maintained, the only costs to the Department of Defense will be the normal housing allowances paid to the military families. Past programs have produced 5,538 units, generally under a 5-year guarantee. Actual guaranty payments under past programs have averaged about $6.50 per unit per month for the total units produced. The liability for fiscal year 1964 is estimated at $1.2 million.

5. LEASING

Last year the Congress granted authority to lease housing for nontactical installations as a means of meeting urgent current needs in the United States where our long-term need is not sufficiently firm to warrant on-base construction, or where leasing is a more economical means of meeting the housing deficit. As you know, we are limited to a maximum of 7,500 leased units in CONUS. Section 505 requests an extension of this authority for this year. In addition, under existing standing authority, we are leasing 1,392 units overseas, primarily in Germany. Our total annual leasing cost is projected at $18.6 million in fiscal year 1964.

6. OPERATING AND MAINTENANCE EXPENSES

These costs, projected at $298.9 million in fiscal year 1964, offer the principal opportunities for savings in annual costs. A uniform cost accounting system for family housing operation and maintenance was installed July 1, 1962, and results for the first 6 months of fiscal year 1963 have been analyzed, revealing some variation in cost experience among the departments. Economies initiated to date will save $6 million, which has been reflected in the fiscal year 1964 budget. Our objective is to increase this savings to $25 million in fiscal year

1965.

7. DEBT PAYMENT

Our payment for debts for Capehart, Wherry, and Commodity Credit and for Serviceman's Mortgage Insurance is estimated at $172.1 million. The debt payment is a long-term obligation and will remain essentially at this level for many years to come.

IMPROVEMENTS IN MANAGEMENT

In conclusion, Mr. Chairman, I would like to refer briefly to our progress in improving the management of our construction and real property programs. The management of these important activities. is one of our more complex business responsibilities, and an area in which we find continuing opportunities for improvements. I would like to comment in closing on several of these activities:

1. CONTRACTING PRACTICES

During fiscal year 1962, 98 percent of all work placed under contract was awarded on a competitive basis to the lowest responsible bidder. Placement of contracts by negotiation is being utilized only where such procurement is in the interest of national defense and time will not permit formal advertising. No other segment of defense procurement has achieved this high a degree of competition.

2. CONSTRUCTION PRACTICES

During the past year we have conducted a detailed study of procedures for selecting architect-engineers. Based on the findings of an advisory panel of outstanding consultants who studied this matter, we have since issued a new DOD directive which prescribes uniform selection procedures in order to assure that all qualified architectengineers desiring to furnish services are given equitable consideration for contract awards. It is expected that these new procedures will improve the selection process, and result in a greater spread of contracts among the qualified architect-engineer firms. An informational pamphlet has been issued to advise architect-engineer firms of our new procedures.

Also, during this past year a comprehensive survey was made of criteria and specifications utilized in military construction projects. This survey included a worldwide inspection of military construction utilizing the services of a task force of outstanding consultants from industry, and representatives of the military departments and personnel from our office. This group made a number of recommendations which will provide improved standards, greater uniformity in the quality of construction among the military departments and reduce costs of a number of facilities. These recommendations are currently being implemented.

3. MAINTENANCE OF REAL PROPERTY

We have also given increased attention to effect management improvements and increased economies in the maintenance of real property. As evidence of this increased attention, the Real Property Maintenance Council, established in May 1962, consists of representatives of the military departments and defense agencies. The opportunity for the exchange of ideas and information afforded by the Council has proved very beneficial to the overall program in this

area.

Further, in January 1963, we awarded a contract to a qualified maintenance management firm to evaluate our practices and to recommend improvements toward achieving an integrated real property maintenance management program, Also, the worldwide survey of military construction which I previously mentioned made several recommendations effecting real property maintenance. It is expected that the recommendations of both of these studies, when implemented, will result in reducing maintenance and operation costs.

In addition to these programs, a study group has recently completed work on resolving dissimilar practices in cost data reported by the military departments for real property maintenance activities. This uniform cost data will provide a more useful tool for performance evaluation and management analysis of our maintenance program. Anticipated improvements in real property management are estimated to approximate $34 million for fiscal year 1964. These savings will, in part, offset the additional funds required because of increases in the costs of labor, materials and real property inventory, and permit a reduction in the backlog of essential maintenance and repair.

4. IMPROVED UTILIZATION OF REAL PROPERTY

Retention of unneeded real estate and facilities constitutes one of the largest hidden costs in defense operations. Among the first instructions issued to DOD by President Kennedy in 1961 was that we thoroughly review our utilization of real properties, and wherever possible, consolidate activities in order to eliminate unnecessary overhead costs, free personnel for higher priority duties, and release property which could be put to more productive use by local economies. We have instituted a permanent program of inspection_and review to achieve these benefits. During the past 2 years we have initiated actions at over 400 locations in the United States and overseas. When completed, these actions will release 266,000 acres of real property as excess to Defense needs, and effect annual savings of $316 million.

Included in these 400 disposal actions are 54 Government-owned plants which are being made available for sale to private industry by GSA. We feel that this represents a significant withdrawal from military ownership of production facilities that can normally be provided by private enterprise. This permits the Government to reduce its annual expenditures for preventing the deterioration of its plant. inventory, and to also recover, from the sale of these plants, a portion of the initial capital outlay expended for their construction during World War II.

The transfer of these plants to private ownership also assures that their productive capacity will be modernized and kept up to date with the steadily improving types of newer and better tools and equipment. As a result, we are endeavoring to reverse the trend whereby the Government had been paying out money to maintain an inventory of partially inactive production capacity which was declining in value due to deterioration and obsolescence.

The communities in which these plants are located should materially benefit from their sale, as it is expected that the purchasers will increase plant activity by putting inactive capacity to work on nonmilitary production, thus increasing local employment.

This overall program of disposing of excess military properties is being continued, and will cover all types of installations, in addition to industrial plants. The Department of Defense considers that the consolidations which result from the inactivation of installations which are not suited for present-day military requests will continue to produce substantial savings by reducing unnecessary expenditures.

As you know, we operate in conjunction with our base closure work, an active program to assist employees and communities affected by reduction or termination of Defense operations, and have been successful in minimizing loss of employment as well as in turning the execess properties to productive non-Defense uses.

COMMENTS ON HOUSE ARMED SERVICES COMMITTEE ACTION

As you know, Mr. Chairman, action on the fiscal year 1964 military construction authorization request has been concluded by the House of Representatives. We note with considerable concern that the House

reduced our request by approximately 13 percent, deferring a number of highly essential research and development and logistical support type projects, which were discussed in Secretary McNamara's letter to your committee, dated June 11, 1963. Authorization for these projects is urgently desired in order to insure our future military effective

ness.

Mr. Chairman, I appreciate your patience and courtesy in receiving this statement. My associates and I wish to provide this committee with any information it desires in connection with its consideration of this legislation.

Chairman RUSSELL. Mr. Secretary, you referred in your statement to the studies that had been conducted with respect to oversea construction in relation to the impact that it might have on the foreign exchange situation.

Mr. MORRIS. Yes, sir.

Chairman RUSSELL. In the past this committee has been very much concerned about new construction on oversea bases where there was any question as to our being able to come to a satisfactory agreement with the host country for the use of these bases.

Now, your justification books show considerable construction at a number of locations overseas, with some of which we have had or are now having trouble with base rights agreements, such as in Spain and in the Philippines. If we grant you this authority, do you propose to proceed with the construction now or will you wait until we have satisfactory agreements to our lease rights on the property?

Mr. MORRIS. Sir, we have reviewed the program from this point of view very carefully, and we find that as of this time our tenure is assured at all of the locations that are concerned, except in the case of Spain, which you have mentioned, where currently discussions are in

process.

As you know, the original agreement of 1953 provided for an initial 10-year tenure with two 5-year extensions. It is the first of the 5-year extensions that is under negotiation.

I am informed that we are very hopeful that this will be successfully concluded. In the event by the time of appropriations it has not been, we naturally will have to reexamine the facts at that time, sir.

Chairman RUSSELL. I wish you would furnish for the record the status of our agreements in the areas where there is any controversy as to our agreements in the areas where there is any controversy as to our right to occupy any base where construction is proposed. Mr. MORRIS. We will be pleased to, sir.

(The information requested follows:)

The countries where there are questions of U.S. tenure are Spain and the Portuguese Azores. The status of the agreement with Spain is as stated above. The agreement between the United States and Portugal continues for the life of NATO with respect to U.S. use in wartime. The present negotiations with Portugal relate to the extension of U.S. rights to station forces in the Azores during peacetime.

Chairman RUSSELL. You also have a number of items proposing construction of new facilities in Europe, such as ammunition storage in France and in Germany. Why are those not proper items for NATO funding? Why should the United States bear all the cost of those facilities?

Mr. MORRIS. Sir, we agree with this question, and as a matter of policy the United States has decided to make every effort possible to get U.S. construction requirements in Europe funded under NATO infrastructure financing.

In July, Secretary McNamara asked the Defense representative North Atlantic and Mediterranean areas to propose a series of projects to be funded with NATO infrastructure financing. We understand that he has forwarded this proposal to SHAPE where it is currently under discussion and will be considered next week, at which time the financing will be referred to the NATO Council.

In short, we are endeavoring to achieve such financing.

Chairman RUSSELL. Will you forward to this committee any information that is pertinent to assist us in consideration of this bill? Mr. MORRIS. We shall.

Chairman RUSSELL. With reference to the balance of payments you indicate that the foreign exchange costs for fiscal 1964, in the bill being considered here, have been reduced about 42 percent. It is highly commendable to secure such a reduction as that. But what effect does that have on construction costs? Does it increase your construction costs materially?

Mr. MORRIS. Yes, sir.

Chairman RUSSELL. I heard that the increase is 20 to 25 percent. Mr. MORRIS. We pay a price premium in these cases. In the fiscal 1964 program the total price premium to achieve this reduction of $64 million comes to 1812 percent, or in dollars about $33 million. So we are paying out $33 million to save 64, roughly a ratio of 2 to 1, $2 brought back for each additional dollar required.

Chairman RUSSELL. You are proposing new housing for troops in the Washington area, and I understand you are building two complexes, one at Fort Myer and one at Bolling-Anacostia, and you are asking for about $14 million for that purpose in this bill.

Have you actually worked out any triservice arrangement that will provide facilities that would be available for all three services at the most convenient location?

Mr. MORRIS. Yes; we have, sir, and we will be glad to furnish for the record a table of the total demand. At each of these sites, there would be substantial increments of Army, Navy, and Air Force personnel.

Chairman RUSSELL. I understand that these items were deleted in the bill as it came to us from the House.

Mr. MORRIS. The House did eliminate these items, sir, which we would like to reclama.

(The information requested follows:)

Planned assignment of military personnel