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fallacious and numerous instances can be cited of contractual situations which do not offer as satisfactory results as doing the job with Government personnel or which are more costly than if the work were done in Government facilities. It is our contention that certain types of work required by the Government should be done by Government personnel. By so doing the Government can maintain greater control over such activities. This is of vital concern where there is any involvement of security or the national defense.

There have been proposals that as much as 75 percent of the money expended by the Navy for conversion, alteration, and repair of naval vessels be allocated to private shipyards. Presently the amount spent for these types of work is about 20 percent. It is appropriate to patronize the facilities provided by private enterprise where a governmental agency is not as well equipped to supply the product or service needed. However, naval shipyards provide essential service to ships of the Navy. This capability of the Naval Establishment is fundamental to the strength of the Navy and typifies a principle which has governed the repairing of naval ships from the founding of this country.

The paramount issue is not the desirability of giving profitable business to commercial operators but rather providing needed repairs and engineering changes to complicated ships in a timely and reliable manner. Private shipyards are given the opportunity to bid on selected work on the repair of certain auxiliary ships and smaller noncombatant vessels. Ship conversion, alteration, and repair is normally assigned to naval shipyards to enable the Navy to maintain the proper amount and kinds of skilled manpower as well as facilities at strategically dispersed navy yards.

Government-owned shipyards already represent $1 billion invested in buildings, drydocks, and other facilities including special tools and equipment. They also have prepaid inventories of shipboard equipment and spare parts which are readily available when needed. Emergency work cannot be preplanned and specifications could not be prepared adequately to bid the work commercially. Finally, reserves of journeymen mechanics and technical personnel are required to serve as the nucleus for increases upon mobilization. Such reserves exist in the Navy shipyards.

The Redstone Arsenal is one of the military installations where contracting has had adverse effect on a substantial number of employees. At beginning of this year there were 1,072 contractor employees working at the George C. Marshall Space Flight Center. Their services ranged from the operation and maintenance of motor vehicles to engineering and fabrication of parts for the Saturn heavy space vehicle. There were 626 other contractor facilities in the city of Huntsville also working for Marshall Center.

The varied impact of contracting is well illustrated by events at this one installation. The salaries paid to these 1,698 employees totaled more than $1

million a month.

One of the first instances of contracting at this installation was for transportation services. One motor vehicle contract called for the delivery of 133 vehicles to the Marshall Center and 56 to Cape Canaveral. They ranged from motor scooters to 5-ton truck tractors. The firm supplying these items also provided maintenance for 90 other road vehicles which have been transferred from the Army and for 163 material-handling vehicles such as forklifts, warehouse cranes, and tractors. Contracting at this one installation had every indication a year ago of expanding to a point where within a year 90 percent of the National Space Agency's work at Huntsville would be performed by contractors.

These facts were only part of the story of contracting at Huntsville. Of far greater importance was its effect on the persons who bore its real brunt-the employees who were displaced by workers hired by the contractors. Included in their number were veterans who ironically were displaced when Government called in private enterprise to take over certain features of defense activities. Their personal problems were many and to them were of major seriousness. A 41-year-old truckdriver caught in a r.i.f. which abolished 100 jobs had built a new home for his wife and 6 children. Repayment of the loan almost overnight became a virtual impossibility.

Another employee of 18 years was let out, ending his hope to make Government a career. Then there was a veteran's widow who lost out despite her 10point preference status and despite the fact that her husband had some years before given his life for the same national defense which now has deprived his widow of her livelihood.

Some phases of contracting at the Marshall Space Flight Center raised serious questions as to the economic benefits if any which accrued to the Government.

Information has reached us that maintenance contractors are using Government-owned tools and equipment in supplying the carpentry, plumbing, steamfitting, and other building trades services which are being performed under contract to the Marshall Space Flight Center. We have been told that their employees are transferred to and from the arsenal construction and maintenance locations by Government transportation. Further, that daily overtime and Saturday overtime is being authorized for contractor personnel but not for civil service employees performing the same type of functions.

This instance of large-scale contracting with its attendant adverse effect on employees began a little more than a year ago when part of the Army Ballistic Missile Agency was transferred to form the nucleus of the George C. Marshall Space Flight Center of the National Aeronautics and Space Agency. It was believed at the time that in transferring, individual civil service employees would lose no pay nor be in any danger of losing their jobs. Since entire functions were transferred, the employees had no choice but to go along with the organization in which they had been employed.

However, in the reduction-in-force letters mailed to the personnel affected by the transfer, it was stated "prior to the activation of this center it was determined that certain support functions, such as guard service, motor pool operations, and janitorial services, could best be obtained by award of contract to private enterprise." It has also been stated that in addition to the support functions already mentioned the center is planning to contract certain general maintenance services which will include carpenters, concrete finishers, electricians, masons, millwrights, painters, sheet metal workers, welders, and unskilled laborers.

Had the policy of contracting been made known at the inception of the center, civil service employees who have been or had been affected could have availed themselves of retreat rights within the entire Army installation. Now their competitive area is restricted to NASA. Even those who were willing to transfer to the Space Flight Center could have applied for employment within the Department of the Army if they had known that their jobs eventually were to be discontinued because of contracting.

Serious question can be raised with respect to the contracting engaged in at the center from the standpoint of economic operation and justice to employees. Reportedly the contractor hourly rate at the Marshall Space Flight Center ranges upward to more than $10 an hour. Such a rate does not mean that an individual employee will be so compensated. On the contrary his earnings remain essen tially at the rate at which he would be employed directly by the Government. The difference of course would remain with the contractor.

There are also instances of substandard wages paid by a contractor. It has been stated that contractors costs of janitorial services had been fixed at $5 an hour, but that the services of janitors obtained for such work were compensated by the contractor at $1 an hour and at $1.15 an hour for supervisors. It is difficult to understand why contracting is necessary for some of the services and positions involved. It would appear on the basis of available information that the total cost to the Government is likely to increase as time goes on. Two months ago there were 5,500 civil service employees at the Marshall Center. The immediate effect of contracting was indicated as the elimination of 105 civil service positions. However, the 1962 budget for NASA called for an additional 460 civil service employees at the Space Center.

It was not clear whether these additional positions would be filled by use of contractor or civil service personnel. The AFGE has been able to obtain assurance that the proposed contracting for maintenance work will not adversely effect civil service employees at the center, but there was no such assurance for the security of nearly 80 employees who were facing separations because of extensions of a previous contract for janitorial and truck-driving operations. The costly effects of Government contracting were evidenced at Fort Wainwright at Fairbanks, Alaska. Contracting reportedly has been becoming more extensive at this post, and the result has been that several reductions in force have taken place during the last 3 years. Many activities previously manned by civilians are more and more carried on by contractors.

When it was indicated that certain work was to go to private industry, the AFGE Lodge at Fort Wainwright in cooperation with other lodges in Alaska circulated a petition among the employees seeking their support for a request that Congress make an investigation. Letters also were addressed to President Kennedy, the Director of the Budget, and to Members of the Alaska delegation

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in Congress and to other interested Congressmen pointing out the fallacies of military contracting.

One of the striking examples cited of the inefficiencies of contracting at this post was that of a contractor who performed the electrical, steamfitting, and other maintenance work by utilizing truckdrivers, bartenders, and other unskilled workers. It was emphasized that the deficient quantity and quality of the work performed by these untrained personnel and the deteriorating condition of the buildings and facilities maintained by these persons were convincing proof of the wastefulness of contracting.

Not all contracts involve defense activities. One such instance which did not seem to be in the public interest was recently reported to the AFGE national office. It concerned the cleaning of all floors of a Government Services Administration office building in a southern city.

It is understood that the price to clean and wax the floors was $400. The work apparently is done Saturday and Sunday. The job is said to have covered 125 man-hours. As for the pay, it was reported to be 75 cents an hour-less than the Federal minimum wage even before the recent moderate increase. At this rate, manpower cost $84, which left a sizable profit, since equipment used was limited and cleaning materials would have cost little. The cleaning and waxing of floors is to be done once a month and cleaning of walls also once a month at approximately the same price.

Recently the national office was informed of a plan that was underway to contract with a private firm for the collection of trash at Bolling Field, Washington, D.C. A conservative estimate was that it would cost the Department of the Air Force $32,000 annually.

Another instance of contracting resulted in the private employer paying lower wages than the Government. It occurred at Williams Air Force Base, Chandler, Ariz. Involved were motor maintenance, garbage collection, aircraft refueling, food services, heavy equipment operation, and water and sewage plant operation. The contractor was reportedly paying lower wages than rates formerly paid by the Air Force. Nearly 100 employees were involved. Some had 18 years of Government service. We were told that they had the choice of a layoff or of accepting lower wages with the private employer.

About 218 positions were abolished at Craig Field because of contracting. To save some of the incumbents, certain functions were transferred to Maxwell Air Force Base, Montgomery, Ala. However, the move only complicated the situation at Maxwell, since it placed the Craig Field employees in competition with those at Maxwell which already had its own r.i.f. problems.

The national office of AFGE was recently informed that a contract for maintenance is contemplated at Maxwell Air Force Base. It involves the maintenance of 250 housing units at Maxwell Heights from October 1, 1961, to June 30, 1962. For the fiscal year 1962, $51,000 is said to be programed, which included maintenance, material, and refuse collection. The proposed contract covers only routine maintenance during normal duty hours Monday through Friday. Outside normal duty hours or on weekends or holidays it is performed by civil service employees of the Directorate of Civil Engineering.

Replacement of military messmen with civilians has been under consideration by the Navy. Instead of arbitrarily resorting to contracting for such personnel, the Navy followed the enlightened policy of initiating a survey to determine the cost of an estimated number of civilians if hired under civil service or under contract. The data were sought by the Bureau of Ships for possible inclusion of the item in the 1963 budget. Such replacement personnel would be used for messmen duties in general messes ashore.

Investigation also was being made recently by the Navy of the cost of janitorial services at the naval base at Norfolk, Va., with a view to determining the desirability of having the work done by a private firm. A commercial cleaning business had offered to do the work for less than the estimated cost when performed by Government employees. The lower cost of work done by contract is made possible in such instances by paying wages below those paid by the Government. It certainly should not be the purpose of the Government to effect economies by depressing wage rates.

An instance of Government contracting which had broad implications for the personnel involved as well as the community was that involving the maintenance of Capehart housing units at the Marine Corps Air Station, Beaufort, S.C., and at the Naval Station, San Diego, Calif. The purpose was experimental to be a pilot study in that it was to arrive at a comparability study upon which

a cost analysis of the operation and maintenance functions could be made. As planned the program was to include 550 units to be maintained by station forces and 550 units by contract forces.

The purpose was ostensibly one of economy, but whatever might be gained in that respect, and such a gain is by no means assured, will be more than offset by the hardship caused for 85 to 90 civil service employees who will be displaced if the decision is finally to use contractual services. If they are displaced, there will be a payroll loss to residents of the Beaufort area of $433,500 to $459,000.

Contracting has been used on an increasing scale at the Laredo Air Force Base in Texas. In the second quarter of 1961 civilian personnel numbered 641 and contractor personnel 85. In the fourth quarter of 1962 it is planned to reduce civilians to 533 and increase contractor employees to 182. Prior to April 1961, the feeding of troops and refueling of planes were on contract. Additional contracts have been let for trash collection, custodial service, photographic services, motor vehicle and maintenance operations, pavement and ground maintenance, and insect and rodent control.

Recently a group of custodial employees at McClellan Air Force Base were involved in a reduction in force because of contracts let for cleaning services. Some of the employees affected are in the 40- to 50-year age group and have had as much as 19 years of service.

These examples of Government contracting, Mr. Chairman, emphasize the questions which can properly be raised concerning this practice. It is our belief that services which have been traditionally performed by Federal personnel should continue to be so performed. It is not a case of keeping persons on the Government payroll who could be dispensed with. If service they perform is needed, and it is given to private employees on contract, there will still be as many persons to be paid. If they are paid less, the Government has been a party to wage exploitation.

This issue should be judged not only from the standpoint of possible savings-for they are so often questionable-but in every instance in relation to the human values, standards of quality, and whatever relation it may have with the national defense.

We are appreciative, Mr. Chairman, of the opportunity to acquaint the committee with these facts concerning a matter of vital importance to the Government and its employees.

AUGUST 14, 1961.

Memorandum for Rear Adm. R. E. M. Ward, Department of Navy, Legislative Liaison, Room 4D-760, the Pentagon, Washington, D.C.

The subcommittee is advised that the Navy Department has entered into a contract with the Transport Co. of Texas to support and furnish community needs and other community services for the island of Kwajalein and that this company furnishes services usually supplied by Government and on Government standards-among these are teachers.

The subcommittee requests to be advised of (1) full content of this contract; (2) services being supplied by this contractor for the civilian and military community; (3) the cost of such support, salaries paid, criteria employed in selecting personnel; (4) the supervision given: (a) by the contractor, (b) Department of Navy.

Also, the following information :

Does this contractor establish the curriculum; does it fix salaries; does it determine qualifications; does it provide tenure?

Is the school system maintained at standards set by the U.S. Office of Education and the National Educational Association as to personnel and text?

To whom do the teachers report and who supervises the conduct of the schools, and what are the qualifications of supervisor?

These questions are the minimum to be answered:

With respect to other support services; does the contractor maintain a "company store"?

Does this contractor furnish any other service usually supplied by the Government? If so, what is it?

Who supervises?

What are the salaries and what supplies and equipment are used, if any? Finally, the same information as sought above relating to other territories or installations, where the community (civilian or military) is serviced by

contract with a private contractor for the account of the Navy Department. You will understand that the subcommittee's hearings are about to close ; therefore, this information is desired promptly. By direction of the chairman.

JOHN J. COURTNEY, Special Counsel.



OFFICE OF THE SECRETARY, Washington, D.C., August 28, 1961.

Chairman, Subbcommittee for Special Investigations, Committee on Armed Services, House of Representativves, Washington, D.C.

MY DEAR MR. CHAIRMAN: This is in reply to a letter dated August 14, 1961, from Mr. John J. Courtney of your staff, which posed several questions relating to the contract between the Navy Department and the Transport Co. of Texas for the operation of base facilities at Kwajalein Atoll, in the Marshall Islands. I am pleased to furnish the following data in response to the questions.

The original contract for the operation at Kwajalein was let early in fiscal year 1959. It contained three options for renewal, if determined to be in the best interests of the Government. The company is currently operating under an option that the Government exercised to provide services from July 1, 1960, to September 30, 1961. The document covering this period is amendment 7 to the basic contract. Since the subcommittee appears to be interested in present rather than in past operations, I am attaching that amendment. It covers completely all facets of the contractual relationship presently in force between the Navy Department and the Transport Co. of Texas. This relationship has remained substantially unchanged in terms of services rendered since the initial bid was won by the Transport Co. of Texas in July 1958. All the background documents are, of course, available should the subcommittee care to examine them.

Exhibit B to the amendment (p. 10) stipulates the services to be supplied by the contractor for the civilian and military community at Kwajalein. It will be noted that the contractor under this contract provides virtually every service normally provided at all military installations by the operating activity. All initial equipment and initial facilities are furnished to the contractor as Government-furnished equipment. Replacement and additional equipment necessary for the performance of the contract are procured by the contractor with the approval of the contract administrator. In certain instances such as the areas of transportation, construction material handling, and aircraft, increased allowances and replacement are filled through Navy channels and provided as Government-furnished equipment to the contractor. No profits accrue to the contractor other than the fixed fee paid under this contract.

The contractor does not maintain or operate a “company store." In fact, the contractor has no business enterprises on Kwajalein that are foreign to or separate from the prime contract with the Navy. Compensation, therefore, to the contractor for all types of services rendered is an integral part of the fee stipulated in the contract. Within the scope of the contract, the contractor operates a hard and soft goods store (Navy exchange) and a commissary store. The price structure for merchandising the items sold in these stores parallels the pattern established for Navy-operated navy exchanges and commissaries. In brief, the contractor purchases all material as an allowable reimbursable under the contract. Markups are applied as appropriate to cover the cost of sales services. Collections from sales by the contractor are then credited against the reimbursables due under the contract. This complete operation is under the surveillance of Navy auditors on the site. The contractor derives no profits from merchandising operations. The contractor receives no percentage of sales. Merchandising operations in terms of collections credited against reimbursables due the contractor have been included in the gross scope of the contract as a basis for fee determination. By way of further explanation, the estimated net cost of $12,631,650 shown in the contract excludes that volume of business managed and operated by the contractor on a "no cost to the Government basis" such as the two stores above.

At the present time virtually all supplies are procured by the contractor either from Navy supply channels or in the open market depending on price and avail

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