So the program falls flat on its face. We started out in 1942 with just that sort of an idea. It did not work. And we moved on to something else. That something else was setting up agents. If it is logical to assume when you want a haircut that you go to a barber and when you want an appendectomy you go to a surgeon, it is equally logical that when you have surplus materials of aircraft parts that the logical people to dispose of it are those that are experienced in that type of business. Their livelihood and their business depend upon handling that kind of material. So with that assumption, we appointed agents. We selected agents based on their reputation and their success in that type of business. The success of any redistribution program along the lines suggested by the Air Force recommendation is dependent tremendously on the proper intelligent careful selection of agents. And when I speak of War Assets, please understand that I do not do it critically. I do it objectively. I think the first serious signs of disintegration of the War Assets' program was when they made the false assumption that the more agents they have the more stuff they would dispose of. That is a fallacious assumption. As a result of trying to get a lot of agents the standards were lowered. Then agents were given contracts who lacked experience and lacked perhaps some of the desirable business ethics. You cannot legislate honesty nor experience. That resulted in setting up so many rules which would bring the most ethical and most experienced, most efficient distributor down to the level of the least efficient and the least ethical. Of course, that meant doing so much in the way of supervision, paper work, and so on, that it practically seriously hampered the disposition of the material that we were trying to dispose of. So we started out with the military handling the program and wound up with a civil-service organization handling the program. And those steps were from the Aircraft Scheduling Unit to the Reconstruction Finance Corporation Metals Reserve to the Office of Surplus Property of Reconstruction Finance Corporation, with Mr. Symington, then War Assets Corporation, and then War Assets Administration. In my opinion, the most efficient period of that program was about in the middle when it was the military, the civil-service organization, and a private civilian organization cooperating together. To me that was the most effective and efficient period of that distribution. The Reconstruction Finance Corporation recognized that they needed help which they did not themselves possess. The military weakness was that you could not in the military select the proper experienced qualified personnel. They shift around. Men were in uniform who were there not of their choice at desk jobs which grated on some of them. Some of them said that they wanted to go to Germany or to Japan, and you had no choice but to send them there. Theoretically, you could keep them where you wanted to, but, actually, it was not desirable. We found ourselves with a very shifting fluid personnel. And the civilian organizations in Government found themselves also unable to compete with industry for qualified personnel. Mr. HOLIFIELD. Would you say that the military organizations are not equipped by their very nature to perform an efficient merchandising program because of these changes in assignments, because of the prestige that sometimes goes with rank, but not necessarily with experience in a particular field of merchandising? Mr. PETERKA. That is exactly right, sir. That is not an opinion. I make this statement based on experience during World War II when we attempted to do it with military personnel. Mr. HOLIFIELD. Then the supervision of any plan that might be adopted would, in your opinion, be better protected if it was in a civilian type of organization that had comparatively more continuity in its personnel! Mr. PETERKA. Yes. I say "Yes" with some qualification, sir. Next, with probably equal importance in the success or failure of such a plan is the proper selection of agents to a good administration. A program is only as good as the administration. The Reconstruction Finance Corporation astutely recognized that and hired a company known as the Murray Cook Corp. in New York. This corporation was a nonprofit civilian private corporation which was able to hire qualified, competent personnel and was able to dismiss or discharge personnel when they were not competent. sir. Mr. HOLIFIELD. Was it a business management corporation? Mr. HOLIFIELD. There are certain business-management corporations that offer the service of management for cost plus a fixed fee. Mr. PETERKA. It was substantially that. The Murray Cook Corp. was made up of a group of people headed by Mr. Murray Cook who had been hired by Metals Reserve to set up an organization for the administration of a program of distribution of manila rope and hemp, because of his background and experience with International Harvester. When this other program came up they naturally turned to him to set up a similar organization, the function of which was to receive lists of idle and excess inventories, to record, tabulate and consolidate them, to allocate this material to the selected agents and issue shipping notices and perform a moderate amount of supervision over those agents. They had liaison people in their organization from Reconstruction Finance Corporation and from the Army and the Navy. Mr. HOLIFIELD. Did the Murray Cook Corp. perform this service on a cost-plus-a-fixed-fee basis? Mr. PETERKA. That is correct. That is exactly what they did. They were a nonprofit organization on a cost-plus-fixed-fee basis. Mr. HOLIFIELD. I do not understand your statement that it was a nonprofit corporation and yet it did business on a cost-plus-fixed-fee basis. Mr. PETERKA. I am not an attorney. Mr. HOLIFIELD. The cost and fixed fee would indicate that it was a profit organization. Mr. PETERKA. They turned their expenses in to the Metals Reserve periodically and were reimbursed. Mr. Murray Cook was paid a salary, and that was it. Mr. HOLIFIELD. I think that clarifies it. And their remuneration for their services was on a fixed-fee salary basis, rather than a percentage? Mr. PETERKA. That is correct. Mr. HOLIFIELD. A sharing in the proceeds or in the profits of these agents is what you mean? Mr. PETERKA. That is right. They had rent to pay. Mr. HOLIFIELD. They were independent insofar as the agents' business was concerned? Mr. PETERKA. That is absolutely correct. Mr. HOLIFIELD. Well, now, under this present plan which has been given us, the General Services Administration is put in that position to render that service; that is, to render the service of a clearinghouse and of a designation of agents and the allocation of materials under the Air Force plan that was presented to us yesterday. That does not mean, of course, that the General Services Administration could not contract Mr. PETERKA. That is correct. Mr. HOLIFIELD (continuing). For that service, because in the basic act, Public Law 152, they are allowed to delegate their authority and they could delegate their authority to prescribe policies and methods to promote the maximum utilization of excess property by executive agencies and provide for the transfer of excess property among Federal agencies. I am reading from the authority contained in section 202 (a) of Public Law 152. There is a modification of that under section 202 (d) which says that, under existing provisions of law and procedures defined by the Secretary of Defense and without regard to the requirements of this section, except subsection (f), which is the accounting section, excess property of one of the departments of the National Military Establishment may be transferred to another department thereof. So, it is clearly now within the authority of the Secretary of Defense to perform this function of transference of excess between the depart Mr. PETERKA. In the preparation of that proposal that was recognized, sir. Mr. HOLIFIELD. The over-all responsibility belonging to the Administrator of General Services, but much of this excess material is Government-owned in the hands of private contractors, and they are all doing business with one of the three branches of Defense. I am now speaking of the Government-owned property. It is now within their power to develop this type of plan, it seems to me, and to recommend it and to obtain approval from the General Services Administration, according to the terms of the act. Are you familiar with that section of the act? Mr. PETERKA. Yes, sir. Mr. HOLIFIELD. If an efficient plan is not operating at this time for the transference of this excess property among the contractors who are performing contracts for the different branches of the Defense Department, then it certainly should be initiated and put into effect, and on that point I want to ask you if you think that the utilization of excess in these Government contracts is at a high peak of efficiency or is there a lag in redistribution of excess raw materials and component parts? Mr. PETERKA. In my opinion, there definitely is a lag in the redistribution of idle-that is, existing idle-and excess inventories at this time. I think it would be a mistake to wait until we have bulging warehouses again, as we had in 1942 and 1943, before we do anything about it. In discussing this with some of the military advisers, I have pointed out that it would be equally as foolish to avoid buying an operating table until you actually had somebody with appendicitis, because by that time you might have peritonitis. The plan that is proposed by the Air Force costs the Government nothing if there are no excesses. So, we do not have to worry about wasting any money if we do put the program into operation. Only when material is sold, disposed of, does an agent receive any reimbursement. The only cost that is encountered is the cost of administration, which, if there is not any material, is practically nothing and is only a small portion of the money involved if there are idle and excess inventories. The testimony of Colonel Carey I am in full agreement with. I did not hear all of it, but he pointed out that at the present time we find ourselves with a shortage of material, of labor. And it seems so foolish to permit this material to lie in aircraft manufacturers' inventories while manufacturers of the parts are consuming raw material and man-hours to produce that same material. And we know that is going on. There is no question about that whatsoever. Mr. HOLIFIELD. You realize, of course, that the General Services Administrator is responsible to Congress, and there is one point, certainly, about the plan, which I would like to have your thoughts on; that is, in setting up a central board or delegating authority to a central organization to clear and allocate this property we are up against certain provisions of law particularly when it comes to the disposal; that is, offering it on a bid basis and all of that sort of thing. The plan as I understand it advocates, first, the transference of excess, a plan which would transfer the excess between contractors on Government contracts, which in my opinion there is authority to do at the present time; but, when it gets to the stage of surplus and allocation of surplus to agents, then we are faced with a problem of how that is going to be allocated in accordance with existing law. The General Services Administration would be subject to charges of unfairness if it allocated to company A, even though it might be a well-equipped company with a great deal of experience, and refuse to allocate it to company B, and company C, who are also qualified. Under existing law, I do not know how the General Services Administration could overcome that. Mr. PETERKA. Of course, in the proposed plan actually there is no disposal in the sense that it is written up in some of the discussions here. The material remains Government property and is shipped to these agents on a Government bill of lading and does not become their property. It remains Government property. It is merely put into their custody. In business we refer to that as shipping something on consignment. But in Government work we have to refer to it as turning the material over to them, into their custody. The agent then receives it, unpacks it, inspects it. In some cases with authority he reworks it and then disposes of it through his normal channels. And the companies that buy it buy it through their normal practices for obtaining material, as opposed to disposal by bid sale, where your return is usually small and the material is usually picked up by speculators in that type of material. An airplane manufacturer finds it exceedingly unwieldy to obtain material on a bid sale for obvious reasons which I do not think I have to go into. I think all of you are familiar with them. I will, if you desire. Then when the agent sells the material through his normal channels of trade he receives what in Government we refer to as a service fee for services performed in business where we call it a commission. So, he receives nothing until the material is disposed of, and for selfish reasons he disposes of it at the current market or because the agent properly selected has his own inventory, and he cannot afford to sell this thing here that is owned by the Government for 10 cents when he has the identical thing here in his own inventory for $1. So, you have natural restrictions there which are all to the good, as we experienced it. Mr. HOLIFIELD. In your testimony, however, you did say that many unqualified agents were selected in the previous program. We are speaking of disposal now and not of transfer of excess, the final stage of the game. How would you advise us as to the methods by which General Services Administration should select agents? Mr. PETERKA. Well, sir, the way we did it was to receive applications from people or companies who wished to act as agents. The first thing we did, of course, was to check their credit. Then we asked them how long they had been in business. If they said "We went into business two weeks ago," we would refer them at that time to Maury Maverick, who was handling small business, and would say, "Look; we are not in the business of putting people in business. You go ahead and see him.' If they would show a record of continuity of successful business, we would then ask them for the names of their suppliers, and if they gave those we checked them to see what volume of business they had. done which would cover that, and we would also ask them for a representative list of their customers, not all of them, but a dozen or so, and we would write to those customers, "What has been the relation with Joe Dokes & Co. over the period of the past 4 or 5 or 6 or 10 years?" If all of that was favorable, we had the Air Force or the Navy inspectors in that territory visit the facility to determine whether they have the proper kind of facilities, and the know-how, and the personnel to store and sell that type of product. However, I regret and I apologize for not answering the question that you asked before: "How do you fairly allocate all this material?" Well, that is a poser. In my own business we distribute and sell our aircraft product through distributors. Some of them are sitting in this room. Many of them feel that one company is being favored. |