Mr. CLINKSCALES. Yes, sir.

Senator CHILES. So, that was awarded on a sole source basis, then? The change order wouldn't be bid?

Mr. DAVIA. No, sir. It was given to the contractor who was successful in the original bid.

Senator CHILES. I understand that we were supposed to get new sprinklers which would go off under the fire system at 280°. There are actually old sprinklers there that had been installed in 1941, that went off at 180° and that would, of course, mean that a much smaller fire could trigger the sprinklers.

Were all the new sprinklers put in and the old sprinkler systems changed over? What happened there?

Mr. CLINKSCALES. No, sir; if I understand correctly, the National Archives requires sprinklers that go off at 285°. The old sprinklers in the building were set for 180°. GSA let a contract to install new 180° sprinklers. Maybe I am wrong here.

Senator CHILES. Mr. Davia.

Mr. DAVIA. We are auditing that particular project, so I am a little more conversant with the actual situation. One of the features of the contract we are speaking of here was to replace the 180° sprinkler with the 280° variety. This was done in order to protect the records. stored there from water damage; should a small fire set off the 180° sprinklers, the water would do more damage than the fire.

What actually happened here was that the job was signed off as having been satisfactorily performed, even though the 280° sprinklers in general had not been installed as provided in the contarct.

Senator CHILES. So any fire could set off a 180° sprinkler and that will trigger the whole system, is that right?

Mr. DAVIA. Any fire that reached that level of heat, yes.

Well, as I understand it, a fire of 180° would set off the sprinklers in the fire area. But one of the interesting aspects of this is that some of the storage sectors did, in fact, have 280° sprinklers. The problem which then arises is in the adjoining storage bay, we still have 180° sprinklers.

A fire in the 280° bay could get up, let's say to 200°, 225°; the heat would then travel down the pipe and set off the 180° sprinkler in a bay which had no fire.

Senator CHILES. All right. You are looking at that now in an audit, is that correct?

Mr. CLINKSCALES. Yes, sir, we are.

Senator CHILES. I understand that you normally couldn't prove that GSA was being ripped off in a local warehouse in the Midwest, and that there had been FBI investigations over the years, but nothing that you could really pinpoint.

Have you got something better on that now?

Mr. CLINKSCALES. Yes, sir. We have an operation now underway in our organization which we hope will put a stop to thefts of $3,000 to $5,000 a week.

Senator CHILES. How long do you think they have been going on at that rate?

Mr. CLINKSCALES. We have every reason to believe that they have been going on for years. They have been going on at least during the years I have been with GSA, which is since 1971.

Senator CHILES. About 2 weeks ago, GSA started turning up evidence of repair and alteration scandals in Louisiana and Texas which closely follow the Washington, D.C. pattern. You pay for the work, it doesn't get done. I understand they have got variation though of how you go about choosing your favorite contractor.

How was that variation worked?

Mr. CLINKSCALES. I will use painting contracts, which involve a number of small contractors, as an example. The contractors can be bonded for up to three times their net worth.

So if an individual was worth $100,000, he could be bonded for $300,000 which would mean that he could compete for most of our painting contracts. Without apparent reason last year, GSA in that region awarded $800,000 in painting contracts at one time, which meant that you had to be bondable for over $1 million. This meant that the small painting contractor could not bid on the contract; however, some of the small painting contractors were, in fact, hired as subcontractors by the firm which received the award. Thus these same small firms actually carried out the work.

Senator CHILES. So the same little people are having to do the work, but they are not able to get the bid now. That goes to the big contractor and he subs it out to the little ones.

Mr. CLINKSCALES. Yes, sir.

Senator CHILES. And there are fewer people that would be bidding on this larger contract?

Mr. CLINKSCALES. Right.

Senator CHILES. Do you know anything about the markup on the contract or the difference? What is the subcontractor getting and what is it being billed to the Government for?

Mr. CLINKSCALES. Using a hypothetical situation, the Government contract calls for 20,000 square feet of painting at so much a square foot. The subcontract is for 10,000 at a lesser amount of the money per square foot. Then, in addition, where waterproof painting is required, contracts frequently called for two coats of waterproof painting. Our understanding is that this is an impossibility. You can't put on two coats; the paint will run off if it is waterproof.

Senator CHILES. So if you waterproof paint it once, you can't waterproof paint it again, because you waterproofed it the first time? Mr. CLINKSCALES. Yes, sir; that is our understanding.

Senator CHILES. But we are paying for two coats of waterproof painting.

Mr. ČLINKSCALES. We are paying for two coats.

Senator CHILES. How much apparent fraud have you turned up in the last 2 weeks?

Mr. CLINKSCALES. In excess of $100,000.

Senator CHILES. Do you think that is all of it?

Mr. CLINKSCALES. No, sir, not all.

Senator CHILES. I understand in cases in Denver, Missouri, Montana, smaller cases in the thousands, are they following the same established pattern though?

Mr. CLINKSCALES. Basically, this is the same pattern that we have here in Washington.

Senator CHILES. Do you think there could be more?

Mr. CLINKSCALES. Yes, sir, we have reason to believe there are

more.

Senator CHILES. How about in California, Santa Ana, and San Pedro?

Mr. CLINKSCALES. Absolutely the same thing is occurring.

Senator CHILES. You have got problems in Honolulu back in the self-service store there?

Mr. CLINKSCALES. Yes, sir, we found an inventory shortage in excess of $185,000. We also found indications of marking up the prices of the goods sold in our self-service store to the Air Force, which is our largest customer there.

Senator CHILES. Mr. Alto, for the record, let me just ask, I think I know the answer to this, was there ever a contemporaneous investigation of these matters. In other words, were investigations already going on at the time you came in or were these all discovered recently? Mr. ALTO. These were all discovered recently, Senator. They began just prior to your last hearings, and they persisted; they have been pursued vigorously by Mr. Clinkscales since the time of your last hearings.

Senator CHILES. Before we go on, I would like to note for the record that we have received a letter from Mr. Alto concerning RUSCO Electronic Systems. We were not talking about RUSCO Electronic Systems in our earlier hearing, but in our June hearing we noted that GSA by failing to follow its own procedures entered into a contract in 1974 with RUSCO Industries and that it was known to the Government that its precedent had connections with organized crime.

We want to note that RUSCO Electronic Systems is a subsidiary which was sold in 1977 to ATO, Inc., and since ATO has expressed concern to us that their company might be confused with RUSCO Industries, I would like to insert in the record a letter which says in part "The organized crime sections of the Department of Justice have advised me that they know of no evidence fulfilling ATO, Inc., with its subsidiary electronic systems with organized crime."

Is that correct, Mr. Alto, ATO is clean and we certainly want to make that a part of the record?

Mr. ALTO. That is correct, sir. I did an investigation as best I could and the fruits of that investigation are fully contained in that letter. The documentation that I have at GSA is available to the subcommittee at anytime.

Senator CHILES. Thank you.

The case we were trying to make was that GSA had not followed its own procedures in checking the organized crime list where they could have found that out. At the time, the parent company was involved, but it does appear this has been a change, and we want to note that change for the record.

I want to thank each of you. I am afraid I have some more questions today that even involve some of the cases that we have just been able to touch on, but our time is going so fast. I had hoped at this time and I think you had, too, Mr. Alto, that this would be kind of like a wrap-up hearing almost.

We have all of the fish in the basket. It looks like we were both daydreaming at that time. So I am sure, Mr. Davia, that we are going to have another visit. I don't know just when it will be right now, but I want you all to keep up the good work.

It looks like it is beginning to bear fruit at last, and I thank you for the diligent way that you are investigating. I have high hopes for

the setup that we now have of the strike force. I think you will be able to transfer cases to the strike force, and, Mr. Clinkscales, some of your investigators will be working with him.

Mr. Davia, are you going to have people, has that been flushed down yet, will the auditors actually be assigned to the strike force, too? Mr. DAVIA. Yes, I understand that some will.

Senator CHILES. Good. I think that is necessary. I was going to say I would think that it is necessary. Thank you for your appearance for today. You might want to hang on for a little while in the room. I am going to call Mr. Jay Solomon now. He has been waiting patiently through yesterday and today and then we will put on Art Metals and Mr. Kurens and his attorney, but Mr. Solomon has got to leave.

Mr. Solomon, I will ask you to come forward.

[Whereupon, Joel W. Solomon, having been first duly sworn, was called as a witness.]

TESTIMONY OF JOEL W. SOLOMON, ADMINISTRATOR, ACCOMPANIED BY VINCENT ALTO, SPECIAL COUNSEL; ALLIE B. LATIMER, GENERAL COUNSEL; AND PAUL GOULDING, DEPUTY ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION

Mr. SOLOMON. Mr. Chairman, I would like to have Vince Alto stay at the table. I have with me Allie B. Latimer, General Counsel for GSA and Paul Goulding, Deputy Administrator for GSA.

Mr. Chairman, my name is Jay Solomon. I am a businessman from Chattanooga, Tenn., who is the Administrator of the General Services. It was just 88 days ago

Senator CHILES. Here is a man from Chattanooga, Tenn. who wishes he never heard the name of General Services.

Mr. SOLOMON. It was just 88 days ago that I appeared before your committee and expressed my dismay at the problems I inherited when I came to the Federal Government at GSA. I don't know whether any man can walk into a Federal agency of the size and complexity of GSA and put it on a sound business-like basis overnight. But I am sure going to continue to do my best.

You must remember that I am a businessman and not a bureaucrat. I believe that only through a business-like Government can there be economic and social profit for the people. I believe it is in the best interest of the Nation to have an expanding economy brought about by efficiency and honesty in Government.

I also believe it takes a strong-willed, hardheaded businessman to provide the kind of leadership required to get a tough job done. This has been a tough job.

An Administrator of GSA needs a concept of our entire Federal Government: Its pain, its politics, its vision, its blindness, and its needs. At times it is easy to become frustrated and cynical, but when I answered the call to public service, it was because of President Carter's dream of making out Government honest and efficient. Many times on the campaign trail, I heard him say, and I quote, "The American people believe in tough competent management. We've seen evolve a bloated, confused bureaucratic mess. We ought not to lower our standards in Government. Our Government in

Washington ought to be an inspiration to us all and not a source of shame."

The President's inspiration then and his support have sustained me through difficult days. I should like to read to you the memo I received from Predident Carter on July 24, 1978:

"Corruption in Government is intolerable. For that reason I am deeply disturbed by the allegations of wrongdoing within the General Services Administration that have recently come to my attention. "These allegations describe a pattern of misconduct extending over many years and ranging from abuse of Federal authority to criminal practices such as fraud. If these charges are true, an extremely serious. breach of the public trust has occurred.

"I support and commend the steps you have taken so far to bring this matter to light and to bring those responsible to justice. I will back you fully in whatever procedural, personnel, organization, and other actions are needed. To these ends, by copy of this memorandum, I am asking the Attorney General to provide you with whatever assistance you and others in GSA who are responsible for conducting these investigations may require, both to complete your investigations and to take appropriate and rapid remedial measures."

If I thought for a moment that I did not enjoy the full support of the President, I would head back to Chattanooga very fast.

Mr. Chairman, I didn't come to Washington to scale the heights and light some fires, but rather to put into motion a new philosophy, a new spirit of pragmatic idealism in our Federal institution. I came to GSA to apply the best practices of business to Government and rid Government of the worse practices of "business as usual."

I am trying to solve not only the problems of today, but I am looking beyond at tomorrow. I am looking at what GSA is, and what it was meant to be by its founder, the Hoover Commission. Compared to the great Cabinet departments, GSA is not very large or important. But in our society, honest business-like principles seem to have a habit of taking root in small places and eventually casting their sunlight over the land.

I have brought about as many improvements and reforms as could be made without risking the basic structure of this Agency and, therefore, the ultimate usefulness of the reforms themselves. The conduct of a small minority of the employees of this Agency has dishonored American traditions and destroyed the morale of many loyal Government employees. The conduct of this small minority has been hard to take, and the drumbeat of a conscientious media has not quieted the

pain.

I am not here today to apologize for those few, but to speak with pride about an Agency which has made a dramatic turn in the right direction and has gained strength from the moral backbone I have tried so hard to provide. This undertaking I know cannot be accomplished without dangers and bitterness. We must accept the dangers, but regret the bitterness.

In the past 3 months, I have talked to thousands of GSA employees in the central office and in 2 of the largest of the Agency's 10 regions. I spoke to them quite frankly about the problems, and my hopes and expectations of setting GSA on a proper course. They told me of their difficulties and concerns *** and they shared my hopes.