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H.R. 938, to amend section 203 (j) of the Federal Property and Administrative Services Act of 1949 so as to provide that certain surplus property of the United States shall be offered for sale to the States.

H.R. 1067, H.R. 10012, H.R. 11060, to amend the Federal Property and Administrative Services Act of 1949 to permit donations of surplus property to volunteer firefighting organizations and volunteer rescue squads, and for other purposes.

H.R. 1460, to authorize the disposal of surplus equipment, materials, books, and supplies under section 203 (j) of the Federal Property and Administrative Services Act of 1949 to the Arizona Boys' Ranch and Epi-Hab Phoenix, Inc.

H.R. 2421, to amend section 203 (e) of the Federal Property and Administrative Services Act of 1949 to facilitate the procurement of certain surplus personal property by State agencies.

H.R. 3947, to amend the Federal Property and Administrative Services Act of 1949 to make certain medical institutions and hospitals engaged primarily in furnishing domiciliary care eligible for donations of surplus property.

H.R. 6541, related to H.R. 7115, to amend the Federal Property and Administrative Services Act of 1949, as amended, to promote the welfare of the Indian tribes by making available to them surplus personal property.

III. Other Current Activities

A. GENERAL ACCOUNTING OFFICE REPORTS

EXECUTIVE AND LEGISLATIVE REORGANIZATION SUBCOMMITTEE

Eleven GAO reports were referred to the subcommittee during the 89th Congress.

These reports were studied and evaluated by the subcommittee staff; no significant action appeared to be warranted.

MILITARY OPERATIONS SUBCOMMITTEE

In calendar years 1965 and 1966, the subcommittee has received 190 reports (as of November 1, 1966) submitted to Congress by the General Accounting Office. In connection with these and reports received in earlier Congresses, the subcommittee held 11 days of hearings on the subject of "Comptroller General Reports to Congress on Audits of Defense Contracts." (See sec. I.A., p. 33.)

The following listing contains 80 GAO contract audit reports on which the committee requested information or which were cited by Defense witnesses at the subcommittee hearings, May-July 1965, and 6 discussed by AEC witnesses. Of the reports, 3 dated from calendar year 1962 but were still open and pending cases, 8 dated from 1963, 60 from 1964, and 9 from 1965. Of these, one report from 1964 and two from 1965 were draft reports referred to in testimony.

1. "Excessive Interest Expense Included in Price Negotiated for Petroleum Storage Under Contract ASP-21801 With New England Tank Industries of New Hampshire, Inc.," B-146813, February 25, 1964 (OSD Case No. 1741).

The General Accounting Office reported that $253,100 in excessive interest expense was included by the contractor in the negotiated fixed price for a petroleum storage construction and operation contract let in 1959. It recommended recovery of this amount.

The Department of Defense agreed with the GAO on the pricing issue in this contract, and requested a refund from the contractor. The contractor refused to make a refund. The case was under consideration by the Justice Department beginning in 1963. After FBI investigation and other review, the Justice Department determined that there was inadequate evidence to sustain a cause of action, and closed its file on September 30, 1965. A subsequent request by DSA for a voluntary refund was refused by the contractor in April 1966 and the case was closed.

The Defense Supply Agency, which did not let the contract but now administers it, has undertaken to improve procedures of petroleum storage procurement.

2. "Illegal Award of Advertised Construction Contract and Excessive Costs for Contract Modifications," B-146894, June 2, 1964 (OSD Case No. 1863).

The GAO made a finding that an illegal contract award was made in 1959 to Lane Construction Corp. for runways and lighting at Andrews Air Force Base and recommended payment only on a quantum meruit basis. The finding was based on the ground that when the original contract award of about $8 million was made, the Air Force was aware of changed requirements for lighting which would have altered the amount and extent of the work to be done. GAO took the position that the proper action that could have been taken was to have canceled the bid and readvertised it.

The Army, which was performing the construction for the Air Force, took the position that regardless of prospective changes, the bids were a valid basis for award, and that the project was urgent and should not have been canceled and delayed for these reasons.

The general findings of illegality was thus disputed by the Department of Defense, although the statement of the facts in the case by the GAO was agreed to.

Approximately $170,000 was withheld from the contractor since April 9, 1963. GAO, by refusing to certify the disbursing officer's accounts, forced the Army to make a quantum meruit study. The study cost $2,300, and resulted in a finding which was $5,323 in excess of the final contract price (with change orders) of $12,223,873. On July 28, 1965, DOD again requested GÃO to reconsider and approve payment of the contract price.

By letter of August 18, 1965, the Acting Comptroller General withdrew objections to making final payments under the contract.

3. "Excessive Prices Negotiated by the Defense Petroleum Supply Center for Storage of Petroleum in a Commercial Facility at St. Ignace, Mich.," B-133149, June 15, 1964 (OSD Case No. 1812). GAO reported that the prices negotiated under contract ASP-15734 in 1960 for storage of petroleum in a new commercial facility at St. Ignace, Mich., included excessive amounts of $67,000 for interest on the contractor's construction loan and $223,190 for operating cost, and recommended recovery. GAO also found that the prices negotiated for future renewal periods were excessive because they amount to $761,551 more than the estimated operating costs of $983,269 for the 7 option years.

While DOD agreed that cost elements could have been analyzed more thoroughly, it asserted that the 1957 contract was competitive and that the successful contractor proposal was low by $993,492. DOD found that, in the absence of any evidence of misrepresentation, it had no legal basis for a price adjustment, and in view of the position taken by the contractor, there was no reasonable prospect for an adjust

ment on a voluntary basis. However, DSA negotiated renewal prices resulting in reduction of $204,764 for the remaining 7 years of the contract. It has also undertaken to improve procedures for petroleum storage procurement.

NOTE. The committee takes note that the scheduled closing of Kincheloe AFB, Kinross, Mich., in 1970 (announced by the Department of Defense in December 1965) may affect this contract, and urges close attention to the administration of the contract by the Defense Supply Agency (Defense Fuel Supply Center).

4. "Improper Reimbursements for Personal Property Taxes to Hoffman Electronics Corp., El Monte, Calif., Under Defense Contracts and Subcontracts," B-146922, August 4, 1964 (OSD Case No. 1908).

GAO made a finding that the contractor improperly retained $59,052 in items of expense for the payment of California county property taxes, although it was later determined in litigation that the company was not liable for the taxes on Government-owned property in which it had a possessory interest only.

The Department of Defense agreed with the GAO position and its auditors also questioned additional items in contracts held by all three military departments, exceeding the Navy Department, which had the bulk of the claims, when finally audited and computed, attempted to negotiate with the contractor, but as of the end of June 1966, was preparing to submit the case to the Justice Department for legal action. The contractor disputed the bulk of the Government's claim.

5. "Unnecessary Costs to the Government for Insurance on Government-Owned Inventories and Special Tooling Held by Contractors Under Negotiated Fixed-Price Contracts," B-146926, September 15, 1964 (OSD Case No. 1884).

GAO recommended that the Government should assume the risk of loss or damage to inventories and tooling in the hands of contractors. GAO estimated unnecessary costs of $1,237,500 were incurred in 5 years at four contractor plants for private insurance against such risks. DOD disputed the GAO sample as proof of uneconomic use of private insurance. No corrective action has been taken, since DOD disagreed with both findings and recommendations of the report.

6. "Excessive Prices Negotiated by the Defense Fuel Supply Center for Storage of Petroleum in a Commercial Facility at Grand Forks, N. Dak.," B-133149, September 30, 1964 (OSD Case No. 1880).

GAO found that the contract prices negotiated were excessive by $787,000 due to the contractor's failure to disclose all data and the Government negotiators' failure to effectively review estimates of costs in a 1959 contract. Defense Supply Agency agreed there was withholding of data, and attempted to seek a price adjustment, in coordination with Justice Department.

After reviewing additional material, the Justice Department determined that a cause of action could not be sustained and closed its file on the case on December 13, 1965. A subsequent request by DSA for a voluntary refund was refused by the contractor in April 1966, and the case was closed.

The Defense Supply Agency, which did not let the contract but which has administered such contracts since 1962, has undertaken to improve the procedures for petroleum storage procurement.

7. "Use of Private Executive Aircraft Rather Than Commercial Aircraft Resulted in Unwarranted Charges to Government CostReimbursable-Type Contracts by Lockheed Missiles & Space Co., Sunnyvale, Calif.," B-146948, October 21, 1964 (OSD Case No. 1948).

GAO claimed unnecessary costs of $865,000 in calendar year 1962 because the contractor maintained an aircraft fleet at a cost of $1,029,000 instead of using commercial transportation at a cost GAO estimates at $164,000. GAO claimed most of the flights made by the aircraft fleet were routine.

The contractor took the position that the services provided by the private aircraft fleet were unique and specific, and that these services could not be provided by scheduled commercial flights. As for the alternative of chartered commercial aircraft, the contractor took the position that it needed to fully control the flight operations of the aircraft.

The Air Force took the position that part of the aircraft, or part of the operations and expenses, were essential and justifiable, and part could be considered company business. The Air Force therefore proposed to disallow $544,374 out of $992,299 claimed by the contractor for calendar year 1962. The contractor is expected to appeal the disallowance; however, the total overhead for 1962 has not yet been negotiated.

Air Force disagreed with GAO criteria for evaluation of these costs in 1963 and succeeding years. The Armed Services Procurement Regulation Committee was asked to develop DOD-wide regulations. This effort, ASPR Case 65-58, has now produced a draft which has been circulated for comment. It is anticipated that the new ASPR rules will be published in the near future.

8. "Inventions Not Disclosed and Confirmatory Royalty-Free Licenses Not Obtained Under Selected Research and Development Contracts With Certain Divisions of Thompson Ramo Wooldridge, Inc.," B-133307, November 19, 1964 (OSD Case No. 2020). The GAO found that the contractor had not complied with the patent provisions of contracts, in that he had failed to submit invention disclosures to the Government, and had delayed disclosures of inventions and confirmatory licenses, and as a result the Government's rights in inventions had been jeopardized.

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