MR. CHAIRMAN, I DON'T KNOW HOW LONG THE PENTAGON IS GOING TO BE

ABLE TO GET AWAY WITH ITS HIGH-HANDED, ARROGANT MANNER OF DEALING WITH
CONGRESS AND THE PUBLIC. FOR YEARS, THE HOUSE AND SENATE ARMED SERVICES
COMMITTEES--AND THEY ARE NOT ENTIRELY UNFRIENDLY TO THE PENTAGON--HAVE
TRIED TO GET THEM TO INCREASE COMPETITION IN THEIR PROCUREMENT CONTRACTS.
YOU IN THIS SUBCOMMITTEE HAVE CALLED FOR IT. IN OUR GOVERNMENT UPERATIONS
COMMITTEE, WE HAVE SHOWN AGAIN AND AGAIN HOW THE PENTAGON'S PREFERENCE FOR
SOLE-SOURCE CONTRACTS HAS COST THE GOVERNMENT MILLIONS OF DOLLARS.
AND
WHAT WAS THEIR RESPONSE?

THEY PUT OUT FIGURES EARLIER THIS YEAR SHOWING A BIG INCREASE IN COMPETITIVE PROCUREMENT. BUT WHEN THE GENERAL ACCOUNTING OFFICE LOOKED AT THE FIGURES, THEY FOUND THAT ALL DUD HAD DONE WAS REDEFINE COMPETITIVE AND NONCOMPETITIVE PROCUREMENT. WHEN YOU APPLIED THE SAME METHOD THEY HAD ALWAYS USED IN THE PAST, YOU FOUND THEIR RECORD FOR COMPETITIVE PROCUREMENT WAS EVEN WORSE THAN IT HAD BEEN.

THE ADMINISTRATION, IN RESPONSE TO A LAW THAT ORIGINATED IN OUR COMMITTEE, IS DRAFTING A GOVERNMENT-WIDE PROCUREMENT CODE THAT WILL STRESS THE IMPORTANCE OF COMPETITION, AND WHAT HAS THE DEFENSE DEPARTMENT DONE? GOTTEN ITSELF EXEMPT FROM THE CODE.

THE AWARDING OF BILLIONS OF DOLLARS TO DEFENSE CONTRACTORS WITHOUT ANY COMPETITIVE BIDDING IS NECESSARY IN MANY CASES FOR THE DEVELOPMENT OF COMPLEX WEAPONS SYSTEMS. BUT IT IS EQUALLY NECESSARY TO MAKE SURE THAT THERE IS NO ABUSE OF THOSE CONTRACTS. THAT PROFITS ARE KEPT IN A REASONABLE RANGE AND THAT WE GET THE MOST DEFENSE WE CAN FOR OUR DEFENSE DOLLARS.

THE KENEGOTIATION BOARD CAN PLAY AN IMPORTANT PART IN PROVIDING THAT ASSURANCE. IT HAS PROVEN ITS WORTH IN THE MILLIONS OF DOLLARS IN EXCESS PROFITS IT UNCOVERED DURING ITS EXISTENCE. IT NEVER SHOULD HAVE BEEN ALLOWED TO DIE AND I HOPE YOU WILL BE SUCCESSFUL IN THIS EFFORT TO BREATHE NEW LIFE INTO IT.

Chairman MINISH. The first witness is a very valued member of the subcommittee, the gentleman from Texas, Mr. Gonzalez. Mr. Gonzalez, you may proceed.

STATEMENT OF HON. HENRY B. GONZALEZ, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS

Mr. GONZALEZ. Thank you very much, Mr. Chairman.

I certainly do support H.R. 5651-I am one of the cosponsorswhich would reactivate the Renegotiation Board and I commend you once again for your determination and your persistence and your intention to revive the one law that has been effective in deterring war profiteers.

There never has been a time when war profiteers did not exist. In our Nation's history, even during the time that George Washington was suffering in the cold on the Delaware, he had to worry about profiteers. Those who have sought to take undue advantage of emergencies and military exigencies have always been with us. They have charged exorbitant prices for shoddy merchandise. They have delivered short measures and demanded full prices, and they have profited handsomely throughout all the ages. They are with us still, except they are richer, they are more powerful and more avaricious than ever.

Today we are in the midst of an unprecedented military buildup. The amount of money going into military procurement is beyond the mind of man to comprehend. It is like when we read about the millions in the Holocaust-just the idea of trying to grasp what ten means, much less a million or a thousand. It is the same thing here.

We cannot even envision the $1.5 trillion that will go into military expenditures in the next 5 years. The quantity of money so vast that we cannot comprehend is so vast, how it can be infallibly managed, as the administration and those ardently supporting it advocate. Inescapably there will be fraud, there will be abuse, there will be profiteering and all at unprecedented levels.

The administration is fond of saying that in programs like food stamps there is a factor of error, waste or fraud approaching 10 percent. Yet the food stamp program is tightly managed, carefully scrutinized, constantly watched by law enforcement agencies.

Military programs do not get the same kind of scrutiny. There is not any concerted effort to weed out the cheaters and sharp operators. Law enforcement agencies almost never try to prosecute the greedy souls who prey on the riches of the Pentagon.

It is reasonably safe to say that 10 percent of military procurement funds are skimmed off by profiteers. In a $1.5 trillion program that would be enough to wipe out the whole $150 billion deficit that we are staring at today. It would be enough to fund food stamps for 15 years. It would be enough to fund all the Nation's housing programs for 5 years. It would be enough to finance student loans for decades to come.

Yet we are doing literally nothing to stop war profiteering, other than the distinguished chairman's efforts and some of the other stalwarts. At the time the Renegotiation Act lapsed, there were $150 billion in defense contracts that had not even been examined.

In the last 12 months of its work, the Renegotiation Board found $82 million in excess profits-and that was at a time when the Pentagon spending was small, relatively, compared to the Niagara of spending that is going on today.

The defense authorization bill that we passed just last week carries a total program of $175 billion. Of the procurement part of that program, we can expect that $2 out of every $3 will be spent on negotiated or sole source contracts, not competitive bids-no real, honest-to-goodness competition.

There are reasons why this happens, because military contracts involve complex and peculiar requirements. But no matter how good the arguments are for a noncompetitive contract, the fact remains that such contracts are the most lucrative and such contracts are most likely to involve excessive profits. As the first Secretary of Defense Forrestal himself could not be labeled more of a conservative individual. He saw the absolute need for the scrutiny of contracts and recapture of unjustified profits.

Without the discipline of the marketplace, military contracting is a breeding ground for profiteering. There has to be some force to discourage that profiteering and the Renegotiation Board is that force.

We are, as I have said, spending the greatest amount in history on national defense. We are in the midst of the fastest, broadest buildup ever. Unless we provide some defense against profiteering, history may well record of us that never before in the history of human conduct did so few spend so much on so little.

In its last years, the Renegotiation Board was hedged about with restrictions and crippled with manpower shortages. I myself first got involved in 1967. The Board was on the verge of being killed then, in June 1967. I had to make 18 speeches in its defense. At that time the Board was practically unknown and it was under the jurisdiction of the Ways and Means Committee. Most of the Members were not even aware of its existence. But it was saved nevertheless, to the glory and the credit of the Members then.

Despite its handicaps, the Board found an average of $38 million a year in excessive profits in its last years, even though it had been crippled by congressional restriction after congressional restriction. If it had been encouraged instead of hamstrung, if it had been supported instead of choked, there is no doubt whatever that the Renegotiation Board would have produced far more than it did-and yet what it produced is astonishing, a truly commendable record of achievement.

We constantly read that major military contracts have gone through a cost overrun. The new FA-18 aircraft, for instance, was supposed to cost $6 million a copy. The current figure is $26 million and going up. The contractors usually defend such cost increases by saying that the Pentagon kept adding new features to the weapon-and this is very often the case. But that cannot be the whole explanation and the fact is that nobody is examining the books to see if profiteering might not account for some of these astounding cost overruns.

If profiteering accounts for 10 percent of the defense dollar, the sum is staggering-more than enough in any given year to pay for even a program as vast as food stamps, as I said, more than enough

to finance unemployment compensation, which as you know is beginning to pose quite a problem, at today's historic high rates.

Even if, in fact, profiteering is only 1 percent of the defense dollar, that would still be a staggering amount of money. It would be more than all of the waste, fraud, and abuse that Mr. Reagan claims exists in the whole civilian side of Government put together. Yet there is no demand for rigorous examination and review of defense contracts.

On the day Ronald Reagan became President, there was an immense run-up in the stock prices of major military suppliers. The investors believed that the advent of Ronald Reagan also meant the coming of unprecedented profits for military contractors. How can we fail to see that connection?

There is no need for the Nation to pretend that it cannot see the evil of avaricious contractors. There is no excuse for the Congress to wring its hands over cost overruns. We have a solution within our reach, and that is a revitalized Renegotiation Act. There is no substitute for a watchdog who can bark and bite. That is what we must have. It is what we can have, if we enact H.R. 5651, give reasonable resources to enforce it, and resist the lobbyists who swarm about the Capitol.

The fact of the matter is this, Mr. Chairman. The Reagan administration has placed this country on a war budget. You can call it defense, you can call it what you will, but this is a war budget. What it has failed to do is to levy wartime taxes or to take wartime measures against profiteers.

No one can argue against an adequate defense. I have been for it and am sworn to it. But adequate defense is no excuse for profiteering. In truth and in fact, defense is the last area of any economy that can withstand the ravages of avarice and corruption.

The reactivation of the Renegotiation Act would give us an instrument to recapture excessive profits. It would give our Government some hope of deterring those who would otherwise take advantage of the incredibly large, noncompetitive contracts that are available in almost limitless size today. It would enable us to have more defense for fewer dollars.

The Renegotiation Act is but a small leash to place on a very large beast. We know that the Renegotiation Board did not stop profiteering. But it did discourage it. It did recover tens of millions of tax dollars. And it did serve its purpose well, despite, as I said, the constant crippling effects of congressional inaction.

The test of how well it served is this: the defense industry saw fit to put immense lobby resources into a years-long effort to kill the Renegotiation Board and then to gut the Vinson-Trammell Act. It was good. It was effective, and that is why it was killed. If it had not been effective, as the opponents have manifested all along, why were they so anxious to kill it?

Washington today is in truth a city without shame. Today, influence peddling is open and openly advertised. Today corporate contributions to campaigns are preposterous in size and in their universal availability. Today there is no shame about taking huge sums of money for political purposes, and no shame about using huge sums of money to buy friends and punish opponents.

It is in this kind of shameless atmosphere that we are embarking on this immense military expansion-an atmosphere that openly invites abuse and wanton misuse of public funds.

It would be bad enough if we only faced a situation in which there is little real competition for military contracts. It would be bad enough if there were wartime taxes against excess profits. But not only do we have no real competition; we have no taxes against excess profits derived from Government contracts. We have no real barriers against corruption, not even the force of moral shame. Neither do we even have the slender leash of an agency empowered to review contracts and determine what kind of profit is reasonable.

We have to begin somewhere. The logical place is to enact the pending bill. Again, Mr. Chairman, I commend you for your efforts, and assure you that I will support reactivation of the Renegotiation Act with every means at my command.

Thank you very much for this opportunity. I will say that because of local community officials here present and on an emergency basis I will do my best to get back after 11:30 to the hearings since I am a member of the subcommittee.

[Mr. Gonzalez' prepared statement follows:]