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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 mainte nance 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 $133,500 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.

DEPARTMENT OF THE NAVY,

OFFICE OF THE SECRETARY,

Washington, D.C., August 28, 1961. Hon. F. EDWARD HÉBERT, 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 re lationship 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 Gov. ernment-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 availability, but, of course, are paid for by the Government. Under the terms of the contract, such supplies become the property of the Government upon delivery by the vendor.

The salaries paid all personnel are stipulated in exhibit C to the amendment. Where a need arises for a skill not contemplated when the contract was negotiated, salary scales are subject to approval of the contract administrator. These salary scales were originally based on the rates paid by the Atomic Energy Commission to its logistic support contractor at Eniwetok. The rates generally are prevailing U.S. west coast rates.

The estimated cost and fixed fee for the contractor's services during the 15month current period and beginning July 1, 1960, was as stated in the contract $13,418,650. Through June 30, 1961, the actual gross costs incurred have been $14,350,000. These gross costs have been offset by collection from private parties (as was anticipated in establishing the contract amounts) by $35,791,552. Net charges to the contract through June 30, 1961, therefore, have been $8,564,448.

The criteria employed in selecting personnel have been established by the contractor. These include

1. All employees are examined by a doctor for physical capability.

2. Management personnel are subjected to three separate interviews by the following contractor's employment staff :

a. Personnel interviewer.
b. Supervisor of personnel.
c. Manager Pacific operations.

3. All other personnel receive two interviews, one from the personnel interviewer and a second from the supervisor of personnel. The supervisor of personnel is a highly qualified personnel administrator and all employees are also screened to eliminate moral, mental, and social incompatability to the maximum extent possible.

The supervision given to contractor's employees comes solely from the contractor. This embraces complete supervisory functions on all aspects of the employees work. The company has published rules and regulations governing employees activities on and off the job because of the nature of the assignment. Employees may be penalized, for example, for unauthorized entry onto adjoining islands as certain of these islands are under the jurisdiction of the Trust Territory of the Pacific and such entry constitutes illegal entry into another political entity.

The supervision given by the Department of the Navy is given to the corporate entity of the contractor and consists of work requirements generated by the military operations on the island. The Navy, for example, establishes the level of maintenance to be attained on the island installations; it transmits to the contractor work requests from other military users of the island ; and it approves overall personnel and inventory ceilings on the basis of justifications generated by the contractor. Normal recurring functions are given the contractor on a blanket order basis such as the requirement to operate the public utilities, the housing and messing facilities, the school, etc. Once such an order is given, the Navy interest consists of monitoring the operation to insure satisfactory contract performance. Succinctly stated, the Navy does not supervise. In broad terms the Navy tells the contractor what to do but not how to do it.

With respect to the school, and its management, the following data are furnished:

1. The curriculum of the George Seitz School is established by the school advisory board which consists of two members each from the Nary; the Navy's logistic contractor, the Transport Co. of Texas; the Army and the Army's technical contractor, Western Electric.

2. The maximum salary paid in each job category (teachers included) is established by the Government in exhibit C of the contract between the Bureau of Naval Weapons and the Transport ('o. of Texas. The minimum salary and the step increases to the basic salary are recommended by the Transport Co. of Texas and approved by the contract administrator (commanding officer, Pacific Missile Range Facility, Kwajalein).

3. The Transport Co. of Texas prepares and presents detailed job descriptions for each employee. The descriptions are submitted to the commanding officer, Pacific Missile Range Facility, Kwajalein, for review and approval. The commanding officer compares these descriptions against established Department of Defense and Navy standards and approves them. The contractor determines the individual's qualifications or capability to meet the description.

4. The Transport Co. of Texas hires teachers only for the school at Kwajalein. Since the Transport Co. of Texas operates only this school, the tenure of their teachers, as well as all other employees, is subject to the ability of TCT to maintain an efficient and economic operation and thus retain their contract. Spe cifically, a teacher without an employed spouse has a contract for 2 years which requires that during the school vacation he or she be assigned other tasks to preclude unemployment with compensation. Conversely, a teacher who is the spouse of a full-time employee may be employed or hired on the island and compensated for the duration of the school term. The teacher may or may not be employed during the school vacation periods but in the event employment is not desired, compensation is not rendered by the contractor. It might also be added that a teacher's salary is a weekly rate for the period of actual teaching and that the policy of the Navy is not to reimburse a contractor's employee for idleness.

5. Prior to contracting with the Transport Co. of Texas for the base operation of Kwajalein, the Navy maintained an accredited elementary school and a correspondence high school associated with the University of California. Transport Co. of Texas maintained this arrangement through the last school year. At the present time a new elementary and junior-senior high school combination is being constructed. Even though the senior high school population will probably not exceed 60 students, the Transport Co. of Texas is establishing a regular high school. The Navy has requested that the North Central Association of Colleges and Secondary Schools, which is under contract with the Army to examine Department of Defense schools in the Pacific area, visit Kwajalein this fall for the purpose of accrediting the George Seitz School. Transport Co. of Texas has based its recommendations to the school advisory board on the standards of the State of California. These standards are in consonance with the U.S. Office of Education and the National Education Association.

6. The teachers report to the school principal. The school principal supervises the conduct of the schools. The qualifications of the school principal are as set forth in enclosure (2) attached hereto.

The Navy has only one other contract where a community is serviced by a private contractor. This is at Eniwetok where the Nary in June 1960 took over an existing Atomic Energy Commission contract with Holmes & Narver, Inc. The operation under this contract is virtually the same as that described abore except that there are no dependents on Eniwetok so certain functions peculiar to dependents are not required at this base.

The above information, and the attachments hereto, are designed to be specifically responsive to the subcommittee's areas of interest, as evinced in your August 14, 1961, letter. Should you require any additional information, however, we shall, of course, be pleased to furnish it. Sincerely yours,

KENNETH E. BELIEU,
Assistant Secretary of the Navy

(Installations and Logistics).

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