same proportion of fixed price contracts and a similar proportion of CPFF, and the same proportion of fixed price incentive contracts and a reasonable relationship to the contractor's own capital and his own net worth, and they should come out the same. Mr. YATES. So, you have to go into each case individually in order to adjust the factors that are present for computing the profit? Mr. COGGESHALL. Yes, sir; it is custom tailored. Mr. YATES. There is no level of profit for an industry? Mr. COGGESHALL. There is no size 16 or 14 or 18. Mr. YATES. You cannot say in response to a question as to what is the profit for a particular industry? There is no such thing? Mr. COGGESHALL. There is no such thing; no, sir. Mr. YATES. Each company has to be considered upon its own facts? Mr. RHODES. Will the gentleman yield to me at that point? Mr. RHODES. What about the difference between an efficient operator and an inefficient operator doing the same thing? Mr. COGGESHALL. We do our best to recognize efficiency to the extent that we can. We have to rely naturally to a considerable degree on reports for prime contractors that we get from the procuring services; namely, the Air Force or the Navy or the Army, as the case may be, and their views. Of course, they have very searching analyses of costs, and we turn to the services and we keep liaison with them. Mr. RHODES. I do not think you get the point of my question; if you have two operators doing about the same thing and one of them shows a higher profit than the other because of greater efficiency, you do not renegotiate him out of the profit he has made because of his efficiency? Mr. COGGESHALL. We do our best to avoid that, sir. We do our best to recognize efficiency when it can be established. Mr. RHODES. In other words, you do not determine his yardstick on the basis of the inefficient operator? Mr. COGGESHALL. No, sir. Mr. YATES. When was the Board organized? Mr. COGGESHALL. It was established October 3, 1951. Mr. Hartwig is a survivor of the original membership of the Board. "Scarcely a man is now alive" and so forth, except Mr. Hartwig. REFUNDS AND AMOUNT OF CONTRACTS SUBJECT TO RENEGOTIATION Mr. YATES. Between October 1951 and the day of this justification there have been refunds directed by the Board of $836 million? Mr. COGGESHALL. That is right. Mr. YATES. Have you any idea what the total amount of contracts subject to Board renegotiation during that time would be? Mr. COGGESHALL. The dollar amount? Mr. THOMAS. It would be about $350 billion. Mr. YATES. It would be about $350 billion. Mr. COGGESHALL. Yes and representing, we will say to begin with, perhaps a profit, which is what we deal with, of $25 billion. Mr. YATES. It would be more than that, I would think, because you have not only the Defense Board, but you have the other. Mr. THOMAS. I think it is about $350 billion. Mr. COGGESHALL. Which would have a profit of about $25 billion. PROCEDURE FOR CHECKING COMPANIES COVERED BY ACT Mr. YATES. Let me find out what you do. I note in response to your procedures, on page 22, you indicate that you have a list of contractors and subcontractor names that you get from the procurement list of the agencies named in the act, and it includes some 20,000 names of various companies. Do you send out your questionnaires to these 20,000 names each year regardless of whether they have received contracts or not? Is this a standard inventory of names? Mr. COGGESHALL. That list used to be 40,000. Mr. YATES. Is this a standard inventory of names or is this based upon contracts that you know have been awarded? Mr. COGGESHALL. They could have been awarded but they are not completed. Mr. YATES. But, suppose 5,000 of the names received no contracts last year, would they nevertheless receive requests for questionnaires this year? Mr. SEMPLE. Yes, sir. We only look them up once, particularly the bigger companies. Mr. YATES. Half of these people may not have received contracts last year; is that correct? Mr. COGGESHALL. I would not say half of them. They may still be operating on contracts let the year before. Mr. FENSTERSTOCK. From time to time we strike companies from the list, when we have ascertained that for a period of 2 or 3 or 4 years it has received either no renegotiable contracts or renegotiable contracts aggregating well below the statutory minimum, namely $1 million Mr. YATES. What if the company to whom you direct your inquiry does not reply? Mr. COGGESHALL. If they have over $1 million of sales and we have any evidence to that effect, we keep a constant check going on in the Internal Revenue Service, because one of the answers to the tax form is whether or not you had defense business. That is one of the questions. Mr. FENSTERSTOCK. The direct answer to your question is if we have reason to know or to believe that the company had renegotiable business in excess of the statutory floor and if they do not respond to our initial inquiry, we usually follow up and in one way or another we will establish communications with the company and if our efforts are completely unavailing and the company refuses or fails to make a filing with us, eventually we will turn the case over to the U.S. district attorney. Mr. YATES. How do you know this? You have 20,000 names here with whom you establish contact. Do you look at 20,000 income tax statements? Mr. SEMPLE. We looked last year at 244,000 income tax statementsjust gave a brief look. Mr. YATES. Do you do this annually-look at 244,000 statements? Mr. COGGESHALL. About that. We keep three people down there, I believe. Mr. YATES. To see whether they answer that particular question on the statement, that they do have renegotiable business? Mr. COGGESHALL. This is item K on the corporation form: Do you have any contracts or subcontracts subject to the Renegotiation Act of 1951? Mr. EVINS. I believe I have been impressed, Mr. Chairman, that the policemen, so to speak, are still on the beat. There has been some indication that they might be phasing out, but I believe the Renegotation Board has the feel of the New Frontier. Mr. COGGESHALL. We are not entirely silent policemen here. Mr. BOLAND. The jurisdiction of the Board is confined solely to contractors in connection with national defense programs under the act? Mr. COGGESHALL. That is right. DEPARTMENTS COVERED BY ACT Mr. BOLAND. Who recommends as to what particular agency comes under the act? You now have the NASA under the act and it was not a couple of years ago. Mr. COGGESHALL. They came in at their own request. They broke away from the Department of Defense. They were working on contracts which were subject to renegotiation and I believe the General Counsel of the Department of Defense discussed them with the Administrator of the NASA when it was in the process of change, and he immediately made an application to the House Ways and Means Committee to be included in the bill which was before it and which had the blessing, naturally, of the Bureau of the Budget. FEDERAL AVIATION AGENCY Mr. BOLAND. I remember referring to the matter last year, or some years ago, with respect to bringing in the Federal Aviation Agency, which is spending this year better than $100 million on navigational facilities and equipment, and I would think this is one field that will be looked into. How would you get them under this? Mr. COGGESHALL. Mr. Evins questioned this last year or, rather, you did and, of course, the hearings are published always 2 or 3 months later. I was here on January 19, and on January 22 I directed a letter to the Honorable E. R. Quesada, Administrator of the FAA in which I stated: In the Renegotiation Board hearings before the Subcommittee on Independent Offices of the House Committee on Appropriations on January 19, 1960, one of the members of the subcommittee made reference to the Federal Aviation Agency. For your information, I am setting forth the full colloquy between Mr. Boland and myself on this subject, and then I quoted it. In view of the foregoing you may wish to consider the desirability_of bringing the contracts of your Agency within the scope of the Renegotiation Act of 1951. If you desire, I should be happy with the General Counsel of this Board to meet with you, or any persons in your Agency whom you may care to designate to consider this matter. A month or so later, February 25, I received a note from Mr. Quesada reading, in part as follows: Thank you for your letter of January 22 regarding the possibility of bringing the contracts of the Federal Aviation Agency within the scope of the Renegotiation Act of 1951. I believe this is a matter that should be discussed by representatives of our agencies and I should like to designate Mr. James Dkyeman, Chief Attorney, Contractor Relationships and the Chief of our Materiel Policy Division to talk the matter over with your people. If you will designate someone for this purpose and have them get in touch with Mr. Dkyeman, I am sure an early meeting can be arranged. We had a meeting in my office on the 9th of March and there were some short notes made about it. The upshot of it was that they showed great interest but they were bothered and concerned and I think properly so as to how a segregation between renegotiable and nonrenegotiable could be made of their contracts. It is a very complicated problem, because a great deal of their work, we know, is civil aviation work rather than on the defense side and, yet, at the time a contract is entered into and gone along the way for some years, you could not tell, or it would be very difficult to ascertain, just what portion would be in the civil aviation field. They were interested in it. They had to make the move. We did recognize their problem-segregation problem-and we undertook to explain the ins and outs and how it might be done. But, since then, we have had no communication from the Agency, and we would not be the ones to move. Of course, Mr. Stam, the Chief of Staff of the Joint Internal Revenue Taxation Committee is conducting his studies today and it is possible they have that in mind. Mг. THOMAS. Can you answer Mr. Boland's general question: How do you make the determination and who makes the determination of just what is national defense? If these expenditures are made under the heading of national defense, then the excess profits are subject to redetermination by the Renegotiation Board, are they not? Mr. COGGESHALL. Not unless a contract is-there are certain mandatory exemptions. It has to have a direct connection with the national defense. Mг. THOMAS. The question Mr. Boland is asking you is who makes that determination? Mr. COGGESHALL. It has to be a named department, named by the Executive and approved by the Congress. Mr. BOLAND. I suppose a greater majority of the money or a greater part of the money spent by the Federal Aviation Agency is in civil aviation. Mr. COGGESHALL. Yes. Mr. BOLAND. I do not think the act says "national defense." It says the "Defense Department." Mr COGGESHALL. It specifically names them. There are named departments. Mr. BOLAND. It says national defense programs. Mr. FENSTERSTOCK. Let me put it this way: Mr. BOLAND. Read the act. Mr. FENSTERSTOCK. I think you will be interested in two things: First, the declaration of policy contained in the act and, secondly, the definition of the term "department." 67511-61-pt. 1——3 PROVISIONS OF AUTHORIZING LEGISLATION Section 101 of the act, the first section, reads as follows: It is hereby recognized and declared that the Congress has made available for the execution of the national defense program extensive funds, by appropriation and otherwise, for the procurement of property, processes, and services, and the construction of facilities necessary for the national defense; that sound execution of the national defense program requires the elimination of excessive profits from contracts made with the United States, and from related subcontracts, in the course of such program; and that the considered policy of the Congress, in the interests of the national defense and general welfare of the nation, requires that such excessive profits be eliminated as provided in this title. After having stated that contracts with the departments are subject to the act, the act defines the term "Department" as follows: SECTION 103. The term "Department" means the Department of Defense, the Department of the Army, the Department of the Navy, the Department of the Air Force, the Maritime Administration, the Federal Maritime Board, the General Services Administration, the National Aeronautics and Space Administration, and the Atomic Energy Commission. Such term also includes any other agency of the Government exercising functions having a direct and immediate connection with the national defense which is designated by the President during a national emergency proclaimed by the President, or declared by the Congress, after the date of the enactment of the Renegotiation Amendments Act of 1956; but such designation shall cease to be in effect on the last day of the month during which such national emergency is terminated. Mr. BOLAND. There has to be a determination by the President. Mr. FENSTERSTOCK. Or an amendment by the Congress, which is the way the National Aeronautics and Space Administration came into the act in 1956. Mr. EVINS. In an emergency period every agency of the Government likes to be declared to be in defense work. They often insist that every type of their functions directly affects our national defense. Mr. COGGESHALL. TVA, Bonneville Dam, many of them were there. Mr. OSTERTAG. In the case of the Space Agency, we know that they have contracts which run into the hundreds of millions in procurement, but much of that is through the Defense Department rather than direct with a manufacturer or an industry. Is that correct? Mr. COGGESHALL. I believe so. They are all subject to renegotiation. Mr. OSTERTAG. Yes, but actually it is a double contract between two agencies of Government. Mr. COGGESHALL. In either case it is renegotiable. Mr. FENSTERSTOCK. On the matter of national defense, there is an exemption provided in the act which bears on the question. Mr. THOMAS. Read the exemption. Mr. FENSTERSTOCK (reading): The provisions of this title shall not apply to: (6) any contract which the Board determines does not have a direct and immediate connection with the national defense. Mr. THOMAS. Read the five expressed exemptions. Mr. FENSTERSTOCK (reading): The provisions of this title shall not apply to (1) any contract by a Department with any territory, possession, or State, or any agency or political subdivision thereof, or with any foreign government or any agency thereof; or |