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increased requirements due to Vietnam and other crises. The current result has been an increase in procurement of airlift for the civil carriers for channel traffic and the use of the increased military capacity for increased commitments. The recommendation has thus been fully complied with in substance.

FLEXIBLE CONTRACTS FOR SPECIAL NEEDS (Recommendation No. 3):

In procuring airlift services beyond the yearly "fixed buy,” flexibility should be created to permit short-term awards in special circumstances to qualified carriers not holding annual contracts.

RESULTS.—The Department of Defense and the Air Force have developed policies to provide flexibility in contracts for special needs or circumstances. In general, the policy provides for allocating additional contract needs among the carriers selected in the longterm buy program. Thus, while the DOD policy provides for flexibility, it does not include use of short-term contracts with carriers other than those selected for 3-year military airlift contracts.

MAINTAINING CONTRACTOR BASE (Recommendation No. 4):

In the new 3-year cycle of airlift procurement commencing in fiscal year 1965, MATS should maintain a broad contractor base, taking into account carriers' past performance and new

equipment acquisitions. RESULTS.—The new Department of Defense policies have resulted in maintaining the interest of contractors in bidding at times open to new contractors for the 3-year buy. The 3-year buy policies and criteria, as developed, did take past performance and acquisition into account as central factors in evaluating bids. Airlift procurement policies have also emphasized maintenance of good performance records and the fulfillment of acquisition commitments.

While the CAB has denied renewal of some certificates to carriers who formerly participated in military airlift business, thus reducing the potential contractor base, some additional carriers have become interested in this business and have been awarded contracts. The net result has been the maintenance of a sufficiently broad contractor base to fulfill military requirements.

CRITERIA FOR CONTRACTOR INDEPENDENCE (Recommendation No. 5):

While continued excessive dependence by civil carriers on military airlift revenues is to be discouraged and their promotion of commercial business encouraged, MĂTS should be careful not to apply arbitrary criteria in evaluating these factors for future contract awards.

Results.-- The DOD, Air Force, and MATS policy with respect to the degree of financial independence required of civil air carriers has been firmly applied, but carefully considered. Policy governing fiscal year 1966 contracts requires that at least 30 percent of each carrier's air transportation revenues be derived from commercial sources. In general, carriers who have qualified on other grounds have not been arbitrarily excluded from bidding and participating by this standard.

PREFERENCE FOR CONTRACTORS OFFERING COMMITMENTS FOR EMERGENCY USE (Recommendation No. 6):

The CAB should give full consideration to the Department of Defense interest in a broad contractor base to support military airlift requirements and to MATS obligations to assist carriers who have acquired new equipment for military work and have committed substantial resources for military emergencies.

Results.—The CAB has given appropriate consideration to DOD interests in consideration of individual carriers' certificates and regulatory exceptions required in performance of military contracts. Carriers who have acquired new equipment have generally received certificate renewals.

LOWERING MINIMUM RATES (Recommendation No. 7):

The CAB should give prompt consideration to a downward revision of minimum rates for military airlift in the light of new equipment acquisitions by civil carriers.

RESULTS.—The recommendation for downward revision of minimum rates for military airlift has been put into effect. On September 11, 1963, the CAB announced proposed amendments reducing minimum rates for all MATS charters, subject to its rulemaking procedure. The CAB release of that date quoted from the committee's report and included this statement:

The review of minimum rates by the CAB is one of the periodic reviews conducted by the agency and is in keeping with recommendations of Department of Defense and the House Committee on Government Operations in order to insure that the rates charged the military are the minimum reasonable levels at which the carriers can economically

operate. The CAB-imposed reduction in minimum rates became effective January 1, 1964 (CAB Economic Regulation No. 401). It resulted in savings during the remaining half of fiscal year 1964 of approximately $4.4 million.

In 1964, the CAB again reviewed the cargo portion of the rate structure and ordered a further reduction in that category, effective July 1, 1964 (CAB Economic Regulation No. 403). However, one of the cargo carriers petitioned the Board to reconsider the reduction with respect to operations in the North Pacific area and to allow a higher rate for cargo operations in that area. After further consideration, CAB did order such an increase, effective September 1, 1964 (CAB Economic Regulation No. 414). Even so, the effect of these latter two actions will result in a savings of approximately $2.8 million during fiscal year 1965.

Together, the savings derived from the three rate adjustments noted above will be approximately $11.6 million for fiscal year 1965, and a similar amount for each succeeding year barring further rate adjustments. The identified savings for fiscal years 1964 and 1965 were $16 million.

After further review, the CAB imposed still another reduction effective July 1, 1965, which is estimated to result in savings of $19.9 million under fiscal year 1966 contracts, additional to the savings obtained from the first three rate reductions.

COOPERATION BETWEEN DOD AND OFFICE OF EMERGENCY TRANSPORTATION (Recommendation No. 8):

The Office of Emergency Transportation in the Department of Commerce needs to be properly informed of MATS' airlift expansion activities and CRAF-operational plans, and a memorandum of understanding to those ends should be executed between the two agencies at the earliest possible date.

RESULTS.-The committee was informed in a letter dated August 30, 1963, by Secretary of Commerce Luther H. Hodges, that a memorandum of understanding had been signed on August 8, 1963, by Secretary of Defense Robert S. McNamara and Acting Secretary of Commerce Franklin D. Roosevelt, Jr., providing for a definition and division of responsibilities between the Department of Defense and the Department of Commerce, and designating the officials and offices responsible for coordinating requirements, planning, and contracting for the Civil Reserve Air Fleet.

(H. Rept. No. 917, 88th Cong., 1st sess.)

AVOIDING CONFLICTS OF INTEREST IN DEFENSE

CONTRACTING AND EMPLOYMENT

Thirteenth Report by the Committee on Government Operations

(Submitted to the Speaker November 22, 1963) The report reviews and examines policies concerned with the avoidance of conflicts of interest within and outside the Government in several categories. First, it reviews the manner in which recent changes in conflict-of-interest statutes have been implemented by the executive branch.

Second, it reviews a series of administrative actions aimed at regulating the activities of persons who are profit or nonprofit contractors with the Department of Defense and who serve in close conjunction with Government agencies to provide technical or expert assistance. Such regulatory restrictions include "hardware bans" to prevent a technical advisory company from influencing or entering into certain production activities, and restraints on other contract or advisory work undertaken by the contractor “adjuncts” of Govern ment agencies.

The report states that most Government agencies have undertaken to promulgate and apply the new standards expressed in statutory revisions and Presidential memorandums relating to potential conflictof-interest situations. These reviews and regulations have been accompanied by wider publication of standards of conduct, the writing of more inclusive, detailed, and comprehensive regulations, and new emphasis on information and training for personnel. Most agency personnel have been given the benefit of increased access to information and advice on their personal situations and circumstances. Most standards-of-conduct regulations urged personnel to consult either agency legal counsel or private legal counsel if there is any doubt as to the propriety of their individual financial or work circumstances,

At the same time, reduced restrictions now apply to "special Government employees,” a category which includes part-time, temporary, or intermittent advisers, consultants, and experts. Many new discretionary powers have been given to the responsible superiors of such personnel

. They can decide upon the propriety of participation by such personnel in specific activities where they may have some direct or indirect interest. Special Government employees are now being required to furnish statements of their financial interests in areas of possible conflict of interest. The report recommends that the same reporting requirement be applied to regular Government employees who have major procurement and contracting duties.

In connection with profit and not-for-profit and adjunct corporations which provide expert and technical services, restrictions have been imposed on the entry of such companies into production contracts in the fields in which they provide advice. A so-called code of conduct has been developed by the Department of Defense to avoid organizational conflicts of interest. The report points out that there are several aspects of the code which may result in future difficulties. It recommends the gathering of data and the development of further standard policies with respect to the imposition of "hardware bans" in the situations described in the code of conduct.

The report further notes that the code of conduct contains a policy statement on the development of new nonprofit corporations or the continuation of contract services of these corporations already in existence. It criticizes the brevity and vagueness of this statement, and urges the Department of Defense to define and state its policy in more concrete terms.

Another category of potential conflict-of-interest is the situation where the personnel of contractor organizations are not subject to statutory restrictions applying to Government personnel, not necessarily covered by attempts to regulate contractor adjuncts as organizations. The report suggests further study of the means of providing standards of conduct for such personnel who are performing quasigovernmental work.

The report is based on part of the material contained in hearings on systems development and management held in 1962 and 1963, and in hearings on military communications satellite program held in 1963; a total of 33 days of public hearings.

RESULTS.--The subcommittee's hearings and ensuing report have served to clarify many points in official directives which were troublesome and confusing to defense contractors. Informal expressions of appreciation from both Government and industry sources received.

RECOMMENDATIONS FINANCIAL STATEMENTS BY REGULAR EMPLOYEES (Recommendation No. 1):

To accord the same administrative treatment and protection in the matter of avoiding conflicts of interest to full-time (regular) Government employees and part-time, intermittent, or temporary (special) Government employees, we recommend that the Department of Defense require senior employees and military personnel whose work affects procurement and contracting to

file statements of private financial and business interests. RESULTS. - In Executive Order No. 11222, dated May 8, 1965, President Johnson issued new conflict-of-interest orders superseding those described in House Report No. 917. The order provided, in part IV, as follows:

SEC. 401. (a) Not later than 90 days after the date of this order, the head of each agency, each Presidential appointee in the Executive Office of the President who is not subordinate to the head of an agency in that Office, and each full-time member of a committee, board, or commission appointed by the President, shall submit to the Chairman of the Civil Service Commission a statement containing the following:

(1) A list of the names of all corporations, companies, firms, or other business enterprises, partnerships, nonprofit organizations, and educational or other institutions

(A) with which he is connected as an employee, officer, owner, director, trustee, partner, adviser, or consultant; or

(B) in which he has any continuing financial interests, through a pension or retirement plan, shared income, or otherwise, as a result of any current or prior employment or business or professional association; or

(C) in which he has any financial interest
through the ownership of stocks, bonds, or other

securities.
(2) A list of the names of his creditors, other than
those to whom he may be indebted by reason of a
mortgage on property which he occupies as a personal
residence or to whom he may be indebted for current
and ordinary household and living expenses.

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