came on board until 1972 when he retired, he was very much involved in it, together with Mr. Fred Dolan, who is here today and I hope will have an opportunity to elaborate a little on the proceedings prior to the time I got involved. I call your attention at the beginning to this order, interim order, which was issued by the Commission on November 5, 1971, Ex parte 270, Investigation of Railroad Freight Rate Structures.

In that there were some-they are listed here-141 statements had been received at that time in response to our publishing of this proposal, representing an even larger number of interests since many joint statements were filed.

These interests expressed a diversity of views. Railroads, Federal and State agency, port interests, individual shipper organizations. transportation consultants and individuals, including Members of Congress responded.