SBA and thus obtained the award. We understand the SBA had no choice in the matter. But we raise the serious question: How does such action serve small business? How does the propping-up of one less experienced small business-to the disfavor of another more experienced small business-help the American economy?

Such a circumstance is admittedly an isolated case. But it could be one of many if it is in accord with present rules. Where, we ask, can this lead?

Can it not lead to a situation in which the politically favored may get the order-those in disfavor be put out of the picture?

It is because such things can happen-whenever the principal role of smallbusiness programs grips with detail and not with long-range policy-that many of us feel uncomfortable.

As competent small firms, most of us enjoy the role of modern-day Davids contesting with Goliath. We are ready and able to compete when skill alone is to be the deciding factor. We see much of our ammunition taken away from usour dollars. We see these tax dollars used for many things over which we have no direct say. We see many of the dollars used to finance production plants for some of the largest companies in the country. We see inequities in competition because of the edge that these Government facilities provide. And we sometimes see the small-business programs of our Government operating to turn business over to competitors who will make the products we have designed.

It is hard to believe that the Small Business Administration could correct such underlying inequities. Without doubt they can give help on some of them. But the biggest problems stem from causes too big for any administrative agency to handle. The problem of tax inequities can be met only by the Congress. The question of competing Government facilities can be met only if Congress directs a shift in military contracting policies. The matter of redirecting policy to preclude favoritism of one small firm over another may also need legislative action. From the standpoint of the Small Business Administration, we do not feel that its services should be withdrawn before cures to the long-range problems are found, but many of us honestly doubt the need for the agency if the basic inequities are removed.

This statement will serve no purpose if it is taken as criticism of the SBA. That is not the intent. The intent is to focus on what we regard as major problems-to implore a thorough study aimed at long-range solutions. And, of all the problems, we regard the greatest as being the overpowering burden of the high cost of government on the independent businesses of America. If no other action is taken, we earnestly hope that tax adjustments will be accomplished before it is too late.

Mr. MULTER. We also have with us the officials of the Atomic Energy Commission. They are Mr. Derry, Mr. Read, Mr. Taylor, and Mr. Minsch. Mr. Minsch is from the Office of General Counsel; the other gentlemen are from the Division of Construction and Supply.

We have your statement and you may read it or summarize it, if you please. If you summarize it we will make the complete statement a part of the record.

Mr. DERRY. Mr. Chairman, I can read through the statement; it won't take very long.

Mr. MULTER. Whichever way you please.

Mr. DERRY. Mr. Minsch is on my right and Mr. Read is on my left and next to him is Mr. Taylor.

Mr. MULTER. Very well, sir; you may proceed.

STATEMENT OF JOHN A. DERRY, DIRECTOR, DIVISION OF CONSTRUCTION AND SUPPLY, ACCOMPANIED BY PHILLIP G. READ, SMALL BUSINESS AND PROCUREMENT SPECIALIST, GEORGE C. TAYLOR, ASSISTANT DIRECTOR FOR SUPPLY, AND WILLIAM J. MINSCH, JR., OFFICE OF GENERAL COUNSEL

Mr. DERRY. I would like to thank Chairman Multer and the other members of the subcommittee for your courtesy in asking Atomic

Energy Commission representatives to participate in these hearings. Chairman Multer's letter of invitation stated that the purpose of the hearings is to review the operation of the Small Business Administration, in view of the approaching expiration date of the SBA. It is our understanding that the subcommittee would like to hear us discuss AEC's small-business program, AEC cooperation with the Small Business Administration, and other pertinent subjects.

Before discussing these matters, I would like to say that the AEC management and staff has a sincere and wholehearted desire to achieve the best possible small-business participation in AEC programs. The success of AEC efforts in behalf of small business is a matter of pride with Chairman Strauss, and the other Commissioners, and all of us. In our discussion this morning, I propose to describe the AEC small-business program in terms of focal point, policies, controls and information.

The focal point of our small-business program is at the subcontract level. After analyzing the AEC operation in 1952, we found that the opportunities for small-business participation do not emerge to an appreciable extent until the first tier of subcontracts is reached. Since that time, our emphasis has been on subcontracts. These are the subcontracts let by the various cost-type contractors that construct and operate the laboratories and manufacturing plants of the Government's integrated atomic-energy industry. Although we emphasize subcontracting to small business, AEC small-business policies and program requirements are equally applicable to both AEC operations offices and to AEC cost-type contractors.

The responsibility for carrying out program requirements rests with the ten managers of AEC operations offices. These managers have been directed to assist and require their cost-type contractors to establish and maintain appropriate small business programs.

The AEC small-business policies and program requirements are stated in AEC Manual, chapter 9132, and the basis for this statement is the policy of the Congress that a fair proportion of supplies and services shall be procured from small business. To achieve the objectives of this policy, a series of specific supplementary policies have been enunciated, and both AEC operations offices and their cost-type contractors are required to comply to the maximum extent practicable. We believe that, if small business receives a maximum practicable opportunity to participate, small businesses will compete successfully and will obtain a fair share of AEC subcontracts. The results that have been achieved so far seem to support this proposition.

Now, here is how we have tackled the problem of program controls,. an aspect of this matter which we feel is most important.

The reporting of contract action statistics is an integral part of the overall AEC procurement operation and small-business program.. The problem of collecting meaningful AEC contract statistics is recognizably different from most Government agencies, since AEC is concerned with the management of an industry where the facilities are operated by private concerns on a contract basis. Accordingly, our system includes the reporting of both subcontract and prime contract action statistics.

A second program control involves a different reporting requirement. This second requirement involves a quarterly small-business

report which is designed to keep a finger on the operational pulse of the small-business programs of each AEC operations office and costtype contractor. Reports are submitted by each cost-type contractor to the appropriate Operations Office which, in turn, reports to Washington. These quarterly small-business reports are prepared and submitted quite independently of the system of contract-action reports. The quarterly small-business reports are intended to be brief and to the point, and the nature of the information to be submitted is spelled out in the AEC Manual chapter on small business. This includes: a narrative statement regarding the operation of the program during the quarter, and a tabulation of certain factual information not provided by the contract reporting system.

Our third program control is a system of performance appraisals. The AEC policy on procurement performance evaluation has been in effect since about the time of our last report to you in March 1955. It requires an annual appraisal by the Washington staff of the procurement activities and programs of each AEC Operations Office. One of the elements of these appraisals is the effectiveness of smallbusiness programs of the Operations Offices and their cost-type contractors.

During the past calendar year, we have completed appraisals of all ten AEC Operations Offices. In addition, the performances of our cost-type contractors also have been evaluated through annual appraisals by AEC field staffs. The latter have been a regular and effective part of our program for a number of years.

To inform small-business concerns about doing business with the Atomic Energy Commission, we are continuing to publish on an up-to-date basis the booklet entitled "Selling to AEC." Since we last testified before your subcommittee, a fifth edition was published and widely distributed. A sixth edition is now in preparation. We incorporate new items of interest and benefit to small business in each new edition. The present edition contains comments for concerns that are interested in directing their attention to the peaceful aspects of atomic energy, as well as brief descriptions of the principal AEC projects, a discussion of AEC and contractor purchasing, up-todate listings of AEC offices, cost-type contractors, and individuals who should be contacted, and the broad categories of items purchased and the identity of the offices that may buy them.

At the head of the list of areas of AEC-SBA cooperation is the joint memorandum of agreement between the two agencies which was developed originally in 1953. The purpose of the agreement is to provide a basis for cooperation to further both the AEC smallbusiness program and the objectives of the Small Business Act of 1953, amended, in connection with procurement by the Commission and its cost-type contractors.

The agreement provides for a close working relationship between AEC Operations Offices and their cost-type contractors, and appropriate SBA Regional Offices regarding AEC procurement opportunities, qualified small-business concerns, and other matters. It was developed after members of the SBA staff had visited several AEC projects, studied the nature of the AEC operation, and thoroughly reviewed the various means available for assisting small business.

The agreement is designed to operate on a regional basis and, in view of the sharp decrease in AEC construction, we are encouraging

personal contacts between AEC and SBA personnel in the field so that SBA field representatives can keep in touch and become more familiar with the continuing purchase requirements for the operation of the AEC plants and laboratories.

Early in 1956, the Small Business Administration initiated a program of business opportunity meetings in various cities throughout the country. AEC has participated in 19 of these meetings, a total which incluudes virtually all of them. This participation has been arranged on a regional basis consistent with the AEC-SBA agreement. AEC Operations Offices have provided speakers as requested, and have arranged for AEC contractors to exhibit items which they are purchasing. Pictures of the exhibits prepared by the Union Carbide Nuclear Co. and University of California Radiation Laboratory are attached.

The Small Business Administration is currently issuing four series of publications in order to disseminate useful information on sound management practices. One of these four series is entitled "Technical Aids for Small Manufacturers." Two papers have been prepared by AEC for publication by SBA, and others are contemplated. The first paper, entitled "Radioisotopes and Small Business" was published several years ago and was revised and republished last September. The second paper, entitled "Small Business and the Industrial Applications of Atomic Energy," has been forwarded to SBA and will be published in the very near future.

Section 3 (d) of the Atomic Energy Act states specifically that it is a program responsibility of the Atomic Energy Commission to encourage the peaceful uses of atomic energy. Since most business concerns are small business, any effort to encourage the peaceful uses of atomic energy must bear in mind their interests. In order to bring about joint AEC-SBA interest in this matter into clearer focus, AEČ representatives met recently with SBA Washington management and SBA regional directors to better acquaint SBA with the AEC program activities in reactor development, technical information and civilian application.

AEC participated in the development of a revised definition of small business through membership on the SBA interagency task force and the task force drafting subcommittee. We were pleased to work with SBA and the other agencies that participated in the project and to contribute our thoughts and suggestions, time, and effort to this problem. During the brief period of time which has elapsed since the revised definition was announced by SBA, we have not experienced any difficulty with it.

The progress report by the President's Cabinet Committee on Small Business, dated August 7, 1956, adopted a recommendation concerning advance and progress payments in order to facilitate the ability of small business to finance Government contracts. In response to that recommendation, AEC policies on contract financing as set forth in the AEC Manual have been appropriately modified. These policies now explicitly state that a need for advance or progress payments, where legally permissible, shall not be considered a handicap in awarding contracts, and the disbursement of progress payments, where provided, shall be made as expeditiously as possible. Our directions for the use of progress payments have also been amplified to provide

that in supply contracts, where it is unreasonable to expect the contractor to carry the full investment for material, labor, and other costs of the work until final completion, the availability of progress payments to business concerns that request them will be specified in the invitation to bid or request for proposals. However, it should be noted that construction contract terms heretofore have provided for the availability of progress payments.

The charts which follow this statement, appendixes E and F show the percentage of total AEC subcontract dollars going to small business. You will note that the trend has continued upward from 26.7 percent in fiscal year 1951 to 45.7 percent in 1956. In the first two quarters of 1957, however, the percentage dropped noticeably to 36.2 percent in the first quarter, but staged a substantial recovery to 41.6 percent in the second quarter. We attribute this development to two occurrences. The first is a sharp decrease in dollars spent for construction from about $1.2 billion in fiscal year 1954 to about $300 million in 1956 and an estimated $240 million in 1957.

It has been our experience that a substantial part of these construction dollars were suitable for small business and went to small business. In our programs where expenditures have followed the historical pattern of earlier years, the percentage of dollars to small business continues at the same high level. The second occurrence is a sharp increase in dollars spent in the reactor development program where a substantially smaller percentage of subcontract dollars appear, at least for the present, to be suitable for small business.

The main problem is with the materials and equipment generally considered as conventional, but which must conform to the exacting standards required on all components of a nuclear powerplant. Normal engineering and manufacturing techniques have proved to be inadequate when applied to nuclear plants. New levels of engineering and scientific competence must be attained. Under these circumstances, our experiences indicate that a lesser number of small-business concerns have the facilities required or the desire to undertake the risks involved, than would normally be the case.

The AEC Small Business program provides the management tools to tackle this problem. In our management appraisals and in the more frequent reviews by operation offices, we will be closely scrutinizing the suitability for performance by small business of the contract actions in this expanding area. Items currently may be evaluated as unsuitable for small business, but we hope that, in the near future, a substantial increase can be achieved in the subcontract dollars to small business.

(The AEC manual, charts and other data referred to will appear in pt. II.)

Mr. MULTER. Thank you for that very fine statement.

Mr. STEED. On page 2, you use the term "fair proportion." Could you elaborate just a little on what you mean by the term "fair proportion"?

Mr. DERRY. Our view of a fair proportion is that if small business is given an opportunity to compete with other businesses, both small and large, for as much as they can possibly handle of our business, small business will receive a fair share. In the past, small business has received almost half of total subcontract dollars-45 percent.