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tion, and the representatives considered it from their viewpoint that the present procedures were adequate now for disposal, and 25 of the 28 considered them adequate in the event of mobilization.

It appears, Mr. Chairman, that perhaps the big problem would be only demobilization, where we would accumulate these excess materials. And I understand that the Munitions Board has scheduled a meeting on July 7 with all the services, Army, Navy, and Air Force, to discuss this particular subject of the plan on demobilization for disposal.

Mr. HOLIFIELD. It seems to me that there is still work to be done within your Navy operation in the proper utilization of contractor-owned inventories. That is a field that it seems to me you are overlooking completely, because you have no responsibility there. I understand that.

Commander FOLEY. Yes, sir.

Mr. HOLIFIELD. But at the same time we, as Members of the Congress, have responsibility for recovery to the taxpayer of that excess inventory as well as utilization of it by the other branches of the service.

Commander FOLEY. Yes, sir.

Mr. HOLIFIELD. Now, of course, you are not in a position to tell us what percentage of Government cost these contractors are getting in their disposal program, are you?

Commander FOLEY. No, sir; I am not.

Mr. HOLIFIELD. Let me make my question a little clearer. Let us assume that X Air Frame Co. has $1,000,000 worth of contractorowned inventory. In their adjustment with the Government, do they get credit for that $1,000,000?

Commander FOLEY. I believe, sir, that they only get credit when the termination is at the convenience of the Government.

Mr. HOLIFIELD. All right. Let us assume that the termination occurs. Are they given credit for the original cost of the material and allowed to sell it at 20 cents on the dollar with the Government absorbing the 80 percent, or how does that work out!

Commander FOLEY. Sir, I believe it depends on the terms of the particular contract as it is written which covers the specific situation. In some cases I believe the contract calls for the contracting officer to permit the contractor to sell such excesses with credit to the

Mr. HOLIFIELD. With the Government absorbing the difference in the cost of the material and the receipt that the private contractor gets for it?

Commander FOLEY. Yes, sir.

Mr. HOLIFIELD. In other words, that would be a cost added to the contract, any loss of money in inventory for disposal?

Admiral HONAKER. That would be taken up in renegotiation, sir, and considered at that point, and I would say each contract or contractor would stand on its own merits.

Mr. HOLIFIELD. That is true. But the prime objective of a contractor in a case like that is not recovery to the taxpayer, but it is to get his contract terminated and washed out, you might say.

Admiral HONAKER. That is true, sir. But wouldn't we assume that the contractor would only have procured material outside which the Government was unable to furnish, but which the Government had



indicated in its specifications and its requirements that these materials were needed?

The only thing that could happen would be a change in design, and we would have some material left over. But that would not be the contractor's fault.

Mr. HOLIFIELD. No. I am not blaming the contractor. I am seeking a way out of this apparent defect in the system-and maybe there is not a way out-in which large amounts of material find their way into the private economy at a few cents on the dollar, such as happened last time.

Commander FOLEY. I do know, Mr. Chairman, that APRA has been getting reports from the contractors of their own contractorowned material, or inventory, and they have been circulated to some 500 various other contractors and service representatives to determine whether there is any critical need for any of those items at any plant, and it is up to the two contractors, if one of them has need for it and the other one has an excess, to get together and buy it one from another. I believe that is the program that is being pursued by APRA

Mr. HOLIFIELD. That is strictly on a voluntary basis?
Commander FOLEY. Yes, sir.

Mr. HOLIFIELD. And it is a kind of hit or miss program; it is not a well defined plan!

Commander FOLEY. I could not say
Mr. HOLIFIELD. And could you testify that it is very effective?

Commander FOLEY. No, sir; I could not. I just know the existence of it. I believe it is fairly new, Mr. Chairman.

Mr. HOLIFIELD. I think it is, too.

Commander FOLEY. Only 3 weeks ago, I believe, did I see the first lists of those excess inventories.

Mr. HOLIFIELD. Now, the members of this subcommittee have received reports from industries which are in the servicing of aircraft companies that there is quite a bit of this material, particularly in component parts and bearings and different types of aircraft supplies, that is being sold in many instances by the services when other branches of the services are immediately buying it from these agents. That is going on to a considerable extent right at this time. In many industries at the present time they are picking up this surplus material and in turn reselling it to the different branches of the service.

Commander FOLEY. Mr. Chairman, I know that the present procedure calls for such items as bearings or general hardware items to be processed through the Surplus Materials Division of the Bureau of Supplies and Accounts, and that office, I believe, screens with the other military departments, and in turn passes it to the General Services Administration, who screens with all Government departments before it is returned to the service representative for disposal at sale.

Perhaps Commander Barnett can speak better on that, sir. He is the officer in charge of that particular division.

Commander Barnett, would you like to discuss that?

Commander BARNETT. Mr. Chairman, I am director of the Surplus Materials Division of the Bureau of Supplies and Accounts.

We have a mission in this division to screen all common-use excess materials reported by one service against the prospective needs of

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the other services. We also have the responsibility, once material has been determined surplus by the General Services Administration, of administering the sale of Navy surplus material.

The contractor inventory, of which we are speaking here, is processed, if it is Government-owned, through my shop. It takes us approximately 60 days, from 45 to 60 days, completely to screen all the Department of Defense agencies that have possible use for these common-use items.

We operated before January of 1951 on a 30-day basis, and we found that our utilization for all excess materials ran between 10 and 20 percent of acquisition cost. We revised our entire procedure on January 1, 1951, and extended this period to a 45- to 60-day period, and our present utilization runs between 20 and 45 percent.

During the quarter of January, February, and March of 1952, we hit our all-time high of 45-percent utilization of acquisition cost.

Mr. HOLIFIELD. Now, is that utilization of materials that have been declared excess by the Navy?

Commander BARNETT. By any

Mr. HOLIFIELD. And its utilization by any of the other departments of the Navy or by other departments of defense?

Commander BARNETT. Both, sir.

Mr. HOLIFIELD. That is no release to private industry? You are not speaking of any release there?

Commander BARNETT. Not at all, sir. This material has been released by either the bureau of the Navy Department or the technical service of the Army Department that initially procured the material, or by AMC of the Air Force, sir.

I have no specific figures on contractor inventory material as segregated from all excess. This would be excess stocks as well as contractor-inventory material. I do not have any prepared statement. I have not gone over in detail the Air Force plan as presented here, sir, and I would like to answer any questions or make myself available in any manner the committee might desire.

Mr. HOLIFIELD. I would like to ask a question, if I might, as to how active your program of excess declaration is in the Navy at the present time. Is there continual screening of monthly declarations of excess, or do you have great supplies in warehouses that are more or less set aside because they are becoming obsolete and are not being declared ?

Commander BARNETT. Within all three services, Mr. Chairman, we have constant generations of excess which are being reported into our division as they are determined excess to the owning bureau or technical service. I am not qualified to go beyond that bureau or technical service

Mr. HOLIFIELD. You do not know, then, how many people they have working in these programs and how much of this excess is being declared ?

Commander BARNETT. I can tell you approximately how much excess we are screening through our shop. During the calendar year 1951, we screened a total of $122,000,000 worth of excess material. During the quarter ending March 31, 1951, we screened $30,000,000 worth of excess material.

Mr. HOLIFIELD. Now, is that growing? Is it gradually growing !: Commander BARNETT. It is gradually increasing, sir.

Mr. HOLIFIELD. And it will continue to increase, will it not, as the aircraft production increases and as obsolescence sets in on a lot of these piston-type engines and the new jet planes come into being ?

Commander BARNETT. I believe, sir, from examining the past records, that under normal operations, as your inventories increase, with a slight time lag, your excesses will have a direct increase, sir. As your inventories go up, with a time lag of from 5 to 6 months, your excesses will also go up. Past experience has indicated that, sir.

Mr. HOLIFIELD. That is a problem, then, that is worthy of exploration to find the most efficient method of doing it, is it not, sir?

Commander BARNETT. Certainly, sir. I agree with that. Mr. HOLIFIELD. You would not comment any further on this plan of the Air Force ?

Commander BARNETT. I could point out some differences in the present operation, I believe. If I may see a copy of it, I can point out the differences in our present operation and the operations as proposed as performed within the Surplus Materials Division.

The present screening procedures as performed by the Surplus Materials Division screen only within the Department of Defense and in relation to aircraft items, only items which are not peculiar to aircraft, sir. We consider it at present uneconomical to screen items in the Department of Defense which would be peculiar to air and of interest only to two major material control points, which would be ASO for the Navy and AMC for the Air Force. This proposed plan, as far as I can determine, would necessitate screening all material through the Surplus Materials Division.

The present procedure screens only within the Department of Defense. The proposed plan will screen not only within the Department of Defense, but also with other Government agencies, by this division. That brings up concurrent screening, sir, which can be economical only to a certain degree, depending upon the amount of utilization developed by each screening agency.

As an example, if the Surplus Materials Division is developing from 50 to 60 percent utilization, it would definitely be uneconomical for the rest of the Government agencies to be screening when they are not going to get a chance to pick up but 40 percent of the material that remains. On the other hand, if only 10 or 20 percent utilization is being developed within the Defense Department, in all probability it would be economical for other Government agencies to screen concurrently with the Defense Department, sir.

The present screening period for military items is normally 60 days. We do not have a time limit. By "screening period” I limit this period to the surplus material screening period, sir. Mr. HOLIFIELD. How about the excess! You are differentiating

? between the words "surplus" and "excess," are you not, or are you using them as common terms?

Commander BARNETT. I meant “excess" in this case, sir. Excuse me.

Mr. HOLIFIELD. “Excess” in this case, as I understand it, is material that may be excess to an individual contractor's need, but is not surplus on the over-all plane?

Commander BARNETT. Not surplus at the given time.

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Mr. HOLIFIELD. We only apply “surplus” at the point where the Government agencies do not need it any longer and it goes into the channels of disposal to private industry.

Commander BARNETT. Thank you, sir. I used the word “surplus" erroneously there. I meant "excess," sir.

Our procedures take 60 days or longer in the case of items that should have usage. We will retain those longer, sir.

Mr. HOLIFIELD. You used the “common use" term there. You did not mean nonmilitary materials by using the “common use” term, did you?

Comander BARNETT. No; not necessarily nonmilitary materials. I meant by “common use” items in which more than two agencies in the Defense Department had possible interest, sir.

The proposed procedure limits the screening to 20 days within this division. I believe that if screened for only periods of 20 days, you will reduce your utilization accordingly, sir.

The proposed procedure also indicates that the Surplus Materials Division will issue directives to all the other services as well as the other Government agencies on the screening procedure. We are not in that business at present. We are strictly a coordinating agency in that regard, sir. I can make no further comment in that regard.

Mr. HOLIFIELD. You do approve of the principle of full coordination of the three branches of the services in the utilization of excess, do you not?

Commander BARNETT. Yes, sir.

Mr. HOLIFIELD. Would you carry that coordination to the point of common clearing?

Commander BARNETT. I definitely think

Mr. HOLIFIELD. Or central clearing, maybe I should say; a central clearing.

Commander BARNETT. I definitely think that all materials should be screened centrally by a coordinating agency, sir.

Mr. HOLIFIELD. That is being done now effectively?

Commander BARNETT. The common use items, I feel, are, sir, for which I have the responsibility there. The only measure that we could give on that is the percentage of utilization developed from it, sir, which I have given.

Mr. HOLIFIELD. What about the field of noncommon use?

Commander BARNETT. I have no information as to the utilization that has been developed over the exempt items, which would be the items peculiar to aircraft, the items peculiar to medicine. Possibly Commander Heffner would have some information along that line, from the Office of Naval Material.

Commander HEFFNER. I can give you the contractor inventory figures for the current fiscal year of 1952, through April. They were $13,451,000, on acquisition cost. And of that material, $1,500,000 is redistributed within the Navy, Air Force, and Army and $9,800,000 was sold. And of the $9,800,000 that was sold, $9,500,000 was sold to scrap.

Mr. HOLIFIELD. What was your income from that?

Commander HEFFNER. Thirteen percent. No, sir. I take that back-1.5 percent on the scrap, and 13 percent on the usable. Only $300,000 worth of all this total was usable material during this cur

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