Pharmaceutical Co.; and Miss Dorothy Queen, purchasing agent for the Federal Supply Service, Washington, D. C.

We will adjourn until 2 o'clock, and I will ask the members to please be cooperative in coming back at 2 o'clock. We are very anxious to hear these witnesses, who are from out of town, and to hear Miss Queen, who is interrupting her vacation, very graciously, to testify here this afternoon.

(Thereupon, at 1:05 p. m., a recess was taken until 2 p. m. of the same day.)

AFTERNOON SESSION

The subcommittee reconvened at 2 p. m., Hon. Charles B. Brownson, subcommittee chairman, presiding.

Mr. BROWNSON. The subcommittee will come to order.

It has been requested by the General Services Administration to put Mr. Charles W. Gasque, Jr., Assistant General Counsel, on the stand very briefly to read into the record some pertinent provisions of the Federal Property and Administrative Services Act in connection with requirements for advertised bids and negotiated bids. Mr. Gasque, will you please step forward?

Mr. GASQUE. Mr. Chairman, two questions were asked of a witness this morning concerning GSA procurement which we felt should be clarified as to the legal basis under which our procurement is carried forward.

Mr. BROWNSON. In case you are going to testify as well as read into the record, I will ask you to stand and be sworn, please.

You solemnly swear the testimony you will give in this hearing will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. GASQUE. I do.

TESTIMONY OF CHARLES W. GASQUE, JR., ASSISTANT GENERAL COUNSEL, GENERAL SERVICES ADMINISTRATION

Mr. BROWNSON. Will you give your name and official position to the reporter, please?

Mr. GASQUE. My name is Charles W. Gasque, Jr., Assistant General Counsel, General Services Administration.

The first question which I have reference to was one directed to the witness to define an advertised contract, that is, what is meant by formal advertised contracting. I might say that purchasing and contracting by the General Services Administration for supplies and services is covered by its primary and basic statute, the Federal Property and Administrative Services Act of 1949, as amended. That act states that all purchases and contracts for property and services shall be made by advertising, with certain enumerated exceptions. Section 303 of the Federal Property and Administrative Services Act defines advertising requirements in this manner. The section states that: Whenever advertising is required

(a) The advertising for bids shall be made a sufficient time previous to the purchase or contract, and specifications and invitations for bids shall permit such full and free competition as is consistent with the procurement of types of property and services necessary to meet the requirements of the agency concerned.

55430-54-5

(b) All bids shall be publicly opened at the time and place stated in the advertisement. Award shall be made with reasonable promptness by written notice to that responsible bidder whose bid, conforming to the invitation for bids, will be most advantageous to the Government, price and other factors considered: Provided, That all bids may be rejected when the agency head determines that it is in the public interest to do so.

The second question to which I have reference was the one as to what constitutes exceptions to the requirement that contracts be entered into by advertising. Section 302 (c) of the Federal Property and Administrative Services Act, sets out some 14 exceptions.

Off the record.

(Discussion off the record.)

Mr. BROWNSON. Can they be enumerated briefly?

Mr. GASQUE. I will try.

Mr. BROWNSON. If you could summarize the exceptions and indicate if they are mandatory exceptions or permissive exceptions. Mr. GASQUE. I will try, sir.

The act provides that all purchases and contracts for property and services shall be made by advertising except that such purchases and contracts may be negotiated by the agency head without advertising if one of the following 14 circumstances is present:

(1) Where it is determined to be necessary in the public interest during the period of a national emergency declared by the President or by the Congress;

(2) Where the public exigency will not admit of the delay incident to advertising;

(3) Where the aggregate amount involved does not exceed $1,000, subject to certain provisos not necessary to be mentioned here;

(4) Where the contract is for personal or professional services: (5) Where the contract is for any service to be rendered by any university, college, or other educational institution;

(6) Where the property or services are to be procured and used outside the limits of the United States and its possesions;

(7) Where the contract is for medicines or medical property; (8) Where the contract is for property purchased for authorized resale;

(9) Where the contract is for property or services for which it is impracticable to secure competition;

(10) In situations where the agency head determines that the purchase or contract is for experimental, developmental, or research work, or for the manufacture or furnishing of property for experimentation, development, research, or test, subject to certain provisos;

(11) Where the contract is for property or services as to which the agency head determines that the character, ingredients, or components thereof are such that the purchase or contract should not be publicly disclosed;

(12) Where the contract is for equipment which the agency head determines to be technical equipment, and as to which he determines that the procurement thereof without advertising is necessary in special situations or in particular localities in order to assure standardization of equipment and interchangeability of parts and that such standardization and interchangability is necessary in the public interest;

(13) Where the contract is for property or services as to which the agency head determines that bid prices after advertising therefor are

not reasonable or have not been independently arrived at in open competition, subject to certain provisos; and

(14) Where the property or services are authorized to be procured by other law.

Those are the 14 exceptions in our basic statute to the first requirement that contracts be advertised.

Mr. BROWNSON. Those exceptions only make it permissive to engage in negotiated bidding; they do not require that negotiated bids be accepted?

Mr. GASQUE. That is my understanding.

Mr. BROWNSON. And it is not true that in your general regulations it is clearly indicated that in all cases wherever practicable it is the preferable procedure to use the advertised bidding method with the public witnessing the opening of the bids?

Mr. GASQUE. It is the policy of GSA to use in almost all cases the formal advertised procedure. However, even where we do resort to negotiation it is likewise our policy, and I believe our instructions in our various services so provide, that competition to the greatest extent will likewise be secured.

Mr. BROWNSON. Do you have any questions to ask this witness, Dr. Judd?

Dr. JUDD. No.

Mr. BROWNSON. Mrs. St. George?

Mrs. ST. GEORGE. NO.

Mr. BROWNSON. Mr. Meader?

Mr. MEADER. No.

Mr. BROWNSON. Thank you very much.

(Witness excused.)

Mr. BROWNSON. If we may ask Mr. E. L. Kuryloski, of Philadelphia, to take the stand.

You solemnly swear the testimony you will give in this hearing will be the truth, the whole truth, and nothing but the truth, so help you God?

Mr. KURYLOSKI. I do.

TESTIMONY OF E. L. KURYLOSKI,1 ASSISTANT TO THE DIRECTOR, FIELD OPERATIONS, SHARP & DOHME, PHILADELPHIA, PA. Mr. BROWNSON. Will you please be seated, give your name, spell it for the reporter, and indicate your official position.

Mr. KURYLOSKI. My name is E. L. Kuryloski. I am assistant to the director of field operations of Sharp & Dohme Division of Merck & Co., Inc.

Mr. BROWNSON. Will you briefly outline for us the development of hexylresorcinol, and the coating thereof by your firm, with particular emphasis on the sealing features of the product?

Mr. KURYLOSKI. Hexylresorcinol itself was found to be an efficient anthelmintic quite a number of years ago; I do not know how long but I would imagine 25 years ago, and at that time one of the problems associated with its use was the development of a satisfactory dosage form. Hexylresorcinol is a phenol which is corrosive in nature, par

1 It should be noted that Mr. Kuryloski appeared at the subcommittee's request and not at his own or the company's request.

ticularly to the oral mucosa, so our laboratories found in order to develop a satisfactory dosage form the pill would have to be so designed that it would be very difficult to chew, and as a result we designed a product which is known as Crystoids.

Before I left I had our laboratory give me some of the pills in the various stages of production. The first stage is to roll the pill so that it consists of hexylresorcinol alone. If that pill were put into the mouth it would cause a burn. In fact, during manufacture the technicians are totally protected with gloves and boots and so forth against flying hexylresorcinol.

Our next step is to coat the pill with a substance that will prevent the hexylresorcinol from exuding through the special coat, and the next step is to seal that special coat with a sealer.

Now, then, we take the pills and put them through a coating process. We actually put around the pill a tough gelatin coating and the coating is designed to prevent the hexylresorcinol pill, even if bitten, to prevent the hexylresorcinol from coming in contact with the mouth. Actually, I understand the pill itself can be crushed and the seal will remain intact almost like a flexible coat.

We found that the pill is satisfactory and it has proven the fact that it is an efficient dosage form over a period of twenty-some-odd years.

Mr. BROWNSON. How long have you been manufacturing this pill according to the procedure which you have described?

Mr. KURYLOSKI. I would say in the neighborhood of 20 years. Mr. BROWNSON. In the neightborhood of 20 years. Are there other drug manufacturers in the United States who manufacture this pill using essentially the same process of coating that you have described? Mr. KURYLOSKI. Not that I know of. In the commercial market, as far as I know, there is no hexylresorcinol pill other than made by Sharp & Dohme.

Mr. BROWNSON. So you are the only one in the United States at the present time making that type of pill?

Mr. KURYLOSKI. That is right.

Mr. BROWNSON. How long did it take you to develop this coating? Mr. KURYLOSKI. I am sorry, I could not tell you that, except it was quite a long study, involving the testing and so forth.

Mr. BROWNSON. Would it be months of research, years of research; how long was it in the development stage, would you say? Mr. KURYLOSKI. I would say roughly a year or more.1

Mr. BROWNSON. What is the present price of these pills to the trade? Mr. KURYLOSKI. To the trade, in the neighborhood of 50 cents. Mr. BROWNSON. And that is a vial which contains five pills like the sample we have?

Mr. KURYLOSKI. Exactly.

Mr. BROWNSON. Would you describe the circumstances under which. your firm bid on the two major contracts?

Mr. KURYLOSKI. Well, in my position with the firm I am responsible for Government contracts which involve not only the purchases of GSA and the armed services, but also the Veterans' Administration, and so forth.

1 Upon review of Mr. Kuryloski's files in connection with the amount of research involved in the development of hexylrescorcinol pills, he ascertained that there was more than 3 years of research rather than 1 year.

These bids were received in the normal manner and my general procedure is to have a cost breakdown to determine just what our actual cost is, our basic cost, and then, depending on the size of the contract, determine the bid price obviously in mass production our costs are reduced and we develop our selling price in that manner. These two bids were received, one, as I recall, in November and the second one in February, and our general procedure was, as I say, to calculate our costs and have our bids typed out. We in this case forwarded these bids to our Washington representative, Mr. Frank Henderson, who died a year ago last May. He had presented them in sealed envelopes.

Mr. BROWNSON. To whom did he give them?

Mr. KURYLOSKI. I do not recall whom he gave them to, but it was through normal channels.

Mr. BROWNSON. I understand that on the first contract you cut your price to 1412 cents?

Mr. KURYLOSKI. Yes.

Mr. BROWNSON. And that is the same vial that would cost 50 cents in the trade?

Mr. KURYLOSKI. That is right. That is not unusual in materials of this nature. The cost of handling a single vial, mailing, billing, and so forth, obviously increases the individual cost. In the case of a contract it has been our practice to supply drugs of this nature at a lower price.

Mr. BROWNSON. This was a contract for 1.5 million vials?

Mr. KURYLOSKI. Yes.

Mr. BROWNSON. Was that the largest contract for hexylresorcinol pills you had ever had?

Mr. KURYLOSKI. No; I do not think so. We had many years ago some contracts for treatment of the population down in South America. I am not sure the quantities were that large, but they were large quantities.

Mr. BROWNSON. And you had had experience in handling orders for hexylresorcinol pills in large quantities?

Mr. KURYLOSKI. That is right.

Mr. BROWNSON. Will you go through the processes you went through after you submitted your 142 cent bid, what you finally found out about the price that the contract was let and some of that information?

Mr. KURYLOSKI. Well, obviously when one loses an order, one is interested in knowing why it was lost, and at that time we asked our Washington representative to try and determine whether or not a pill equivalent to ours, which we considered USP, was going to be supplied. There was only one way we could determine that, and that was to get a sample. Samples of the pills that were going to be supplied under this contract just were not available. There just was not very much we could do about the contract. We just figured we were underbid and that was the end of the story.

Mr. BROWNSON. Then when you came to bid for the second major contract, what action did you take?

Mr. KURYLOSKI. As I recall, the first contract award was made to our competitor with a delivery promise of one-third of the total quantity in 30 days and the remainder in 60 days, so that we felt that in order to make sure that we got the second contract-you see, we