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Mr. BLAIR. I believe what he testified to, Mr. Chairman, was that with respect to the Bureau of Ships contract for ship modernization they had negotiated the profit element out of that particular contract. However, with respect to the Bureau of Yards and Docks contract for construction of dock facilities at El Ferrol, the Navy made the decision to allow the profit in that particular case.

The European branch position was that it appeared to be inconsistent for 1 department of our Government to deal with 1 Spanish instrumentality in 2 different ways. The justification advanced for it is that the ship-modernization contract is a contract awarded under the offshore-procurement program

Mr. FASCELL. Covered by a bilateral agreement ?

Mr. BLAIR. The terms of the contract provided that there would be no profit allowed. Bazan is serving as a manager in the subcontract and they have eliminated that profit. However, in going back to the other contract, which is a part of the construction program, I believe, Mr. Stalling, the counsel, testified as to the decision of the Navy Chief Counsel in Washington that the latter contract did not come under OSP and they did not think the same reasoning applied.

It was the European branch position that the same theory applied. It appeared to us that the foreign government should not benefit

Mr. FASCELL. I agree with that, and I think, also, they thought that in this case they felt it would not have amounted materially to very much in dollars, one way or the other. I do not recall how that was put.

Mr. BLAIR. We discovered the problem when the Director of Audits was on a survey trip. At that time, he raised a question as to the right of the Bureau of Ships to enter into this contract under mutual security. During the course of the examination of their contract, we found this clause. We raised this question and discussed it with the Bureau of Ships man when he came through. Navy carried the ball and did negotiate the profit out.

We pressed the matter further, requesting the Navy to consider the possibility of attempting to eliminate the question of profits with Government instrumentalities on the construction program. It is a problem that will require additional study in view of the fact that this determination on the amount of money involved

Mr. FASCELL. Can you tell us what the amount of money was, and whether it was substantial? It did seem to me that would be a better part of policy to have the same principle apply, regardless of the type of contracting or purchasing that seems to be done. It just seemed like good business to me.

Mr. BLAIR. I think that states the problem and the issues involved.

Mr. FASCELL. Who was it, Mr. Stalling? What did he say as to the amount of money involved in this later contract?

Mr. BLAIR. The El Ferrol?
Mr. FASCELL. Yes.

Colonel Yount. $3 million, I believe. I would have to check the figures.

Mr. FASCELL. I remember that, and there was a question of the percentage of profit applied to that total amount that could be involved.

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Mr. HITCHCOCK. If I may, Mr. Chairman, I would like to offer an observation: There is a distinction in the case of El Ferrol. They are using Bazan, in effect, as a commercial company to construct facilities for our Navy. In the other case, we are using Bazan as an agency to construct facilities for the Spanish Navy which we are helping the Spanish Navy to modernize. This latter case does come under the terms of the offshore-procurement memorandum of understanding and certainly, as we understand it, of the type where profits should be excluded. In the former, the rationale has been-and it has been Washington rationale—that the profits under base contracts are allowable.

Mr. FASCELL. We understand that it is a matter of policy. The only point I am making is that I would be inclined to agree if you are going to have a policy that you should have it apply all the way down the line. It does not change the principle of the fact that it would be a good idea to have an overall policy. I would subscribe to that without too much trouble, as a matter of policy primarily. I do not think that the United States ought to pay it regardless.

Colonel CHILES. Just to reinforce Mr. Hitchcock, if the United States Government is going to buy something from somebody almost all over the world, and if it is not involved in military use or assistance, just buying equipment, that person can expect to make a profit.

Mr. FASCELL. There is no question about that. The only time you have any problem is when it involves a foreign government or agency of that government.

Colonel CHILES. The Spanish outfit building something for the Spanish and then they should not make a profit out of that.

Mr. FASCELL. I am not sure that I agree with the rationale that was decided upon as a matter of policy in Washington.

That is all I was saying. I would be inclined to agree that if you are going to apply the principle, you ought to apply it all the way across the board.

I think that about covers it.

I want to thank you again. You have been with us for several weeks, and I know that we have disrupted a great deal of your work and effort. We do want to pay you our sincere appreciation, to you and your staff, Mr. Blair, as well as the rest of these people who have given us every assistance and cooperation.

Mr. BELL. We all appreciate the opportunity to help. Mr. FASCELL. Thank you. We appreciate your being with us today and helping us out and giving us your understanding of these problems.

The magnitude of them has never failed to be one which is held before us at all times, and we have always tried to be --I am sure that the General Accounting Office follows the same policy—as objective and constructive as we can so as to do the best job for the United States.

I know that it has been our experience wherever we have been with respect to the men in the field charged with the responsibility of carrying out the executive functions that they, too, have approached it from that standpoint.

While we might have disagreements and our interpretations vary, we are all trying to accomplish the same thing.

I certainly here today in Madrid think that we can say that we have been impressed with the knowledge and the ability of the men who have been with the missions and who have the job to do.

Mrs. Harden, do you have anything to add ?

Mrs. HARDEN. Mr. Chairman, I would like to express my appreciation and gratitude for the courtesy and cooperation which Mr. Blair and his staff and the military department, and also the State Department, have given to us on this trip.

You have been very cooperative, and we appreciate it.

I might add, Mr. Chairman, that if there are some corrections that need to be made, and if this does rest in the Defense Department with our present Secretary of Defense, I understand that he has a great deal of experience in cleaning things up. Maybe he can take care of these matters also.

Mr. FASCELL. Do you gentlemen have anything you want to say before we conclude?

Mr. MICHEL. If I would say anything, it would be to the effect that the chairman has been most considerate of the minority during the entire tour. We have enjoyed it very much, and I must say, too, in shoring up the chairman's observations, we have been very impressed with the type and caliber of the men, particularly in the military, who have given us these briefings in the countries throughout Europe.

I know that when we go back home we will be much better equipped to discuss these pressing problems with our constituents and colleagues by virtue of the wealth of information acquired on this trip.

Mr. May. I could echo what my other two colleagues on the minority have said but I also want to congratulate the chairman and his staff for a most efficient and objective job. When he first started out, it was observed that this did not enter into the realm of partisan politics. It was observed that many of these programs originated under both administrations and the chairman has adhered to that all the way through in the proceedings and in the way he has operated as chairman. I want to congratulate him for that.

I want to echo what has been said about the high caliber of the United States officials that we have seen here in Europe and in all phases of the operation and the positions that they hold. There is no question but that this is a big country with many big problems throughout the world. I have seen corporations right in my own district that make mistakes and I am sure that in any operation of this size, mistakes will be made, but with the type of people that we have trying to straighten them out and make them more efficient, that is the only thing that can result, and the end result will be greater security and savings to the United States taxpayer.

That is what we are all after and possibly a little more information to the Congress and to the public as to the magnitude of the operations that are required to maintain peace in the world with America's position of leadership, which I think is all important and should be told at every opportunity so that we can have knowledge of how Congress votes and why the public should support various programs or not support them.

Mr. FASCELL. I appreciate that, Mr. May.

While we are speaking here of these things, I think it is very important that we have an opportunity to do that which has been done.

I do not have to tell anybody the difficulties that are encountered with respect to mutual security. Defense Department appropriations, and other matters.

Therefore, anything which will tend to dispel any misconceptions, misapprehensions, or misunderstandings, ought to, by all means, be done, whether those exist in the minds of Congress or the minds of the American people who ultimately will decide what it is that we are trying to do.

Those of you who are in the field-I am saying this not only to the State Department and the military people who are here today but those who have been in other areas we have visited have a thorough understanding and comprehension of the objectives of the United States in the free world. There is no doubt about what your position is or what your mission or desire is, nor your ability, but I am afraid that this is not always understood. Therefore, it is our job, as Members of Congress, to understand this thing objectively, constructively criticize where necessary, and commend

where it is proper to do so.

Then we have to translate all this to the public so that they will have a better understanding and Congress can take the action to back up what it is that you men are trying to do.

I am afraid that this position of Congress is not always understood, which leads to some misapprehensions and misunderstandings not only in the field, but in Washington.

I am hopeful that what we have done, therefore, has been mutually beneficial and that we will have a better basis of communication and understanding.

While we are closing up the record at this point, I would like to thank my colleagues, and the staff who have worked with all of us very hard and have been patient on a very tough trip—we are not through yet because we still have to go back and get this report outso, while I am patting you on the back, I will be looking forward to'a couple of months from now when I hope to get your report.

Thank you very much, all.
The committee stands adjourned.
(Whereupon, the hearing was adjourned at 5:50 p. m.)

EXHIBIT 1

REPORT ON HISTORY, ORGANIZATION, AND OPERATIONS OF THE EUROPEAN BRANCH,

UNITED STATES GENERAL ACCOUNTING OFFICE, MAY 31, 1957

HISTORY AND BACKGROUND

As a result of a survey made early in 1952 and extensive congressional interest, the European Braneh of the General Accounting Office was established in August 1952, with headquarters at Paris, France. At the same time, a field station was opened at London, England. Subsequently, three additional field stations were established in cities of Rome, Italy (December 1952), Frankfurt, Germany (January 1953), and Madrid, Spain (May 1954).

The branch is responsible for all work of the General Accounting Office in Europe, North Africa and the Near East. The work in North Africa and the Near East is accomplished, for the most part, by personnel attached to the Paris office. For this reason among others, it has been necessary to maintain a sizable operating staff in Paris.

Extracts from basic statutes prescribing General Accounting Office duties and responsibilities applicable to the European Branch are set forth in annex A. Copies of Comptroller General's Orders Nos. 1.39 and 2.28 establishing the branch

and defining its functions are attached as annexes B and C. Also attached is a copy of a memorandum dated August 25, 1955 (annex D), which provides that all correspondence and reports from the branch will be forwarded to the Assistant Comptroller General for disposition.

ORGANIZATION

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The Director of the Branch is responsible directly to the Comptroller General of the United States, through the Assistant Comptroller General, for the administration and technical functions of the Branch.

The Assistant Director of the Branch, program supervisors, and field station managers function under the immediate supervision of the Director.

See annex E for a more detailed description of the organization of the branch, annex F for a list of personnel occupying key positions, and annex G for an organization and personnel chart as of May 31, 1957.

The Branch has 64 approved positions, with 57 currently on the rolls—11 administrative or clerical personnel and 46 technical staff members. The technical staff members of the Branch are highly qualified to discharge the statutory responsibilities of the General Accounting Office in the European area. Thirty percent of the technical staff hold certified public accountant certificates and 20 percent of the technical staff have been admitted to the bar. Three members of the staff are eligible to practice before the Supreme Court of the United States. A personnel analysis by grade, personnel classification, and professional status is contained in annex H.

A high percentage of personnel have extended their tours of duty in Europe beyond the basic 2-year initial period.

Since the Branch has been in operation, 56 percent of the personnel eligible to return to the United States have requested extensions of their assignments in the Branch för varying periods of time.

OPERATIONS

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Generally, the operations of the branch within the accounting and auditing fields have been determined by the director and his immediate staff assistants; both as to the activities to be reviewed and the scope of coverage to be given such activities. In view of the significant sums of taxpayers' money being spent and the limited staff available to the branch, areas wherein large amounts of appropriated dollars were programed for expenditure by officials in Europe are, of course, given first consideration. The tremendous offshore procurement program initiated by the several military departments is an example of such an area. (See annex I.) Work planning

In order to provide the Washington, D. C., office an opportunity to comment on proposed work plans and at the same time provide for planned coordination of diversified branch activities, suggested work programs are submitted semiannually by the field station managers and program supervisors. gested programs are reviewed by the director and his staff assistants, and contemplated work plans for the succeeding 6-month period are submitted to Washington for review and coordination with stateside programs.

After the projected work programs have been reviewed, each field station manager is provided with an approved program which shows, among other things, the priority of assignments to be undertaken. Program supervisors are responsible for the timely preparation of specific review programs to facilitate the execution of approved assignments and to assure effective coordination of review objectives.

Liaison arrangements have been established with the several military agencies in Europe. They are given advance notice of the general nature of the work to be undertaken, and whenever possible, the program supervisor or field station manager is present at the commencement of a review to apprise management officials of the purpose of the visit and the procedures to be followed for disclosing or resolving any problem areas noted. The local agency head is requested to appoint a liaison officer to keep abreast of our day-to-day findings so that responsible officials may be kept well informed of our activities. Also, the liaison officer is expected to establish whatever contacts are necessary with personnel of other branches or divisions of the agency and to arrange meetings for discussion of significant findings during the performance of the review.

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