is certainly pleasant to see all you gentlemen and our very charming lady here looking so well. We have Mr. Coggeshall, the Chairman Mr. Hartwig, a Board member; Mr. Stuart, a Board member; and Mr. Campbell, also a Board member. We have one of the Board members missing. Mr. COGGESHALL. Mr. Ross has retired effective March 2. Mr. THOMAS. So we have a vacancy there. Mr. COGGESHALL. Yes. Mr. THOMAS. I see your very fine General Counsel, Mr. Fensterstock; Mr. Coffman, the Assistant General Counsel; Mr. Haggerty, Director of Administration; Mr. Semple, Director of Assignments; and Miss Egbert, your budget analyst. We have looked over your budget. You have a wealth of information in it and it is beautifully assembled, and it looks like your record is a most commendable one. So we congratulate all the members of the Board and your very capable staff for doing what looks like a very capable and a very sensible job. Mr. Chairman, do you or any of the Board members have a statement for us? We will be glad to hear from all of you. Mr. COGGESHALL. Yes, sir, I have a statement. Give me a moment to get down from the clouds after your very pleasant words. Mr. THOMAS. Take all the time you want. Mr. COGGESHALL. I might say this is the sixth time running I have presented the budget of the Renegotiation Board, as approved by the Bureau of the Budget, before this committee. GENERAL STATEMENT As Chairman of the Renegotiation Board, it is my privilege to speak for the Board in support of its budget estimates for its fiscal year 1962. As a preminary to my summary of the financial needs of the Renegotiation Board, I should like to recall to your minds, in a few brief sentences, the broad outline of the renegotiation process. This subcommittee is concerned with numerous agencies and with the great variety of laws under which they operate. It may help you, in assessing the needs of the Renegotiation Board, to have me repeat this general information about renegotiation. It can best be conveyed, I believe, by means of the following short statement which is included customarily in our annual report to the Congress: Under the statute, renegotiation is conducted not with respect to individual contracts, but with respect to the receipts or accruals of the contractor under all renegotiable contracts and subcontracts in an entire fiscal year of the contractor. Not all Government business is subject to renegotiation. The act applies only to contracts with those agencies of the Government named in or designated pursuant to the act, and to related snbcontracts. [These agencies presently are the Departments of Defense, the Army, the Navy, and the Air Force, the Maritime Administration, the Federal Maritime Board, the General Services Administration, the National Aeronautics and Space Administration, and the Atomic Energy Commission.] The act originally required every contractor to file a report with respect to its renegotiable business for a fiscal year. At present, contractors whose renegotiable sales are below the "floor" (i.e., the minimum amount prescribed in the statute) may file or not, as they choose. All reports are examined by the headquarters Board in Washington. Those which show aggregate renegotiable sales below the floor are set aside. In cases above the floor, if the profits are obviously not excessive, no further action is taken and the contractor is so notified. All other cases are assigned for renegotiation to a regional board, usually on a geographic basis. The regional board commences renegotiation, obtains such additional information as it needs, and then determines whether the contractor realized excessive profits, and if so, in what amount. The Board has delegated to the regional boards final authority to make agreements in cases involving aggregate renegotiable profits of $800,000 or less. If in any such case the contractor accepts the determination and all related matters are satisfactorily resolved, an agreement is made for the payment of the amount determined. Otherwise, the regional board issues an order directing such payments. From the order, the contractor has a right to appeal to the statutory Board. In the larger cases, in which the regional boards do not have final authority to make agreements, the determinations of the regional boards must be approved by the statutory Board before agreements can be executed. If a regional board determination is not acceptable to either the statutory Board or the contractor, the case is reassigned from the regional board to the statutory Board for further processing and completion. On any final order of the Board with which the contractor does not agree, the contractor may obtain a redetermination by filing a petition in the Tax Court of the United States. So much for that by way of preliminary and background. The 1st session of the 86th Congress passed, and the President signed, an extension of the coverage of the Renegotiation Act of 1951 to June 30, 1962. This means that the workload of the Board, as demonstrated in the justifications filed with the subcommittee, will continue at the present rate through fiscal 1962 and for some time thereafter. To carry this workload during fiscal 1961, the sum of $2,870,000 was appropriated for the operations of the Board. This appropriation having been made before the salaries of the Federal employees were increased, a supplemental appropriation of $145,000 will be necessary to meet the Board's expenses for 1961. If I may break in for a moment, I am informed you approved that $145,000, Mr. Chairman, for which I express gratitude on behalf of the Board. This will bring the total appropriation for the 1961 year to $3,015,000. Our request for 1962 is $3 million. It is esesntial that the Board be permitted a sufficient appropriation to maintain a competent, balanced staff-a staff capable of effectively performing the highly complex and technical job of analyzing the defense profits growing out of the continuing enormous defense budget. The actions of the Board is determing excessive profits are required to withstand scrutiny not only in the courts but in the Congress itself. The caliber of the work done by the Board must therefore be of a high order. STUDY ON DEFENSE PROCUREMENT POLICIES In extending the act to June 30, 1962, the Congress directed the Committee on Armed Services of each House to make a full and complete study of defense procurement policies and practices, with particular regard to the effectiveness of different types of procurement and contractual instruments in achieving reasonable costs, prices, and profits. It further directed that these studies be followed by a full and complete study of the Renegotiation Act of 1951, as amended, and of the policies and practices of the Renegotiation Board, the latter study to be conducted by the Joint Committee on Internal Revenue Taxation. The respective Armed Services Committees have now completed their studies. Each of the committees utilized specially appointed subcommittees for the purpose. The subcommittee of the House Armed Services Committee was headed by the chairman of the full committee, Representative Carl Vinson. After extensive hearings, this subcommittee issued its unanimous report which concluded with the following statement and recommendation on renegotiation: The hearings and data which we present in this report along with our conclusions and recommendations, fully justify and require the continued application of the principle of statutory renegotiaion. The high incidence of negotiated contracting which is dependent, exclusively in some instances, and heavily in others on "estimating" is fraught with dangerous possibilities of "unjust enrichment" at public expense. What the President pointed out in 1948 has come true through force of many circumstances. There has been a concentration of production facilities in the hands of a relatively small production base in which the Government is heavily interested. This segment of industry, therefore, is the beneficiary of public necessity. Its position in relation to commercial enterprise and private taxpayers in the whole country, who support defense in equal measure, demands that their fortuitous circumstance of position and place, shall not, by the concentration of contracts, produce excessive profits. Therefore, the Renegotiation Act and the criteria set out in it are, and must remain, an integral part of the way of doing defense business for the foreseeable future. American companies and Americans generally recognize and accept the necessities of this situation as a matter of justice and public conscience. On the evidence before us and the record assembled, we make the following recommendations: 4. That the Renegotiation Act of 1951, as amended, be made permanent law. The subcommittee of the Senate Armed Services Committee was headed by Senator Strom Thurmond. Its findings included the following: 2. * All of the major contract types now used can produce undesirable cost, price, or profit consequences if used inappropriately or if they are not carefully negotiated and administered. 7. Complexities of contemporary military procurement are such that procurement law cannot be so inflexible as to preclude exercise of judgment by procurement officials. In this area, as in so many areas of government, it is virtually impossible to legislate a requirement that good judgment be used. The Senate subcommittee did not make any specific recommendation about renegotiation, nor was it required to do so. The renegotiation study of the Joint Committee on Internal Revenue Taxation, which was directed to follow the procurement studies, is now in progress. You gentlemen are probably aware that though the report was to be presented to the Congress by March 31, 1961, last week the House passed a bill extending the time to June 30, 1961. That was approved by the Senate and is now before the President. It was a joint resolution by the two Houses. In other words, they have not completed their spadework yet. RECOVERIES From its organization under the 1951 act through June 30, 1960, the Board made agreements or orders determining excessive profits in the total amount of $836,520,934 before Federal tax credit. Agreements and orders in process as of that date amounted to $11,491,489. In addition, renegotiation proceedings with assigned contractors disclosed voluntary refunds and price reductions amounting to $1,111,675,277. Thus, the total amount of recoveries and price reductions directly attributable to the existence and influence of the renegotiation law, from the inception of the Board-and that was October 1951-through June 30, 1960, aggregated $1,959,687,700. During the same period the administrative expenses of the Board totaled $32,507,434. It is, I am sure, apparent to the subcommittee that any reduction in our requested appropriation would compel the elimination of some of the personnel who do this job. Such a reduction in the face of the Board's continuing responsibilities would hamper the Board in performing its difficult task. If defense profits are to be properly and fairly examined, the Board should be permitted to retain its present working capacity. The appropriation requested for fiscal 1962 will, in our judgment, enable the Board to meet this responsibilty. I shall be pleased, of course, at the pleasure of the subcommittee, to answer any questions or supply any other information relating to the activities of the Board. Mr. THOMAS. That is a very nice, concise, up-to-the-point statement, Mr. Chairman. We congratulate you. Do any members of the Board have any statements or anything they want to say? We will be delighted to hear from all of you. Mr. COGGESHALL. They may have a chance to make additional statements in the course of the interrogation, Mr. Chairman. PER DIEM WORKERS Mr. THOMAS. I notice in your appropriation language the provision applying to per diem services has been stricken from the bill this year: For necessary expenses of the Renegotiation Board, including hire of passenger motor vehicles, and services as authorized by section 15 of the act of August 2, 1946 (5 U.S.C. 55a), at rates not to exceed $50 per diem for individuals. Why is that stricken? Mr. COGGESHALL. Why is it stricken? Mr. THOMAS. Yes. Mr. HAGGERTY. We do not have any. Mr. THOMAS. Have you had any in the past 4 or 5 years? Mr. COGGESHALL. Yes. Two years ago we had Mr. Huyette. He had been Director of the Office of Review and we had him finish up his open assignments. Mr. THOMAS. So you have not had any per diem employees for the last 2 or 3 years? Mr. COGGESHALL. That is right. We have some summer jobs, temporary jobs, but not per diem. NUMBER OF POSITIONS Mr. THOMAS. How many appropriated jobs did you have for fiscal year 1961? Mr. COGGESHALL. 284. I think that is right. I know we were well under 300. Mr. HAGGERTY. 287. Mr. THOMAS. How many appropriated jobs are you asking for in your 1962 budget? Mr. HAGGERTY. 286. VACANCIES Mr. THOMAS. How many vacancies do you have? Mr. COGGESHALL. I believe at the present time we have one at headquarters, one in Los Angeles Mr. HAGGERTY. About 10, sir. Mr. COGGESHALL. We never take people on before we are sure they are thoroughly qualified. Mr. THOMAS. How many vacancies do you have now? Mr. HAGGERTY. Ten. Mr. THOMAS. You have one Board member vacancy? Mr. COGGESHALL. Yes. And we have one in the Office of Review, and one vacancy in the Los Angeles regional board at the moment. The gentleman retired January 20. Mr. THOMAS. What are these jobs, 16's? Mr. COGGESHALL. 15's. JUSTIFICATION OF THE ESTIMATE Mr. THOMAS. Miss Reporter, I wonder if you would put pages 3, 5, 6, 13, and 14 in the record at this point, and also the table on page 6. (Pages referred to follow :) SALARIES AND EXPENSES For necessary expenses of the Renegotiation Board, including hire of passenger motor vehicles, and services as authorized by section 15 of the act of August 2, 1946 (5 U.S.C. 55a) at rates not to exceed $50 per diem for individuals [$2,870,000] $3 million. (Act of March 23, 1951, Public Law 9, as amended; Independent Offices Appropriation Act, 1961.) Appropriation, 1961___ Proposed supplemental due to pay increases- OPERATION UNDER THE ACT $2,870, 000 145, 000 3, 000, 000 Under the Renegotiation Act the Renegotiation Board reviews the overall profits by a contractor on his defense contracts during the contractor's fiscal year. Renegotiation is conducted on the basis of total receipts or accruals from all defense contracts and subcontracts and not on a contract by contract basis. By statute a contractor or subcontractor having a total of $1 million or less of receipts or accruals on defense contracts and subcontracts during any fiscal year ending after June 30, 1956, is not subject to renegotiation. A contractor having more than such amount of renegotiable business is subject to renegotiation. In those cases requiring renegotiation proceedings, the Board secures as much information as it deems necessary to determine whether the contractor has made excessive profits. In each case the Board's determination is based on the measure of efficiency and the application of the other factors set forth in the act, which are (1) reasonableness of costs and profits, (2) capital employed, (3) extent of risk assumed, (4) nature and extent of contribution to the defense effort, and (5) character of business. |