Mr. FASCELL. At what stage in this contract are we, percentagewise?

Mr. BELL. Somewhere in the neighborhood of 75 percent conpleted.

Mr. FASCELL. How long have we been working on conversion?

Mr. BELL. Actually, I think it has been mostly in the talking stage up until recently. The Bureau of Yards and Docks now has this engineering from here in Spain which is making a separate study to give the officer in charge of construction their estimate of the value of additional work to be done. The officer in charge of construction will have that, and he also will have his own staff which will prepare an estimate.

Mr. FASCELL. When there is a conversion on these types of things, do they convert on things already completed or work to be per. formed?

Mr. BELL. Work to be performed, generally.

We settle for cash on what has been done and an agreement, almost like an amendment, for additional work to be done on a fixed-price basis.

Mr. FASCELL. The only reason for converting then would be in the hopes of getting a better deal for the United States Government in the expenditure of funds?

Mr. BELL. That is it, plus, when we start to convert a contract you have a way of firming up plans, too. That sometimes is it. It might not be decided today, and it might be decided next month. If we have to settle, we will decide it today.

Mr. FASCELL. If this is true, then it would seem that the best normal procedure would be to move into conversion or make a determination on conversion just as quick as it is possible to do so.

Mr. BELL. Yes; I think that is right.

I started to say that in a production contract where you award a contract for the production of aircraft engines, or something like that, with a price redetermination clause under which you attempt to set a point of 30 or 40 percent of production, at that point we should know what the cost experience has been, and we can arrive at a firm price for the rest of the contract. Mr. FASCELL. You use your best judgment in working that out! Mr. BELL. Yes. Mr. FASCELL. And take out any fat in the process? Mr. BELL. Yes.

Mr. EASCELL. Did I understand on this larger contract, involving $100 million of construction to be performed, that it is 75 percent completed?

Mr. BELL. The work in Spain, the total Spanish base completion, as I understand it, is about 75 percent.

Mr. EASCELL. Then it is possible that if we can define this thing out within a reasonable length of time that economy could still be effected on that part of the contract not yet complete?

Mr. BELL. Yes.
Mr. FASCELL. Substantial economy?
Mr. Bell. Yes; if it is not possible, there is no point in converting.

Mr. FASCELL. It is a question of the Government then determining which is the best deal for the Government! That is, the United States Government?

Mr. BELL. Yes

Mr. FASCELL. In order to make a determination you 'have to spend some money to find out what your position is. In other words, to find out which is the best way to go?

Mr. BELL. Exactly. Mr. FASCELL. It would seem to me that with $100 million involved on work yet to be performed, it would be worth the cost to find out what your position is to determine which way you should go.

Mr. BELL. As I understand it, the cost of this contract is something in the neighborhood of $150,000. It could be the cheapest $150,000 we had ever spent and it could also be completely wasted.

Mr. FASCELL. That is a chance you take. Maybe we should have spent it earlier ?

Mr. BELL. Possibly. Our question in this particular area was when the engineer firm was hired. This is not a usual thing. In fact, I only know of three other cases where this has been done.

Mr. FASCELL. You mean the hiring of outsiders?
Mr. Bell. The hiring of outsiders to help you develop an estimate
of cost for completing the work.

Mr. FASCELL. I was wondering about that myself.
Go ahead.

Mr. BELL. I discussed this back with the Chief of Bureau of Yards and Docks and it developed that Captain Church had written the Bureau and asked them to send engineers over here to help them develop the estimates. They said, “We simply do not have any."

Mr. FASCELL. From a personnel standpoint, they did not have the people?

Mr. BELL. Yes; this was the second best solution.

Mr. FASCELL. Is this something that could normally be done by the navy auditing team and General Accounting Office?

Mr. BELL. No; it requires engineers. Auditors can help but it is basically an engineering problem.

Mr. FASCELL. Translated into dollars?
Mr. BELL. Yes.
Mr. FASCELL. That was the reason for hiring this engineering firm?
M. BELL. Yes.

Mr. FASCELL. Could all of this have been done at the time the contracts were let? In other words, could the United States Government have hired an engineering outfit to start with?

Mr. BELL. I do not believe so. To start with, the development of the Spanish base complex over here has never and probably could not have assumed the proportions of blueprints for building a house. We had bases in the States. We already had plans for those particular bases but to suit the plans to the terrain here and develop specific construction plans was something that could not be done, in my opinion, in

Mr. FASCELL. We are talking about what year now?
Mr. BELL. At the time that I knew of-
Mr. FASCELL. 1953 when this thing was negotiated!
Colonel YOUNT. 1953.
Mr. BELL. The contractor did not get here until 1954.

Mr. FASCELL. It was evidently an urgent aspect of the program that had some consideration on how detailed you could get?

the early stages.

a

Mr. BELL. That is right. Even now with the contract changing in criteria, it is very doubtful if you could have done much in the early days for establishing this construction job on a fixed-price basis. I just do not think it was that firm.

Mr. FASCELL. I know how that is because I have been trying to get some information with respect to a matter in the States on just what the criteria will be, so we will know what the ultimate utilization will be. It has been over 18 months now and every time I inquire it has changed. I do not know how anybody could program. I am wondering about the process that makes all this necessary or brings it about.

One day it is excess and the next day it is not. One day they have the money for it and the next day they do not. One day the Department of Defense says yes, and the next day they say no. Then some other little criteria changes along the line and Congress gets into the act.

It would seem with respect to this one, however, that you would have a pretty fixed program in mind at the time you moved in. That is, in Spain.

Mr. BELL. I am quite sure they did. They developed master plans for each and every base. A master plan is not a set of construction drawings.

Mr. FASCELL. Just preliminary? Mr. BELL. They have a lot of things in them. For example, studies of terrain. They give you a running story of the base for use afterward. It is quite comprehensive, and I think they cost in the neighborhood of $110,000 or $125,000 per set.

Mr. MONTGOMERY. That is all, unless the General Accounting Office wishes to comment on the military-aid program discussed this morning and also the no-profits situation.

Mr. FASCELL I have some questions on that. I was not sure about the relationship of the several programs involved here dealing with military funds. I would like to rehash that for a minute to make sure that I have it clear in my mind.

No. 1, the basic agreement of understanding dealing with base construction in Spain for which the United States gave an agreed consideration; is that correct?

Mr. BELL. We have three agreements really. We have one for the construction of the bases. We have another which is the military assistance program, and the third one which is the economic assistance program.

Mr. FASCELL. That is defense support?
Mr. BELL. Yes; these three things are very interrelated.

Mr. FASCELL. Wait a minute. We have Public Law 680 in here somewhere.

Mr. ALDRICH. That is not tied in with those three. That came a year or so later. That is surplus agricultural product disposal.

Mr. FASCELL. That is an area out of which funds are expended?
Mr. ALDRICH. That is true.
Mr. HINMAN. Not in any volume for military purposes.

Mr. BELL. As to the military construction, the way the funding program works is that the Air Force and the Navy determine what the probable ultimate cost of an individual base will be in terms of dollars. This is the amount for which they get authorization from

Congress. However, from these aid programs, pesetas are generated in which 10 percent of the pesetas go for administrative expenses, 30 percent goes for approved Spanish improvement projects, and 60 percent comes into this construction program to be used either for construction or for the maintenance of the bases after they are built. Thus we have a base that we estimate will cost $60 million and that will be the dollars involved, but the United States Treasury probably would finance, we will assume, $40 million of it and the pesetas would pick up $20 million. These percentages are meaningless.

Mr. FASCELL. There are several things I am not clear about.

One, the generation of pesetas, as I understand it, for the militaryaid program Colonel CHILEs. Not military; economic aid. Military aid is a dead

a load.

Mr. FASCELL. When you are talking about pesetas, you are talking about their being generated how!

Colonel CHILES. From the economic-aid program through the same means as we have in the other countries.

Mr. HINMAN. The sale of imported goods.

Mr. ALDRICH. Defense-support-aid program. That generates pesetas.

Mr. BELL. Imported goods are paid for and then the person who buys the goods pays the money to the Spanish Government and that money goes into a pot or revolving fund from which these pesetas are drawn.

Mr. FASCELL. I was trying to find out of what fund the original goods are charged. That is, the merchandise or goods shipped to this country. The local currency is generated in that way and then-Question: What appropriated funds are the goods charged to?

Mr. ALDRICH. Mr. Chairman, out of the original defense-support funds appropriated each year by Congress.

Mr. FASCELL. Defense-support moneys?
Mr. ALDRICH. That is right.

Mr. FASCELL. That is the thing we have not gotten straightened until now; although Mr. Hinman covered it, it did not penetrate.

Mr. ALDRICH. That totals $300 million through fiscal year 1957, June 30.

Mr. FASCELL. Public Law 480 is an independent agreement which may or may not touch upon military matters, depending on what the agreements are in respect to the generation of those funds? Mr. HINMAN. Exactly. Mr. FASCELL. None of those funds is convertible? Mr. HINMAN. That is right. Let me qualify that just a bit.

The money which is loaned to the Spanish from Public Law 480 proceeds for economic development is loaned under terms that they may repay the dollars or local currency. The interest is cheaper if it is one as against the other, that is the only advantage.

Mr. FASCELL. Are these defense support moneys under the old section of the law, 80 percent of which had to be in reimbursable transactions, as I recall it?

Mr. ALDRICH. No, I think you may be referring to the so-called McCarran amendment.

Mr. FASCELL. No, I was talking about the old Mutual Security Act. Prior to 1957 the Mutual Security Act meant that under development you had defense support, development assistance, and what not. Eighty percent of development assistance had to be on a reimbursable basis, but none of this money under these Spanish agreements came out of this section of the law. That came out of defense support, as I understand it.

Mr. HINMAN. That is right. There is none of that development money in Spain.

Mr. Fascell. The thing I am wondering about at this point is this: Defense support is administered by ICA, which is an economic-political matter, and yet the agreement was primarily a military agreement between the United States and Spain. I guess they wrap them all in one? Is that what we did with the two countries?

Colonel CHILEs. There are three separate agreements, but they are interlaced and interdependent really.

Mr. FASCELL. I understand that, but what I am getting at is that the money which is drawn is chargeable to ICA and not to the Department of Defense under appropriated funds for ISA.

Colonel CHILES. Right.

Mr. FASCELL. I have been through this before in the Foreign Affairs Committee in trying to get the funds into the proper channel and I still think it ought to be done that way and we ought to separate them. I imagine that is what the General Accounting Office is interested in.

Is that what brought about this whole subject?
Mr. BLAIR. You mean military aid ?
Mr. FASCELL. Yes.
Mr. BLAIR. That decision was made in Washington, Mr. Chairman.
Mr. FASCELL. I understand that.

Mr. BLAIR. I do not know what factors entered into that. I do know that we had conducted certain limited examinations in Europe and found that corrective action was required in various areas. It could well be that that preknowledge on the part of the past director in going back pointed up the need for a look-see at the whole program.

At the same time, the whole question of the country's commitments on aid is a matter of prime concern to the President and to the Congress. In an effort to be helpful and submit information to be considered by the Congress and the Appropriations Committees, it was deemed advisable to collect the data and see what the status of the situation was.

Mr. FASCELL. I think we pretty well covered what the status is. Whether or not we can agree

with the

way

the allocation of appropriated funds is made is something else again.

Mr. BELL. Actually, Mr. Chairman, that was not one of the considerations in the examination just completed and the report just released. Primarily, and to understate it considerably, the examination was made for the purpose of determining whether more aid is being programed than a country has the ability to absorb.

Mr. FASCELL. What other factors were there in this thing?

Mr. MONTGOMERY. The no-profit factor is the only other one discussed.

Mr. FASCELL. I think that the captain this morning said that they had negotiated one of those agreements and were in the process of working on the other.