Mr. Chairman, this concludes our summary of the more significant areas disclosed by our audits in which we believe that improved administration can have beneficial influence toward stabilizing our economy. It is not intended to leave the impression that the Department of Defense is not making a diligent effort to administer its programs effectively. Such a vast undertaking requires the combined efforts of the most capable officials of both the executive and the legislative branches of our Government. NO PROPOSAL IN LEGISLATION We have no proposals for legislation at this time, although your hearings may disclose a possible need for legislation. In such event, we shall be glad to assist your committee in any way possible. Our recommendations for improved regulations have been submitted from time to time to the Department of Defense along with our reports of audit. As indicated in our statement, not all of our recommendations have been adopted by the Department of Defense; however, we believe it only fair to state that there can be honest differences of opinion and that it is our belief that all of our recommendations have been given serious condition. We shall be glad to discuss more specifically any of the points we have just covered on which you or members of your committee may desire additional information. VOLUME OF GAO REPORTS The CHAIRMAN. Thank you very much, Mr. Campbell. I am going to ask the members of the staff to take in their arms the reports which you have submitted on these matters and hold them up for public inspection, and then make an estimate as to their total weight. How much do you think those weigh, Mr. Ward? Mr. WARD. About 20 pounds, I guess. The CHAIRMAN. Twenty pounds of reports. GAO REPORTS ARE FAIR SAMPLE The CHAIRMAN. I understand, though, they are weighty words. I would like to ask this, Mr. Campbell: To what degree do you think that these are fair samples of the work of the Defense Department, that is, did you pick out the lurid cases, or is this a pretty fair sample of the procurement and supply practices of the Department of Defense? In the nature of the case, you could only sample a relatively small number of the cases; isn't that true? Mr. CAMPBELL. Mr. Chairman, our policy is to set up our programs on the basis of the money spent. In other words, we naturally give our greatest effort in areas where the expenditures are high, because we have a limited staff. I, therefore, would say that we would program an activity regardless of whether we had heard something on the outside that things are not going well, or that we had a report adversely on it. We would go into the matter regardless of whether the performance is reported to us to be good or bad. For example, we had a report recently on one of the Government corporations which was a very favorable report; commended the organization for what they had done. So I don't think that these reports that you have before you represent only the bad situations. I think they represent a cross section of what we have found. The CHAIRMAN. In other words, you think they are a pretty fair sample? Mr. CAMPBELL. Yes. COMPREHENSIVE STUDY OF ELECTRONICS UNDERWAY The CHAIRMAN. Have you studied the supply system of the Signal Corps which a number of your reports indicated is relatively inefficient? Mr. CAMPBELL. As I mentioned in my statement, we are engaged on this rather comprehensive examination of the electronic procurement and similar things. The CHAIRMAN. You have not issued a report yet? SIGNAL CORPS REPORTS MADE Mr. CAMPBELL. Since this statement was prepared, Mr. Chairman, we have issued a report on the examination of the U.S. Army Signal Supply Center in Yokahoma, and also the Signal Corps operations of the U.S. Army, Europe, Communications Zone. Both of those came out in January. Those are the two on the Signal Corps. Also the review of selected supply and related disposal procurement activities, 8th U.S. Army in Korea, includes references to the Signal Corps operations. REPORT ON LEASED PRIVATE LINES The CHAIRMAN. I hold in my hand a copy of your report on the management of leased private lines, telephone facilities, in the Department of Defense and selected civil agencies, which you issued under date of November 24, 1959. The code number is B-133201. I read from the second paragraph: The Government has been incurring excessive costs amounting to possibly more than a million dollars annually in the leasing of private line telephone facilities. These excesses have been the result, first, of the erroneous application of certain rates, and second, inefficient administrative practices on the part of the Government departments and agencies. Because of the highly complex nature of the problems which would be involved in developing an accurate projection of the total effect of these uneconomical practices, we are not in a position to make a firm prediction as to the total amount of savings that could be accomplished by the corrective actions which we are recommending herein. $1 MILLION EXCESSIVE COST You do say that the excessive costs amount to possibly more than a million dollars a year. You go on in the third paragraph to say: Part of the excessive costs which have been and are being incurred could be attributed to the fact that A.T. & T. has not fully applied Tariff FCC No. 231, which is an effective discount for volume service to the eligible circuits of each Government department and agency. In our limited review we identified annual savings of approximately $73,000 which have since been realized by the application of the lower rates available under this tariff. Also, in our opinion A.T. & T. is required to apply Tariff FCC No. 231 retroactively to the date each group of circuits of each department and agency became eligible and to make refunds accordingly. A.T. & T. does not agree with our interpretation of this tariff. What you are saying is that there has not been a full application of the quantity discount which has been ordered by the FCC under Tariff Rule No. 231; is that correct? Mr. CAMPBELL. That is the basic point. May I say, Mr. Chairman, with respect to that report which was issued in November 1959, that the Department of Defense and the General Services Administration both moved in very rapidly on that for correction. The report, of course, was across the board. The CHAIRMAN. I may say that we have noticed greater activity on the part of the Department of Defense in these matters, particularly after this committee announced that it was going to hold hearings on this subject, which it did last fall. FEASIBILITY OF SINGLE MANAGER FOR ELECTRICAL SUPPLY Have you studied the electrical supply items sufficiently to have an opinion as to whether or not a single manager of the electrical supply items is feasible for the entire Department of Defense? In other words, is a single-manager system one that is practical for electrical supply items? Mr. CAMPBELL. Our fieldwork is in progress on that, Mr. Chairman. I would like to defer an opinion. The CHAIRMAN. I understand that this category includes something like 900,000 individual items with a cost value running into hundreds of millions of dollars. CONGRESSMAN M'CORMACK RE SINGLE MANAGER FOR COMMUNICATIONS SERVICE May I ask this question: Congressman McCormack in the House has raised the question as to why there should not be a single manager for all communications for the Department of Defense. I would like to ask you that question which Congressman McCormack has raised, with the further question: Would unified operations, in your opinion, require a unified communications system? Mr. CAMPBELL. We have no opinion on that at this time, Mr. Chair man. The CHAIRMAN. Are you conducting any study of the communications services, as such? Mr. CAMPBELL. The only work we did was on the long-lease lines to which you referred a moment ago. The CHAIRMAN. Would you care to make an estimate of the savings that might be made if we had an effective and efficient military supply system as was contemplated in the original O'Mahoney and subsequently in the McCormack-Curtis amendments? Mr. CAMPBELL. I am sorry, Mr. Chairman, I don't think I can make an estimate of what could be saved. The CHAIRMAN. Senator Javits has a statement he would like to make. We are very glad to have you here, Senator. IMPACT OF DEFENSE PROCUREMENT METHODS ON STATE ECONOMIES Senator JAVITs. Thank you very much, Mr. Chairman. I will not detain you more than a minute, but I have looked forward to these hearings with considerable interest because of the condition in certain areas of my State and on general grounds as well. I have noticed with great interest the statements which are made in your prepared testimony on the question of competition. I would like to address myself very briefly to that. As today's hearings get under way on defense procurement methods, the utilization of competitive bidding and competitive negotiation by the Defense Department and the impact of these factors on the U.S. economy, I would like to point out the special interest these hearings have for the people of my State-incidentally, the largest in the United States. We are giving much attention there to the steadily declining share of the U.S. defense dollar which is spent in the State and to the growing geographic concentration of prime defense contract awards. To many of us in the East, the so-called missile gap has been translated into the defense order gap. Many New Yorkers apply this term to the steady loss of defense contracts in our State, while there has been a steady increase in prime defense missile contracts placed in other parts of the country, particularly with firms on the west coast. INTENT OF EMPLOYMENT ACT OF 1946 The Employment Act of 1946, which authorized the Joint Economic Committee, set forth the clear responsibility of the Federal Government to use all practicable means consistent with its needs and obligations and other essential considerations of national policy *** to coordinate and utilize all its plans, functions, and resources for the purpose of creating and maintaining, in a manner calculated to foster and promote free competitive enterprise and the general welfare, conditions under which there will be afforded useful employment opportunities *** and to promote maximum employment, production and purchasing power. In the context of that declaration of policy, there would appear to be several important avenues of inquiry to be pursued at these hearings. Of special importance is the inclusion of labor surplus areas and small businesses among those factors accorded preference by armed services procurement officials in awarding contracts under the existing defense set-aside program. ARMED SERVICES COMPETITIVE PROCUREMENT ACT It is my preliminary view that both of these factors deserve far more consideration than I believe they are receiving now. During the last session, every member of the New York State congressional delegation, including myself and Senator Keating, sponsored the Armed Services Competitive Procurement Act, which would give preference to labor surplus areas and small business under the present set-aside program. It would also give a statutory basis to the policy of encouraging competitive bidding techniques in defense procurement and where national security requirements preclude their use to provide for com petitive negotiation to the maximum degree possible, involving two or more firms. I am glad your testimony carries that as being the idea of your agency, as well, Mr. Campbell. When you look at those figures, you can appreciate why people like myself in a great State, and Senator Douglas, of the State of Illinois, would be very deeply interested. With fiscal 1961 defense procurement expected to stay even with last year's figure-$22.7 billion-it is obvious that defense procurement policies can virtually spell life or death for the economy of some communities. In New York, Buffalo and Schenectady are prime examples of two areas which must receive their fair share of defense business if they are to make a strong comeback from the recent recession. LABOR SURPLUS AREA Nevertheless, Buffalo, the biggest labor surplus area in the State, and one with many defense industries, has been steadily losing vitally needed defense business. This is not a unique situation. For example, during fiscal 1959, key industrial areas of the United States which had two-thirds of the Nation's unemployed received about onethird of the Defense Department's prime contracts. Nor is this a recent trend. EIGHT MAJOR LABOR SUPPLY AREAS RECEIVE LESS THAN ONE-THIRD OF 1 PERCENT PRIME CONTRACTS Eight major labor surplus areas located in Indiana, Massachusetts, New Jersey, North Carolina, Pennsylvania and Rhode Island—and so listed by the U.S. Department of Labor for the past 7 years-had by May 1959 22 percent of the Nation's unemployed and yet they had received less than one-third of 1 percent of prime defense contracts awarded. Compare that figure to the tens of millions of dollars which have been expended by Federal, State, and local governments in unemployment insurance, public assistance, and other forms of relief in these labor surplus areas along with the additional Federal and State taxes lost due to worker layoffs and the declining economic health of these communities. The impact of defense procurement policies in communities like Buffalo and these others is so great that it is the responsibility of the Congress to establish defense procurement methods which will not interfere with defense objectives but which will see to it that procurement methods take into account our Nation's economic require ments. DEACTIVATING DEFENSE INSTALLATION In addition, inquiry can appropriately be made into the amount of prior consideration given by defense officials to the economic dislocation which so often results when defense installations and facilities are withdrawn from an area. Even a few hundred military personnel or civilian employees who are thus displaced can mean grievous economic consequences for the community involved. Mr. Chairman, I am grateful to you for letting me read this statement. I would like to end it by saying this to you: We are constantly |