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you would eliminate the problem, because they are in the business to a certain extent of disposing of excess. Any manufacturing company is in the business of disposing of its excess, because it has contracts canceled out in private industry constantly which generates spares in its hands.

Why we have ever gotten into the position of owning all of these excess parts is the thing that beats me.

General METZGER. There are legal problems involved in our procurement regulations in that respect. And may I ask that Mr. Golden, who is eminently qualified, I am sure, in that field, answer that question?

Mr. CURTIS. I might state before you begin, that is something that many of us, myself and, I know, Mr. Holifield, are concerned with, how we initially enter into these contracts, because we feel that a lot of this spare problem and surplus could be eliminated possibly by revising our original contracts.

STATEMENT OF MAX GOLDEN, DEPUTY FOR MATÉRIEL PROGRAMS, OFFICE OF THE UNDER SECRETARY OF THE AIR FORCE

Mr. GOLDEN. This is not purely a legal problem. My name is Max Golden, Office of the Under Secretary of the Air Force.

We do exactly what you suggest that we do. We feel that does not go far enough.

When a contract, for example, is terminated, either partially or completely, the opportunity is afforded under the normal standard procedures, which are probably universal throughout the Government, for a contractor to either keep the excess material he has on hand for himself, if he can use it in production, or, if he cannot use it, has no need for it, obviously it is a legitimate termination cost.

Now imposed on top of that is our need. There may be excess property that has been generated as a result of subsequent termination that we want. We would then initiate the procedure whereby we would take over that property, either for our own service stocks or dispose of it.

Mr. CURTIS. It would not be surplus, if you needed it.

Mr. GOLDEN. It would be surplus to him, excess to him.

Mr. CURTIS. But it would not create a problem for us and the Government.

Mr. GOLDEN. It does create a problem, because in many, many instances he has no longer any need for it. If it is obsolete, for instance. Mr. CURTIS. No, no; I was commmenting on your saying if we had a need, the Government had a further need for it, then we would take it. That is not in this picture, because it is not a Government surplus. Mr. GOLDEN. Let me put it this way, if we have a need for it we take it for service stocks. If we do not want it he is permitted to retain it at his acquisition cost, for example. If he does not want it, then he turns around and he gets competitive bids on it and tries to sell it.

Mr. CURTIS. That is in the event where the Government might end up with property that someone does not want?

Mr. GOLDEN. Understand this, that you are not only talking about the greatest return here on the dollar, that is fundamental, but also this plan has an integral aim, a primary aim, to redistribute the prop

erty. And you might find under the haphazard proces, for example, of competitive sales that we had during the last war, that the property went to junkies and anybody else that was out to make a killing on the thing.

Mr. CURTIS. Yes. And I submit that you probably saved more money in the long run by doing just that and keeping the Government out of it, getting the Government out of the thing just as soon as you could, because some of this stuff as we well know in studying the surplus property problem, went 3 or 4 years later at a much less return to the Government and a much greater killing.

I do not object to people making money, in fact, I am very much in favor of it. I think that is the way of getting this out of the Government's hands. Let there be a profit in it.

Mr. GOLDEN. This plan will aid and expedite getting it out of the Government's hands, I think.

Mr. CURTIS. Not with eight pages like this.

Mr. GOLDEN. Let me add this one thing, this new procedure is superimposed on top of what we normally do and what you are in favor of. Mr. HOFFMAN. Superimposed is right.

Mr. GOLDEN. In other words, it takes it out. I think General Metzger has well explained that we go forward under normal procedures perhaps he has not explained that he has not been given a chance to give you a capsule version of what this does. It permits the contractor to keep what he wants, the competitive bids and sales in the normal procedure. However, we have found that that has not completely worked. It has not resulted in a proper distribution or proper disposal.

This added feature, we feel, would channel the thing properly back to our aircraft manufacturers, as he has pointed out. You find shortages in one plant and overages in another of the same item. It is that very crucial thing that we think this plan offers some help on.

Mr. HOFFMAN. Right on that one, that is the fault of the service itself. Congress cannot remedy that by legislation. That is a question of efficiency that you were talking about just now. If there is too much here at this end of the table and not enough down there, there is not any law that will fix that.

I want to ask the general a couple of questions. We have in this country many selling agencies, for instance, Montgomery Ward & Co., Sears-Doebuck, Butler, and all of those people. Has any consideration been given to the proposition to turn all of this surplus over to one or a group of those organizations and let them get their money out of a percentage fee?

General METZGER. That is this plan, sir.

Mr. HOFFMAN. If they make a bigger profit for the Governmentpardon the use of the phrase bigger profit-at a less cost or loss to the Government, you give them a higher fee.

As long as 10 years ago members of this committee proposed that that be done, that we just wash our hands of it because of the administrative costs, storage, and everything else.

General METZGER. That is this plan.

Mr. HOFFMAN. Is that what this plan is?
General METZGER. That is this plan.

Mr. HOFFMAN. Why should you bother yourself to write for a couple of hard-boiled eggs? I think I could put it on one piece of

paper.

General METZGER. I ask your indulgence, sir, and apologize for the length of this presentation.

Mr. HOFFMAN. You do not need to, so far as I am concerned. General METZGER. If the chairman will agree, I would like to turn to chart No. 2.

Mr. HOLIFIELD. I would like to have the subcommittee have the benefit of the full proposal here, General. It is only 12 pages or so, and I would like you to present it. I think it should be put into the record at this point. There may be points that we want to question

you on.

Will you proceed? We will apply it to the charts later.
General METZGER. All right, sir. [Reading:]

STATEMENT

World War II experience indicates that it is impossible to expect aircraft manufacturers and their subcontractors to carry on a redistribution program among themselves, however, desirable such a procedure might be. It was also learned that such a program could not effectively be carried on by service personnel within the services. More effective utilization of all facilities, manpower, and matériel is permitted if the services maintain no more than a coordinating function within the program.

1. INTENT

A. This proposal is intended to provide a means of returning to productive use, in the aircraft program, matériel of apparent usability. The procedures suggested, however, may be expanded to provide for the disposition of matériel for which no reuse within the aircraft program is reasonably apparent.

2. PURPOSE

A. Assist in alleviating shortages of critical matériel.

B. Reduce demands upon the services for expansion of productive capacities. C. Reduce to a minimum the loss to the Federal Government resulting from program and contract changes.

D. Reduce to a minimum dislocation to industry resulting from dumping matériel after the emergency.

3. MATÉRIEL INVOLVED

At the outset, the matériel to be processed by this program will be limited to— A. Raw material in mill produce form.

B. Hardware, bearings, and fittings to AN specifications or of standard contractor nomenclature.

C. Components: to include matériel of apparent usability in the aircraft program not covered by A or B.

(1) Because of the definitions already established for "idle," "excess," and "surplus" matériel by governmental directives, no emphasis will be placed upon the differences between these categories. The usability of any of these categories is not dependent upon their description. This matériel may be either that generated under a cost-plus-fixed-fee (CPFF) contract, or under a fixed-price (FP) contract as a result of engineering or contract changes, terminations, completion, revision of manufacturing methods, etc., and, therefore, for which the service has the contractual responsibility to relieve the contractor. Contractorowned matériel which the services do not have the contractual responsibility to acquire shall not be included therein.

4. PROGRAM

This proposal is an adaptation of the procedures utilized in World War II, with such basic alterations as are dictated by the present emergency and the experience gained.

A. Matériel not reallocated or required within a short period of time by the services will be disposed of through General Services Administration and distributors (agents) in normal industry channels. The procedures for this are set forth on the following three charts—

We could turn to the chart, or I could just skip that without any further reference to it.

Mr. HOLIFIELD. If you want to call attention to the applicable material, it might help us to understand it.

General METZGER. All right, sir. [Reading:]

(1) Organization: This chart indicates the line of authority necessary to carry out the program.

[blocks in formation]

Coordination

Contractual and Administrative Relationship

General METZGER. In other words, the General Services Administration having supervision and jurisdiction over the agents, the distributors, with Air Matériel Command in receipt of reports from the aircraft industry manufacturers furnishes information to the General Services Administration for surpluses which are desired to be moved by the General Services Administration organization with the Air Matériel Command dealing directly back and forth with those agents as well as with General Services Administration.

Mr. HOLIFIELD. In other words, while the declaration would be made to the General Services Administration the General Services Administration would function as a clearing house and would direct that particular aircraft contractor to send his excess material maybe to another contractor or to a central warehousing, if it was not immediately needed?

General METZGER. The flow, Mr. Chairman, can be answered in the following chart.

Mr. HOLIFIELD. We will just postpone your answer until you get to it on your presentation.

General METZGER (reading):

(2) Flow of reporting: This chart indicates the manner in which the availability of the matériel is reported, in turn, to the service for and under whose contract it was required, to other governmental agencies, and, finally, to civilian distribution agencies.

(3) Flow of redistributable matériel: This chart outlines the paths that matériel may follow in passing back into productive use, either in usable form or as scrap and salvage.

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