on February 9, 1961, a 13-day voyage. The other left San Pedro on July 8, 1961, and arrived at Baltimore (the first berth on its subsidized service) on July 20, 1961, a 12-day voyage. Both were in ballast.

We estimate that it cost Moore-McCormack Lines $120,000 more to deliver these vessels from San Pedro, Calif., to New York and Baltimore, respectively, than it would have cost to deliver them from Chester, Pa. (the location of the yard of the lowest responsible bidder), to New York and Baltimore, respectively.

The other two ships that were allocated were for American President Lines. These ships were allocated to Bethlehem Steel Co., at San Francisco. Since San Francisco is the home port of American President Lines and the port at which these two vessels went on operating-differential subsidy, no additional costs to American President Lines for inspection and delivery were involved in this allocation. Indeed, the allocation was beneficial to American President Lines. If the allocation had not been made, the vessels would have been built at Los Angeles. As a result of the allocation, American President Lines saved inspectors' travel costs and saved the expenses of delivering the vessels from Los Angeles to San Francisco. These ships began their first subsidized voyages at

San Francisco. We have been advised by American President Lines that their administrative and inspection costs would have been about $33,000 per ship higher, before subsidy, had these ships been constructed in Los Angeles instead of San Francisco. Since there were two vessels involved, the total cost saving to American President Lines with respect to these costs (assuming all items of cost are eligible for subsidy at 50 percent) would be about $33,000. We estimate that the cost of steaming these vessels from Los Angeles to San Francisco would be $4,000 each. The total estimated cost saving to American President Lines as a result of allocation of the two ships, therefore, would be about $41,000.

The estimate is based on the assumption that the vessel would have had no cargo on the voyage from Los Angeles to San Francisco. Since the voyage was not made, we have no way of knowing whether the vessel would have had cargo or, if it had cargo, what its earnings would have been. The same situation exists in the computation of excess delivery costs under the bill. This requires a comparison of the cost of a voyage that was made with the cost of a voyage that was not made. With regard to the Export Agent for example, under the bill American Export Lines would be entitled to be paid the excess of the cost of the voyage from San Diego, Calif. (where the ship was built), to Norfolk, Va., (the ship's first berth on its subsidized service), less the gross income earned on the voyage (minus the extra expenses incurred to produce such gross income) over the cost that would have been incurred on a voyage from Camden, N.J. (the location of the yard of the lowest responsible bidder), to Norfolk, Va. voyage from Camden, N.J., to Norfolk, Va., was not made, and we have no way of knowing whether the ship would have obtained cargo, or, if it did, what its earnings would have been. Our interpretation of the bill is that the computation is to be made on the assumption that the ship would have had no cargo on the voyage that was not made.

The

With the amendments proposed, we recommend favorable consideration of the bill. Attached is a substitute text which would carry out our recommendations. The Bureau of the Budget advises that there is no objection to the submission of this report from the standpoint of the administration's program. Sincerely,

ROBERT E. GILES.

SUBSTITUTE TEXT FOR H.R. 82, RECOMMENDED BY THE MARITIME ADMINISTRATION AND THE DEPARTMENT OF COMMERCE

That section 502(f) of the Merchant Marine Act, 1936, as amended (46 U.S.C. 1152(f)), is amended by inserting at the end thereof the following:

"If, as a result of allocation under this subsection, the applicant incurs expenses for inspection and supervision of the vessel during construction and for the delivery voyage of the vessel in excess of the estimated expenses for the same services that he would have incurred if the vessel had been constructed by the lowest responsible bidder the Secretary of Commerce (with respect to construction under title V, except section 509) shall reimburse the applicant for such excess, less any gross income the applicant receives that is allocable to the delivery voyage minus the extra expenses incurred to produce such gross income, and such reimbursement shall not be considered part of the construction-differential subsidy. If the vessel is constructed under section 509 the Secretary of Commerce shall reduce the price of the vessel by such excess, less any gross in

come (minus the extra expenses incurred to produce such gross income) the applicant receives that is allocable to the delivery voyage. In the case of a vessel that is not to receive operating-differential subsidy, the delivery voyage shall be deemed terminated at the port where the vessel begins loading. In the case of a vessel that is to receive operating-differential subsidy, the delivery voyage shall be deemed terminated when the vessel begins loading at a United States port on any essential service of the operator. In either case, however, the vessel owner shall not be compensated for excess vessel delivery costs in an amount greater than the expenses that would have been incurred in delivering the vessel from the shipyard at which it was built to the shipyard of the lowest responsible bidder. If as a result of such allocation, the expenses the applicant incurs with respect to such services are less than the expenses he would have incurred for such services if the vessel had been constructed by the lowest responsible bidder, the applicant shall pay to the Secretary of Commerce an amount equal to such reduction and, if the vessel was built with the aid of constructiondifferential subsidy, such payment shall not be considered a reduction of the construction-differential subsidy."

SEC. 2. The amendment made by this Act shall be effective with respect to any contract entered into under the provisions of section 502 of the Merchant Marine Act, 1936, as amended, and the Secretary of Commerce shall, with the consent of the other parties thereto, modify any such contract entered into prior to the date of the enactment of this Act to the extent authorized by the amendment made by this Act, except that the Secretary shall not agree to any such modification which would result in a payment by the United States unless, within one year after enactment of this Act, provision has been made for payment to the Secretary of an amount equal to the total of any amounts which would be due the United States under such contracts entered into prior to the date of enactment of this Act if all such contracts were modified in accordance with the amendment made by this Act.

COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, April 19, 1963.

B-127703.

Hon. HEBERT C. BONNER,

Chairman, Merchant Marine and Fisheries Committee,
House of Representatives.

DEAR MR. CHAIRMAN: Further reference is made to your letter of February 4, 1963, acknowledged on February 5, requesting the comments of the General Accounting Office concerning H.R. 82, 88th Congress, 1st session, entitled "A bill to amend the Merchant Marine Act, 1936, in order to provide for the reimbursement of certain vessel construction expenses."

The bill would amend section 502(f) of the Merchant Marine Act, 1936, as amended, to provide that, in the event the construction of a vessel is allocated to other than the lowest bidder, the Federal Maritime Board shall bear the additional expenses of inspection and supervision of the vessel during construction, and delivery of the vessel to its home port. Since it is not clear whether such expenses will be attributable to the cost of national defense, we suggest that such expenses be identified in section 502(f) as national defense costs so that the expenditures by the Government will be recognized in the event the vessel is subsequently repurchased by the Government. Furthermore, we recommend that the wording of section 802 of the act, which establishes the limitation of the amount to be paid by the Government upon repurchase, should be amended to provide for the exclusion of national defense costs in place of the existing exclusion of national-defense features, in order to embrace not only the expenses of inspection, supervision, and delivery, but also the excess price occasioned by allocation which is not now specified in section 802.

In our opinion, section 2 of the proposed bill would apply retroactively to all contracts both completed and uncompleted-which have been allocated under section 502 (f) of the act. We understand that up to the present time there has been an allocation of contracts for the construction of six ships under section 502(f). In view thereof, and since the contracts covering the vessels mentioned above cannot be changed without the consent of the other parties thereto, thus depriving the Government of the benefit of any possible savings which may have resulted to the operator, we recommend the deletion of section 2 of the proposed bill in its entirety.

We also note that section 1 of the bill would provide that the delivery voyage shall be deemed terminated when the vessel reaches its home port or a point on its subsidy route equally distant. The apparent purpose of this provision is to limit the length of the delivery voyage, in the event the operator choses to place the ship in its intended commercial service before it enters its home port, to the distance from the shipyard to its home port. We suggest that your committee may wish to give consideration to whether under the present wording of this provision, its purpose might be frustrated in the event of allocation of a contract for the construction of a vessel not intended for subsidized operation and which, therefore, would have no subsidy route.

Inasmuch as the Federal Maritime Board was abolished and its pertinent functions transferred to the Secretary of Commerce by Reorganization Plan No. 7 of 1961, "Federal Maritime Board" in lines 4 and 19 on page 2, and in line 3 on page 3 of the bill should be changed to "Secretary of Commerce," and the language between "Federal Maritime Board" in line 19 and "an amount equal" in line 22 on page 2 of the bill should be deleted.

While we recognize that the question whether legislation of this type is desirable is strictly a matter of policy for determination by the Congress, we suggest that the matters hereinafter set forth be given consideration by your committee in its deliberations on the bill.

Chairman, Committee on Merchant Marine and Fisheries,
House of Representatives, Washington, D.C.

MY DEAR MR. CHAIRMAN: Your request for comment on H.R. 82, 88th Congress, a bill to amend the Merchant Marine Act, 1936, in order to provide for the reimbursement of certain vessel construction expenses, has been assigned to this Department by the Secretary of Defense for the preparation of a report thereon expressing the views of the Department of Defense.

The proposed bill would amend section 502(f) of the Merchant Marine Act, 1936, by inserting a provision at the end of the section permitting an applicant for a construction-differential subsidy to be reimbursed by the Secretary of Commerce, under certain conditions, for expenses incurred for inspection and supervision during construction and for the delivery voyage in those cases where a vessel is constructed by other than the lowest repsonsible bidder purspant to section 502.

The Department of the Navy, on behalf of the Department of Defense, neither supports nor opposes the enactment of H.R. 82, but defers to the views of the Department of Commerce as the agency having primary interest in the bill.

This report has been coordinated within the Department of Defense in accordance with procedures prescribed by the Secretary of Defense.

The Bureau of the Budget advises that, from the standpoint of the administration's program, there is no objection to the presentation of this report for the consideration of the committee.

Sincerely yours,

C. R. KEAR, Jr., Captain, U.S. Navy, Deputy Chief (For the Secretary of the Navy).

The CHAIRMAN. The witness is Mr. Alexander.

STATEMENT OF HON. DONALD W. ALEXANDER, MARITIME ADMINISTRATOR; ACCOMPANIED BY ROBERT J. ABLES, GENERAL COUNSEL, MARITIME ADMINISTRATION, DEPARTMENT OF COMMERCE

Mr. ALEXANDER. My name is Donald W. Alexander. I am Maritime Administrator.

Mr. Chairman, with your permission, I would like to have Mr. Robert Ables, the General Counsel, join me at the table.

The CHAIRMAN. Yes, sir.

Mr. ALEXANDER. I have a prepared statement, sir.

Section 502 (b) of the Merchant Marine Act, 1936, provides that the construction-differential subsidy may equal, but not exceed, the excess of the bid of the lowest responsible bidder (less the cost of national defense features, which shall be paid by the United States) over the fair and reasonable estimate of the cost of construction of the proposed vessel (less the cost of national defense features) in a representative foreign shipyard.

Section 502(f) of the Merchant Marine Act, 1936 (a) authorizes the Secretary of Commerce to allocate ship construction, reconstruction, and reconditioning if certain findings are made with respect to mobilization requirements, and (b) provides that the excess of the contract price, under the allocated contract, over the lowest responsible bid shall be paid as a national defense cost. The section, however, does not authorize payment by the United States of any increased vessel inspection and vessel delivery costs which an operator incurs as a result of the allocation, nor does it provide for payment to the United States by the operator of any savings in these costs which the operator makes as a result of the allocation.

Section 1 of the bill would amend section 502(f) to provide that if, as a result of the allocation, the vessel owner incurs expenses for inspection of the vessel during construction, and for the delivery voyage, in excess of the estimated expenses that he would have incurred for such services if the vessel had been constructed by the lowest responsible bidder, the Secretary of Commerce shall reimburse the vessel owner for such excess, less any gross income the applicant receives that is allocable to the delivery voyage, minus the extra expenses incurred to produce such gross income. The section further provides that if the owner's expenses for vessel delivery and inspection services are less because of an allocation, the owner shall pay to the Secretary of Commerce an amount equal to such reduction. The section provides that the delivery voyage shall be deemed terminated when the vessel reaches its home port or a point on its subsidy route equally distant from the shipyard at which the vessel was built.

Section 2 of the bill provides that any contract that has heretofore been made for the construction of a ship with allocation under section 502(f), shall be amended, if parties other than the Secretary of Commerce consent, to include the provisions of the bill.

We recommend favorable consideration of the bill if the bill is amended as hereinafter proposed.

When ship construction is allocated under section 502(f), the allocation is made for the purpose of remedying an existing or impending inadequacy in the shipyard mobilization base at a strategic point. Such allocations are made for national defense reasons and if, as a result of the allocation, the shipowner incurs additional vessel inspection and delivery costs, we think it is equitable that he should be reimbursed by the United States, and we likewise think it is equitable that if an operator makes a saving in these costs as a result of the allocation, such savings shall be paid to the United States. We, therefore, have no objection in principle to the prospective features of the bill. We think, however, that it would be desirable to amend the bill with respect to termination of the delivery voyage. The bill provides that the delivery voyage shall be deemed terminated when the vessel reaches its home port or a port on its subsidy route which is as distant from the shipyard where the vessel was built as the vessel's home port is. This language evidently anticipates that the vessel will not go to its home port. Since the home port is merely the port at which the vessel is documented, there is no reason why the vessel should go there before it goes into service.

With respect to vessels that will be paid operating-differential subsidy, we think the delivery voyage should be deemed terminated when the vessel begins loading at any port on an essential service of the operator, and with respect to vessels that will not be paid operatingdifferential subsidy, we think the delivery voyage should be deemed terminated at the port at which the vessel begins loading. In either case, however, we believe that the maximum excess delivery costs for which the operators should be compensated should be an amount equal to the cost that would be incurred in delivering the vessel from the shipyard at which it was built to the shipyard of the lowest responsible bidder.

With the foregoing amendments, we have no objection to the prospective features of the bill.

We are opposed to the retroactive features of the bill in their present form. Section 2 of the bill provides that any contract that has heretofore been made for the construction of a ship with allocation under section 502 (f) shall be amended, if parties other than the Secretary of Commerce consent, to include the provisions of the bill. Two operators have incurred additional vessel delivery and inspection expenses through allocation, and one operator has made savings. In our opinion, the operator who made savings through allocation could not now constitutionally be required to pay these savings to the United States, because this would impair the obligation of the contract he has with the United States under which he acquired the ships. We, nevertheless, believe that there should be no retroactivity under the bill unless arrangements are made to place the United States in the position it would have been in if the bill had been enacted before any allocations were made. We think the bill should be amended to provide that there shall be no retroactivity unless provision is made, within 1 year after enactment of the bill, for payment to the United States of an amount equal to the savings that were made by the operator who made savings.