In 1910, Mr. P. B. Fouke, president of Funsten Bros. & Co., conceived the idea that the Alaska seal, being an American fur, should be dressed, dyed, and sold by the Government of the United States. During the years 1910, 1911, and 1912, Mr. Fouke made several trips to Washington to urge Government officials to sell the skins in the United States rather than ship them to London. Mr. Fouke's idea was finally accepted and in 1913 the Government's share of the skins was sold in a raw salted condition by Funsten Bros. & Co., in St. Louis. This was followed by Mr. Fouke's proposal to the Secretary of Commerce that he would undertake to establish a sealskin processing plant if the Government would enter into a contract with Funsten Bros. & Co., for the processing and sale of the Government's sealskins.

The development of the idea into an industry was completely and solely that of Mr. Fouke and his principal associates, William D. Gibbins, S. J. Pringree, and G. Donald Gibbins.

Later, Mr. Fouke established his own fur seal company which is known today as the Fouke Fur Co. This company has been in the business of processing sealskins for about 50 years, and its reputation for quality merchandise has never been equaled or surpassed.

After an exchange of correspondence between the Interior Department and this contractor, the Department in 1962 canceled its contract with the Fouke Co., and in March 1963, entered into a contract with a joint venture, known as Supara of Chicago, Ill. This company apparently had no plant, equipment, or experience in processing fur sealskins and as a result two of the processors who had formerly submitted proposals under the invitation to bid, filed protests with the General Accounting Office. A copy of the Supara contract will appear in the hearing record as exhibit 3 (see p. 63).

On October 10, 1963, the Comptroller General of the United States ruled that the contract with Supara contained so many provisions in favor of the contractor without compensating benefits to the Government that the contract was not in the public interest and the Comptroller considered the procedures followed in this procurement as either improper or highly questionable. The Comptroller stated and I quote in part as follows:

Under this amendment it is apparent that Supara skins would no longer be required to meet the results of the tests made by the Bureau of Standards in its examination of Fouke standard skins against which the sample skins submitted by the various offerers were evaluated in this procurement.

Since the sample skins submitted by Supara, Inc., failed to meet such standards in various respects it is apparent that the amendment to paragraph 6 of the contract constitutes a relaxation of the requirements of the contract as executed. A similar relaxation was effected by the addendum in extending from January 1, 1964, to April 1, 1964, the time by which Supara is required to develop a capacity to process 50,000 sealskins per year, and in the provisions of paragraph 36 relative to the extent of liability of the joint venturers.

This rule is settled that contracts may not be amended so as to reduce the contractor's obligations or the Government's rights unless a compensating benefit also accrues to the Government. We see no such compensating benefits in the addendum of August 12, 1963.

A copy of the Comptroller General's opinion (No. B-150978) will appear in the hearing record as exhibit 4 (see p. 75).

On April 30, 1965, the Bureau of Commercial Fisheries of the Department of the Interior entered into a 5-year contract with the Fouke Fur Co. for processing, grading, and promoting the sale of sealskins, renewing thereby the contractual arrangement which it had previously canceled.

A copy of that contract will appear in the hearing record as exhibit 5 (see p. 92).

Four months later the Bureau of Commercial Fisheries executed another contract with the Pierre Laclede Fur Co. of St. Louis, Mo., to render the same type of service. However, it is noted that under the provisions of this contract the Government will furnish 5,000 sealskins to the contractor for research purposes, and provide other benefits which were not placed in the contract of his competitor. This contract further provides that the Government will furnish certain types of equipment, furnishings, or equipment necessary to perform the services required, and that research be performed by the prime contractor as well as a subcontractor at Government expense. This contract is estimated to cost the Government $377,636 which figure includes a fixed fee of $30,000 and a 25 percent incentive fee. The contract guarantees the sum of $377,000 whether or not that sum is realized from the sale of processed sealskins.

А

A copy of the contract with the Pierre Laclede Fur Co. will appear in the hearing record as exhibit 6 (see p. 103).

Responsibility for the administration of the law carrying out the Fur Seal Treaty was lodged in the Fish and Wildlife Service in the Department of the Interior in 1940.

Receipts from the sale of fur seals from 1951 to 1965 have varied from $3,732,123 to $2,332,924.

Receipts by the State of Alaska under the 70 percent of net provision of the Alaska Statehood Act have varied over the years since 1959 from a high of $1,050,002 in fiscal 1961 to a low of $536,809 in fiscal year 1962. That was the low until this year. A chart showing these receipts as well as the number of pelts taken from 1950 to 1965 will be inserted in the record at this point.

Chart showing total receipts from sales of Pribilof Island fur seals and amount received by State of Alaska, 1951–65; and the fur seal harvest, 1950–65

1 Gross receipts less contractors' processing cost and 1 percent discount on cash sales equal net receipts. 2 Totals represent yearly harvest-not skins processed by contractor.

3 In addition, 854 young bulls and 582 experimental skins were taken.

Senator GRUENING. In a letter from the Secretary of the Interior to me and with similar notification to the other members of the Alaska congressional delegation-we were informed that for fiscal

year 1965 the receipts from the sale of Alaska fur seals had all been spent and there was nothing left.

Secretary Udall's letter of August 3, 1965 will be inserted in the record at this point in my remarks.

LETTER FROM SECRETARY OF THE INTERIOR UDALL OF AUGUST 3, 1965, SHOWING BREAKDOWN OF RECEIPTS FROM FUR SEALSKIN SALES FOR FISCAL YEARS 1964 AND 1965

DEPARTMENT OF THE INTERIOR,

OFFICE OF THE SECRETARY, Washington, D.C., August 3, 1965.

Hon. ERNEST GRUENING,
U.S. Senate,
Washington, D.C.

DEAR SENATOR GRUENING: On July 13, I advised you that we were considering Governor Egan's request of July 3 that we make progress payments to the State following the next two sales of Alaska sealskins. We have reviewed the authorizing legislation, section 6(e) of the Alaska Statehood Act, Public Law 85-508, and advised Governor Egan that the specific provisions therein would prohibit the making of progress payments such as the State has requested. I sincerely regret that there appears to be no legal means by which we can help the State of Alaska out of this most difficult situation.

Your letter refers to an agreement by the Commissioner of Fish and Wildlife to supply information on the disposition proceeds received during the fiscal year 1965. The amount received in 1 year is utilized in conducting the program of the following fiscal year. There follows a table showing the proceeds received in fiscal year 1965 and our programed obligations in fiscal year 1966. Net receipts, fiscal year 1965____

$2,530, 301

In view of your interest in the utilization of funds received from this source and the participation of the State of Alaska, I am also furnishing a table showing the receipts in fiscal year 1964 and the estimated expenditures in fiscal year 1965. Actual expenditures are not yet available for fiscal year 1965. When all financial transactions are completed, an adjustment for the difference between estimated and actual costs will be made in computing the payment due the State of Alaska for fiscal year 1966.

Senator GRUENING. Thus, Alaska's share of last year's net receipts. is 70 percent of nothing. Also for the first time the Federal Government's share is 30 percent of nothing.

These hearings which we begin today will have two facets:

(1) Where did the money go? Why were there no net proceeds, either to Alaska or to the Federal Government? What were the proceeds spent on and by what legal or moral right?

(2) What is behind the contract with the Pierre Laclede Co.? Is it a fair one for the United States? For the State of Alaska which, if this contract is legal, must bear 70 percent of its guaranteed cost of $377,000 including a profit of $30,000 in addition to executive salaries plus about $375,000 worth of skins, making a grand total of almost $800,000 for this year alone. This exceeds Alaska's share of the proceeds for 3 out of the 6 years since statehood.

The question is: Is there no limit to the authority presumed by the Secretary of the Interior? Can he continue to thwart the plain intent of the Alaska Statehood Act and continue to spend all the proceeds of the sale of Alaska fur seals as he sees fit without check by either the Congress of the United States or the State of Alaska?

We have as the first witness this morning, Mr. Donald L. McKernan, Director of the Bureau of Commercial Fisheries of the Department of the Interior. It is understood that Mr. McKernan does not have a prepared statement but has come here to answer questions and be of assistance to this subcommittee. We appreciate your cooperation, Mr. McKernan, and shall proceed from here on a question and answer basis.

TESTIMONY OF DONALD L. McKERNAN, DIRECTOR, BUREAU OF COMMERCIAL FISHERIES, DEPARTMENT OF THE INTERIOR; ACCOMPANIED BY DAVID WATTS, OFFICE OF THE SOLICITOR; CLEO LAYTON, ASSISTANT DIRECTOR FOR ADMINISTRATION; RALPH C. BAKER, ASSISTANT DIRECTOR FOR RESOURCE DEVELOPMENT; AND JOHN HODGES, DEPUTY ASSISTANT DIRECTOR FOR RESOURCE DEVELOPMENT

Mr. McKERNAN. Mr. Chairman, I have brought certain specialists from the Department's staff with me, and with your permission I will bring them up to the witness stand to be more responsive.

Senator GRUENING. Will you please identify yourself for the record and have these witnesses also identify themselves?

Mr. McKERNAN. My name is Donald McKernan, Director of the Bureau of Commercial Fisheries, and perhaps we can start from my left.

Mr. WATTS. My name is David Watts. I am from the Solicitor's Office, Department of the Interior.

Mr. LAYTON. I am Cleo Layton, Assistant Director for Administration of the Bureau of Commercial Fisheries.

Mr. BAKER. Ralph C. Baker, Assistant Director for Resource Development, Bureau of Commercial Fisheries.

Mr. HODGES. My name is John Hodges, Deputy Assistant Director for Resource Development.

OATH ADMINISTERED

Senator GRUENING. I will swear the witnesses.

Will you raise your right hands?

Do you solemnly swear to tell the truth, the whole truth, and nothing but the truth, in the testimony you are about to give this subcommittee, so help you God?

Mr. McKERNAN. I do.

Mr. BAKER. I do.

Mr. LAYTON. I do.

Mr. HODGES. I do.
Mr. WATTS. I do.

Senator GRUENING. Mr. McKernan, will you be kind enough to state your background?

BACKGROUND OF WITNESSES

Mr. McKERNAN. Yes, Mr. Chairman. My name is, as I said, Donald McKernan. I am Director of the Bureau of Commercial Fisheries. I am a fishery research biologist by profession and have carried on research on specific ocean fisheries for a number of years.

My career dates back from about 1938 as an undergraduate of the College of Fisheries at the University of Washington. My career includes experience with the State of Washington, State of Oregon, U.S. Government in Hawaii.

I was administrator for Alaskan fisheries prior to Statehood from 1955 to 1957, and since the formation of the Bureau of Commercial Fisheries, I have been its Director in the Department of the Interior. Senator GRUENING. Will you kindly have your associates state their backgrounds, Mr. McKernan?

Mr. McKERNAN. Yes. Mr. Baker.

Mr. BAKER. Yes, Mr. Chairman. I am a graduate of the University of Washington School of Business Administration. I have been with the Bureau of Commercial Fisheries for 31 years, and during a great part of that time I have been concerned with the administration of Alaska fisheries prior to statehood, and with the Pribilof Island affairs since about 1940.

Mr. HODGES. I am a graduate of the School of Fisheries at the University of Washington, graduating in 1942. I spent the next 4 years in the U.S. Army, from 1942 to 1946. I was with the Oregon Fish Commission as a research biologist, in various capacities, including assistant director of that organization, for the period of 1947 to 1957. Since 1958 I have been with the Bureau of Commercial Fisheries in various capacities serving as branch chief in the branches of Alaska Fisheries, Columbia River Fisheries, and more recently as Deputy Assistant Director for the Division of Resource Development. Mr. LAYTON. Mr. Chairman, I am a graduate of George Washington University, entered Government service on March 1, 1935, and have held administrative positions with the Department of the Interior since then, joined the Fish and Wildlife Service in 1953 and the Bureau of Commercial Fisheries at its organization.

Mr. WATTS. Mr. Chairman, I am a graduate-I hold an undergraduate degree from the University of Michigan in 1959 and law school