Now, that is the only thing they added on here to keep intact the facilities of small business.

Mr. SMALL. All small business. They don't say all, but that is inherent in the paragraph. I think we are on sound ground, Mr. Congressman, when we broaden the industrial base, and try to take in as many as we can, but if we try to assume the obligation of keeping intact all of the scores and hundreds and thousands of firms, it is an impossible task.

Representative MULTER. Which are you going to leave out?

Mr. SMALL. Take in those people we can get in, as many as we can. Representative MULTER. Doesn't that mean a man able to supply the item? I don't think DPA meant to keep intact all facilities of all small business, regardless of whether they can perform under our procurement. They are not going to try to keep a retail merchant selling groceries in business for the purpose of making procurements for the Armed Forces.

I don't think it was intended to do that.

Mr. SMALL. Paragraph 5 as written in the press release to me opens the Pandora's box of trouble.

Representative MULTER. In the press release the word "all" does not appear.

Mr. SMALL. Neither is it limited. The word "all" does not appear in the paragraph, but it is implied.

Representative MULTER. If we take out that implication, and assume that they mean all small business that has facilities that can fit into the program, are you then in agreement?

Mr. SMALL. That can fit into the program where they have enough contracts to give them, and I think we have covered that in our own implementation. I don't think there is any difference in principle. Representative MULTER. Am I right that in World War II you allowed a differential to small business of up to 15 percent?

Admiral RING. That is correct.

Representative MULTER. Is there any move afoot now that limits that to 4 percent?

Mr. SMALL. No.

Representative MULTER. The information given to us at some of the hearing was that there was such a limitation, and I was wondering where it came from.

At the present time the limitation of differential in price to small business is 4 percent.

Admiral RING. I haven't heard of such limitation.
Representative MULTER. Thank you, Mr. Chairman.

The CHAIRMAN. Mr. Small, may I clear up this point in my own mind?

Is it your intention that point No. 5, given in the Defense Production press release, broadens the base beyond what you think is reasonable or safe?

Mr. SMALL. No; I think paragraph 5, as written in the press release, would bring down upon the shoulders of government every small business concern that got in trouble for any reason whatever.

The CHAIRMAN. That is what I mean. You think it is too inclusive?

Mr. SMALL. That is right.

The CHAIRMAN. In that there is implied that all small business, regardless of nature or type

Mr. SMALL. That is correct; all or any.

Mr. McBRIAN. Or efficiency.

The CHAIRMAN. I don't want to get into the field of efficiency now. I want to see if I understand in your mind that includes all types of small business, regardless of whether their line of production could be related to the defense effort or not?

Mr. SMALL. Sure it does. I don't think

The CHAIRMAN. It wouldn't include the corner grocery store? Mr. SMALL. I am not talking about dry cleaners and country grocery stores.

The CHAIRMAN. You mean productive capacity?

Mr. SMALL. That is right.

The CHAIRMAN. Now, regardless of the degree of efficiency or how good an organization it may have built up, you think that under that the burden would fall on the Government to keep it intact; is that your point?

Mr. SMALL. Yes.

The CHAIRMAN. The memorandum you just read from to us, was that a memorandum or letter addressed to General Harrison?

Mr. SMALL. It was a letter addressed by General Marshall to General Harrison, a letter we prepared.

The CHAIRMAN. Let me ask, for the benefit of the record at this point, if this is not true: that General Marshall, while charged under the law with the responsibility, has delegated to you, has he not, the job of actually handling small-business matters?

Mr. SMALL. Yes.

The CHAIRMAN. The procurement policy, which was announced in that press release of April 23, is in effect; is it not?

Mr. SMALL. Talking about our policy?

Yes; they are practically synonymous:

Admiral RING. That is contained on the first page of that fourpage press release.

The CHAIRMAN. The point I am trying to get in my mind now, if your point relating to payment of price differential is different from that announced by the Defense Production Administration, which one is in effect?

Mr. SMALL. The policy to find and to put to use the productive facilities of small firms. The policy is the same.

The CHAIRMAN. Yes; but spelling it out?

Mr. SMALL. Spelling it out in implementation, we say the wording in paragraph 5 is too broad for us to give to our contracting officers, and believe it should be revised.

Admiral RING. If you will read that press release carefully, General Harrison enunciated as policy only down to the bottom of the first page. The last sentence, the last two lines, are simply General Harrison's statement of recommendations, and they were not enunciated as policy, so General Marshall has commented on recommendations, and not on policy; we are in agreement.

The CHAIRMAN. The policy goes down through the four items mentioned in the press release, then there are these words:

to carry out the procurement policy Mr. Harrison said the two DPA committees have recommended the following eight specific steps.

Now, those are steps, or recommendations, and they are not actually in effect; is that right?

Mr. McBRIAN. They are in effect. The only question is to the extent to which No. 5 is in effect, which is what we have been talking about.

The CHAIRMAN. I am anxious to clear in my mind; is No. 5 in effect.

Mr. SMALL. As written here; no, sir.

The CHAIRMAN. That was recommended by the Defense Production Authority; is that right?

Mr. SMALL. That is right.

Admiral RING. It was recommended by two groups of DPA, says General Harrison, and was not recommended by him or enunciated by him as policy.

The CHAIRMAN. Recommended by two DPA committees.

Admiral RING. Yes.

The CHAIRMAN. Now, were you participating?

Admiral RING. I certainly was, sir.

The CHAIRMAN. Well, I still don't understand: Is this binding; is this No. 5 binding on anybody?

Admiral RING. No, sir.

The CHAIRMAN. Are the others, Nos. 1, 2, 3, and 4? Are they binding?

Admiral RING. No, sir; except as the Department of Defense has by collateral action put out in its own policy things which do precisely what General Harrison's committees have recommended, and with the exception of No. 5, and I think Mr. Small mentioned a difference in connection with the earlier one, No. 4, the Department of Defense has put out policy enunciation which handle 1, 2, 3, 6, 7, and 8 of those recommendations.

Mr. McBRIAN. And we have also No. 5 to this extent; and this is quoting now from the Department of Defense policy:

Payment of justifiable price differentials in negotiated procurements to accom plish the objectives of broadening the industrial base of suppliers.

That is not quite so broad in our mind, as No. 5 in General Harrison's press release, but we think it probably accomplishes what General Harrison really intended. We don't believe he really intended the policy to be as broad as No. 5 could be construed to be.

The CHAIRMAN. Who has the authority in this case? In other words, let's just suppose for the benefit of argument that a real opinion in difference developed between the Defense Department and the Defense Production Authority as to the proper implementation of that policy, particularly with reference to No. 5 of the recommendations.

Who would have the right to say which one should prevail?
In other words, who has the authority over procurement?
Mr. SMALL. That is a $64 question.

The CHAIRMAN. I thought it was pretty clear in the law, and if it isn't, I think we ought to make it so.

Mr. SMALL. Well, you have in that particular point an enunciation or recommendation which may not be completely down the alley with existing law. Now, who decides that? I presume that under the law Mr. Wilson would decide it, and the Congress would then say whether they objected or not to the decision. Our feeling is that the policy as written goes beyond the existing law.

The CHAIRMAN. Of course, if that were true, I suppose you eventually would get a decision from the Comptroller General.

Mr. SMALL. That is right.

The CHAIRMAN. Or perhaps prior to that time the Attorney General. Admiral RING. In the New England Shoe cases we have that, insofar as formal advertisement and competitive bid are concerned, we have the Comptroller General's decision which has not yet been overturned.

The CHAIRMAN. And of course that was prior to the Defense Production Act of 1950?

Mr. SMALL. That is correct.

Admiral RING. That is correct, sir.

The CHAIRMAN. And it also related, as you so clearly pointed out, to advertised bids?

Admiral RING. Yes.

The CHAIRMAN. Where you advertised that your contract would be given to the lowest bidder. In effect, that was it; wasn't it? Admiral RING. That is a part of the terms under which the bid is let, sir.

The CHAIRMAN. So there you really have a different set of facts on which a decision most likely rested.

Admiral RING. Yes.

The CHAIRMAN. But I am thinking about the possible conflict here between the National Defense Production Authority, and the Defense Department over this particular recommendation. I am not anticipating you will have any great difficulty in working it out. I did have in mind what would happen if we had the irresistible coming against the immovable, but that has not been resolved yet. The letter that you read us is the latest on it.

Mr. SMALL. That is right; yes.

Mr. McBRIAN. I really think we are probably just about in accord, if not entirely.

The CHAIRMAN. Well, to be perfectly frank with you, it seemed to me that the difference might be largely one of interpretation, or a technical difference. I am not so sure that that would be the proper word, but perhaps getting a definite and clear understanding as to just what is meant by the wording.

Mr. SMALL. We are endeavoring to work that out.
The CHAIRMAN. Is there anything further?

Representative EVINS. Mr. Chairman, I would like to suggest that a summary and digest of the complaints heard by the House Small Business Committee during its recent series of field hearings be included in the record at this point.

The CHAIRMAN. I think that would be very helpful. Without objection, that may be done.

(The material is as follows:)

CURRENT PROCUREMENT PROBLEMS OF SMALL BUSINESS

The field hearings conducted by Subcommittee No. 1 have shown beyond question that the small-business man is experiencing considerable difficulty in operating under the present procurement policies of the military departments. In general, the testimony discloses that:

1. The small-business man is experiencing difficulty in obtaining adequate information regarding military procurements. The change-over to contract negotiation, rather than public advertisement of bids, has increased this problem, as has the decision not to publish the quantity and dollar value of contract awards.

Witnesses in some parts of the country, particularly on the west coast, have complained that there is no way for them to obtain adequate information regarding procurement unless they make expensive trips to the East.

2. Many small-business men have experienced difficulty in obtaining bid invitations. A number of witnesses have testified that, when they do receive invitations, specifications and drawings are not included or are not adequate. Many have complained that they receive invitations too late to make bids, or that by the time they obtain specifications it is too late to bid.

3. There has been a failure to utilize small-business facilities adequately in the mobilization effort. A number of small-business men have reported that they have gone through all the procedures recommended by the various procurement agencies to obtain contracts without receiving any invitations to bid, or to negotiate. One businessman reported that he had spent 167 man-days in this effort, with no results.

Testimony indicates that some large firms are expanding their facilities, while small firms have the same kind of facilities and equipment lying idle. One businessman reported that he had received several subcontracts from a large firm, with the understanding that the large firm would take over the work as soon as it had obtained additional equipment. Obviously, this involves the use of manpower and scarce materials to duplicate machine tools which already are available in the plants of small firms.

An example of the difficulties small-business firms are experiencing in fitting themselves into the mobilization effort is provided by the New Orleans Chamber of Commerce Defense Production Council. This group has made a detailed inventory of the facilities of more than 50 small manufacturing plants in the New Orleans area, which are operating at only 65 percent of one-shift capacity. Although the council has spent 3 months in a concerted effort to obtain contracts for small-business firms in the area, the net result has been the obtaining of only three small contracts.

There also has been testimony to the effect that the production allocation program, under which manufacturers sign up with various procurement offices for utilization in the event of all-out mobilization, has not been correlated closely enough with the current procurement program. Companies whose facilities would be urgently needed in the event of all-out mobilization are facing extinction now because they are not being utilized in the current program.

4. The committee has received complaints that contract awards are being handled in ways which discourage small-business participation. Specific complaints have been received to the effect that contracts are not broken down into small enough lots to enable small business to bid, and that the provision allowing firms to bid on any part of a contract does not work out in practice. The slowness of Government payments also has worked hardships on small firms, which do not have the working capital to allow them to wait months for money owed them for performance of a contract. There also have been complaints that the Government has delayed several months in awarding a contract after the bids have been opened. This means that a bid may be submitted when costs were considerably lower than they were at the time the contract actually was awarded, and the successful bidder may take a loss on the contract as a result.

There also is evidence to indicate that the use of contract negotiation is narrowing the base of procurement, rather than broadening it. Small-business men have complained that under negotiated procedures they are unable to learn what items are being procured. This problem will be alleviated by the recent decision of the Munitions Board to publish notices of prospective negotiations. However, it appears that there has been a tendency for negotiations to be conducted with established suppliers, to the exclusion of small-business firms which have not dealt previously with the Government. Under the advertised-bid system, such firms had a chance to compete for Government business. It appears that this opportunity has been decreased by the change-over to negotiation. Of the total dollar value of Army procurement actions during March 1951, only 4.7 percent were handled through advertised bids, and the rest through negotiation. An excellent summary of the current difficulties of small business is provided in the Attorney General's second report under section 708 (e) of the Defense Production Act, issued April 30.

The Attorney General states that "we have not as yet made adequate use of all our business resources, small as well as large; in defense production," and that as a result, "the base of our industrial mobilization program is being restricted and we are not taking full advantage of our opportunity for industrial growth."