Mr. VINSON. You see, when I got over in the Senate and was trying to get this thing through, I was confronted particularly in regard to the question of labor and disaster areas. That disturbed certain members of the Senate Armed Services Committee, more than anything else. Now, I might say that they have put into effect two of these exceptions. So when we deal with it, we will only deal with three of themlabor, disaster area, and small business. Mr. COURTNEY. That is right. Mr. VINSON. Now, read this law. Now, here is the basis-get it in your mind, now. You have to have an origin. This is the authority to make any kind of contract in the Department of Defense; I don't mean-I mean the three branches of the Department of Defense, namely, Army, Navy, and Air Force. Because later on, the Department of Defense can't make any contracts except in one instance. Go ahead. Now, get this in your mind. Mr. COURTNEY. Section 2304. (a) Purchases of and contracts for property or services covered by this chapter shall be made by formal advertising. However, the head of an agency may negotiate such a purchase or contract, if— (1) Mr. VINSON. Stop, now. Mr. COURTNEY (reading): it is determined that such action is necessary in the public interest during a national emergency declared by Congress or the President; Mr. VINSON. That is right. Mr. BRAY. That is the law at the present time? Mr. COURTNEY. Yes, sir. Mr. VINSON. This is the law we are reading now. Mr. KILDAY. And there is a national emergency. Mr. VINSON. Under the proclamation issued Mr. COURTNEY. On December 16, 1950, the President issued a national emergency proclamation, which is unrevoked. Mr. VINSON. You see what this bill that I just referred to does? We struck all as to the President, and Congress hasn't declared any national emergency. It is a national emergency declared by President Truman in 1950 when Korea broke out. Mr. MORRIS. What was that date, again? Mr. COURTNEY. December 16, 1950. Mr. VINSON. Now, go ahead. Mr. COURTNEY (reading): (2) the public exigency will not permit the delay incident to advertising; (3) the aggregate amount involved is not more than $2,500. This is an amendment. It has been amended since the original act. (4) the purchase or contract is for personal or professional services; (5) the purchase or contract is for any service by a university, college, or other educational institution; (6) the purchase or contract is for property or services to be procured and used outside the United States, and the Territories, Commonwealths, and possessions; (7) the purchase or contract is for medicine or medical supplies; (8) the purchase or contract is for property for authorized resale; (9) the purchase or contract is for perishable or nonperishable subsistence supplies; This has been amended. Mr. BATES. Mr. Chairman, I wonder why the change was made in your statement in including only nonperishable, if this which contains both perishable and nonperishable Mr. COURTNEY. Well, the answer to that is that in 1958 the chairman of the Senate Committee on Government Operations introduced a bill, which passed, and amended section 2304, in respect of the limitation formerly at $1,000, to increase it to $2,500, and to change this particular section to include not only perishable subsistence, which was the original act, but to include nonperishable subsistence (Public Law 85-800). Theretofore it had been done under the authority of section (a) (1), that is, the same thing had been accomplished under the authority of the amended regulations under section (a) (1). So what the amendment was was merely an incorporation into law of these two provisions which theretofore had depended upon the Korean national emergency proclamation. Mr. BATES. Your statement here just pertains to nonperishable subsistence the chairman's statement? Now, what is the difference Mr. COURTNEY. The chairman said it would not be necessary to legislate with respect to nonperishable subsistence items because this had already been incorporated into the act. Mr. BATES. Well, it was really the statement of the Department that he read, as to the reasons why it couldn't be done? Mr. COURTNEY. Yes. Mr. BATES. Now, I don't get the distinction between perishable and nonperishable as applied in this law. As a matter of fact Mr. COURTNEY. Perishable subsistence is Mr. BATES. Oh, I understand what it is. I bought tons of it. But I would think that the spot market under nonperishable would be much more important, to have an exception, than the nonperishable market. Mr. COURTNEY. Well, if I may sum it up, when the chairman's bill was under consideration, it was proposed to include nonperishable subsistence, because the Quartermaster's Office in Chicago indicated there had been a substantial change in the marketing and sale and purchase of nonperishable commodities because of the introduction of the change in the system of purchasing whole crops and packaging whole crops. Mr. KILDAY. They are now buying frozen food. Mr. BATES. I think both of them ought to be put together. Mr. COURTNEY. Yes. Mr. BATES. I don't think you should have one without the other. I think they are both practically in the same position. Mr. COURTNEY. Well, that was the position in 1956. Mr. KILDAY. At the hearings, it was pointed out that whereas formerly practically all of these things were canned and became nonperishables, nowadays a great amount of them are quick frozen. Mr. BATES. Yes. Mr. COURTNEY. They purchase whole crops. Mr. MORRIS. Mr. Chairman. Does the word "subsistence" include anything other than food? Mr. COURTNEY. Nothing but edibles. Mr. MORRIS. Nothing but edibles. Mr. VINSON. Number ten. Mr. COURTNEY (reading): (10) the purchase or contract is for property or services for which it is impracticable to obtain competition; (11) the purchase or contract is for property or services that he determines to be for experimental, developmental, or research work, or for making or furnishing property for experiment, test, development, or research; (12) the purchase or contract is for property or services whose procurement he determines should not be publicly disclosed because of their character, ingredients, or components; (13) the purchase or contract is for equipment that he determines to be technical equipment whose standardization and the interchangeability of whose parts are necessary in the public interest and whose procurement by negotiation is necessary to assure that standardization and interchangeability; (14) the purchase or contract is for technical or special property that he determines to require a substantial initial investment or an extended period of preparation for manufacture, and for which he determines that formal advertising and competitive bidding might require duplication of investment or preparation already made or would unduly delay the procurement of that property; or (15) the purchase or contract is for property or services for which he determines that the bid prices received after formal advertising are unreasonable as to all or part of the requirements, or where not independently reached in open competition, and for which (A) he has notified each responsible bidder of intention to negotiate and given him reasonable opportunity to negotiate; (B) the negotiated price is lower than the lowest rejected bid of any responsible bidder, as determined by the head of the agency; and (C) the negotiated price is the lowest negotiated price offered by any responsible supplier; (16) he determines that (A) it is in the interest of national defense to have a plant, mine, or other facility, or a producer, manufacturer, or other supplier, available for furnishing property or services in case of a national emergency; or (B) the interest of industrial mobilization in case of such an emergency, or the interest of national defense in maintaining active engineering, research, and devlopment, would otherwise be subserved; or (17) negotiation of the purchase or contract is otherwise authorized by law. Mr. VINSON. Now, members of the committee, you can understand that this is the organic law that permits contracts to be made by the Department of Defense. The whole pattern is for the purpose of formal advertisement, with 17 exceptions. And here are the exceptions, in there. Now, you see when I introduced this bill on behalf of the committee, 2 or 3 years ago, we left out the words "or the President." And therefore it would read, if that is the same thought now: ** it is determined that such action necessary is in the public interest during a national emergency declared by the Congress. Then these exceptions would be based upon a proclamation issued by the Congress. Now, let's get back to the statement. Now we will follow it on. Mr. KILDAY. At this point, Mr. Chairman, I think we ought to bear in mind, while we go into these hearings, that we have the rather ridiculous situation of an Act of Congress providing that all purchasing shall be by open advertising and competitive bids. That is laid down as the basic law. And we find the situation to be that a very small percentage of the money is spent on competitive bidding. Mr. VINSON. That is right. Mr. KILDAY. I don't believe we can sit here with law continuing to state it is the general policy, when the fact is exactly opposite. If this is going to continue, we are going to have to take out the general proclamation that it shall all be by competitive bid. I don't think we should permit ourselves to be in this unreasonable position. They either have to get more of their stuff by competitive bid or we have to change the law. Mr. VINSON. Well, at the same time, when we approach that subject, we must not be so positive that there cannot be some exceptions in permitting negotiation when the circumstances warrant negotiation. Mr. KILDAY. I will agree. Except we have to get the law in such shape that a substantial percentage is acquired under the general requirement laid down. We can't continue to let all of the purchasing be done without bids, when we say that all shall be done with bids "except." Mr. VINSON. All right. Mr. RIVERS. Construction is about the only one in which you have competitive bidding, except for gasoline and one or two things like that, in the whole Department. Mr. VINSON. When you left out "by the President," you tightened the bill up. Mr. HUDDLESTON. Mr. Chairman, let me ask you a question, please, sir. Mr. VINSON. All right. Mr. HUDDLESTON. On page 4 you mentioned that 92 percent of the dollar value of all contracts were being negotiated in 1957. Mr. RIVERS. That is right. Mr. HUDDLESTON. Now, does that include construction contracts as well as procurement contracts? Mr. RIVERS. No. Mr. COURTNEY. No. Mr. RIVERS. Construction contracts are not subject to negotiated bidding. Mr. HUDDLESTON. In other words, this should read "all procurement contracts." Mr. COURTNEY. There may be an inadvertence there. We are dealing here with the subject of negotiated contracts. Now, of the negotiated contracts, 92 percent were, both in number, by a strange coincidence, and in dollar, value being negotiated. In the construction contracts, which were isolated and treated separately, the reverse was true. Mr. RIVERS. About 95 percent. Mr. COURTNEY. Eighty-seven percent of the construction contracts were being handled on competitive bid. Mr. RIVERS. Competitive. Mr. COURTNEY. The negotiations were largely confined to the construction overseas. Mr. VINSON. All right, let's read on. Mr. RIVERS. That is right. Mr. VINSON. Now, at this point I introduced in the record the record of the reports of the Departments on the actual use (both in dollars and in numbers of contracts) of the various methods of procurement, pages 8 and 9. (Inserted at completion of proceedings for April 25, 1960.) Let's don't get to that page now, because we have plenty of time. One table is the most recent experience of the Department reported for all of fiscal year 1959. That is the year ending June 30, 1959. In table 5, page 9, you will find four columns-and we will get back to this the total and the distribution through the three services of: number of contracts entered; and similarly in four columns, the total and the distributions between the services of the dollar value of all contracts entered into. Table 4, page 8, gives the same type of information consolidated into total figures for all of the Defense Departments for the years 1957, 1958, and 1959, using not only dollars and numbers of contracts but percentage totals for each of the types of procurement. This presents a comprehensive background of data on the actual use of the Armed Services Procurement Act and as assimilated into the Armed Services Procurement Regulations since 1956. Earlier, I mentioned the fact that procurement powers now being exercised depend for their authority upon the continued existence, unrevoked, of the Korean National Emergency Proclamation of 1950. The proclamation of section 2304 (a) (1) are the legal basic authority for the actions you will see listed under table 5, or seven uses which depend on a Presidential national emergency proclamation for legal authority. Table 4 lists only five. We shall explain those as we go along. I particularly direct your attention (so the picture will not be distorted) to subsection (f) under section 2304 (a) (1) on table 5. This is "modification" authorized on contracts negotiated prior to January 1, 1956, and incomplete. That figure represents the contract changes occurring in those contracts where the contracting authority used was only the national emergency proclamation of December 16, 1950. Thus, you will see, if you refer to table 5, there were 1,761 contracts which were dealt with in that year, by way of change or modification; and these contracts had all been entered into prior to January 1, 1956. These changes were plus or minus the original contracts' amount, as the case may be. If you go over to the dollar column, you will find that the total dollar changes amounted to $40,750,000. Of course, there will soon come a time when these contracts will have been closed out and notation (f) will no longer appear upon these tabulations. This item is necessary for reconciliation with practices and procedures since January 1, 1956. Now I desire to introduce into the record charts in three parts, pages 3, 4, and 5, setting forth the organizational structures of the three services pointing out the administration of procurement. Each chart is identical in format. (The material referred to follows:) |