Senator PACKWOOD. Bob Westerman.
Mr. WESTERMAN. Good morning.

Senator PACKWOOD, Good morning, sir.

STATEMENT OF ROBERT E. WESTERMAN, VICE PRESIDENT, GIBBONS & REED CONSTRUCTION

Mr. WESTERMAN. My name is Bob Westerman, vice president of Gibbons & Reed Co., general contractor, that operates in the 13 Western States. We are not a small business firm.

I would like to make reference to a letter addressed to you on June 29 of this year from our attorney, Mr. Franzke. If you don't mind, I would like to read from that letter.

Jack Kalinoski earlier alluded to the problem at Ririe Dam. I would like to elaborate a little bit. My testimony will be quite short because of his testimony.

Gibbons & Reed originally started construction of Ririe Dam for the Walla Walla District Corps of Engineers in 1973. The original contract was $10,200,000. In August of that year the corps found geological problems and we went into an extra work order on that problem.

The job ended up with 50 major design problems, increasing by $7 million the cost of the contract.

Pursuant to the corps' procedure, Gibbons & Reed submitted its modification for proposal and we based it on a two-estimate system, one prior to bid and one with the changes, knowing quite well that we did have some errors in our original estimate and we acknowledged those in our updated proposal.

The contractor, ourselves, requested reimbursement for the increased costs as resulted from various changes. The corps refused to make payment, stating that there had to be a complete audit of the company's records, including the home office overhead and various costs.

We found out that there were no auditors available to make the audit at that time. We, through our attorney, then proposed that the Corps of Engineers prepare a two-part change order which is in line with ASPR, the Armed Service Procurement Regulations.

We are told by the Walla Walla District that they could not issue a two-part change order. We more or less took this by gospel.

We continued to have meetings at the district level with the colonel, and finally by going to E. Manning Selser (phonetic spelling), the Chief Counsel for the Corps of Engineers in Washington, D.C., we found in fact that the corps could issue a two-part change order.

Now, the restriction on that would be that on a two-part change order the corps could issue the moneys that are not in dispute, which is understandable. In this case some 15 months later, in November of 1974, we met with the division here, with General Peel, and he in fact told the district to issue a two-part change order or he was going to in fact issue a unilateral change order.

So we got a check a year and a half later for $400,000 on a $1.624 million change order. Now, this is just the smaller of the change orders. We had $3 million change orders in several groups past that.

So finally we did settle with the corps and we received the additional $1,250,000.

Now, we have also submitted to you a summary sheet showing you the expenses of the change order and the current-just the prime interest rate and the interest that we were out on all of the change orders. For the $1,624,000, the interest payments on that alone amounted to $175,000. On the entire change orders it amounted to $249,000.

Our concern is that the corps is using the contract prohibition on interest as a shield on even the two-part change order. In fact, we were told, "We can't pay you; then you won't be interested in settling up the claim." This can be right or not. I don't believe anybody with $11⁄2 million or $3 million wouldn't be ready to settle it.

Senator PACKWOOD. Do you think it would be a very effective tool if the Government had to pay interest on that kind of an outstanding bill?

Mr. WESTERMAN. I do, Senator. I certainly do. We are submitting a claim, we are working on risk capital, anything to get away from interest. We were told as much as a month ago that there is no way they can pay, but we do intend to pursue it to Washington to the Contract Board of Appeal. We feel that the Government is derelict in not giving us a two-part change order.

They worked up estimates. They say they know the fair value of the change orders. Why can't they give us the money based on their estimate without the audit? Certainly they have competent estimators. Senator PACKWOOD. You would even be satisfied with that, based on their estimate?

Mr. WESTERMAN. To some degree. On one change order, Senator, it was a sizable one, it was around $3 million and it took place on Ririe Dam on one of the cofferdams that was in danger of topping, so they wanted us to go in the winter, now, this is at the 5,000-foot level, to work in that 28-below-zero weather. We have around $4.5 to $5 million worth of equipment sitting on the job. During the winter months we can't work on the dam proper because of conditions, freezing conditions, for putting in impervious zones and such.

One of the estimators for the Government came in, oh, sizably below us on his value of doing the work. When we got through reviewing his estimate, we found out he had no rental for our equipment. His position was, he said, well, our equipment is sitting idle anyhow and it would be sitting idle, "So, therefore, you shouldn't charge us rental."

I mean, this is absurd. You know, when you use equipment, you're taking life out of it; you have to charge rental. He didn't push that issue, but it's just some of the flak that we get from the Government. I don't have much more, Senator, unless you have some questions on this.

Senator PACKWOOD. No. Again, it's very telling testimony. I wonder more and more why people even bother to contract with the Government.

Mr. WESTERMAN. Well, of course, when you run up to certain people in the higher levels, such as General Peel, that's gratifying, but you can't always run to him with all your problems. It gets involved when it really gets down to something like this. You know, you hope that you don't have change orders; that's the whole thing. If you could just do your contract, but we have been in business for 60 years, and

I have for 25 years, and we always have change orders, and this was a major change. This was a fault. It was just downriver from Teton Dam and it was a major problem.

Senator PACKWOOD. You mentioned General Peel, and I agree, he is a very extraordinary man and the Government is lucky to keep him. Mr. WESTERMAN. Yes.

Senator PACKWOOD. Then the previous witness testified about some of the frustrations with tenured Civil Service and the difficulty of trying to deal with people who always cannot be removed under any circumstances. You have to find them almost guilty of a crime before they can be removed from their office.

It reminds me of a problem I had in my office about 3 years ago. I and a very, very good legislative assistant, a woman who had been working at the Capitol for 10 years, 6 years for me and 4 years in the House before she came to work for me. One day she came in and she quit, "I've had it." I thought she meant she had it with me. No, she said she's had it with the middle echelon Civil Service that she had to work with all the time in the Department of Health, Education, and Welfare. She says, "They're awkward, they're stubborn. I've got better things to do with my life." She left.

She is in her third year of full-time law school. She wants to be an attorney. She will be a very good attorney. But that was her frustration from the standpoint of trying to deal with the Government.

Mr. WESTERMAN. There is one important thing, Senator. I don't know if you are familiar with the procedure that the Corps of Engineers has for reimbursing a contractor for equipment rental, but we found at Ririe, even though we had a $4.5 to $5 million investment in equipment, that if we had another change order, we would be better to go out and rent it outside, to have the invoices come in to prove what we're paying for rentals.

Senator PACKWOOD. Then they would pay you for that?

Mr. WESTERMAN. Yes.

Senator PACKWOOD. If you were to rent other people's equipment, then they would pay you

Mr. WESTERMAN. They pay on the invoice.

Senator PACKWOOD [continuing]. But they won't pay you for the rental of your own equipment, because they feel it is part of this contract?

Mr. WESTERMAN. They think it is, but there is probably some merit there, but it's just the tremendous paperwork of going through and hassling with these people. We have made it a policy, I think other contractors have, just to say "To hell with them, we'll go out and rent a tractor." And they pay the move-in and move-out.

Senator PACKWOOD. There is no question at all?

Mr. WESTERMAN. That is correct. Well, there are some questions, but it's easier to do that.

Senator PACKWOOD. Well, there are some questions, but if you come with an invoice and it's a fair rental, and you rented a piece of equipment, they're not going to quarrel with you.

Mr. WESTERMAN. That's true.

That's all I had, Senator, unless you had some more questions.

Senator PACKWOOD. That's all the questions I have. Thank you very much.

Mr. WESTERMAN. Fine.

Senator PACKWOOD. Ed McKenney, Gem Equipment Co.

Good morning.

Mr. MCKENNEY. Good morning, Senator.

STATEMENT OF EDWARD MCKENNEY, PRESIDENT, GEM

EQUIPMENT OF OREGON, INC., WOODBURN, OREG.

Mr. MCKENNEY. I am president of Gem Equipment of Oregon, Inc. I am here today to testify on our company's experience in manufacturing crossarms for Bonneville Power Administration and the problems caused when an affirmative action plan is requested from a small

business.

In 1972, Gem Equipment was awarded a $30,000 contract from Bonneville Power Administration to manufacture crossarms. These crossarms were manufactured from Cor-Ten steel and used a special welding wire. Since this type of business was new to us, we anticipated some problems. We looked forward to our first inspection with a little bit of apprehension. Our manufacturing procedure was to cut out the parts, weld them together, and then send the fabricated crossarm to another shop to be rotoblasted. The first group passed inspection with a very minimum of problems. In fact, the only problem we ran into until we got to the last 100, was that the special welding wire was in tight supply, and we were delayed about 3 weeks waiting for wire. Due to this wait, we were late on delivery and were assessed a penalty. We informed BPA that delivery was caused by unavailability of the welding wire. We were informed that performance of a subcontractor was our problem, not BPA's. Our crossarms were inspected and passed by three different inspectors. We got down to the last group with a feeling that we pretty well knew how to satisfy BPA's specifications. A fourth inspector rejected the last group of crossarms because he was not satisfied with the rotoblasting. To satisfy him we had to send them to another shop and have them sandblasted in the areas he was not happy with. Not only did we have to pay for the extra sandblasting, but we were also assessed more damages for being late with the last group. I talked to the chief inspector at Bonneville Power Administration, and he informed me we should consider ourselves fortunate that the first three inspectors were lenient. Cost to Gem Equipment was over $1,000 for being late on deliveries plus the extra money for transportation and sandblasting. Gem Equipment has not sought any more Government contracts.

Equal opportunity employment affirmative action is one area that is giving small companies real problems in dealing with the Federal Government and dealing as subcontractors to major contractors dealing with the Federal Government. Equal opportunity employment has always been practiced by Gem Equipment. One of the founders of Gem Equipment is part American Indian. Woodburn has a large Mexican population, and we have several Mexicans on our work force. They are good workers. We like them. Gem Equipment's employment policy can be summed up in one sentence. We hire people who can do our jobs. We