Mr. FLOETE. That is right; the industrial reserve.

Senator SPARK MAN. I wonder if you could give us a memorandum that could be included in the record to that effect.

Mr. FLOETE. Gladly. That has been a growing business. We have been getting more of those items declared excess by the Department of Defense and we put them in storage as we are required to do so. (The information referred to follows:)

GENERAL SERVICES ADMINISTRATION,
Washington, D.C., February 1, 1960.

Hon. PAUL H. DOUGLAS,

Chairman, Subcommittee on Defense Procurement,

Joint Economic Committee, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: As requested by Senator Sparkman at the subcommittee's hearing on January 28, a summary statement on the National Industrial Equipment Reserve is enclosed for inclusion in the record.

Sincerely yours,

FRANKLIN FLOETE, Administrator.

NATIONAL INDUSTRIAL EQUIPMENT RESERVE

The General Services Administration maintains a reserve of machine tools and other industrial manufacturing equipment under the National Industrial Reserve Act of 1948 (Public Law 883, 80th Cong.)

In accordance with the provisions of that act, the Secretary of Defense determines the machine tools and other industrial equipment to be included in the reserve; establishes the standards for preservation and maintenance of the items in the reserve; and directs the leasing, lending, or disposal of items in the reserve. As directed by the Secretary of Defense, the General Services Administration receives, maintains, and disposes of the machine tools and other industrial equipment in the reserve. The act limits selections for the reserve to excess or surplus Government-owned property.

The reserve is intended primarily for expansion in an emergency of defensesupporting industries such as manufacturers of ball bearings, gears, tools and dies, and machine tools. Each of the military services also maintains reserves for current or mobilization requirements of direct military contractors and producers specifically designated as mobilization suppliers.

The reserve consists entirely of machine tools and other industrial equipment selected by the Secretary of Defense from lists of such property declared excess by the military departments and other Federal Government agencies and not required for the reserves maintained by the military departments. The Secretary of Defense also considers requests for leasing tools in the reserve and requests of nonprofit educational institutions or training schools for the loan of such tools and directs GSA as to what action is to be taken on such requests. The Secretary of Defense regularly reviews the items in the reserve to assure that they continue to be required for the reserve based on determinations that the tools would still perform effectively in an emergency, and he directs GSA to declare excess any tools no longer required.

The 4.990 items in the reserve on December 31, 1959, included 13 items on lease and 78 items on loan to an educational institution. Of the total items in the reserve, approximately 4,700 items were general purpose metalworking machinery, and the other 290 items were materials handling devices and miscellaneous production aids. The Department of Defense estimates that new selections for the reserve will be 3,000 items annually in fiscal years 1960 and 1961. Loans to nonprofit educational institutions or training schools may be made to equip industrial education centers as complete entities when the Secretary of Defense determines that the program for which the equipment is required will contribute materially to the national defense. In 1959 the Secretary of Defense approved the first such loan, which covers 78 items having an original acquisition cost of $417,833.

Status of national industrial equipment reserve as of Dec. 31, 1959

Senator SPARKMAN. I am sorry to go, Mr. Chairman.
The CHAIRMAN. Thank you, Senator Sparkman.

GSA AUTHORITY OVER DISPOSAL

Mr. Floete, do I understand that in the original act, 201(a), dealing with General Services, that you were given general power over the purchases of the Defense Department?

Mr. FLOETE. Yes, sir; except that particular section of the act which provided, notwithstanding the terms of the act, the Secretary of Defense could exempt himself from the operation of the act.

The act was passed in 1949, and I believe it was about 1950 that the Secretary of Defense did ask for exemption. Our legal counsel is here. He can correct me if I am incorrect here. That was denied. The CHAIRMAN. Is it not true that President Truman issued an Executive order that Defense was not to have exemption?

Mr. FLOETE. This is Mr. Macomber, our General Counsel.

The CHAIRMAN. I hold in my hand our staff report which gives a directive from President Truman dated July 1, 1949, which denied to the Secretary of Defense the power of exempting the National Military Establishment without the approval of the President. Mr. FLOETE. That is correct.

EISENHOWER CANCELS TRUMAN DIRECTIVE

The CHAIRMAN. Is it true that on the 8th of June 1954, President Eisenhower in another Executive order canceled the directive of President Truman, and therefore permitted the Department of Defense to exempt itself from the provisions of the act?

Mr. FLOETE. Yes, sir.

The CHAIRMAN. Do I understand the answer to be that that is true? Mr. FLOETE. Yes; that is correct. Subsequently the Department of Defense did exempt itself as to transportation matters covered by that section of the act.

DOD EXEMPTS ITSELF

The CHAIRMAN. In what specific instances or areas has the Secretary of Defense exempted himself from the application of section 201(a) of your act?

Mr. FLOETE. Only in that one case-transportation.

The CHAIRMAN. Transportation?

Mr. FLOETE. Yes.

The CHAIRMAN. Land or sea?

Mr. FLOETE. All transportation.

The CHAIRMAN. What in your judgment have been the consequences of this exemption?

Mr. FLOETE. Shortly after that time, GSA and the Department of Defense entered into three agreements which provided the GSA would supply all items of office furniture and equipment, all paper products, and office machines. We have been operating on that ever since. We have increased our business with the Defense Department very materially, as I said before.

I suppose, Mr. Chairman, that under this act we could say to the Department of Defense, "We are going to handle all items of a certain nature."

The CHAIRMAN. Common-use items.

Mr. FLOETE. As an example of that; yes. We could say that. I suppose under the act, the Secretary of Defense could say, "No,” and then the matter would go to the President for decision.

The CHAIRMAN. Who has already made a ruling that the Department of Defense can exempt itself?

Mr. FLOETE. Yes; but it would come up as a specific case.

STATEMENT OF JAMES H. MACOMBER, JR., GENERAL COUNSEL, GENERAL SERVICES ADMINISTRATION

Mr. MACOMBER. I think, Senator, that the way the matter now stands is that President Eisenhower's letter merely retracted the previous directive that the Department of Defense was not to exempt itself, leaving it open for the Secretary to claim such an exemption but subject to an appeal, as it were, by the Administrator to the President under the language, unless the President shall otherwise direct.

The CHAIRMAN. Suppose the Secretary of Defense decided to take away the handtool business, which I understand you manage for them. What would you do about that?

Mr. FLOETE. We would object.

The CHAIRMAN. Let the reporter note there was a significant pause. Mr. FLOETE. I know this is a controversial point, Mr. Chairman. Senator JAVITS. Would the chairman yield?

The CHAIRMAN. Yes.

Senator JAVITS. It seems to me when titans clash there must be a significant pause.

The CHAIRMAN. I was not giving any derogatory connotation in the slightest. I merely wanted to have the reporter, in the record, show there was a pause.

GSA NOT AWARE HOW NEW DOD SYSTEM WILL WORK

Mr. FLOETE. We do not know there is any movement afoot to take that away from us because we do not know how this new system of the Department of Defense is going to work. We have not been advised that we are going to lose that business.

The CHAIRMAN. Have you heard rumblings?

Mr. FLOETE. Yes, sir.

The CHAIRMAN. So have we.

Now may I ask this question: Does the General Services Administration Act vest you with authority over the disposal of surplus property?

Mr. FLOETE. General authority; yes, sir.

The CHAIRMAN. Have you delegated authority to the Department of Defense for the largest portion of this disposal?

Mr. FLOETE. We have.

The CHAIRMAN. Why did you do that?

Mr. FLOETE. I was not here at the time, but I am sure for the very practical reason that the problem is so huge; the GSA would be absolutely unable to cope with it.

The CHAIRMAN. Do you think you should reconsider?

GSA UNABLE TO HANDLE SURPLUS DISPOSAL

Mr. FLOETE. There is a matter of storage responsibility, and accountability running into billions of dollars, as you know. GSA just does not have that capacity in my opinion. We feel that we should do it and we are doing it as to the civilian agencies.

NEED FOR MORE UTILIZATION OF SURPLUS

We believe further that we can greatly improve the position of the Government by seeing that there is better utilization within the other agencies of Government and a more aggressive donation policy to State agencies so to use up a very substantial amount of this surplus. We have actively gone about that and instituted a new system which is already producing very significant results and will increase both the utilization by other agencies and the donation program substantially.

The CHAIRMAN. Am I correct in understanding that the disposal program is greater now in dollar volume than it was during the days of the War Assets Administration?

Mr. FLOETE. I understand it will be about $10 billion for next year. Mr. BEAN. Your statement is correct, sir.

The CHAIRMAN. What puzzles me about this whole thing is to have the enormous volume of this material which is being sold off each year at the same time there is a tremendous volume of current purchases. Cannot a large part of this material which is being sold, as we have seen, really at no return to the Government, be used so that the volume of current purchasing can be reduced and savings effected?

Mr. FLOETE. We are attacking it on just that line, to get greater utilization and greater donation. A great proportion of this so-called $10 billion excess is made up of items that are not usable by other agencies or even by the States. This is all at acquisition cost. It includes such things as B-36 bombers and military weapons of various kinds that have no further civilian use.

I do not think you can generalize and say "Because there is $10 billion, there is so much available."

The CHAIRMAN. I believe 40 percent are items which could be used for civilian purposes.

Mr. FLOETE. Forty percent in dollars?

The CHAIRMAN. In items.

Mr. FLOETE. We do not have that data, sir.

Senator JAVITS. Mr. Chairman, I would like to be excused. I have someone waiting and I have to get to the floor for the debate on the poll tax business.

Mr. Floete, I know I join with our chairman in appreciating your presence here and assure you that I will certainly study the things you have offered. I hope if we do have some further questioning, because the Chair apparently has quite a list of questions, that we may have another opportunity perhaps by inviting you here or going to

see you.

Mr. FLOETE. Certainly, sir.

Senator JAVITS. Thank you.

The CHAIRMAN. Do you find the Defense Department disposing of clothing items, transportation equipment, and so forth, which could certainly be used by the Armed Forces, particularly in home stations?

Mr. FLOETE. I think that the Defense Department would have to answer that, because they are items which are not reported to us. Is that correct?

Mr. BEAN. I would presume so.

The CHAIRMAN. I still do not think you have answered the question which I raised some minutes ago: What improvements can we make in the whole system of purchase, storage, supply, and disposal.

Mr. FLOETE. We feel that we should continue to handle the line of items that we are now handling, that we should enlarge that as we find a field where we can handle it expeditiously and economically. That goes for both the civilian agencies and the Defense Department. The CHAIRMAN. What specific items do you think you should take over?

Mr. FLOETE. I think it is more a question of what we retain. I think we should retain all common-use items.

The CHAIRMAN. You are afraid that your present list will be raided?

Mr. FLOETE. We do not know, sir. We think we should retain the common-use items we are now supplying and the machine tools. The CHAIRMAN. What about handtools?

Mr. FLOETE. Hand tools; yes, sir.

SINGLE MANAGER FOR HANDTOOLS IN DOD

The CHAIRMAN. Is it not true that the Department of Defense is setting up a single-manager system for a category which includes handtools?

Mr. FLOETE. Yes, sir; they are.

The CHAIRMAN. So although you have not been formally notified by them, you are aware of the administrative action which they are taking; is that not true?

Mr. FLOETE. Yes. But we have not been advised that this single manager might not make the same agreement with us. We do not know that. He might say to us, "You handle the handtools."

I have a letter here which we have addressed to the Department of Defense that states our position on this quite concisely.

The CHAIRMAN. That is what I am trying to find out from youwhat your position is. Could you read the salient paragraph? Mr. FLOETE. Yes, sir.