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TESTIMONY OF JAMES C. CROTHERS, DIRECTOR, BUSINESS SERVICE

CENTER, GENERAL SERVICES ADMINISTRATION Mr. BROWNSON. Mr. Crothers, you solemnly swear the testimony you will give will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. CROTHERS. I do.

Mr. BROWNSON. Be seated and give your name and official designation to the reporter.

Mr. CROTHERS. John C. Crothers, Director of the Business Service Center, General Services Administration.

Mr. BROWNSON. Mr. Crothers, would you state briefly the purpose and functions of the Business Service Center, with particular emphasis on the procedure for receiving, opening, and making bids public?

I would like to repeat again to the members of the subcommittee what I said here this morning. This hearing now spreads out into a two-branched hearing because we are very interested at this point in the procedure which made possible the awarding of this bid to the Retort Pharmaceutical Co. In order to find out how this material was procured, we are also going to discuss in some detail the procedures in the General Services Administration for the advertising of bids, receiving bids, and opening and making the contents of the bids public.

Will you proceed, please, sir?

Mr. CROTHERS. Our functions primarily are those of guiding and aiding business concerns in doing business with the Government, and among the duties charged to us is the handling of bids submitted to GSA.

There are two types of bids. One is the publicly advertised bid, which we open in our office at the time set for the opening and distribute copies of the bids to the public for their inspection. The other type is a negotiated bid, where the closing of a bid is at 5 o'clock on a given day. We only safeguard those bids that are directed to us until the closing of that particular day. The following morning they are turned over to the purchase group and opened by them. We have no further part in negotiated bids.

Mr. BROWNSON. Do you know whether the contracts with the Retort Pharmaceutical Co. which we are concerned today were advertised bids or negotiated bids?

Mr. CROTHERS. I understand they were negotiated, sir.

Mr. BROWNSON. That fact disturbs me a little bit, because I had understood the general practice of GSA was to use advertised competitive bids in all cases except where military security or where some particular complex nature of the components made it vitally necessary that they use the negotiated bid. What is your policy on which bid shall be negotiated and which shall be advertised, and who makes the decision?

Mr. CROTHERS. The decisions, as I understand it, are made by the Purchase Division, based on policies established by the central office of the General Services Administration. I have no connection with that particular activity as to those decisions. The policies are outlined in which cases negotiation can be consummated; but they are

supposed to be generally in cases of emergencies and where certain factors are involved. I do not know whether they were part of this particular bidding or not.

Mr. BROWNSON. When you ask for a negotiated bid, you specify a closing date, do you not? Mr. CROTHERS. A day; yes,

sir Mr. BROWNSON. Now, is it possible to accept further bids and take them through the process of negotiation after the close of the period which has been prescribed for receiving negotiated bids?

Mr. CROTHERS. I understand it is. Until the award is made, they can continue negotiation, even though after the closing day.

Mr. BROWNSON. In other words, in negotiated bids the main rules are disregarded, and it is a sort of catch-as-catch-can proposition?

Mr. CROTHERS. To a degree.

Mr. BROWNSON. The thing that bothers me is what is the purpose of advertising negotiated bids if you are going to take additional bids after the closing date?

Mr. CROTHERS. I am not too sure there whether they do take additional bids, but I know they negotiate with the bidders from whom they have already received bids. But whether they take additional bids, or not, I do not believe I can answer that.

Mr. BROWNSON. Some evidence, I believe, will come up in this case that some additional bids were considered after that date.

I would like to pass down to the witness exhibits 1, 2, 10, 11, 12, and 24. Twenty-four and ten are not in the record yet. I will ask unanimous consent that they be entered at the proper point in the record and designated as exhibits 10 and 24, along with exhibits 11 and 12, which are in the same category. (Exhibits 10 and 24 are in the appendix, pp. 131-138 and 163–166.)

I would like to ask the witness to study them for a minute and tell us which of those are negotiated bids and which are advertised bids. All of them were awarded to the Retort Pharmaceutical Co.

Mr. CROTHERS. This is a negotiated bid. However, this is the amendment to it. That is exhibit No. 1.

Exhibit 2 also is a negotiated bid.
Exhibit 10 is negotiated.
Exhibit 11 is negotiated and so is 12 and so is 24.
All of them are negotiated.

Mr. BROWNSON. Is there anything in the form that would indicate to a bidder whether he was getting a request for a negotiated bid, or whether he was getting a request for a bid under the advertised system?

Mr. CROTHERS. In some of them there are. They use the word "informal" in some of those forms. That would indicate, of course, they are negotiated bids.

Nr. Brownson. They use the word “informal” you say?

Mr. CROTHERS. Yes, sir. For instance, this is "informal" on exhibit 12, and it is "informal” on exhibit 11.

Mr. BROWNSON. Were No. 1 and No. 2 contracts inclusive of the word “informal”?

Mr. CROTHERS. It does not evidence it here.

Mr. BROWNSON. In other words, if you were a manufacturer getting the request to bid on these large quantities of pills, you would not know then from those forms whether it was going to be an advertised bid, or whether it was going to be negotiated?

Mr. (ROTHERS. I would say it is a little difficult for a bidder to see from this exhibit No. 1 whether it was advertised or not.

Mr. Brownson. The average bidder then getting the request to bid which was sent out in the case of the two big contracts here would probably feel that it was an advertised bid; would he not?

Mr. CROTHERS. On one and two.

Mr. BROWNSON. He would not have any knowledge that those bids were to be negotiated and that the rules of the situation changed in the middle of the game, would he?

? Mr. CROTHERS. As far as I can read here; yes, sir.

. Mr. BROWNSON. In other words, he would have no way of knowing that this was to be a negotiated bid, and it would be a logical thing for him to assume that this was to be an advertised bid handled under the rules which you have set out for handling these bids?

Mr. CROTHERS. That would appear to be so. However, this is a contract. I do not see the invitation.

Mr. BROWNSON. The staff will show you the invitation to bid.
Mr. CROTITERS. No; there is nothing to indicate it on this one.

Mr. BROWNSON. There is nothing on either one of those invitations to bid to indicate whether it is to be an advertised or negotiated bid?

Mr. CROTHERS. That is right.

Mr. BROWNSON. If that is the case, when the bids come back to your office, since there is nothing on the form to indicate, how do you know whether to handle them as advertised bids or negotiated bids?

Mr. CROTHERS. These particular bids were not directed to my office, so I do not have any record of those. They went, as I understood, to the purchasing oflicer.

Mr. BROWNSON. In the case of those bids, what is your agencywide procedure! Do you keep the envelopes in which bids are received?

Mr. CROTHERS. On all advertised bids we open, the envelope is stapled to the bid. On a negotiated bid, the bid is sent to the Purchasing Division in its envelope unopened.

Mr. Brownson. Would the negotiated bid be stamped with the date that it was received by GSA on the outside of the envelope before it was sent to the Purchasing Division?

Mr. CROTHERS. Yes, sir.

Mr. IKARD. How would you know which bids to send up to the Purchasing Agent and which ones to keep yourself, if there is nothing on those ?

Mr. CROTHERS. There is an identification—an identifying number.

Mr. IKARD. But who makes the decision as to whether it is negotiated or otherwise?

Mr. CROTHERS. That is made by the Purchasing Division. We have nothing to do with that.

Mr. IKARD. He sends word down to you that certain contracts, and identifies them, are to be let or negotiated and sent up to him?

Mr. CROTHERS. We have a record of all those; yes, sir.

Mr. HOLTZMAN. Chairman Brownson spoke of an unusual policy with respect to negotiated bids on any matter other than relating to our national security. Is that correct, Mr. Chairman? Do I quote you correctly that you thought it was unusual, or that it was an unusual

practice to use negotiated bids except where matters of security problems are involved ?

Mr. BROWNSON. That has always been my understanding of the intent of the Congress in legislation which we have passed authorizing negotiated bids.

Mr. WILLIAMS. Is that your understanding, too, sir?

Mr. CROTHERS. There are certain criteria that are set up to be a guide to the purchasing officer with respect to bids that he may negotiate and, of course, that is one the chairman has mentioned. There are others, I presume, where delivery is such a factor that you could not go out for advertised bids.

Mr. IKARD. You mean the time of delivery?
Mr. CROTHERS. Yes, sir.

Mr. IKARD. Is it still the policy of your Department to handle negotiated bids on matters other than security problems, today?

Mr. CROTHERS. I believe so, in certain instances.
Mr. IKARD. Thank you very much.

Mr. BROWNSON. I would appreciate it if somebody from GSA would secure for us an estimate of the percentage in monetary value of GSA overall bids that were let as advertised bids and those that were let as negotiated bids in the last year. Either you or Mr. Peed would probably be the one to ask to obtain that information from the agency

for us.

Mr. IKARD. Could we have also in the information some information as to the type of material that was negotiated for? I mean generally?

Mr. BROWNSON. And break down the percentages involved to the type of material.

Mr. IKARD. Not a specific itemization, but for such things as pharmaceuticals.

Mr. BROWNSON. No; just an overall categorical description of the types; whether they were for actually negotiated contracts in every item you procure, or whether there were certain special classes.

Mr. CROTHERS. I think Captain Maull, who is also one of your witnesses, is in charge of all that in FOA procurement.

Mr. BROWNSON. I am not thinking only of FOA; I am thinking of the GSA overall program.

Mr. Davis. My name is Robert T. Davis. I am congressional liaison officer for General Services . Administration.

That information is readily available and we can give it to you for the last fiscal year covering our regular procurement programs and our special programs.

Mr. BROWNson. That would be very fine. We would appreciate receiving it very much. Will you please direct it to the subcommittee.

(The information furnished by Mr. Davis is set forth in the appendix as exhibit 34.)

Mr. WILLIAMS. I do not suppose this witness knows how many concerns were asked to bid on these pills we are discussing here--do you?

Mr. CROTHERS. No: I do not.
Mr. WILLIAMS. Who would know that? Would that be in GSA?

Mr. CROTHERS. I think the purchasing officer who made the contract would know that.

Mr. BROWNSON. I would like to ask our counsel, Mr. Kennelly, if he has any questions.

Mr. KENNELLY. I just want to suggest in this statement that we have some mention made in there of the authority under which these bids were negotiated, the legal authority, and of GSA or FOA or other regulations that are applicable, so that we will know what authority is the basis for GSA's procedure.

Mr. BROWNSON. We have talked about advertised bids and negotiated bids. I would like to ask what constitutes an advertised bid. What constitutes advertising in that sense of the word?

Mr. CROTHERS. Advertised bids is where we solicit bids from a number of suppliers setting a specific time of opening, such as 10 o'clock in the morning of a certain day. All bids received prior to that date and up to that time are opened and publicly disclosed. No bids received subsequent to 10 o'clock on that given day receive consideration, except

in some instances where it may be established through the Post Office Department that the bid was late due to faulty delivery. That is the only consideration.

Mr. BROWNSON. Those cases I would imagine are relatively infrequent?

Mr. CROTHERS. Yes; and they are substantiated by the Post Office Department in the folder.

Mr. BROWNSON. The burden of the request in that case would rest upon the person making the bid.

Mr. CROTHERS. We have in instances, when it is evident that the bid was mailed on time by its postmark but received after the opening, contacted the Post Office for a check of the situation.

Mr. BROWNSON. What constitutes a negotiated bid?

Mr. CROTHERS. A negotiated bid is where the purchasing office will in some instances—in many instances, in fact—send out bids to a group of interested bidders and set a day of opening on which the bids must be received by the closing of that particular day. It is not too different in some instances than an advertised bid in that the forms are mailed to the prospective bidders.

There are other cases I believe where there are a very few suppliers of a commodity, and in that case it may be direct negotiation with those few suppliers.

Mr. BROWNSON. In this particular case we have established that on receiving the request for bids that the Retort Pharmaceutical Co., or anyone else bidding on these particular requests, would have no way of knowing whether they were to be negotiated bids or advertised bids.

Mr. CROTHERS. Not on the first two, so far as I can see. The only evidence that I can read there is that the offer closed at 5 o'clock on a certain

day which indicates to me it was a negotiated bid. Mr. BROWNSON. How can you tell from that?

Mr. CROTHERS. Otherwise there would be a time set for opening during the working hours of the office which would be 10, 11, 12, or 2 or 3 o'clock. It would never be 5 o'clock, which would be the closing hour.

Mr. BROWNSON. This particular request for bid that I have here simply says: "Bid closing date, bids will be received at this office not later than February 8, 1952."

Mr. CROTHERS. Which is definitely an indication it is a negotiation to me. That would not necessarily be so to the public.

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