Senator SPARKMAN. In the underwear, the first price is by Wright's Underwear Corp., New York, N. Y. His cheapest price is $3.44%2. The highest price is States Textile Corp., New York, N. Y., and his price is $4.40. The quantity is the same, 60,000, in each case.

Mr. ALEXANDER. I notice that we do not know that they actually make them in New York City. They may or may not. I have to

check on that.

Senator SPARKMAN. There are certain factors taken into consideration before you agree to the higher price, and you are satisfied that that is the price that he would have to have in order to make the product profitably?

Mr. ALEXANDER. That is right, sir. In case it is something that we have to have by a given date and we run out of the people who can make it more inexpensively, we do have to turn frequently to the people who make it more expensively, although we regret it, even though it comes from New York.

Senator SPARKMAN. I was just curious about that particular spread. Mr. ALEXANDER. It is astonishing that there is that much of a spread for the same item.

General CHRISTMAS. In regularly advertised procurement for the woolen cloth for the Army, in sealed competitive bidding, we have the same thing. I remember one a year and a half ago where the first man was a small manufacturer who said he would provide 40,000 yards, and his price was something like $4. The next man had 100,000 yards, and his price was $9. About eighth from the bottom was one of the largest companies, but his price was eighth in the price list. He was willing, however, to take a third of the order. So we go up the list of bidders until we fill our needs.

You find quite a spread. One man said, "That man is giving it away." Maybe he has to pay his taxes. You never know when a man is making his bid whether he bought his cotton cheaply or needs money badly and is willing to take it without overhead, so he can meet his taxes or interest on a note. There are things that must go on in a businessman's head that account for these differences, and there are smart and less smart managements.

Senator SPARKMAN. I suppose the extent to which the plant is operating and converted to defense orders is a factor that enters into it. General CHRISTMAS. Yes.

Senator THYE. Were all these awarded-were all these let at the same time?

General CHRISTMAS. Substantially the same time.

Senator THYE. So there was no question about the one bid having been accepted at a later date, so that there might have been an increase in cost?

General CHRISTMAS. No, sir. This was one transaction.

Senator THYE. Why couldn't you let a great number to the lower bidder?

General CHRISTMAS. He wouldn't take it.

Senator THYE. He only wanted 60,000 units?

General CHRISTMAS. The instance I cited with the textile item, each man decides how much he is willing to take, and when the country is prosperous, they are not always so anxious to take our business. They have other commitments.

Senator THYE. In other words, the number that bid here had to be accepted by you in order to get the number of units you needed? General CHRISTMAS. To fill our demand; yes, sir.

Mr. ALEXANDER. And in response to Senator Sparkman's question, there were 20 firms who got awards; therefore, you are quite right, one fellow was excluded. The reason was that they never reached him, fortunately for the taxpayer, because he must have been bigher.

Representative EVINS. Any further questions, Senator Thye?
Senator THYE. No, I have none.

Representative EvINS. Mr. Alexander, you spoke earlier about the specialists being appointed in the procurement offices throughout the field. How far along is that program? The great bulk of contracts have already been let, or next year will reach the peak. To what extent have these specialists already been established?

Mr. ALEXANDER. Since July, 1949, sir, there have been small business specialists part-time in most of our offices. We have not gotten the 62 offices staffed full-time as yet, but we expect to get that by June 1.

Representative EVINS. Do they have authority in the field to negotiate or do they just recommend?

Mr. ALEXANDER. They are part of the staff of the procurement officer, and it is their business to keep informed about what he is doing and to give him the information regarding the small-business capability and to report in case the contracting officer is not fair. In most instances, the small-business specialist will not be the final approving officer.

Representative EVINS. Do you have anyone in the field other than at the top level who can make a decision for a small-business man in the field, rather than just give him certain information which is to be passed on by the top level?

Mr. ALEXANDER. We have orders for the contracting officer who is the top level, for the purpose of making contracts, which outline what he must do for small business. The small-business specialist is only to help him to do that. The small-business specialist is not designed to replace the contracting officer, but only to see to it that he does his function in accordance with the directive on small business.

Representative EVINS. To what extent are you using the provisions of the Defense Production Act with respect to the payment of price differentials to small business to insure wider participation? Have you utilized that facility or section?

Mr. ALEXANDER. Sir, for the purpose of broadening the base and increasing the number of suppliers available, we are using it absolutely. Any case in which we do not wish to go to the same supplier again is one in which we are using the Defense Production Act, in order to permit us to go to another supplier, even though he may cost somewhat more. We are not using the provisions, all other things being equal, we do not award a contract to small business if it costs more than to large business, if either the dispersal or the broadening the base feature is available in both instances.

Do I make myself clear? We are not paying a subsidy, so to speak, if there is no reason to do so, such as broadening the base.

Representative EVINS. Suppose there is a large manufacturer in the field who can supply your entire needs, and then there is a smaller manufacturer who says he cannot meet the competition of the larger

supplier and, if he does not get a contract, he will be foreclosed and go out of business. Would you utilize that provision in order to continue him in business and give him a contract?

Mr. ALEXANDER. If they were both in the same block, so the same bomb might knock them both out and we were sure we would never need more capacity than the big man has, and the big man bids less, we would have to award it to the big man. If you had the dispersal factor, which you wanted to take into account, or broadening the base, so in case of mobilization you would have sufficient capacity, then we would pay the difference to the small-business man.

Representative CURTIS. I have a few questions here.

There seems to be little order to the method of dissemination of the invitations to bid-I am talking about invitations rather than advertised bids-inasmuch as many manufacturers are asked to bid on items totally unrelated to their normal lines of production. I was wondering if you have any comment on that.

In our hearings out in the field, we have had many come in with that complaint.

Mr. ALEXANDER. In other words, a man receives an invitation to bid on something he does not normally make?

Representative CURTIS. Yes. In certain instances-not that we have a suspicious mind-it looked as if it might be that they were trying to comply with the requirement that there be these bids in there.

Mr. ALEXANDER. Well, sir, I am sure there are cases where the thing does not operate as it should, but I think they are few. Where a man asks to be put on a bidder's list, he will get the request to bid even though he is not qualified. But I believe that, in general, the contracting officers attempt to send the invitations to bid to the people who they think can make the thing, even though it is something that they were not making before.

General CHRISTMAS. May we have the facts to follow up? I never heard one like that, although I have been in this for a long time. We get bidders who ask for invitations to bid for things they do not make. That causes us trouble.

Representative CURTIS. I know it does. Our staff can get some of those complaints to you, because we are very much concerned. When we heard the first one or two, we thought that could happen anywhere, but then it began to look like maybe it was a little more than that, that a little more was involved.

General CHRISTMAS. We would appreciate those cases.

Representative CURTIS. If we accept the premise that central procurement planning is essential, why should not this plan be put in operation simultaneously with the CMP plan, which is gaining factual information on productive capacity of the Nation, if you follow the thought there?

Mr. ALEXANDER. I am not sure I do. I am sorry, but I did not get the connection with CMP.

Representative CURTIS. That is the controlled materials plan which is in contemplation, and here we are talking now about central procurement planning, which we are trying to do. Incidentally, there are many questions that could be asked on the interrelation of the various Armed Forces that would not be pertinent to ask you. But under this central procurement planning, if it were to be wholly

carried out, in your opinion, as we go into the CMP, might we not coordinate the two in gathering our information?

Mr. ALEXANDER. I think that is essential. As the over-all procurement plan is worked out, if the CMP plan is in existence, the first will have to use the second.

Representative CURTIS. That was generally our conclusion.

One other question: On April 30 the Attorney General issued his second report under section 708 (e) of the Defense Production Act, and this report was sharply critical of a failure to utilize small business in material procurement. It stated that the lack of centralized procurement planning "results in the channeling of contracts to a limited number of producers.'

What comment do you have regarding this conclusion of the Attorney General's? In other words, to what extent is procurement planning centralized at this time. That keys in with that other question that I asked.

Mr. ALEXANDER. Well, sir, I read the report to which you refer, and I thought it was very inaccurate.

Representative CURTIS. In other words, you think that the things you were criticized for, the Army was criticized for, they were complying with and working on?

Mr. ALEXANDER. Sir, I believe there are things for which we may be criticized, but I do not think that the flavor which I got from that report, that we are either consciously or unconsciously not giving small business a break and that we are not organized to give it a reasonable break, is incorrect.

Representative CURTIS. I wanted your comments. Thank you, sir. General CHRISTMAS. May I add a comment there, sir?

We had some trouble last June when the Korean War broke out. We were on the downhill side personnelwise. We are now, with the extra money you have been giving us, in need, of course, of additional people. These contracts have to be written, negotiated, inspected, and audited, and so on. We have had no little trouble in the field recruiting and training people for these augmented staffs.

In other words, I might say the staffs are behind the money you have given us.

Of course, it is not done in Washington. It is done in these offices in the field where they need good lawyers, good accountants, and good negotiators, and so on. It takes time to get them. Industry is prosperous, and they want some for themselves.

Representative EVINS. The policy is set here and disseminated to the procurement offices?

General CHRISTMAS. That is right.

Representative EVINS. Are there any further questions?

Gentlemen, I am sure that the committee appreciates, Mr. Secretary and General Christmas, your testimony. We are all working and striving toward the same end. It is a matter of sympathetic accord for the purposes for which we are trying to achieve. We feel that coming together we may work out a proper result.

Thank you.

That concludes the testimony for this morning. We will hear from the Navy people tomorrow morning.

(Whereupon, at 11:55 a. m., the hearing recessed until 10 a. m., Tuesday, May 15, 1951.)

SMALL-BUSINESS PARTICIPATION IN MILITARY

PROCUREMENT

TUESDAY, MAY 15, 1951

CONGRESS OF THE UNITED STATES,

SELECT COMMITTEE ON SMALL BUSINESS, UNITED
STATES SENATE, and Select Committee ON SMALL
BUSINESS, HOUSE OF REPRESENTATIVES,

Washington, D. C.

The select committees met, pursuant to adjournment, at 10 a. m. in the Old House Office Building, room 362, Washington, D. C., Representative Evins presiding.

Present: Representatives Joe L. Evins, Clarence G. Burton, Abraham J. Multer, and R. Walter Riehlman.

Also present: John Newby and Walter Stults (staff of select committee, U. S. Senate); and Victor P. Dalmas, executive director; Ernest L. Stockton and Duncan Clark (staff, select committee, House of Representatives).

Representative EVINS. The committee will come to order.
Mr. Burton of the committee is joining us.

I just had notice that Senator Sparkman, chairman of the Senate Committee; and Mr. Patman, chairman of the House Committee, will not be with us. We are having competition with the Armed Services, Foreign Relations and Banking and Currency Committees of both the Senate and the House of Representatives this morning.

We are pleased to have with us this morning Mr. Dan A. Kimball, Under Secretary, Department of the Navy; Mr. John T. Koehler, Assistant Secretary, Department of the Navy; and Vice Adm. A. G. Noble, Chief, Office of Navy Material, United States Navy.

If these gentlemen will come around, we will proceed with our hearing. The committee will be most pleased to receive your testimony, Mr. Under Secretary.

STATEMENTS OF DAN A. KIMBALL, UNDER SECRETARY, DEPARTMENT OF THE NAVY; JOHN T. KOEHLER, ASSISTANT SECRETARY, DEPARTMENT OF THE NAVY; AND VICE ADM. A. G. NOBLE, CHIEF, OFFICE OF NAVY MATERIAL, UNITED STATES NAVY Mr. KIMBALL. I asked Mr. Koehler and Admiral Noble to come up today and they have some prepared statements I would like to have them read to you, and then we will answer any questions that you wish. Is that satisfactory?

Representative EVINS. Fine, Mr. Under Secretary. They may proceed however they wish, with a statement or otherwise.

Mr. KOEHLER. Mr. Chairman, my name is John T. Koehler, Assistant Secretary of the Navy. I have a prepared statement, and I believe copies have been submitted, and, with your permission, I would like to read this statement.

As the Navy's Procurement Secretary and the Navy member of the Munitions Board, I am glad of this opportunity to appear before

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