expensive model, resulting in excess costs to the Government of $874,000. After bringing this matter to the attention of proper officials, an additional quantity of the less expensive engines for which a valid requirement existed was delivered by the supplier to make up for the deficiency.

We have found instances where the cost of Government procurement has been unnecessarily increased as a result of requiring contractors to carry insurance on Government-owned property. Under certain lease agreements, military departments had required contractors to carry property damage insurance on Government-owned facilities even though virtually all the contractor's production with those facilities had been on contracts with the Government.

The CHAIRMAN. May I interrupt a minute?

Mr. CAMPBELL. Yes, sir.

The CHAIRMAN. Do you mean to say that the Government required the contractor to take out insurance on property which the contractor did not own, but which the the Government owned, and which if damaged or destroyed by fire would not occasion any property damage to the contractor?

Mr. CAMPBELL. That is the kind of case we are discussing here.

The cost of such insurance was generally reflected in the prices charged to the Government. This not only resulted in unnecessary cost to the Government, but was inconsistent with the Government's policy of self-insurance. In one case, we estimated the unnecessary insurance costs to be $45,000 annually.

Failure to obtain reimbursement for commercial use of Government-owned facilies in the hands of contractors has been disclosed by our reviews. In one instance, a contractor used Government-owned facilities for commercial production for approximately 8 years without paying rent.

The CHAIRMAN. Was there a large amount of Government property involved in this case?

Mr. CAMPBELL. Yes. This is a rather large piece of property and expensive piece of property.

The CHAIRMAN. Do you have any estimate as to what the capital value is?

Mr. CAMPBELL. We do not have that figure.

The CHAIRMAN. We have a synopsis of all your reports. If you will give us the number of the decision, we may be able to find it.

Mr. CAMPBELL. That is B-125096. I have an outline of that report before me, Mr. Chairman. We don't have that figure of property value.

The CHAIRMAN. I will ask Mr. Campbell to supply the name of the company and the amounts involved for the record.

Mr. CAMPBELL. Mr. Chairman, that matter is now or has been before the Board of Contract Appeals in the Air Force. The company is Curtiss-Wright Corp., Wright Aeronautical Division, at Woodbridge, N.J. With respect to the figure that you requested, I am not sure of that, but I understand that the original acquisition cost was approximately $15 million as of June 30, 1956. The rental accumulation through June 30, 1957, was estimated to be $4.5 million. This computation of $4.5 million was by the Department.

Failure of the contractor to comply with contract terms concerning the furnishing of equipment usage data, compounded by initial lack of aggressive action on the part of Government procurement officials and subsequent controversies between the parties over the interpretation of the contract rental formula, has resulted in an unreasonable delay in reaching agreement on a substantial amount of rental revenue due the Government. For the entire period through calendar year 1956, the Air Force computed rentals due of $1,572,380. Upon appeal to the Armed Services Board of Contract Appeals, the contractor proposed a rental formula, with alternative elements, which resulted in calculations ranging from $408,109 to $520,082. The Board in its decision dated September 23, 1959, established rentals due the Government through 1956 at $652,298. The Air Force filed a motion for reconsideration and on December 16, 1959, the motion was denied. We understand that the Board's decision will establish a formula on which to settle additional rentals due for 1957, 1958, and 1959. Also, in this case, there remains the question of settlement of substantial rentals due for facilities in the hands of subcontractors. The military departments and the Department of Defense have taken action designed to correct many of these uneconomical practices. The Armed Services Procurement Regulation has been revised to improve negotiation procedures by requiring thorough analyses of contractor's proposals and by requiring that current, complete, and correct cost or pricing data be obtained before decisions are made on contract prices. Revisions of the regulation have also been made to strengthen administrative policies and procedures in the areas of (1) sole source procurement, (2) surveillance over the pricing of subcontracts, (3) establishing prime contract prices where subcontract prices are not firm, and (4) insurance on leased Government-owned property where more than 75 percent of the total productive capacity of the facilities will be used on Government work. Individual military departments have also taken certain actions to improve policies. and practices in many of these areas.

The CHAIRMAN. I wonder if you could tell us when the Defense Department took corrective action?

Mr. CAMPBELL. I believe it was the early part of January 1959. It was just about a year ago.

The actions taken by the Department of Defense to improve procurement procedures and practices are commendable. We believe, however, that the problem of achieving efficient and economical procurement requires an intensive and continuing training effort to improve the skills of contract administrative personnel. There is also an ever-pressing need for followup action to see that revised policies adopted by the Department of Defense are being followed and that full cooperation is extended by the contractors.

We believe, further, that there is a need to obtain greater competition in awarding of contracts to supply the needs of the Department of Defense. In our opinion, effective competition gives greater assurance that the Government will receive an effective and durable product in a reasonable period of time and at the lowest prices obtainable. Even in those cases where lack of development or the complex nature of the item being procured precludes the use of formal advertising, competitive forces should be utilized to the maximum ex

tent practicable. Competition in the design, research, and development stages would maintain competitive forces up to the production stage which would place the Government in the advantageous position of being able to select the most acceptable product available to satisfy its needs.

The CHAIRMAN. Mr. Campbell, I am very glad you mentioned that point. A number of Members of Congress have been urging the greater use of competition in the awarding of contracts, notably Congressman McCormack, of Massachusetts, and Congressman Curtis, of Missouri. The chairman and various other Members of the Senate have from time to time urged this practice. We have not noticed any particular increase in the percentage of contracts awarded under the competitive system despite our urging. We have felt that our efforts were rather ineffective so far as the following of our advice by the Defense Department is concerned. We feel reassured and shored up by your recommendation. I hope very much that the Department of Defense will take the various recommendaations to heart.

Representative PATMAN. Mr. Chairman, may I add to that the fact that I believe in every single report to the Small Business Committee and this committee, 10 of them, we have strongly urged the competitive letting of contracts, always feeling that small business can take care of itself under competition.

The CHAIRMAN. I am puzzled by the action of the Defense Department because as I understand it, when we originally permitted negotiated contracts, it was understood that these were to be carried out only in the most extraordinary circumstances, where because of reasons of military security or uniqueness of product, it was not desirable or possible to obtain competitive bidding. But is it your impression that negotiated contracts have been and are now being carried out by the Defense Department in areas where it would be relatively easy to obtain competitive bidding?

Mr. CAMPBELL. We think that is true, Mr. Chairman.

SUPPLY AND SERVICE MANAGEMENT ACTIVITIES

The supply and service management activities of the military departments represent a vast operation of logistical supply, maintenance, and repair. They include large warehousing and parts supply activities, vehicle and aircraft maintenance shops, ship repair operations, and numerous other activities with a similar mission. Like commercial merchandising, efficient and successful operation of these activities requires a careful and studied analysis of probable demands for the item or commodity stocked, as well as efficient management to maintain an uninterrupted flow of vital materials to be available when and where needed without undue losses in storage or in transit. Because of the rapid technological advances in the design of weapons, vehicles, and other military support equipment, obsolescence is a critical factor for consideration in avoiding the overstocking of spare parts, accessories, maintenance, tooling, and supplies.

EFFECTIVENESS OF SUPPLY MANAGEMENT

Our audits of the military supply and service activities are aimed at evaluating the effectiveness of management in its procurement of and control over supply stocks. This includes computation of requirements, distribution of supplies, distribution and disposal of excess stocks, length of time or degree of unserviceability of equipment to be repaired, and other matters relating to the effectiveness and efficiency of the management of supply and service activities. Our audits also encompass the interservice supply support program. Major findings in these areas, briefly stated, are as follows:

Need for improvement in the interservice supply support program

In our opinion, the Department of Defense has not developed effective procedures for redistributing inventories of excess or long supply among military services having a requirement for such stock. Lack of effective interservice procedures permits simultaneous procurement and disposal of the same items by two or more services. In one case, we found that during the same period one service had a long supply and excess of aircraft engines and accessory parts available for interservice use while another service was placing orders for identical items. The interservice supply procedures followed by each service did not accomplish redistribution of available material. As a result of our request that both services consider the matter, arrangements were made for the transfer of stocks valued at $1.6 million.

CASES OF CONCURRENT BUYING AND SELLING

In another case, reduction in Air Force requirements during fiscal year 1958 left the Air Force with over $6 million worth of excess H-19 helicopter spare parts at Middletown Air Materiel Area. Some of these had been authorized for disposal. At the same time the Army had outstanding orders for production of H-19 helicopters and spare parts which had been placed prior to the Air Force program reductions. When notified directly by Middletown Air Materiel Area at our request, the Army subsequently requisitioned about $3.4 million worth of the Air Force excess spare parts.

Need for improved supply management controls

Many of the supply activities we have examined have inadequate procedures or lack proper records or other data to determine their stock position or compute their requirements within a reasonable degree of accuracy.

EXCESS MARINE CORPS BLANKETS

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The CHAIRMAN. Mr. Campbell, may I interrupt a minute? In my own inquiries some months ago, I developed the fact that the Marine Corps had very large quantities of excess blankets, which the Army and other services refused to take, although they were purchasing blankets, because the Marine insignia had been stamped upon the original blankets. They didn't want to have soldiers sleep under blankets which had the Marine Corps insignia. Is my information correct in that case?

Mr. CAMPBELL. I am not familiar with that case.

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The CHAIRMAN. I think the GSA brought that to my attention. am sure it is correct. This is another illustration of what you have been developing. Thank you. Would you continue.

NEED FOR OVERALL SUPPLY-DEMAND CONTROLS

Mr. CAMPBELL. As a result, valid requisitions are not filled in a timely manner, invalid requirements are generated and stock excesses accumulate. In many cases there are no satisfactory controls to assure that, when requirements are reduced, outstanding orders will be screened to cancel any unneeded quantities on order. For example, at one aircraft parts supply activity we found that over $20 million worth of spare parts on hand were in excess of current program needs and about another $20 million worth were on order.

The CHAIRMAN. This is extraordinary. Hitherto you have been discussing the fact that one service could have a surplus, another have a deficit, and there would be no transfer of the surplus between services. Now you are saying here that there is one service, the Air Force, and one supply center, which was simultaneously ordering $20 million of parts at the same time that they had over $20 million worth of approximately the same parts in stock?

Mr. CAMPBELL. That is correct.

The CHAIRMAN. In other words, this is a case where not alone within a single service but in one center the left hand did not know what the right hand was doing or ignored what the right hand was doing. Would you be willing to supply for the record what this aircraft part supply activity was?

Mr. CAMPBELL. That is San Antonio Air Materiel Command of the Air Force.

NEED FOR DISCIPLINARY ACTION

The CHAIRMAN. I suppose there are officials of the Air Force here. When they testify, I would like to have them specify what disciplinary action, if any, has been taken to correct this situation.

Mr. CAMPBELL. For your information, Mr. Chairman, the reference number of our report is B-133019.

When we called attention of proper officials to these excess stocks, requirements were screened and orders approximating $16 million were canceled.

The CHAIRMAN. How much is the total cost of your office to the Government?

DOUBLE COST OF GAO DEFENSE AUDIT STAFF AMORTIZED ON ONE REPORT

Mr. CAMPBELL. The total cost of the entire General Accounting Office is approximately $39 million.

The CHAIRMAN. Here is 40 percent of the cost of your office recovered on just one item alone.

Mr. CAMPBELL. I think in fairness to our Defense Office, I should point out that only about a fifth of that cost has to do with the performance of this type of work in the Defense Department.