that it is not detailed enough to permit, from this information, an adequate evaluation of the results of the JOBS program.

Senator NELSON. Are there any of the conclusions that you have found information that would refute or disagree with any of the conclusions?

Mr. ESCHWEGE. No, I can't disagree, and that is not to say that we can absolutely support everything, either. As we mentioned before, concerning this question on the so-called fly-by-night outfits, we just didn't find it in our work in the five cities, but we have no reason and no basis for disagreement.

Senator NELSON. Would there be any of the other conclusions that you would have any basis you found during your investigations to disagree with?

Mr. ESCHWEGE. Mr. Chairman we have not analyzed it. As I said, I just read it last night, and there was nothing that hit me, so to speak, that would call for a major disagreement just on the basis of reading it.

Senator NELSON. Do you have questions?

Senator JAVITS. Mr. Eschwege, in saying that you have about the conclusions in this report, have you evaluated this report in terms of alternatives, this program against some other manpower program, or government policy reflected in such a program, as against no such policy?

Have you endeavored to do anything like that?

Mr. ESCHWEGE. We are certainly trying to do this at this time, but we have not reached any conclusions in this matter. We are looking at many manpower programs, including JOBS, at this time. Senator JAVITS. So you are not able to advise us what selectivity, in terms of priority or in any other terms, we ought to engage in in this committee?

Mr. ESCHWEGE. No, I don't think so.

Senator JAVITS. Mr. Chairman, I want to make this clear that I am not challenging the staff or its honest effort to do a good job.

I repeat again my enormous respect for the chairman. If there is anything I have said that he thinks unfair, I apologize for it, but I want nothing to interfere with the warmth and confidentiality of the relations that has existed in the committee, and whatever problems we have with this report, or any other staff reports, I know will be settled within the subcommittee, as they always have been.

I have such respect and personal friendship for the Chair that I am deeply concerned that anything I said, and I don't wish that to be the case, to be offensive.

Senator NELSON. Some of the listeners would think a staff report is new. This is the 12th staff report from the Labor and Public Welfare Committee this year.

Senator JAVITS. I have no further questions.

Senator NELSON. Thank you very much.

I appreciate your taking time to come and make your presenta

tion.

Mr. ESCHWEGE. Thank you.

Senator NELSON. I understand that Mr. Terry of the Aladdin Heating Corp. of California wishes to make some observations about the contract that was just discussed by the GAO.

Senator JAVITS. Mr. Chairman, before the witness starts, may I say that I have to leave, and I am happy to leave the Chair with

you.

Senator NELSON. Do you have a prepared statement?

STATEMENT OF R. M. TERRY, ALADDIN HEATING CORP.,
SAN LEANDRO, CALIF.

Mr. TERRY. I do not have a prepared statement, but I am pleased to be here. I received a copy of this report late last night, and had no opportunity to prepare a statement. I had no idea why I was requested to appear. But I am here and I am ready to make a statement.

Senator NELSON. So that you have ample opportunity, if you missed something in speaking extemporaneously, the committee will leave the record open, and if you want to write any responses that don't occur to you extemporaneously, they will be included along with your remarks.

Mr. TERRY. I greatly appreciate your consideration.

Senator NELSON. How much time would you need? I assume, after having heard and having had a chance to look at the report

Mr. TERRY. It is a matter, Senator, of how far you and your group would like to go. I feel the report which I just heard read ist highly inaccurate. I would not hold the investigator responsible for that. He made an audit 6 months after the program was over.

He has little background or understanding of these problems, but I do want to correct these inaccuracies, and I would like to explain to you and your committee many of the important facts involved.

Senator NELSON. Can you, after having a chance to look at the details of the GAO report, can you respond in writing-if you wish to in writing within a 2-week period?

Mr. TERRY. I would just as soon respond now, if it is satisfactory with you, so that you may get on with the problem.

Senator NELSON. I mean if something else occurs to you.

Mr. TERRY. I am not a professional. I am a small businessman, and I have not been here before, and if I err, I apologize, but I would like to be heard and then get back to California.

Senator NELSON. There is no way you can make an error before this committee, proceed as you wish.

Mr. TERRY. I think it only fair that background information be given to this group so we don't fall into misunderstandings that

have been made.

Let me recap quickly what has occurred. I knew very little or paid very little attention to this JOBS program, other than basic newspaper knowledge, until I was approached by the Small Business Administration from San Francisco, and I was told at that time that the Air Force was very anxious to do their part toward the hard-core unemployment program in any way that they might, that the Air Force had literally thousands and thousands of returns from overseas and from other parts of the world, missile containers that needed refurbishing.

These containers needed painting, welding, sand-blasting, general body repairs, modernization, removal of defective parts and a great deal of stencilling, and other work.

It appeared to the Air Force that this would be the kind of work particularly appropriate for the basic training of hard-core unemployed people.

The Small Business Administration in contacting me seemed to feel that the Aladdin Heating Corp., who is a small contractor-we do have a 13-acre plant and 200,000 square feet of building, and are defintiely in this type of business, the metal business-would probably be one of the better prospects to bid on this work in the San Francisco area.

I agreed that this was the type of work we could do, and I would give it deep consideration and would enter a competititve bid for the work.

We tried to take all factors into consideration, and we did bid, and we were the low bidder.

To make a long story short, we received an Air Force contract which required that a minimum of 50 percent of our employees would be from hard-core unemployed.

The contract was in the amount of $1,309,000 in rough terms.

However, in order to keep from becoming mousetrapped, I bid both ways. I bid to the Government on the basis that my bid was invalid if I did not receive a labor contract in order to help me pay for the 50 percent hard core that I had to Employ, and, in turn, I bid very clearly to the Department of Labor that my bid was only good if I received the Government contract.

So I had a package deal in which I wanted no part unless both sides performed. Obviously, both contracts came through.

We then started to work under the expectations that we have been given and the assurance that this $1.3 million contract was in fact a legitimate, valid contract, that we would receive in the neighborhood of 45,000 containers as a minimum, and that this input would come over a period of 1 year.

On the basis of that, I was willing to set up a very efficient production line for this purpose alone, a full industrial production line, where each man is dependent on the man next to him, a very difficult thing under this program, but we attempted to accomplish this purpose.

Unfortunately, and this is, I would have to say, only hearsay, the problem here was that, in providing this work for the hard-core, it was, of course, being taken away from the regular arsenal employ

ees.

Whether this was the actual reason or not, it is the suspected reason for the Air Force's total inability to deliver input.

They just plain could not fulfill the input so that I could fulfill my contract, and I would like to read into the record a first letter, a cry of help.

We started operations on August 14, 1968, and on September 19, 1968, I wrote to the Defense Supply Agency, Defense Contract

40-963 0-70-pt. 4- -7

Administration, Attention Ed Kreick, who is Administrative Contracting Officer, as follows:

SAN LEANDRO, CALIF.,
September 19, 1968.

GENTLEMEN: You are hereby notified that the Aladdin Heating Corporation will cease all operations under contract F42600-68-D-3437 on or about September 24, 1968, until further notice. The labor force will be laid off and the plant closed for lack of containers.

Upon completion of one month of production under the contract it has become extremely obvious to the contractor, Small Business Administration and the ACO that the Air Force either has not or cannot fulfill its obligation to supply containers for refurbishment at a rate satisfactory to the contractor. The Aladdin Heating Corporation, as the successful competitive bidder, was asked to bid upon an output to reach 3,685 containers per month within 210 days.

Following the award of this contract on May 27, 1968, a total of 2,582 units have been received for an average of less than 750 units per month, a rate of production which falls far below our production 'break even' point, as calcu lated at the time of the bid.

The Aladdin Heating Corporation has established in good faith an efficient production line with extensive equipment and tooling, and developed a capable work force from the hundreds of hard-core unemployed interviewed.

The pending lay-off of hard-core workers will have an extremely adverse effect upon the NAB program in this area.

Before resuming production at a future date, the contractor requests that sufficient containers and/or information be made available to the contractor to allow reasonable production scheduling in the future.

Specifically the contractor requests that:

1. A minimum 30-day production backlog of containers be maintained on hand at the contractor's plant at all times;

2. That information regarding future shipments directed to Aladdin be made available to the consignee at the earliest possible date.

3. That he be furnished some reasonable assurance as to the minimum quantities by item of containers covered by existing delivery orders that will arrive at his facility, projected over a period of at least three months. Sincerely,

ALADDIN HEATING CORPORATION
R. M. TERRY

Exec. Vice President

Senator NELSON. Do you have a copy of that letter?

Mr. TERRY. You may have it.

At that point, it was quite obvious that we had a bad deal.

However, we were in a program, we had made a commitment, we had spent close to $100,000 in setting a production line up, so we continued to try to get going.

Senator NELSON. To whom was that letter addressed?

Mr. TERRY. To the Administrative Contracting Officer, Ed Kreick. Senator NELSON. Did you get a response?

Mr. TERRY. I got verbal assurances that everything possible would be done. No written response.

Senator NELSON. But the letter, as I recall, stated that you would as of September 1, or something

Mr. TERRY. I stated that unless I received reasonable assurance, we would stop the contract and back out. I did not receive written assurance, but I received sufficient verbal assurance that I did continue on and attempt to continue the operation.

Of course, I was in a position where I had already set up a complete plant, which hadn't gone into production.

Senator NELSON. Who gave you the verbal assurance?

Mr. TERRY. This came through numerous personnel at Hill Air Force Base, and back through the contracting officer.

I sent my personnel to the Hill Air Force Base time after time to attempt to get assurance that something could continue.

Now, to bring up the rest of this story, this was to be a 1-year contract. We limped along for 16 months. Instead of $1,300,000, we received a total value of input of $407,000, a fraction of what we intended.

This, of course, made it impossible for us to hire 80 personnel, which we had under our contract conditions, 40 hardcore and 40 regular.

We had, if I recall, six or seven total shutdowns, which caused total lay-off. It was difficult for us to even find our trainees after a lay-off, much less get them back to work.

Numerous slowdowns also occurred due to the lack of input. Eventually, the contract was terminated for the convenience of the Government, and that is another story.

There were inferences made in the FAO report, as I heard it here, and statements made which technically may be true, yet should be properly explained.

One of the statements that was made, as I recall, and I would like questions if I miss some of these, off the top of my head was that these trainees did not receive full 40 hours classroom orientation.

In my original estimate based on a plant operating on the basis of what we expected, with 80 employees, 40 to be hard-core, this classroom operation as I bid it was a practical, logical proceeding, but when we operated with six, seven, 10 employees, and at the very highest point we reached a total of 51 on one particular day, classroom orientation was a practical impossibility.

It was of much greater value to us, and much more effective with such a small crew, and with a full time counselor, to use individual, specific tutor-type training.

We were running an asembly line, where it was obvious and easy to pick out of men on that line those who were the weak men and take them into specific conference and work on them and bring them up to the level of the line, rather than bringing all the men in for a general discussion, and there is no doubt in my mind that our men received all the training they were intended to receive, although after the first 3 weeks it was not classroom training. It was individual or small group training.

Another point that I recall in this FAO report, and I am sorry that I didn't have time to outline the points as they were read, was the statement that these men did not, or may not have received full on-the-job training, that we had a "buddy system”.

We had a "buddy system" as such, my proposal was not a onefor-one or an hour-for-hour "buddy system". It was a percentage system, in which I calculated that if I had 40 trainees and 40 journeymen, which was the original intention, that 10 percent of the journeyman's time would be used on trainees, not 100 percent, that 5 percent of the foreman's time would be used in training, and onehalf of 1 percent of the superintendent's time would be used.

This was, of course, based on the original estimates. What actually occurred is that when we were unable to hire this number of people,