You will remember from yesterday that we stated that the carriers were informed that they were high and given an opportunity to submit new proposals. Only one submitted a new proposal. That was RCAC. They submitted a proposal on the 17th of June, and in that proposal they quoted a price of $3,690. However, they had a contingency in their quote. They stated this was based on the assumption or contingency, they used that word, that-I think that is right, they used contingency-in any case

Mr. ROBACK. It was a conditional offer.

General STARBIRD. This was based on the assumption that their filing before the FCC would be granted, whereby they would be given part ownership in the Hawaiian ground terminal.

Now, by an earlier FCC action, an interim action only, the FCC had granted to the Comsat Corp. the right to design, engineer, install, and operate the station and called for a hearing at a later date, I think, to begin in May of next year, on the actual ownership basis.

So this was a contingent bid and as such we could not accept it. Mr. ROBACK. Contingent bid based upon an action of an agency over which you had no control?

General STARBIRD. Had no control and the facts as they existed at the time appeared to make questionable whether or not that contingency was real.

We, therefore, went back to RCAC and told them they would have to clarify the situation. They would either have to quote us prices based not on that contingency or give us a basis for making sure that the contingency was a fact rather than a contingency.

They then came back and quoted to us two prices. They repeated the quote of $3,690 in case of shared ownership, but stated that the costs would be $4,868.33 if the contingency did not apply.

Incidentally, in the attempt to clarify, too, with RCAC we had several other conditions that we wanted to get straight, and there was exchange of letters and it still was not clear exactly what the RCAC proposal was with all the conditions answered. And, therefore, on the 15th day of July the contracting officer resorted, in an attempt to clarify, to the procedure of giving a draft CSA, communications service authorization, with all of the conditions written in there but with the prices left out, to RCAC, asking that they fill in the blanks and indicate wherein, if any place, they disagreed with the conditions that were there set forth.

On the 21st of July they turned that CSA back and at that time they also gave us a letter indicating that to resolve this issue they would quote a price of $4,000 per circuit, in other words, the same price as had been quoted by Comsat. This was accompanied by a statement, however, that this was being done in an effort to resolve this issue, and they were quoting us a nonprofit price for the service.

Mr. ROBACK. Meaning they would be buying at the same price from Comsat?

General STARBIRD. They would be buying from Comsat at that price. Mr. ROBACK. Right.

General STARBIRD. And charging us at that price.

Colonel PASCHALL. May I correct that statement just slightly?
RCAC would buy from Comsat at $3,800 per month.

General STARBIRD. Excuse me, that is correct.

Mr. ROBACK. Do I understand that Comsat was quoting to the other carrier somewhat less, perhaps a service charge less, than they were quoting to the Government?

General STARBIRD. That is correct. Perhaps I should have made that clear. They were quoting $3,800 for the service.

Mr. ROBACK. To all the carriers?

General STARBIRD. Right. They were quoting $200 additional for the service charge.

Mr. ROBACK. Right.

General STARBIRD. Thanks.

Mr. HOLIFIELD. To the Government that would make it $4,000. General STARBIRD. To the Government it was $4,000, and the final RCAC number as given to us then was $4,000, the same price as had been quoted to us by Comsat.

However, there was a strong question in my mind as to whether a carrier could actually pass service on to the Government on a nonprofit basis. We then had to dig a little deeper anyway, and we looked at the termination charges that were involved, and the termination charges quoted by RCAC were about $1,100,000 higher than the termination charges that had been quoted to us by Comsat.

Mr. ROBACK. May I ask at that point, did those termination charges depend upon a bargaining or a negotiating position with the foreign entity?

General STARBIRD. They did to a degree. The Comsat charges were already negotiated with the Japanese and an agreement was signed. The Comsat charges with the Thais had been negotiated and a preliminary agreement signed. They had been negotiated with the Philippines but the agreement was as yet unsigned.

Mr. ROBACK. Was there any reason to suppose that the other carriers had a less favorable arrangement than Comsat with the foreign entity?

General STARBIRD. Yes, there was reason to believe it was possible in that Comsat had two of its own earth terminals, transportables they intended to deploy to meet the transportable requirement in Thailand and the Philippines.

Mr. ROBACK. That was a bargaining factor. They could say, "Look, we will supply the terminal and give us a favorable deal. General STARBIRD. Yes, but they had termination charges in connection with that.

RCAC initially intended to go this way, but then in this last proposal they stated they intended to use a Page terminal. The Page terminal is technically unknown to us as yet or was at that time and, of course, that could be a cause for a difference in the cost of the termination liability.

Mr. DICKINSON. If you will yield right there.

General STARBIRD. Yes.

Mr. DICKINSON. Just to clarify something in my own mind, we were talking yesterday, I believe, about a bid that Comsat made of $4,800 per circuit; is that right? Now we are talking about $4,000?

General STARBIRD. This is $48,000 for a year, was the figure I gave, just as I gave $120,000 was the year rate for ITT World Com.

Mr. DICKINSON. I remember that figure.

General STARBIRD. Yes.

Mr. DICKINSON. And I was trying to equate this with the $4,000 figure here.

General STARBIRD. Right.

Mr. DICKINSON. So Comsat offered a contract for $4,000 just on the up-link, and later RCAC met this offer.

General STARBIRD. They met the same figure stating that it was a nonprofit price.

Mr. DICKINSON. Thank you.

Mr. ROBACK. Had you finished your statement?
General STARBIRD. I had finished the statement.

ACCESS TO COMSAT RATE INFORMATION

Mr. ROBACK. Just looking at it as a procurement problem and looking at the figures, when somebody makes an offer on a second round of negotiation-and we discussed this a little bit with Colonel Paschall being the procuring officer or at least the contracting officeron the second round if somebody offers a lower price, there is somewhat of a presumption that he has some idea of what is involved, particularly when there is a big spread. In other words, when RCAC goes from $11,000 to $3,600 the presumption is they must have information on the low first offer, and the same presumption holds if on a third round or subsequent negotiation, they come and meet exactly the price of a competitor.

In other words, it isn't accidental-that $4,000 bid. So the question arises, and we get these kinds of procurement problems all the time, as you undoubtedly are aware, did they have, that is to say, did RCÁC have, access to the bidding information?

Now, Iwanted to ask that question in this context. Is RCAC or any of the other bidders represented on the board of Comsat? General STARBIRD. They are, some of them.

Mr. ROBACK. Does RCAC have a member on the board?
General STARBIRD. I don't know. I doubt that I have-

Mr. ROBACK. Let me ask you, is there any restraint that you put on the bidding information to Comsat which would prevent a carrier representative on the board from having access to that information?

General STARBIRD. Nothing that we put on it, the Government. Mr. ROBACK. In other words, this wouldn't be a constraint on your part? This would be a problem of, you might say, individual comport ment on the part of the members sitting on the board, as to whether h thought it was proper for him to know what Comsat was bidding, Ne 1, and, No. 2, whether he would tell that to his own company. You don't know in fact as to whether any information passed?

General STARBIRD. Go ahead. This is Mr. Morse, a member of th Office of the General Counsel of the Secretary of Defense's Office a 11 he is assigned actually to work in DCA.

Mr. ROBACK. Will you illuminate the record, Mr. Morse?

Mr. MORSE. I was just going to say, sir, when the proposals were file with us, they were also filed with the FCC so to that extent it wa available.

Mr. ROBACK. Is that public information available to a carrier?

Mr. MORSE. I would say not, sir.

Mr. ROBACK. Filing before approval is public?

Mr. MORSE. I would say it is not, sir.

Mr. ROBACK. You are not making the accusation that the FCC leaked anything?

Mr. MORSE. No, sir; I am not. I am bringing out the fact that the information was available from another source other than the DCA. Mr. ROBACK. In other words, there could have been a leak, is that what you are saying?

Mr. MORSE. I am not saying that, sir.

Mr. ROBACK. Well, what is the significance of your contribution here?

Mr. MORSE. Well, the significance is, I think, that the information of these proposals was also available in the FCC.

Mr. ROBACK. You want me to draw the conclusion. You don't want to draw any conclusion, you won't draw any, you want me to draw it? Mr. MORSE. I am not drawing any.

Mr. ROBACK. What you are saying is that the information was put out in several places.

Mr. MORSE. Yes, sir.

General STARBIRD. There is another way it could have been done, Mr. Roback. They knew the price that was being quoted to them, RCAC did, by Comsat. They could make the assumption that the same price was being made to the Government.

Mr. ROBACK. That is one way of getting a handle on the information.

General STARBIRD. That is one way it might have happened.

RATES QUOTED IN PROPOSALS

Mr. ROBACK. Let me ask you this: On the rates that were quoted, which are two and a half to three times as much as the rate that Comsat quoted to the Government, are those standardized cable-type rates? General STARBIRD. They are cable-type rates.

Could I digress one more time because I want to make the record completely clear.

Now when RCAC came back on the 21st of July they gave slightly lower rates for the down-link than Comsat had given, but as I mentioned we had already told them on the 13th that we were going to disregard the down-links in the evaluation under the assumption that the down-links would become equal no matter who the carrier was, because once a man gives a price he has got to hold to that price.

To answer, the cable rate was $12,500 a half link, Western Union International, ITT and RCAC were all slightly under that $12,500, and recently at least two of the carriers have filed slight reductions in their rates but basically it is of the order of the cable rate that is being quoted.

Mr. ROBACK. Do you suppose, or do you have any information to believe, that these quotations were based on the assumption by the carrier bidders that the FCC was going to set standardized rates across the board. At this stage of the game judging from the testimony yesterday, we don't know, you don't know, whether anything like a $4,000 rate is going to be at all acceptable to the FCC.

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If they take cables into consideration, you may be up in the $8,000 $10,000 to $12,000 category. So you don't really have any handle or that at this time.

General STARBIRD. No; we don't. In other words, if the FCC set a rate that is higher, then that will become binding in the contract. Mr. ROBACK. Evidently there was some difference of understanding on the part of the carriers. For one thing, how do you account in standardized rate approach, how do you account for the variation among the carriers even though they weren't too wide? For example they ranged between $10,000, $11,000, and $12,000. Do cable rates var like that among the carrier tariffs?

General STARBIRD. No; they do not at the present time. They ar standard as far as I know throughout.

Mr. ROBACK. Would this variation lead one to suppose that the car riers, while they were geared to cable rates, understood that there wa a price competition, and whether those price differences would be a lowed by the FCC was a matter that could be determined later, but the knew they were bidding on a rate basis? Is there any doubt abo that?

General STARBIRD. I don't think there is any doubt on that. B the numbers as they gave them would have to represent the tar that they would file with the FCC for approval, that or somethin lower than that. In other words, there was no tariff in existence a I think each one sat down and did a little calculation as to what wou be the tariff he would submit if he were the one awarded the contra

BASIS OF COMPETITION

Mr. ROBACK. Now this spread of prices, which is very unusual terms of RCAC coming from the $11,000 down to $3,600 and up $4,000, this is on a no-profit basis. One could assume they want to buy in. You know you are entitled to do that even though t Government frowns on it. You are entitled to lower your price a even take a loss.

If for the purposes of bidding, the down-link was standardiz what did these carriers have to bid on? They were going to charged the flat rate equally by Comsat who was selling to the G ernment at that rate. If they couldn't do anything but take into count particular circumstantial advantages they may have had in given case-maybe ITT had a tie-in with Tokyo or something, hypothetically speaking, where they could make a favorable dea they would have only a marginal opportunity to compete. W the basic price of the service is the same, the competitive factor to run in the margin.

Now, you standardized the margin, so what was the basis of competition?

General STARBIRD. The basis of the competition was the up-link, eliminating the down-link, one of the things that we were consider naturally was the fact that Comsat had negotiated some tent a prices. The others in large measure quoted the same prices. didn't know where they got those prices. In some cases they wer little higher, I guess, and in some a little lower.