the original form of the contract which is a cost plus, which may be necessary.

General METZGER. Even under a fixed-price contract, sir, we are dealing here with surpluses generated for which the Government is contractually responsible.

Mr. CURTIS. That is the whole point. That is the reason the aircraft contractor is not interested in redistribution. Is that not true? He has no financial interest in seeing to it that he does not have excess stocks.

General METZGER. That could possibly be true. He has no incentive to move Government-owned property which may be surplus.

Mr. CURTIS. Yes, but how does it get to be Government-owned, that is a point. Normally, if you order a certain quantity of airplanes, say 150 PBM's with which I am familiar, from the Martin plant and on a cost-plus basis, then it would not make any difference to him how many excess spares he might have floating around there, would it, if it is a cost-plus contract?

General METZGER. Well, yes, it would.

Mr. CURTIS. How does the Government get itself into the position of owning the excess stocks?

General METZGER. Under a cost-plus contract for the same reasons, generally, that the Government finds itself in a position under a fixedprice contract, namely, engineering changes, changes in schedule and terminations where we learn as we proceed that the items we are buying are not the items which work to our advantage in combat and, therefore, call for changes in planning, changes in procurement of items and changes in engineering and design.

Mr. CURTIS. How would that affect it? Let us take the subject of your AN standard fittings. How would a change of that nature give you a lot of excess fittings? I can see how some changes would affect that in a major way, but rivets, for example.

General METZGER. Rivets are not an AN fitting.

Mr. CURTIS. It is a standard.

General METZGER. It is hardware.

Mr. CURTIS. Well, you call that hardware?

General METZGER. An AN fitting. They are two quite divergent problems in AN fittings and in hardware, sir.

Mr. CURTIS. I am just trying to get an illustration why you would get your excess. Let me go on to my next question which will probably tie in. Do you not, when you order a certain quantity of airplanes, at the same time enter into a separate contract for a certain number of spares?

General METZGER. Yes, sir.

Mr. CURTIS. And is not that actually where you get a lot of your excess quantities, is it not in the unrealistic spare contract where you buy your spares?

General METZGER. No, sir, we do not feel that our spare program is unrealistic. In fact, we are hurting for spares across the board today.. The contractors are not concurrent in their shipment of spares with their end-item schedules.

Mr. CURTIS. Then that does not answer it? I am still getting back to why is there not an incentive on the aircraft contractor to redistribute his excess stocks-why is there not an incentive?

Mr. HOLIFIELD. Will you yield?

Mr. CURTIS. Yes.

Mr. HOLIFIELD. Is that not what you are trying to develop in this plan, a plan that will give to those people an incentive-is that not one of the objectives of this APRA plan?

Mr. CURTIS. That is what I am interested in. You give them an incentive and they will put on the personnel-they will figure out a way of doing it. If he may be interested in only an academic way, in the redistribution of excess stocks you have right there the nub of your trouble, because he has to be interested in a financial way.

At the bottom of page 6 you say that you are referring to this warehouseman who has taken over some of the inventory. "Naturally, the selfish tendency was to sit tight and wait." I do not like the use of the word "selfish," that is, the phraseology "selfish tendency," because that is the profit motive and that is what you want exactly to encourage. I do not call it from the selfish standpoint. I call it from the profit standpoint which ultimately is the most efficient, because it will make more money for him, if he does it.

If you could get a selfish tendency in here on the part of the aircraft contractor in the redistribution of excess stocks you would probably solve your problem without having to go into all of this elaborate superstructure.

General METZGER. Sir, we do not feel that the aircraft contractor or the manufacturer should play the role of a merchandiser of component parts which he buys. We do not feel that the aircraft industry wishes to become merchandisers of component parts and raw materials.

Mr. CURTIS. It does not matter whether he does it himself or not. It is a question if there is a profit incentive there, then the problem will be solved.

· We had a situation in the Hardy subcommittee where they investigated the distribution of automotive spares in the Ordnance Division of the Army, and they figured that the system set up by private enterprise in the distribution of automotive spares, that there was too much profit in it.

Again, we are getting to the key situation. If there is no profit in the distributing of excess stocks or spares, you will not have it solved.

General METZGER. I think the manufacturer is interested, naturally, in disposing at the highest possible dollar return of excess inventories which he owns, and for which the Government is not contractually responsible.

Mr. CURTIS. That is right.

General METZGER. He is interested in that. He is not interested. in redistributing or disposing of property which is Government-owned which the Government is contractually responsible for due to engineering changes or schedule revisions, nor is he in a position, in our opinion, if we were to give him a profit incentive, to provide the Government with the highest dollar return because he is not interested in that business. He is interested in producing the articles which we are buying, the complete aircraft, engines, struts, instruments, whatever the material or the part that is involved. Mr. HOLIFIELD. Will you yield there?

Mr. CURTIS. Yes.

Mr. HOLIFIELD. And the incentive which you propose to give him in that field through this plan, as I understand from my brief scrutiny of it, is a quick declaration of this material and a quick credit to him, which is the incentive to cause him to do that. And then as far as recapturing the value of that part of it, that part of your plan is something else?

General METZGER. Yes, sir.

Mr. HOLIFIELD. But to get out of the producer's hands immediately his excess stocks by declaration and giving him credit on his contract. General METZGER. That is right. That is correct, sir.

Stocks which are Government-owned and at the same time possibly make available to him, if he wishes to accept, procedures which he may turn to for disposal of his own surpluses, but not necessarily. That is his prerogative. If he wishes to use any organization or a procedure such as we are discussing or will discuss here that is his business for his own materials, or he may continue to dispose of his own quantities as he sees fit.

We are only interested at this point in Government-owned parts.

Mr. CURTIS. Just to get this straight, let me ask another question. Getting into your proposal you list the materials involved as raw material and no product form. How would the Government, the Air Force ever come to own any of that?

General METZGER. Complete termination, for example, sir, where we do not want any of what we are buying, and partial termination. Mr. CURTIS. We are talking about raw material. Extrusions, for example, or sheet aluminum?

General METZGER. Yes; tubing, bar stock.

Mr. CURTIS. Under your contracts it is possible for the Air Force to actually become the owner of that raw material in mill-product form?

General METZGER. Either partial or complete termination; yes, sir, it belongs to us.

Mr. HOFFMAN. The Air Force found out that the contractors had on hand surplus material?

General METZGER. Sir, may I ask you to repeat that? I did not get the full question.

Mr. HOFFMAN. Read the question.

(The question was read.)

General METZGER. Yes, sir.

Mr. HOFFMAN. From the first the plan was to have those contractors send in lists of the surplus?

General METZGER. Yes, sir.

Mr. HOFFMAN. And that information was to be made available to anyone who wanted to purchase?

General METZGER. To anyone who wanted to purchase? No, sir; not at that point.

Mr. HOFFMAN. No? To whom?

General METZGER. To those engaged in the aircraft program or in any defense program.

Mr. HOFFMAN. Now under plan No. 1, to whom did they send that information, the contractors?

Mr. HOLIFIELD. To the Murray Cook Corp.

General METZGER. That was plan No. 3.

Mr. HOFFMAN. I am talking about No. 1.

General METZGER. Sent that in to ASU which was the predecessor to the APRA organization which we now have.

Mr. HOFFMAN. And that did not work?

General METZGER. No, sir.

Mr. HOFFMAN. For the four reasons you have given here?
General METZGER. Yes, sir.

Mr. HOFFMAN. Then the next thing they did was to have a warehouse organization?

General METZGER. Yes, sir.

Mr. HOFFMAN. Where this surplus was brought and stored?
General METZGER. Yes, sir.

Mr. HOFFMAN. Then the people who were entitled to receive this surplus were supposed to draw on that?

General METZGER. Yes, sir.

Mr. HOFFMAN. That did not work?

General METZGER. That worked in part. It worked better than the first plan.

Mr. HOFFMAN. Yes, but still did not work the way you wanted it to?

General METZLER. No, sir; not the way we wanted it to, because costs were guaranteed to the warehouseman and we became

Mr. HOFFMAN. You found the storage piling up?

General METZGER. We became subject to market fluctuations which as outlined here resulted in a loss.

Mr. HOFFMAN. That is to say

General METZGER. To the warehouseman if he sold.

Mr. HOFFMAN. So one could go on the open market and buy cheaper than the warehouseman could sell?

General METZGER. As the market fluctuates

Mr. HOFFMAN. Another plan was devised, this one of turning all of this information and the surplus itself, the physical possession of it over to the Murray Cook?

General METZGER. Yes, sir.

Mr. HOFFMAN. And Murray Cook then was to send out lists to whom?

General METZGER. To agents, distributors of Murray Cook.
Mr. HOFFMAN. Its own affiliates or subordinates?

General METZGER. They were agents operating for Murray Cook; yes, sir.

Mr. HOFFMAN. Where did Murray Cook get its pay-where would Murray Cook gets its pay for handling this stuff?

General METZGER. Murray Cook, if I recall correctly, operated on a fixed-fee cost-plus basis.

Mr. HOFFMAN. Oh, yes, Murray Cook could not lose anything, could they?

General METZGER. No, sir.

Mr. HOFFMAN. And your statement as submitted here, from page 10 on to page 22, 12 pages, is an explanation of how Murray Cook is to operate?

General METZGER. No, sir. We do not propose a Murray Cook type of operation in this.

Mr. HOFFMAN. You have another one-this is the fourth one?

General METZGER. Yes, sir.

Mr. HOFFMAN. And it calls for a new organization?

General METZGER. No, sir. It calls for the acceptance of this problem by the agency, the Government agency, whom we feel responsible for this.

Mr. HOFFMAN. General Services Administration?

General METZGER. Yes, sir.

Mr. HOFFMAN. That is the whole thing in substance, is it not?
General METZGER. Yes, sir.

Mr. HOFFMAN. Why devote 12 pages to telling GSA how it should operate?

General METZGER. That is a good question.

Mr. HOFFMAN. As the chairman says, the General Services Administration does not want it.

Mr. HOLIFIELD. I will have to restate that. That was an aside remark. I said that it is possible, although we have not called the General Services Administration and we will call them-that General Services Administration is not in harmony with the plan-maybe they do not want the responsibility in view of the fact that Congress has taken away from them funds to handle excess and surplus property. And they are now forced to delegate back to these owning agencies this particular function.

Mr. HOFFMAN. You see where we get? We get back to the same old request, more funds. They cannot handle it unless they get more

money.

You said not an organization. Let me look at this. Page 9, an organization can be set up quickly and efficiently. If that is not setting up a new organization I do not understand English.

General METZGER. We are discussing there, as it will be brought out in our presentation

Mr. HOFFMAN. What is that?

General METZGER. The organization that we refer to there on page 9. That is the distributor organization which we recommend be employed by General Services Administration to merchandiseMr. HOFFMAN. These 12 pages?

General METZGER. Yes, sir.

Mr. HOFFMAN. That is a new organization, is it not?

Mr. HOLIFIELD. Is it not true that it is utilizing existing organizations and bringing them together into coordinated programs? General METZGER. Yes, sir.

Mr. HOLIFIELD. Under the General Services Administration? General METZGER. Under the supervision of the General Services Administration.

Mr. HOLIFIELD. Will you proceed to give us your plan now and let us go through the plan?"

Mr. HOFFMAN. You mean it is necessary? This is all for the benefit of the General Services Administration. Why does not General Services Administration take it and tell us what is wrong with it? We, certainly, do not know.

As one member of the subcommittee, I do not know what I will gain by going through this plan when the General Services Administration in the end will do just as it pleases about how it will operate and handle this surplus property.