PAGENO="0001" AID'S MISMANAGEMENT OF PROPERTY PROGRAM ~ COMMITTEE ON GOVERNMENT OPERATIONS UNITED STATES SENATE NINETIETH CONGRESS FIRST SESSION SEPTEMBEI~ 14 AND 21, 1967 Printed for the use of the Committee on Government Operations GOVEfl1~ENT DEPOSITORY ~ ThE STATE UNWERSITY U.S. GOVERNMENT PRINTING OFFICE WASHINGTON: 1967 1~ oj 88-277 PAGENO="0002" COMMITTEE ON GOVERNMENT O?Et~ATIONS JOHN L, MCCLELLAN, Arkansas, Chairman, KARL E. MUNDT, South Dakota CARL T. CURTIS, Nebraska JACOB K. JAVITS, New York CLIFFORD P. HANSEN, Wyoming HOWARD H, BAKER, Ja., Tennessee HENRY M. JACKSON, Washington SAM J. ERVIN, Ja., North Carolina ERNEST GRUENING, Alaska EDMUND S. MUSKIE, Maine ABRAHAM RIBICOFF, Connecticut FRED H. HARRIS, Oklahoma ROBERT F. KENNEDY, New York LEE METCALF, Montana JOSEPH M. MONTOYA, New Mexico JAMES H. CALLOwAY, Chief Clerk and staff Director Aa~zsua A. SRARP, staff Editor JEAN REYNOLDS, Clerk HARRIET S. EKLUND, Editor II PAGENO="0003" 12. 13. 14. 15. 16. 17. "~--~ ~ yx~e- ~`-~y11 ~ 102 repair work done by AID and work Army would do ~ I piece of equipment prepared by Department of the Army, ~ artem, Tobyhanna Army Depot, Tobyhanna, Pa., June 23, 19~ . Examples of AID/Vietnam inspection reports showing defective equipment ~ ~ ~. ~ `~ "Condition When Received in Vietnam"_ Memo conce~ with Mr. Lippman on excess property for Vietnam, I ~ Memo and interim report on examination of U.S. excess property procured during the period July 1, 1964, through December 31, 1966 (by Agency for International Development, U.S. aid mission to Vietnam, Saigon, Vietnam), March 31, 1967 Selected examples of AID mission complaints on defective and inopera-. tive equipment due to inadequate contractor repairs, December 23, ~ Résumés of all EPRO 5 personnel as of April 30, 1967, dispersed on June ~ Report on audit of the excess property program covering the period of October 16, 1959, to September 30, 1965, prepared by the Agency for International Development, U.S. aid mission to Turkey, Office of the Assistant to the Director-Controller, USAID/Ankara, June 16, 1966, Audit Report No 66/11 Report of audit No. 65-10 issued: March 9, 1965, U.S. operation mis- sion to the Philippines office of the controller, audit branch Report of audit, increase in production of minerals-project No. 489- ~ excess ~ 24. Statement by Robert L. Crownover, Assistant Director for Logistics, 25. Letter of transmittal to Senator Ernest Gruening from Frank II. Weitzel, Assistant Comptroller General of the United St~r1~'~ 18. 19. 109 114 118 119 122 128 130 141 180 205 PAGENO="0004" CONTENTh~ Opening statements of the chairman SEPTEMBER 14, 1967 Joseph Lippman, staff director, Subcommittee on Foreign Aid Expendi- tures James M. Scott, executive director, Fairfax Community Action Program; Mrs. Shirley Worthy, SBMCAA; Mrs. Rosa Little, SBMCAA; Mrs. Edna Tolson, CARP; Rev. Rufus Adkins, FCAP; Francis Honesty, president, United Communities for Improvement Major Joseph N. Pike, Bethel, Alaska; accompanied by Capt. Raymond H. Hoimsen, Jr., Bethel, Alaska; Maj. Lloyd Ahvakana, Anchorage, Alaska; and Capt. Timothy Gologergen, Savoonga, Alaska Robert T. Griffin, Assistant Administrator, General Services Administra- tion; accompanied by Byron E. Harding, Special Assistant to the General Counsel; Louis C. Tuttle, Manager, Personal Property; Disposal, Office of Property ~ Sol Elson, Director, Division of Surplus Property; accompanied by Bernard I' WITNESSES 2 162 164 173 184 icu~ PAGENO="0005" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM the subcommittee) presiding. Present: Senator Gruening. Also present: Joseph Lippman, staff director; Herbert W. Beaser, chief counsel; Jean P. Reynolds, clerk; and Harriet S. Eklund, editor. OPENING STATEMENT OF THE CHAIRMAN Senator GRtrENING. The hearing will please come to order. Today the Subcommittee on Foreign Aid Expenditures begins its hearings on the administration of the excess property program by the Agency for International Development. This program is authorized by section 608 of the Foreign Assistance Act of 1961, which established a revolving fund of $5 million which AID can use to repair and over~ haul equipment which it obtains from excess stocks of the military services. PAGENO="0006" HEARINGS mE-PRONGED These hearings will cover the following areas: One, the adequacy of repairs made~by AID contractors on excess property. Two, the effectiveness of AID's controls over repairing contractors' operations. Three, whether the large increase in the excess property program is justified in the light of the real needs of recipient countries and their capability of utilizing and maintaining the equipment. Four, whether AID's overall management of the program has been adequate. Five, the extent to which changes in basic policies involving repair standards, inspection procedures, personnel, and organization of AID's overseas offices are required in the interest of economy and efficiency. TESTIMONY TO COVER S. 1974 At these hearings, testimony will be taken from Agency witnesses and other interested parties with regard to S. 1974, which has been £ ~ ~21JN ~ ti u&i~iiiIUATIUN, S1JBSIDIZES AID . . First, however, I want to refer to a statement which has been given the subcommittee by the Department of the Army relating to the cost of handling AID's excess property. The Army performs a number of functions for AID, including receiving, storing, packing excess property, and arranging for shipment to foreign governments. Because the subcommittee staff study indicated the likelihood that the Army ~ r~h 1~-~a-r $~~11 mbii-r~c~im'~i+ ~r~m A Tfl T ~c~lr~I tht~ T)c~r~irf~ PAGENO="0007" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 3 The Army now also advises me that it proposes to recover the $440,000 subsidy from* AID. Development. .ii LIPPMAN REVIEWS FOUR POINTS OF INVESTEGATIVE TRAVEL During this time, visits were made to various areas of AID operations in the United States and abroad. You made some of these visits with the staff. Visits were made to: One, France and Germany, where much of AID's acquisition of excess property from military sources is made; Two, facilities of a major AID contractor in Antwerp, Belgium, where large amounts of excess property are overhauled before ship- ment to recipient countries by AID; Three, Turkey, Thailand, South Vietnam, and Korea to study the adequacy of AID missions' control over programing by recipients; and Four, the facility of the major, private repair contractor in Japan to review AID's supervision and control of the carrying out of the repair contract. AID ALERTED TO DEFICIENCIES As significant deficiencies were uncovered in the administration of the ~program they were immediately brought to the attention of the vvc~ ~ £~ --~-~ü~1 fl.O±jOfl could be taken by it. AID obtained by AID from military excess stocKs. . ~ L~_ These complaints came not only from recipient nations but also from the staffs of some of the AID missions. Complaints focused on two main points: One, the inadequacy of the repairs made by AID on equipment by AID's private overhaul contractors; Two, the lack of technical manuals and repair parts. With respect to the first point-the adequacy of repairs-numerous examples were found of equipment which had been, and was being, received in defective condition. As a result, equipment broke down shortly after being placed in use. In other cases, the defects were of PAGENO="0008" `Y PROGRAM such seriousness as to require extensive repairs after arrival in the re- cipient `countries before the equipment could be put into use. Senator GRITENING. Mr. Lippman, can you give us any examples to illustrate this charge? ONE MILLIQN DOLLAR DuPLICATION IN VIETNAM Mr. LIPPMAN. Yes. For example, in Vietnam, the mission had to award a contract `to a private contractor amounting to over $1 million for the inspection and repair of equipment obtained through the Agency's excess property program even though such equipment had just come out of the repair shops in Japan and in Europe. Two questions raised by these cases were: One, whether the repair standards being utilized by the contractors: were adequate ; and Two, whether the private overhaul contractors were actually per- forming the work they were being paid to do. EQUIPMENT INOPERATIVE AFTER CONTh A (IThD 1~ ~ ARMY'S STANDARDS POR REPAIR HIGHER THAN AID'S Mr. LIPPMAN. Accompanied by U.S. Army technical inspectors, I examined a D-7 caterpillar tractor acquired by AID from military excess which it had repaired at the L. B. Smith plant at Camp Hill, Pa. AID repairs amounted to repairs of those components which were obviously worn out, based on an external visual inspection. Data pro- vided by the 11.5. Army inspectors disclosed that much more extensive repairs would have been undertaken had the Army retained the tractor. Instead of external visual inspection, complete disassembly of the trac- tor would have been undertaken and all internal parts worn beyond given tolerances would `be replaced. The Army estimated twice as much money would have been spent on repair of the tractor as AID expended. AID'S FORMULA OMITS NECESSARY REPAIR The reason for the lower standards is to be found in AID's policy of limiting expenditures for repair of equipment to 15 percent of origi- nal cost, wherever possible. The 15 percent limit included not only labor and materials, but also crating and `transportation of the equip- the recipient country In cas PAGENO="0009" LI_1IuePt~IIut,1iU ~ ~ ~~---.-~ ~ ~ ~ ~ ~, point out that the program has been "sales oriented" rather than "serv- ice oriented." Staff observations confirm the conclusion that the pro- gram has focused on shipping as large a volume of equipment to foreign countries as possible. This was achieved by presenting the program as a "bargain" to AID mission and recipient country officials. `The point made repeatedly over the years by excess property man- agement personnel was that they could furnish good equipment at a fraction of the cost of new equipment and the resultant savings could be utilized to undertake additional economic aid projects. Obviously, these excess property officials could make good on such promises only if the repairs to equipment, and the `amounts charged against country economic aid programs were kept at a minimum. "MINIMIZING COSTS . . . CAN L}~AD TO INADEQUATE EQUIPMENT REPAIR'~ If AID were to utilize the standards of repair used by the Army, equipment furnished from excess property might no longer present a bargain and AID missions and recipient countries would be inclined to purchase new equipment. Minimizing costs as a means of encouraging foreign countries to `take . ~ iu~r~ ~ (~1fl 1i~i d to inadeauate For example, a study in `September 1966, by Harbridge House, a private consulting firm retained under an AID contract, reported that in Vietnam the useful life of a piece of equipment ends with its first breakdown because of the lack of maintenance facilities in that country. Discussions with AID operating personnel in Vietnam during the staff visit indicated that while `they `have no effective system for know- ing where the equipment is, what it is being used for, or what condi- tion it is in, they believe that outside of Saigon the `country was liter- ally littered with broken-down and abandoned equipment which had been `shipped into the country under the section 608 excess property program. SOME 500 PIECES OF MAJOR EQUIPMENT MAINLY INOPERATIVE IN SAIGON As will be sho'wn through documentation and photographs later, the situation is hardly any better in `Saigon itself. At the time of our visit in April 1967, `we found some 500 pieces of major equipment which had been received under the section 608 program at `Petrus Ky, a hold- PAGENO="0010" 6 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PT~0GRAM The greater part of this equipment was inoperative. This equipment consisted of tractors, vehicles, and cranes badly needed to move priority cargo from the highly congested port of Saigon. 20-TON CRANES HAVE MINIMAL LIFE SPAN The chief AID adviser to the Saigon port authority told me that shortly before my visit he had obtained three 20-ton cranes from Petrus Ky to unload badly needed steel pipe. The cranes broke down 2 hours after being nlaced in use and wevi~ .~t.i1 ~ ~ ~ `teCeipi or w'rnch has been ctiiticult to maintain in two countries covered by the staff study, the recipient governments had insisted on obtaining new equipment from AID even though the kind of equipment needed was in the agency's excess stocks. INCREASING OPPOSITION FOLLOWS It is fairly clear from discussion we have had with AID mission personnel and officials of foreign governments that AID can expect increasing opposition to the acceptance of excess property unless equipment is repaired to a much higher standard than heretofore, tak- ing into account the limited maintenance which can be performed in underdeveloped countries. It was found that increased acceptance of excess property does not necessarily result in any overall savings to the U.S. Government. As reported by the General Accounting Office and as confirmed by the staff investigation, excess equipment furnished under the economic aid program is largely additional to the existing level of the country aid programs. The instances in which a recipient country will forego a new equipment procurement and will accept excess equipment appear to be the exception to the rule. In most cases, the AID mission will prn~r~n~ ~ ~ ~ ~J~±11 ~L~VaIU~ tion of its basic policies. Senator GRUENING. Mr. Lippman, is there any explanation why there was this long delay? Mr. LIPPMAN. Mr. Chairman, we have not received any. But cer- tainly AID has been aware of this situation for a long time. I I I I PAGENO="0011" KEEP EXCESS PROPERTY OUT OF THE COUNTRY'~ During the staff visit to Thailand in 1967, the situation was largely unchanged, and top mission personnel pleaded with us to do what we could to keep 608 excess property out of the country. And similar reports have been made by other missions over the years. AID SHIPMENTS MADE ~AS IS" The October 1966 Harbridge House study of the excess property program for AID reported that- Because AID's excess property personnel are much more "sales oriented" than "service oriented," complaints by the AID missions of defective equip- ment are dismissed with the assumption that whatever went wrong happened after shipment and that resulting problems are strictly the mission's respon- ~ ± -~hi1,?. ~ `~`~i c~irni mission nrotests have been honored, the general aware of the report included the top management or ~ru;'inei~uiii~ the assistant administrators, the deputy administrator, and the AID administrator. Senator GRUENING. Continue, please. SUBCOMMITTEE DIRECTS ATrENTION TO JAPAN AIRCRAFT CO. Mr. LIPPMAN. In order to ascertain the extent of contractor re- sponsibility for the defective equipment received by AID missions, the subcommittee staff directed its attention to Japan Aircraft Co., the major rebuild contractor in the Far East. A visit to the plant in Yokohama disclosed that Japan Aircraft Co. had recently undertaken `the repair of vehicles to be paid for by the Government of Korea out of its own funds but utilizing AID acquired excess property. `The AID mission in Korea, to insure the adequacy of repairs, had insisted on independent final inspections by U.S. Army personnel. At the time of the staff visit, the Army inspectors had just completed their inspection and we were able to discuss their findings with them. I AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 9 ,aECTION II WORK ACCOMPLISHED Repair organization/activity; Japan Aircraft Mfg. Co., Ltd. Location; No. 3175 Tomiokapcho, Kanazawapku, Yokohama, Japan. (Total man-hours 256; total man-hour cost $427.52; total parts cost 295.131 PAGENO="0012" ~- - -- ~ ~- `-`~5 ~ ~WL W1i1I~I1 LW~ U .~. UOVCf1111I~II'U W~LS O111I~U, had not in fact been performed. Senator GRIJENING W~s t.h~± ~11'~'1 ~ ~ ~ ` ~1 ~enator ~iRUENING. Was any attempt made to get a reimbursement? Mr. LIPPMA~. I think Mr. Lee, the Assistant Administrator for AID, will testify as to the actions taken by the agency to recover funds. Senator GRUENING. Please procced. PAYMENTS BASED ON AID'S INSPECTION Mr. LIPPMAN. It should be noted that repairs by the contractor are made on the basis of a work order, which itemizes the work to' be done. This work order must be approved by the AID inspector in advance. The contractor certifies on the final work order that all of the work listed has been accomplished arid the equipment is in good serviceable condition. That verification must also be approved by the AID inspector. Payments to the contractor are based on these documents. With your permission, sir, I would like inserted here in the printed record of this hearing some samples of work orders on equipment repaired by Japan Aircraft Co. in which U.S. Army inspectors found overcharges for repair work not performed. EXHIBIT 1 Relabilitation on AID Work ~pecification Appendix A, Contract AID/cad! 1129 (Estimated Total Man-hours: 257.50). 10 AID'S ~IISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM [Total man-hours 256; total man-hour cost $421.52; total parts cost $295.13J Oil engine No. 10 REP 11 L 1.33 CAB AND ASSOCIATED PARTS Oil engine No. 30 REP 11 L 1.28 Repairi noperative regulator at both side door_ - - 1. 0 Oil gear REP 6.2 L 26. 8 Replace damaged both side cowl ventilator seals_ . 5 Oil brake REP 6.0 L 4. 98 i~~I I~f+ ~ ~ 1.0 Grease general !!. P~ PAGENO="0013" BRAKE SYSTEM Replace damaged brake line connector Adjust service and clean SVC brake system- Replace 1 ea of damaged master cylinder with flexible line, then remove rust and dust for the rest. Check air*hYdra~~c cylinder after master cylinder repair. Replace damaged wheel cylinder and bleeder valve. Adjust hand brake system WHEEL HUBS AND BEARiNG 4720_203_2668 Hose ...---- ietr .5 5310~28112~° Nut REP 1 EA .04 16.5 53l0_359~~~~ Gasket- - - REP 14 EA .19 4.0 5330_5298653 Gasket- - - - REP 2 EA .03 Steel sheet REP 1 EA 7.91 Connector brake line REP 1 Elt .69 15.0 29l0~741~2506 Spring REP 1 Ett .14 2510_7373292 Weather--- REP I EA .42 2.5 2540_0500813 Blade REP 2 EA 2540_74106~ Cover REP 1 EA 5.15 2540_7410602 Cover REP 1 EA 3.68 e~ RrP 2 EA .708 AID'S MIs~ANAGEM~T OF T~E CE~ p~OPERTT pR( CTI~~ I hereby certify that I bare iiisPeCt~d an~ asCert~~h1~d the above cited item of equiPm~t to be ~n a good serVice~° condittou a~ bare acCePt~ the work WnLDnN 1\I. IAB'~' perfOrm~a tbere0~' in itfient1~t~. AID MarShafl~ Site ~erint~~t' Contract No. AID/c8ã/hl29~ MAINTE~Cn j~jQTJ10ST S1!CT10~ 1 Control ~nmber Aid to No. 4243~~~~ la. ~~gani~atbo ~ID ~pR0 NO. 5, % ~~erican ~mba~Y, Tokyo. 3. Noun nomen ture, Truck ~arg0 2~/2 ton W/O WIN°~, M-211. Serial number 20987. ~ebabi1itatb0nOU AID work specift~~0~~ ApP~ A, Contract AID/c /112~ ~CQ. COST 5,9~3. (estimat~ total man~b0U~ 238.50). BECTIO~ ~. WOR1~ ENGiNE AND ~ Gasket t~ywneet Dismount engine and overhaul due to excessive 78.0 2510040_2071 Flap REP wear and noises with replacing faulty parts 2510~7313287 Weather- REP strip. together with ~~asuriflg, grinding ~epackin~ 251o_741~o629 Arm REP ~leaniflg and adjusting work. 2510_7410633 Channel- - - REP 5 ~ Frame REP ~n and drain hose 1.0 2510_741_0703 Seal REP 1.0 25iO_74l_07~ Frame----- REP Ranlace dirty oil filter elem~n1t Lock- REP 2EA 2EA - 90 2E1\ j84 4E1\ 60 2EA 90 2EP 956 lEA 56 `t~c~ ~ PAGENO="0014" ~pu uiose approved by the Contracting Officer or his authorized repre- sentative. I also hereby certify that this item is in good serviceable condition. YosHlici TAaAWA, Project Manager, AID Operations, Japan Aircraft Mfg. Co., Ltd. 12 AID'S MrSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM [Total man-hours, 2765; total man-hour cost, 461.76; total parts cost, $758.64J Description BRAKE STEERING SYSTEM Federal stock No. transfer side for front propeller shafi~ Cannibalize intermediate propeller shaft and 8 ea ~f clamp bolts. Repair intermediate differential oil leak and clean for the rest. Service front axle alinement Replace front rear axle flexible hose Replace rear axle cover gasket Man- hours Part Parts (hours source Quantity cost and code 1otti~ ~~J-,u-,3~5--soaD valve --__~~ REP 1 EA ~: ~o 2540-952-7035 Mirror ~_ REP 2 EA 1. 28 5 2590-318-1052 Throttle_ _ _ REP 1 EA 2. 34 2590-606-8504 Kit_.... REP 1 EA 1. 77 3. 0 2805-656-6924 Gasket_ - - - REP 1 SET . 20 2805-741-1610 Valve REP 6 EA 3. 48 3. 0 2910-294-1307 Cap ~ REP 1 EA 1. 12 1. 0 2910-631-6958 ~ REP 2 EA . 32 5 2910-696-0333 ~ REP 1 EA 3. 17 2910-699-7904 Pump___~~ REP 1 EA 15. 88 2910-735-0572 Collar___~_ REP 1 EA . 06 5 2910-735-0583 Hose_ REP 1 EA .84 Check air compressor and air governor, after engine overhaul. 2910-735-0583 Hose REP 1 EA . 84 Adjust service and clean SVC brake system 15. 0 2910-741-2431 Kit REP 1 SET 4. 23 Replace brake lining shoe kit, brake shoe adjust- 1. 0 2920-287-9125 Rotor REP 1 EA . ing nut, and gear. 2920-358-7534 Point ~ REP 1 SET . 24 Replace 1 ea of unserviceable master cylinder 1. 0 2920-620-3959 Cable REP 1 EA 1. 34 Remove damaged wheel cylinder and remove rust 2. 0 2920-835-7724 Plug REP 6 EA 2. 94 and dust out for the rest. 2930-737-6626 Cap REP 1 EA 1. 81 Service and adjust hand brake system 1. 5 2930-741-0884 Hose ____ REP 1 EA . 81 2940-141-9026 Element REP 1 EA 1.08 WHEEL HUBS AND BEARINGS 2990-265-2025 Spring ~ REP 1 EA . 31 4. 5 2990-741-0582 Pipe~~__~. REP 1 EA 5. 84 2990-741-0585 Packing - - REP 2 EA . 76 3110-143-7538 Cone~_~_~_ REP 7 EA 17. 50 3110-191-0491 Bearing_..._ REP 1 EA .52 4710-277-5525 Tube REP 0.31 FT ,02 4710-277-5525 Tube REP 3.28FT 10 Adjust wheel bearing, service hubs and bearings and related parts, replace oil hub inner and outer seal ass'y, wheel bearing adjusting nut rock. Adjust steering gear, service steering drae link. 35 871A""' PAGENO="0015" 0 0 0 ac,, ~ U, ~ U, ~ ~ ~ ~ ~ ~c~cj-0~'~ II ;~ ~ ~ ~ ~: ~:: ~~-f-~- rr~ -4 C `#`~ -4 3 3 90 C, 4-4 4-4 CI) 0 LTJ ci CI) CI) 0 0 0 ~~i- r r r rrr i-- ,rnr,.,~rirnr,rn~U0D ~ u~V --~ -~aov 4-4 0 ~G) C)G) C) 1 r,,rTIrnmm - ~ C~)r'~ TIl rn>~ -4 4-~-nmrnrn rIl C) 0 - U, 4-~U, ~9 C) PAGENO="0016" Uontrcwt No. AID/csd/~I129. Description ENGINE AND ENGINE COMPONENT CIe~'narrcIeanerof reservoir base and element. Repair inoperative fuel pump capacitor with re- placing terminal plate assy, fuel pump elbow and cable with cleaning work. Clean fuel tank and line, replace fuel tank uniL Replace unserviceable muffler and mounting clamp. Replace corroded rear, upper and lower exhaust pipes with packing seal. Perform engine compression tests Cyl.No. 1 2 3 4 5 6 Comp. (psi) 113 113 120 120 113 113 INSTRUMENT AND ELECTRICAL SYSTEM Check speedometer of its function at rod test_ - Check ammeter of its function after engine repair_ Replace defective oil pressure sending unit and water temperature gage sending unit, then serv- ice all gages and other sending units. Check and repair generator of its function after engine repair. Replace defective harness at regulator-generator_ Service inoperative headlight, marker light, black- out taillight and their wiring. Repair switch for bad contact Man- hours (hours and lOths) ________ Motor wiper ~ N/C 2.00 2520-741-1511 Cone ___ REP 1. 00 2520-741-1523 Piston REP 2520-741-1649 Gasket _ _ _ REP 2520-708-4043 Sleeve REP 4.00 2S2O-7O8-4O44Spring REP 4. 50 2520-708-4064 Washer. REP 2530-287-8252 Bleeder~ REP 1. 00 2530-324-1047 Spring REP 2530-350-7493 Cup ~ REP 3. 00 2530-537-2176 Line REP 2530-537-2210 Kit REP 1. 50 2530-560-8485 Brake _~_ REP 2530-693-1028 Nut REP 2530-737-6444 Wheel ~ REP 2530-741-0810 Hose ~ REP 2530-741-2065 Cyl REP .50 2530-741-2105 Brake_~_~~ REP .50 2540-050-O81OArm.__... REP 3.00 2540-050-0813 Blade~___~ REP 2540-699-9381 Chain~___~ REP 2540-734-2196 Arm REP 2.00 2540-741-0600 Cover~__~_ REP 2540-741-0601 Cover~__~_ REP 9. 50 2540-741-0602 Cover REP 6. 50 2540-741-0603 Cover~~___ REP 2540-741-0638 Fastener..._ REP 1.50 2540-741-0694 Cover~____ REP 2540-737-6110 Handle_ __ REP 2540-952-7035 Mirror~____ REP 5.01 8.90 4.03 3.88 .40 17 3.84 11 2.10 34 .25 5.39 1.08 6.39 1.00 39.24 6.86 1.40 - 54 - 80 4.80 5.35 5.15 3.68 2.77 .50 10. 17 1.01 1.28 MAINTENANCE REQUEST SECTION 1 Control number ; Aid to no- 4184-15. Ia. Organization ; Aid EPRO No. 5, do, American Embassy, Tokyo. 3. Noun Nonìenclature ; Truck cargo 21/u ton GxG w/o winch, M211. Acq. cost 5,993. Rehabilitation on AID work specifications, Appendix A, Contract AID/cscl/ 1129 (Estimated total man-hours : 253.00). SECTION Il-WORK ACCOMPLISHED Repair organization/activity; Japan Aircraft Mfg. Co., Ltd. Location; No. 3175, Tomiokapcho, Kanazawapku, Yokohama, Japan. [Total man-hours, 357; total man-hour cost, $597.44; total parts cost, $784J Part Federal stock No. source Quantity code Parts cost j I I 2 EA 1 EA 1 EA 1 EA 1 EA 20 EA 1 EA 12 EA 1 EA 1 EA 1 EA 1 EA 1 EA 3 EA 1 EA 1 EA 12 EA 2.25 EA 2 EA 2 EA 1 EA 2 EA 1 EA 1 EA 1 EA I EA 10 EA 1 EA 1 EA 2 EA PAGENO="0017" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 15 [Total man-hours, 357; total man-hour cost, $597.44; total parts cost, $784j-Continued Description Man- hours (hours and lOths) Part Parts Federal stock No. source Quantity cost code POWER TRAIN SYSTEM Adjust clutch pedal of free travel Overhaul defective transmission replacing damaged partswith cleaningand adjusting work. Replace transfer vent line pipe and check ts function. Cannibalize propeller shaft between transfer and intermediate, transfer and pillow block, transfer and front for missing one. Cannibalize intermediate drive shaft, 8 ea of ~ ~ engine repair. Replace 12 ea of damaged wheel cylinders and 12 ea of bleeder vales. Service hand brake system with replacing dam- aged parts and adjusting work. STEERING SYSTEM Adjust steering gear, steering drag rink, pitman arm, replace cracked steering wheel, steering box oil seal. Service spring shackles, torque rod, repair right front clip band of dent. FRAME 1. 50 2590-314-0745 Harness- _ 39. 00 2590-606-6504 Kit 805-624-4765 Lock 1. 50 805-690-781 Hose 2910-696-0348 Cable~_~__ 8. 00 2805-735-0443 Hose_~-~-- 2805-735-0444 Hose 2910-735-0572 Collar 4. 00 2805-741-1604 Gasket~ _ _ 2910-741-2431 Kit `, ~ 7. 50 3110-143-7538 Cone~~_~-_ 3110-144-8998 Bearing__- 2. 00 4030-741-0659 Shackle____ 4730-014-2433 Nut 473O-2O2~-6491 Elbow 4720-203-2668 Hose 6. 00 4730-221-6215 Elbow_____ 4720-235-1781 Tube 4820-275-2225 Cock 4.00 4730-278-2977 Plug~___~_ 4730-496-7511 Elbow_~~-- 4730-702-2750 Clamp__~~_ 4730-720-1398 Clamp___._ 4. 50 4730-741-2089 Elbow 4730-741-2689 Elbow_~__~ 5310-741-2088 Washer_~ 5310-711-2088 Washer__ -_ 5310-275-635 Gasket____~ 5310-276-8674 Retainer__ - 5310-741-2088 Washer_ 5315-058-8606 Pin 5315-845-4232 Pin 5315-846-0126 Pin 5320-264-3171 Rivet~~~__~ 5325-011-7965 Grommet__ 28.00 5330-700-0669 Packing~ 5330-741-1429 Seal 5935-306-2063 Connector__ 5935-776-0599 Connector__ 5340-282-7542 Clamp~_~~_ Repair front bumper of dent and stone shield of dent, install 4 ea of missing shackles and 2 ea of pintle pins, tighten 4 ea of loose tie down U-bolts. REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP REP N/C REP REP REP REP REP REP 1 EA 1 EA 5 EA 1 EA 1 EA 3 EA I EA 1 EA 1 EA 1 EA 1 EA 2 EA 1 EA 4 EA 2 EA 1 EA 4.92FT 2 EA 10 FT 1 EA 1 EA 1 EA 5 EA 1 EA 1 EA 1 EA 5 EA 4 EA 15 EA 1 EA 15 EA 3 EA 2 EA 2 EA 100 EA 2 EA 1 EA 6 EA 1 EA 6 EA 4 EA $8. 14 1.77 .40 .36 3. 02 1.23 1. 10 . 06 2.58 4.21 .24 5. 00 .75 13.60 . 08 .09 .29 .48 .30 .26 .11 .22 . 85 .30 .24 .24 . 05 . 04 45 .14 .15 .12 .10 * 04 .10 .03 6.00 * 04 1.32 84 c Afl SHEET METAL Repair hood of crack, plug up hole at removed heater and remove its bracket, repair right fender of dent, install 2 ea of missing bolts, tighten loose mounting bolt on left hand. CAB AND ASSOCIATED PARTS 26.00 Service cab mounting, windshield, windshield wiper and control, door, seat mirror, cab floor, interior trim, replacing rool panel right side upper, door check arm, cowl ventilator seals, ~ ~ . - ~_,- `----H- .~+h~r PAGENO="0018" H (~ ~. r.J) L~i j~:j - k C) c~ Cr2 F C LTJ C ;4 r_ r~r- ~ ~%Th) ~ ~ - - mm ~~~obo ~~5_r\~ ~S)C)U1mmm mmmmmm ~mmm ~ r~poPr~. f\). -~a~-c ~ cm~-ao~ ~ PO-'~I\)~-~QOOoWOQ ~F~fl-J V' ~2rrrr-r-r-r-r- UU mD~D-DU mm~-~-~rnm-D~ ~ 0 PAGENO="0019" ACCEPTANCE CERTIFICATE J hereby certify that I have inspected and ascertained the above cited item * * ~ ~irc1 hivp accented the work U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT, FAR EAST REGIONAL LoGIsTIcs OFFICE, San Franci$co, C~1iJ'., April 17, 1967. Memorandum for record. Subect : Inspe~tion of 608 equipment. A meeting was held on 14 April 1907 to discuss results o~ Inspection con- ducted at Japan Aircraft on 608 21/2 ton trucks for Korea. Present were: Mr. 0. H. Roller, FE/RLO. Mr. John E. Robb, FE/RLO. Mr. Orville Landis, AID/Washington (on TDY to E'PRO-5). Lt. Oolonel Noel Smith, Director of International Logistics, USADCJ. Mr. Ed Dubsky, Inspector (USADOJ-4L). Mr. Ed Baker, Inspector (TJSADOJ-IL). Inspectors reported that over 20 trucks were inspected and none were con- sidered acceptable. Standards used by inspectors did not exceed those in Ap~ pendix A of EPRO-5 Contract. Deficiencies varied widely, but indicated con- elusively that contractor was not doing a workmanlike job and in some cases, had indicated work as completed when, in fact, nothing had been done. For example, one work sheet indicated labor time and parts charge of $12.90 for new oil filter when no change had been made. They also reported that there was a lack of guidance to and supervision over contractor. Work orders were made after the fact and not provided to him prior to initiation of work as per contract. Site supervisor was either not qualified or not able to provide proper supervision of work in process to insure acceptable standards. Mr. Crocker on 13 April authorized cancellation of proposed shipment and directed contractor to redo vehicles which would be reinspected next week by USADOJ inspectors. 1' UJ.LJLeJ. ~ ,. .~.. - -- -~`-` ~~1,-. ~ ~ l~rri~1i-. p~f fn p~ 1-. and steps taken to insure that acceptable work is accomplished be~ore sIiip'pi~tt~ equipment to Missions. A subsidiary conversation concerned overall RLO requirements for technical assistance from International Logistics. In order to program FY 1968 needs, PAGENO="0020" REPORT OF SPECIAL Loc~isTICS AssIsTANC~ Visrr TO TJSAID MARSHALING NITE, YOKOHAMA, JAPAN (JAPAN AIRCRAFT MFG. Co., LTD., SUGITA) DEPARTMENT or THE ARMY, HEADQUARTERS, U.S. ARMY DEP~T COMMAND, JAPAN, San FranciscO, April 21, 1967. USADCJ IL. Subject: Report of Special Logistics Assistance Visit to USAID Marshaling Site, Yokohama, Japan (Japan Aircraft Mfg. Co. Ltd. Sugita). To: Acting Director, USA ID FE Regional Logistics Office APO 96343. This report is forwarded for information. For the commander: i~ir (~qATrT eAce~ prupev~y ior ~igency ror international Development Excess Prop- erty Regional Offic~-5. (AID/EPRO-5) The inspection was to include work in process and completed vehicles ready for shipment. 3. Highlights a. Inspection of approximately 40% of (the v~hic1es, rehabilitated by the con- tractor aLt the time of the visit, revealed `that acc~ptab1e quality bad not been achieved. b. Based on the results of the inspection, it was decided by the Officer in Charge (OIC) EPRO-5 (to su~pend the inspection until the contra~tor reworked the ve- hicles to an acceptable level of serviceability. c. As requested by the OIC EPRO-5 a check list of basic maintenance require- ments was (prepared (by the team as guidance for the contractor. 4. Observations a. The AID/EPRO-5 Marshalling Site Superintendent, Mr Weldon M. Harness, was contacted upon arrival at the Japan Aircraft Mfg. Co., Ltd. facility. Mr Harness advised the team that approximately fifty M211 trucks had already been completed by the contractor and requested ths~t these vehicles be inspected. b. A copy of the contract AID/csd/1129, dated 14 F~hruary 1966, with amend- ments, was reviewed to deftermine scope of work to (be performed in rehabilitation of these vehicles and quality control standards upon which to determine service- ability of the vehicles, `lx "A" to the contract contained this data. Since these standards were f ~ be wrtbten in general `terminology rather than in specific t'~~ which wovide clear cut qualit~ requirements, it -~ I that the a should encompass 0 .ational e~ safety fe~ `.- ~its. ~ir of excessive steering system free play. Lacement/cleaning of rusty fuel tanks. hr of oil leaks. ~ ndin~tm~nt nf ~nrhiir~tnr~ PAGENO="0021" I ~ cyI1T1ue~~. ~ c'~-~ ---- the other five bad 135~-137 psi. A wet (oil) compression cnec'~ ~ ~ having low compression, indicated worn rings since the compression was then higher. g. On vehicle job order number 41-8317, the ignition timing was incorrect, the distributor points were pitted and not properly adjusted, and the oil cleaner was dirty and overfilled with oil. b. The results of the expanded inspection criteria were verbally reported to the ~arsha1liflg Site Superintendent on 12 April 1967, and be arranged a meeting with the 010 EPRO-5 and the contractor for the morning of 13 April 1967. At this meeting the results of the inspection were discussed in detail and a decision was made by the 010 EPRO-5 to suspend further inspection by the team until (5) ~ ~1es in question. The team was informed (6) Adjustment of ignition timing. (7) AdjuStmellt of point dwell & replacement of pitted points. (8) Test & adjustment of spark plugs. (9) Measurement of compression. (10) Adjustment of toe in. (11) Adjustment of voltage regulator. (12) InspectiOn & test of generator. The subcommittee staff also undertook an examination of defective equipment in other countries to ascertain the existence of nonper~ formance by other contractors. Examples and supporting documents will be presented later in the hearings showing that defective work has been done by contractors in Europe and the United States on equip- ment sent to Vietnam and Turkey. The extent of the deficiencies in- dicates that the situation disclosed in Japan may be worldwide and has existed for some time. The full extent of the overcharges for work not performed has yet to be determined by AID, but it should be noted that since 1963, AID has paid nearly $10 million for the repair of excess equipment. MAINTENANCE IMPEDED BY TECHNICAL MANUAL DEFICIENCY The second major complaint from AID mission and recipient country officials concerned the lack of technical manuals and repair PAGENO="0022" . ,, . iwuu i.'ep Jiir All) FE/RLO. Mr. 0. 0. Crocker, 010 EPRcj-5. Mr. W. M. Harness, Marshalling Site Supt EPRO-5 (Japan Aircraft Mfg. Co. Ltd). Mr. A. Leverson, EPRO-5. Mr. 0. Landis, l~xcess Property Division, AID, Washington, D.C. (b) Contractor Personnel (Japan Aircraft Mfg. Co. LTD.): Mr. M. Ishiwata, Sugita Plant Supt. Mr. Y. Tagawa, Gen Mngr (AID Project). Mr. A. Tobe, Planning Manager. Mr. M. Morita, Mngr Business & Contracts. Mr. S. Yamada, Manager (Business). Mr. LIPPMAN. Because of the likelihood that the overbilling found by the Army inspectors occurred in other instances, the staff suggested to AID that it undertake an inspection of all equipment on hand in the Japan Aircraft Co. shops and in transit to country recipients to determine the extent of amounts charged to the Government for work 22 AID'S MISMANAG~MENTOF THE EXCESS PROPERTY I'ROGRAM justification for 1,000 trucks undergoing repair in Europe destined for use in Turkey. Senator GRUENING. flave you some examples to illustrate that? Mr. LIPPMAN. Yes, I do, sir. Senator GRUENING. What are some of them? ~ `C. * * AID'S CONCERN WITH IT CEASES" Mr. LIPPMAN. For example,. the hundreds of items of major pieces of equipment found deteriorating in Saigon is one example of the crash program undertaken by AID to send equipment to that country with little regard for the capability of Vietnamese agencies to absorb the inflow. Indeed, as shown in the Harbridge House report of October 1Qf:~ +.bc~ ATT~ c~c~;,-~-~ ~-. ~ ~ ~ ~ 11 ~ ~ made no assessment of the country's capability to maintain the equip- ment and purchase spare parts. Discussions that I had with responsible officials of the Turkish Gov- ernment disclosed that considerable amounts of equipment previously delivered to Turkey were inoperative because of lack of spare parts. It was common procedure, the staff was informed, for it to take up to 1 year to obtain approval for the allocation of foreign exchange to place an order for spare parts. EXHIBIT 4 DOCUMENTS PREPAPI~n 1W A Tn ~ PAGENO="0023" AID'S MISMANAGEMENT OF THE EXCESS PROP1~RT~ PEQ~RAM 23 Ship via: Turkish Flag vessel, Turkish Cargo Lines. D.B. Deniz Nakliyat. Forwarding Agent: Schenker und Co. GMBH. Heald Office, Manheimer St. 81-95 Frankfurt. TTltimate consignee: Deviet Malzeme Ofisi-Ankara-Turkey. DEPARTMENT OF TRLASU1cT FW4U Unui~i,i ~ . ~ ~T~~f~nh,iJ_TJ1rkey SECTION 608 EXCESS PROPERTY REQUIREMENT LIST OF THE STATE SUPPLY OFFICE Description Quantity Percent 15 ASC. Percent 15 ASC.T. Truck Cargo GMC2~ton 1,000 $900 $900 REMARKS Thi~s is to certify that the items above represent a request for the U.S. Government Excess Property for non-military use and intended for economic development requirement in Turkey as requested by the Government of Turkey. Approved. HAYRETTIN OzANsor, Assistant Genera' Director of Treasury and OIlilC, Turkey. REPUBLTO OF TuRKEY, MINISTRY OP FINANCE, DEPARTMENT OF TREASURY, AND ORGANIZATION FOR INTERNATIONAL ECONOMIC CoorEnATIoN, GOT COMMITTED ON AMERICAN MILITARY EXCESS PROPERTY USAID/ThRKEY. ATTENTION : Mn. ABDON F. GTJIDETTE, Ecoces8 Property Braiwla,, mun1cipaii~i~ d~&~ ~ ~ .~ ~ repair of their roads and the ~treets. O.I.E.C. and the recipient insures that maintenance and resources are sufficient to ass'ure extraction of maximum economic value the requested prop- erty and to perform the maximum service for the economic development of Turkey. Further, the recipient agrees to notify USAID thru O.I.E.C. if the property becomes excessive to its original requirements so that it may be re~a11ocated and to maintain appropriate records for locating and ac- counting for the property at all times. HAYRETIuN OzANsoy, PAGENO="0024" EXHIBIT 5 FINDINGS OF GENEI~AL ACCOUNTING OFFICE IN ITS EXAMINATION OF AID's EXCESS PRoPEi~PY PROGRAM IN TURKEY Our review of the excess property acquired under the Advance Acquisition Program by Turkey indicated that the USAID Mission, Turkey (mission) had not followed certain required procedures relative to the receipt and inspection of excess property and had not enforced requirements of the excess property transfer agreements on the part of the Government of Turkey ( GOT) . As a re- suit the mission, in a number of instances, had not determined whether- (1) There was a need for the equipment when requested by the GOT. (2) Equipment had been physically received by the GOT agency or municipality. (3) Equipment was received in operating condition and in reasonably good appearance, and (4) Equipment was being effectively used. During our review we noted that several cases of nonutilization and mis- allocation of equipment had existed for extended periods of time. We also noted that some items of equipment were being received in an unsatisfactory repair condition and were not being reported to the mission. INSTANCES OF ITEMS OF EQUIPMENT RECEIVED IN TURKEY IN UNSATISFACTORY REPAIR CONDITION ~. ~ excess property items which were tested during our visits tn 4.Acentrifugal water pump was missing a six watt, 120 ampere hour aecumu- lator, a four inch valve, and the radiator was perforated. 5. The engine of a pipeline truck had low oil pressure. None of the exterior' lights worked `and the exterior surface was badly rusted. 6. A pipeline truck was received with a cracked engine block. INSTANCES OF NONUTILIZATION AND MISALLOCATION OF EQUIPMENT IN TURKEY :1. An AID Mission audit report dated June 16, 19G6, stated that 125 of the 643 direct acquisition excess property items selected for review were not being' utilized. Only 5 of the 2 recipients of the items reviewed reported the nonutilization. 2. GAO's review of 7 Mission Excess Property Branch reports dated from August :18, 1966, to May 9, 19G7, on the allocation, maintenance and utilization of excess property by the Government of Turkey (GOT) recipients' disclosed 35 of 164, or 21 percent, of the excess property items to municipalities in Turkey were improperly utilized-some examples follow: (~) The consignment of a bituminous distributor designed for the asphalt' paving of roads to a small municipality (population 5,670) which lacked the financial resources to use it. An arrangement was subsequently made to have the item reallocated to the State Highway Department. (b) A municipality was consigned a truck tractor which was modified with a truck body. The streets of the municipality were so narrow that it could not be used, and `it was idle most of the time. (o) A semi-trailer refrigerator van " PAGENO="0025" 3. GAO found indications that 6 of the 64 excess property items w ui~u inspected at recipients in Turkey were improperly utilized. Of these 6 cases, there were two instances where the recipients had either limited or no need for the items, two iiistances where the items were consigned without either required components or other items required to utilize the consigned items and two items, a sedan and a bus, which, in our opinion, did not serve a useful economic devel- opment purpose. IDENTIFICATION BY AID AS TO NEED FOB AND END-USEBS OF EXCESS PROPERTY IN TURKEY GAO found that the Mission does not adequately evaluate Government of Turkey (GOT) excess property requirements. Information furnished by GOT was so vague that it was not possible to determine the using agency's operational requirements for the excess property. In reviewing 24 orders for lots of excess property, GAO found nine instances where the using GOT agency had not submitted the required proposed allocation of United States excess property form. One GOT agency (Devlet Malzeme Ofise (DM0)) provides suppliE~s to other GOT agencies and their orders for excess property did not disclose to the AID Mission the actual recipient and the intended. use of the items. We identified 59 items furnished DM0 but the Mission was unable to furnish us with information as to the allocation and location of these items. The GOT subsequently furnished us with information as to the end-users that received this equipment. AID KNOWLEDGE AS TO RECEIPT AND CONDITION OF EXCESS PROPERTY IN TURKEY AID KNOWLEDGE A~5 1') uli ~ -- Transfer agreements between AID and the Government of Turkey (GOT) require that the GOT submit a report n~t later than six months after the receipt of excess property describing the status of the property. We found that the GOT was not submitting the six-month status reports. The AID Mission, through a series of requests to the appropriate GOT coordi- nating agency made a series of requests that such reports be furnished. On May 9, 1967, the Mission was notified that GOT hoped to furnish the required information through a planned punch card system. GAO reviewed the files on 14 orders for lots of excess property which were shipped at least seven months prior to our visit, and we did not find any instances where the recipient submitted a six-month status report. Mr. LIPPMAN. Since the staff visit to Vietnam, we have been ad- vised that the flow of excess property into the country has been sharp- ly curtailed pending a reevaluation of the program. AID CONFRONTED WITH ALIEN PROBLEMS The shortcomings in AID's overall management of the excess prop- erty program has also caused a reevaluation to be undertaken of the PAGENO="0026" 26 AID'S MrSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM agency's role in acquiring and repairing excess property. Such a role has been a rather unique one for the agency. For the most part, AID is not an operating agency. It is mainly involved in financing pur- chases for foreign governments and rendering technical advice to them. The award of overhaul contracts, the administration of such con- tracts, the inspection of the finished product, and the necessity for inspection at the receiving end confronted the agency with problems alien to its usual mode of operation and with which it was not fully prepared to cope. We have been advised that the agency is now con- sidering alternative methods of managing the excess property pro- gram. Malintaining a large administrative staff in Tokyo is a very expen- sive matter. Finally, it does not make sense to acquire excess property in Thailand, as the agency is now doing, ship it to Japan for overhaul, and then ship it back to Thailand for use in that country when there is ample capacity in that country for the overhaul of the equipment in the first instance. INCONSISTENCY OF AID'S PHILOSOPHY NOTED In a real sense, the continuation of large out-of-country repair facilities, totally financed by AID, is inconsistent with AID's philos- ophy. Other forms of economic assistance are programed to recipient countries on the premise that aid will be phased out as each coun- try's capability, both financial and technical, increases. A good deal of AID's efforts are aimed at increasing the technical capability of foreign countries. However, there is no such plan for phasing out the excess property program and no overall plan for in- creasing the recipient countries' capabilities to undertake the acquisi- tion of excess property and its overhaul, including the gradual assump- tion of financial responsibility. Senator GRUENINO. Wh~if ~s t1it~ T~T~ ~-h~.+ ~ 11 PAGENO="0027" PHASEOU~' ~ir ~p. FINA~C1~ po~ri~p SAY~ U .~. ~ ~ BALANCE-OF-PAYMENTS DOLLARS, ~ ~ ~ ~ . ~ r~ ~ ~ ~{uch progress has been rn~&~ iu ~ore~a along these lines ~where the AID mission assists the country in obtaining military equipment excesses that are taken over on an "as is" condition and repairs are made in its own shGps using its own resources. This program, which has been underway for some time, makes ~questionable tbQ need for ~ large ~&[D-financ~ repair facility at Inchon, Korea. mij~tip~~ Qf t~ situ~tion in other countries mig1~t `well disclose numerous other opportunities for a phaseout of AID ifhlancing and the possibility of saving very substantial amounts of appropriated funds with a resulting saving in the TJ.S. balance of payments. Senator GRtTENING. Thank you very much, Mr. Lippman. This i~ obviously the result of very careful research, and it is ~a very fine career lasting approximately a tniru oi ~ ~ ~ , ~ ~ ~ ~ ~- tndning as Assistant Director of the Division of Territories and Island Possessions. He had a high position in the Bureau of Indian Affairs and for' the last 6 years he has served as a very effective `Governor of Sa~thoa. Mr. Lee, we welcome you to your new responsibilities, which will be somewhat different from those you have had and perhaps a little more `arduous, as you will soon discover. I wish you every success in this new undertaking. `STATEMENT OP H. REX LEE, ASSISTANT ADMINISTRATOR, AGENCY FOR INTEENATIONAL DEVELOPMENT, ACCOMPANIED BY ROBERT W. HERDER, DEPUTY ASSISTANT ADMINISTRATOR FOR ADMINISTRATION; JOHN P. OWENS, DEPUTY DIRECTOR, O~ICE OP PROCUREMENT; JEROME 3~' JACOBSON, ASSISTANT GENERAL COUNSEL; TAYLOR GREENPIELD, DIRECTOR, OFFICE OP LOGISTICS, EAST ASIA BUREAU; ROBERT L. CROWNOVEB, VIETNAM MISSION; HOWARD HAWES, KOREA Mi$SI'ON;'CARSON P1~fl1~'R~ 1~'ORMER CHIEF EXCESS PROPERTY REGIONAL OFFICE PAGENO="0028" - I nave not yet been sworn in to the job, although th~ Senate approved me as of yesterday. ~ ~ ~ ~ iijvvi~ie~Q1 borne or tiTle prob- lems that have been raised by the ~ubcommittee. . ~ ~ ~ , I do have a substantial staff of experts with me who have bëeñ engaged in this program. I amhopefiil ~that we can athrise the subeom- mittee on the various problems and answer your questions. This subcommittee is well acquainted with the general size and methods of operation of the advance acquisition program. I do' not believe it will be necessary for me to review these aspects of the program in any great detail today. I would, like to. say, however, that I believe the general concept of an advance acqui~ition program is a sensible one. `The idea of acquiring excess property, rehabilitating it to specific standards, and then using it carefully to meet the needs of the develop- ing nations makes sense. This is a good and proper use of property excess to the needs of the owning agencies. But a good idea, a good concept is not enough. Any program operated by the U.S. Government must be carefully and intelligently managed. And here we have had a number of important problems in the advance acquisition program. Mr. Lippman mentioned a number of them which I will touch on in this statement. me nest `way to do this is chronologically, start~ig with the difficultites encountered in our rehabilitation contract with the Japan Aircraft Manufacturing Co., Ltd., in Yokohama, Japan. The Japan Aircraft Manufacturing Co.-JAMC, for short-is a large Japanese firm which does repair and maintenance work for the U.S. Navy, Marine Corps, and Seabees, as well as AID. JAMC~S WORK SATISFIES ARMY AND NAVY We entered into a fairly standard time and materials contract with JAMC in February 1966. Under the contract, JAMC was to rehabili- tate U.S. excess property acquired in the Far East by AID's Excess Property Regional Office No. 5 located in Tokyo. PAGENO="0029" "ALLEGATIONS OF NONPERFORM~NCE BY JAMC" sulomr AID'S MISMANAGEMENT OF THE EXCESS PROPERT'~ CORRECTIVE ACTIONS TAKEN PROVE BENEFICIAL Once aware of our management problems, we instituted corrective actions covering not only the JAMC contract, but also the entire man- agement of the advance acquisition program. We made claims against JAMC and recavered over $59,000 in pay- ~ .1~ iWO ftom 4'uoust 196~6~ thro'u~qh Ja~muaxi~y 1967. Our settle- NEW BIDS SOLICITED FOR NEXT SPRING We are not extending the existing JAMO contract when it expires next March. Instead, we intend to resolicit Japanese industries for new bids. In the meantime, we are (1) increasing the authorized onsite supervision of the contract from one to two Americans (this may be 1 - ~ i-sr 1-ic~incr m~ide for us PAGENO="0030" cóntrth~t,or i~ iiie~u~thie. An d ~ ~ I Wi11Uct att~fflp(to `~tij iai~ ~ c11~s~ But ~me ba~kgrcu~id as to th~ coi~tributing ~ircumstan~s may be usefW in understandin~g the corre~tiv~ aoticn we took, are taking, and have planned. LOWItfl L1~W1~L JAMC ~MPLOThES ELAM~t uui giIz~w rapluiy-oeyonu our expectation and. immediat& realization. Our initial emphases were directed to the acquisition of property, to out shipments, and to volume production. Our limited manpower resources were directed toward these emphases. Such aspects of this program as quality control, inspection, recordkeeping, and acquisition selectivity consequently suffered. oving to ORIZATION5 mow whether or NEW THEME HERALDS "SERVICE, NOT PROFIT~~ PAGENO="0031" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 33 convinced that some countries can repair excess equipment them- selves, under certain standards and supervision by AID. This would eliminate the necessity of rehabilitation by AID contractors and it would also, of course, lend an additional boost to the economy of those countries as well as train additional people within the country. PROBLEM CORRECTION GLIDES NEW DIRECTIVES more flexible type ~f reinspection until we tighten up anct ar~ ao~o- lutely sure of th~ rehabilitation work performed in our rehabilita- tion centers. After that we will only need an inspection at the port of arrival to determine whether or not there has been damage or pilferage en route. We will no longer need to tear down some of the assemblies as we have been doing in the past few months because of the shoddy rehabilitation work. This again probably will vary from country to country. ADVANCE ACQUISITION PROGRAM ONLY PART OF EXCESS PROPERTY PICTURE These, then, are the steps we have taken and are taking to correct problems and improve the effectiveness of the advance acquisition pro- gram. I believe that these actions, once completed, will assure that the program is better managed. But this program is only part of the total excess property picture in the AID. Excess property is also furnished by AID under section 607 of the Foreign Assistance Act-the so-called non-AID-financed program-and under the direct-acquisition program. TJnder these programs, property is not acquired and rehabilitated by AID, but is The factors that determine effective use of excess property are sev- eral-requirements determination; spare parts and maintenance capa- bilities: arrival insr~ection and accountincr ~i~l PAGENO="0032" ,, ~ ~ ~ ~ ~ £~\~ ~ ~ ~Jization. I should like to go over 1 se elements and discuss some ~ E our prob- lems in this regard. The Foreign Assistance Act directs AID to substitute excess prop- erty for new procurement wherever possible. This is a fairly straight- forward business. Firm requirements already generated and thoroughly reviewed and approved in our regular programiiig process are simply filled with excess property. ~ ~ The cost savings are tangible and the total cost of the project can usually be reduced. We face few special utilization problems here and the record of such excess property utilization is generally good. Ob- viously, this is an ideal use of excess property. We should do more of it and we intend to do everything possible to see that this use is increased. ~ . FORER~& ASSISTANCE ACT MANY FACETED The Foreign Assistance Act also directs us to use excess property as additional, complementary assistance to the developing countries over and above the amounts annually programed and appropriated for the various categories of assistance. Essentially, excess property pro~ vided under this provision of the Foreign Assistance Act goes to the ~.piibl~;~ ~~pp+~w. 1-~4~ ~ ~ ~uiu uraii~- portation. In Vietnam, the refugee program has received and used well cots, water distribution equipment, blankets, clothing, and other supplies' from excess U.S. stocks to relieve the dire plight of thousands of hapless people. WE HAVE ROOM FOR IMPROVEMENT But we have also had our difficulties with this form of assistance. We , have found a number of instances of improper utilization of ex- cess property provided to the very developing countries mentioned above. So the picture is mixed. And we have room for improvement. The problem here is to assure that requirements for this additional assistance are hard; to assure that the recipient ministries and muni- cipalities can and will use any equipment they receive to good effect; and finally, to assure that priorities within the countries are set and followed. One obvious way to do this would be to have AID thoroughly re- view and investigate each separate requisition. But to do `this in every mission would require additional AID staff in significant numbers~ PAGENO="0033" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 35 ~full logistical processes of each country using excess property. ±u vv iii also mean that in each such country AID will have to tighten its surveillance over excess property and be prepared to take swift cor- rective action. EXCESS PROPERTY PROGRAM REQUIRES A GREAT DEAL OF KNOW-HOW In closing, I would simply like to say that we hav.e had many prob- lems in the administration of the excess property program. We believe we have identified most of these problems and that we have work un- derway to get them corrected. We would be pleased to receive any suggestions the subcommittee has on further improvements that might be undertaken. We would also be happy to maintain active consulta- tion with the subcommittee as we go forward with changes in the program. A GREAT DEAL OF SUPERVISION I would also like to add, Mr. Chairman, that I have had quite a bit ~of experience with surplus property on some of the jobs I have been on in the past. This is an extremely tricky and spotty business. In -1ThThv instances, surplus property or excess property has been used watching the rehabilitation worR on tm~ i~ avy ~ ut ~ ~ in Tokyo, I noticed that every piece of equipment they had was ta1~en down completely_practically a rebuilding job. Now, this is expensive. But it provides a vehicle that has a practically new-use capability. What rehabilitation costs depends a great deal upon what is found after a vehicle is torn down. We have to maintain a fine balance on such things. In many instances, we have countries that could tear down equipment and rehabilitate it themselves. Some countries could take a piece of equipment if it is in operating condition, and then re- pair it when and if it breaks down, providing they have a good supply ~f spare parts. PREREQUISITESELEC1~TVITY There are other countries to which it is absolutely ridiculous to send excess equipment unless it has been completely torn down to be sure that there are no wornout components in the motor or elsewhere. PAGENO="0034" 36 AID'S MrSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM So we are going to have to be more selective. We are going to have to be more selective in the type of equipment we acquire. Otherwise, our expenses will run too high, and there will be absolutely no incen- tive for a country to take this equipment. After all, we do want to push this equipment into the areas, substitute it for new equipment where we can, in order to save money, and also to make good use of it. TIME, NOT SELECTIVITY THE FACTOR I have found some areas where, undoubtedly, we have acquired property that we should not have acquired. For example, last spring when NATO had to pull out of France, hundreds of millions of dol- lars' worth of equipment were thrown on the market at once. As a re- suit . we acquired some equipment that we probably should not have acquired. We simply did not have the teams of experts, nor could we nht~h~ 4-b~~-~ ~ ~ i~~ii ~` . .. . We have got to use more selectivity, and we have got to equip our- selves to be more selective. If we cannot get some of the Defense De- partment agencies to handle our rehabilitation work, we are also going to have to get this kind of expertise in our agency. We would prefer to get it from the agencies that have experience in this line. If we can- not, we will have to do it ourselves. In many instances, we have requested the Defense agencies ~o pro- vide services for us. In many cases, they have. But `because of their own requirements, they have had to taper off and we have had to take our work to private contractors. And this is part of the problem. Senator GRITENING. Mr. Lee, I want to congratulate you on taking the position that you have that the findings of the subcommittee were valid, and that AID has fallen short in many respects in these fields, and that you are going to make every effort to correct these shortcomings. I think that is a very fine and proper attitude. The subcommittee will continue to observe these actions and see how effectively and rapidly the reforms are made. Let me ask you another question. When you were Governor of Samoa, were you able to acquire any surplus property? PAGENO="0035" AID~S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 37 I don't recall exactly, but I think one of the criticisms that you made I recall I had a private contr~cto1~ ctown vtiy ~iiort~yi~M71~ as a consu'tant to me, to consider our equipment needs. And when he arrived on the scene, he was shocked to find that most of the equipment we had was equipment that his firm had junked in Eniwetok because it was completely worn out. We had, subsequently, a year or so later, acquired this as equipment to do the job in Samoa. It was absolutely ridiculous. And here again we did not have the expertise to really consider this acquisition, and we were very foolish. EQUIPMENT SPECIALISTS PROVED PROFITABLE I do want to say that after we got operatifig and got some equipment specialists on our staff, we were able to obtain some very good surplus equipment. We obtained it from all over the Pacific. And it served us wefl. And I think the net effect was good. On the other hand, even with the best of seleótivity by experts, we got a lot of lemons. This is what you get in a used equipment business. It is like buying a used car. Some are good bargains, and some are not. I think we have to use great care in managing this program. But even ~~fb +1~ hAQt. (\f ç~are I susnect you are ~oin~ to continue to hear some you have any aimcui~y in getting wnai~ you a~iteu iw; Mr. Li~. No, sir, we were very successful in doing this. The disposal agencies and the Government agencies that had excess were very good in releasing it to us. We had very little difficulty. FOREIGN SHIPMENT OF ESSENTIAL SDRPLUS STIRS DISSATISFACTION IN STATES Senator GRITENING. The reason I asked is because the subcommittee feels that a substantial part of the surplus that is now going abroad should go to wherever is practical, to the people who ~re paying for it; namely, the American people in the States and elsewhere. And I am glad to hear that in Samoa, which is, of course, under the American PAGENO="0036" flag, you had no difficulty getting it. But in other parts of the country there is a gbod deal of di~satisfac1iion, because essential surplus that could be u~ed h~i~i~ g~iftg abroad. This is one of the reasons why this legislathm is pending ntw. And this repr~sei~ts the view of the agencies throughout the 50 States as w~li as in our outlying areas, which are also ufider the Amen-. can flag. I think that it was probably due to the fact that you were both efficient in meeting those requests, and that you were out in the Pacific, where it is relatively simpler to get this aid transferred than it would be if it had to be shipped way back to the North American continent, the 48lower States,aswe call them. LET~ CLAIMS SURPT~tT5 OA~TE FROM PACIi3'I~3 ISLANDS Mr. Li~. Senator, I would like to point out that we tried to con- centrate our work in the areas that were reasonably close to Samoa. A good share came from Hawaii, Midway, Christmas Island, and the adjoining areas of activity ofth~ TTS d~f~i~ ~ UT~ ~ visIon to enable them to acquire excess property, and th ey went out and acquired huge stocks of excess property in Europe. And they did it ratherindiscniminately. You will recall that we had some real prob-. lems in cutting this program down to size. Some of the `acquisitions were very good. Many of the diesel locomotives that the Alaskaa Eaii- road had-and I suspect' they still have some-came from the sur- plus stocks. And those were good. But there were some pretty big horror stories in terms of some of the other excess. We had a real problem there for several years in cleaning up that situation~ But I would suspect that we continue to have similar problems in a number of'Federal agencies simply because of the nature of surplus. OBJECTIONS OP W~I1Th~kY~ SO T13~RE~ AiD' PERSONNEL BONG IGNORED Senator GRtTENING. In your statement, you say that in theearly part of this year, AID began to~get some indications that difficulties were occurring in the Japan Aircraft contract, and that lo,~istics per- sonnel in the Bureau for the Far East `began running into indications that the rehabilitation work being done was not up to acceptable standards. - PAGENO="0037" elude the following: 1. Upon taking over his assignment in Thailand 1964, Mr. MeNerney found that his predecessors had "indiscriminately acquired large quantities of miscellaneous, unidentified parts by direct ac- quisition." He found that M-211 trucks had been obtained through the excess program ; these trucks were equipped with automatic transmissions which had a history of maintenance problems even when the truck had been a standard item of issue in the IlLS. Army. To complicate matters, no manuals had been received with the trucks and noproviSion had been made to supply repair parts. This situation con- tinues to exist. Mr. McNerney notes that at present many more manuals are needed and equipment continues to arrive without technical manuals. SPARE-PARTS PACKAGE SUGGESTION DROPPED AID SPURNS SUGGESTION OF ARMY EQUIPMENT INSPECTION 4. Mr. McNerney proposed that U.S. Army inspectors be used to inspect equipment repaired by private contractors but this was re- jected by the AID excess property people as being a reflection on their ability. 5. In a visit to Washington in June and August 1965, Mr. McNerney proposed that AID adopt the Army's standards for repair of equip- ment instead of repairing only those components or assemblies which gave outward appearance of unserviceability. "All those approached AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 41 EXHIBIT 6 STATEMENT OF DANIEL P. MCNERNEY, CHIEF, LOGISTICS DIVIsIoN, U.S. OPERATIONS My first objective was to~fn~Foaicrca T~i~t1i~oii in. e&ce~ iii i~ii~ pi~~ ming phase. First result ot this was that the FY 65 Project Agreements for the ~ ml fli~v~li~nment (ARD) Program included provisions that cer- PAGENO="0038" iimittheaequisition of ~xe~'ss e"qUiprnentand the purchase of new items instead. 9. Through 1967, the AID mission continued to report specific in- stances in which defective equipment was received in Thailand. Mr. McNerñey states that "It has been difficult to get unsatisfactory equip- ment reports from the field since project personnel have been dis- couraged by Government Property Resources history of claiming non- responsibility." According to Mr. MeNerney, this situation continues through the present. Cases cited included a D8 tractor which broke down after a few hours' use because of worn gears in the transmission even thouoth work had been done on the transmission by the repair contractor. 76 engines inspected before being put into use only four were corn- plete and performed satisfactorily. Excess property personnel sup- plying the engines attempted to place the blame on improper storage and maintenance after receipt. We also asked Mr. McNerney to make an evaluation of the in-coun- try repair capability by the Thai Government agencies and private repair contractors. And his statement, which I would like to have in- cluded in t' `,contains an evaluation that concludes that a re - ~ 4!~_ - 1 - 1 - The idea of using USALCJ employees for final inspection was described by the OJC EPRO 5 as a ". . . reflection on our ability . . ." While I was on home leave (June-August, 1965) I discussed with the OJOs EPROs 4 and 5, with the Director, Office of Material Resources, Government Property Resources (MR/GPR) and with FE Bureau officers the ideas I had for improving the quality of 608 equipment and which I expressed first at the FE Logistics Seminar in May. Essentially what I suggested was that instead of the policy of repairing only those components or assemblies which gave out~ ward evidence of unserviceability, that the policy be one in which the military concept of "fifth echelon inspect and repair only as necessary" (5tl~ echelon~ IIWAN) be followed. 5th echelon It~OAN practice required "that all dynamic' assemblies are sufficiently disassembled to insure that inspection is adequate andi serviceability standards are assured. The objective of IROAN is to do suffici- ent, but not unnecessary, assembly and replacement of parts." The increasedi level of repair would be accompanied by Mission agreement to pay actual costs instead of a flat 15%. All those approached with this idea reacted postively and agreed that this change would assure a better quality product and da much' to preclude objections to utilization of ~m ~n~- th~ ~ 1tI1TT~ J~1~1~ -- j PAGENO="0039" The FE/RLO organized a FE Logistics Seminar held in Tokyo in iviay woo. Among subjects discussed were problems concerning excess property utiliza- tion, availability of parts and manuals and the use of TJSALOJ employees for final inspection of 608 excess prior to shipment. The matter of parts availability was the only one firmly resolved and that not completely, i.e., the shipment of a package of concurrent spares by EPRO 5 although discussed, never mate- rialized. This is also the first place where I went on the record as desiring a higher lcvel of repair. i;y ~ ~~~±1G (See Tab R) and a] cial repairs was processed. Because of lack of sympathetic attention from GPR and EPROs to USOM's. complaints and recommendations, USOM prepared a policy Airgram (TOAID A-1043, Tab T) in which criteria were announced for measuring commodity requirements against project requirements to determine the practicability of procuring items from excess in lieu of new procurement. Application of these criteria has reduced the objections to use of 608 to a minimum although in- stances of receipt of unsatisfactory equipment continue to occur. It has been difficult to get unsatisfactory equipment reports from the field since project per- sonnel, both USOM and RTG, have been discouraged by GPR's history of claim- ing non-responsibility. In recent months when unsatisfactory iieports have been received from the field, EPRO's and GPR have been more responsive in making good, although not in every case, to which ho responses have been received, and in which it was necessary for the project technician to point out to the work- shop manager that an incorrect standard was used, are examples. Tabs W and Z are particiularly interesting in that they illustrate deficiencies in the field as well as in the GPR. Tab W records the history of a D8 tractor which I noticed during a trip to the Northeast Technical Institute, Korat, in the company of the Director, FE/RLO, in December, 1966. It was obviously a 608 item and aroused my curiosity. Ques- tioning of Philco contract personnel at the institute elicited the response that the machine had operated only a few hours after arrival when it became unservice- able with transmission problems. Disassembly of the transmission revealed that, among other less serious deficiencies, the transmission forward and reverse ~l1fn~~ ~ ~ ~ made but sion". The record shows a `total of 1,464.6 man house of labor and $3,476!~4 were expended on this machine and that the transmission had apparently been disas- sembled, reassembled and installed without replacing wornout gears. Approxi- mately 25% of the acquisition cost of the tractor had been spent on the tractor which was in the Yokusaka U.S. Navy Shop for 19 months, but it failed after a few hours operation. This tractor is apparently one of several which are alluded to in AIDTO 397 as examples of complete overhaul where necessary. The officers referred to as witnesses to this activity told me that a number of old, worn-out tractors had been acquired and that the EPRO was faced with two alternatives; ~ ~h~-~1~1 `Dhc~ ~,cini1 t~rc~ PAGENO="0040" `~,during an earlier ProAg negotiation meet- ing on Ju the B had been promised equipment with a lifetime expectancy of of new and that a joint RTG/USOM team would inspect the equipment prior to shipment (See Tab 0). Unfortunately, no USOM c~ at the December 1 meeting had also been present at the June ~ meeting. 1 expressedregretthatfollow-T nthe . . 44 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM into service and which had not been unboxed were opened and inspected for corn- pleteness. Five were complete and nineteen were missing the same range of parts as the earlier 76. Two of the twenty-four were disassembled and inspected. Both had piston rings rusted to the pistons which was obviously the result of prolnoged outside storage. Results of this investigation were passed to EPRO 4 and my deputy, who has visited EPRO 4 recently, reports that replacement of missing parts is to be made shortly. History of 608 Ecocess Utilization, Thailand Acquisition Peri~od cost July 1961 to September 1964 $1, 755, 000 October 1964 to March 1967 2, 679, 000 years. Pfit~1uses tne unserviceable equipment as a training aid for teaching me- chanic and allied trades trainees and the finished product as a training aid for the equipment operator, driver, machinist, etc. , trainees. Hence the rehabilitation of excess property fits well with the the department mission and the practice has been very successful. The other departments, on the other hand, have a specific mission, which in- cludes rebuilding equipment in their inventory when necessary, but does not in- dude rebuilding equipment to add to inventory. The minor reorganization and additional staffing necessary to undertake the broadened mission could probably be accomplished if the departments concerned were convinced that it would be in their best interests. This would be a value judgment on the part of each depart- ment and influenced by different factors in each case. In my opinion it is doubt- ful that a strong enough case could be made for these departments to choose to go the excess property route. A special study to determine the most economical, feasible and practical means and place to accomplish major repair and overhaul for equipment of the National Security Command was made in the fall of 196~3. A copy of the report resulting from this study is attached at Tab DD. This report, ~ limitedPas it is, indicates that the capability for 608 rehabilitation is present in the Thai private sector. The Property Disposal Office, U.S. Army Support Command, Thailand, reports that in FY 66 $5,043,917 acquisition cost excess property was generated. In the first three quarters of FY 67, $7,787,571 acquistion cost was generated and for FYs 68, 69, and 70, although no accurate yardstick exists it is estimated that $10 million a year will be generated to include $16 million known MAP excesses. Although records are not kept by condition codes, most excesses are in R-4 or poorer condition: My personal opinion is that the common nractic~ is tn o~man-~ PAGENO="0041" requesLs. tinu iiu vv ~ii'~ y~~" ~ ~ ~ *~ ~ On the question of spare parts, I . think that the picture the sub- committee now has is not exac~1y accurate. In 1965, the Far East Bureau of AID and the Defense Department concluded an agree- inent whereby the AID mission in the Far East could obtain spare parts for equipment obtained from excess. And it was announced at the conference that Mr. McNerney spoke of in May of 1965-which I called-that if the missions would, at the time they ordered a piece of excess property, also provide a funding document for spare parts the U.S. Army depot would send them a recommended list of spare parts that should accompany the equipment, and then would furnish the spare parts. We also suggested at that conference that missions ordering a piece of equipment through excess first check with my office to deter- mine whether spare parts were available. Because, even with this very wonderful Army facility with 125,000 different spare parts on hand, and doing an excellent job of supporting old equipment, there are some pieces of equipment that cannot be supported. And so we would avoid getting that type of equipment into our system. AID BUYS $3 MILLION WORTH OF SPARE PARTS go with it, because it ~is very uuiieui~, ~ ~ .~ ~ ~, identify parts without a manual. If a simple part like a fan belt breaks and it cannot be identified, then the whole bulldozer is out of com- mission. OROWNOVER ADVOCATES HIGHER LEVEL OF REHABILITATION In January of this year we received an authorization from the Far East Bureau of AID to establish a publications depot at my office in Japan where the AID missions of the Far East could request technical manuals, repair manuals, and catalogs. rihey could also de- termine in advance whether these catalogs were available before they placed their orders for excess equipment. So we had taken action some time ago to lick the two problems of spare parts and technical manuals as far as the Far East Bureau is concerned. And now that includes Vietnam and East Asia. As far as the rehab standards, your able staff member, Mr. Lippman, PAGENO="0042" 46 AID'S MrSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM knows that I have been advocating a higher level of rehab all the time. And I am happy to report that conditions are now such that I am confident we are going to get-we are beginning to get-a higher level of rehabilitation. Senator GRnENING. Thank you. Are there any questions? Mr. LIPPMAN. I have just one, Mr. Chairman. LIPPMAN AVERS MORE REGIONAL LOGIS~[CS OFFICES NEEDED Mr. Crownover, you described briefly the establishment of the re- gional logistics office in Tokyo, which had a responsibility for supply- ing or supporting the end items in the Far East with spare parts. But substantial cluantities af ~ `~i~ ~ `~1i~ ~ ceived during my visit to some Middle East countries about their in- ability toget spare parts. They weren't able to draw on your supplies. Perhaps the agency might want to consider establishing similar depot operations for other areas. Mr. LEE. Mr. Chairman, I think Mr. Owens might elaborate on this, point a bit. WORLDWIDE LOGISTICS OFFICE tINDER CONSIDERATION Mr. OWENS. Mr. Chairman, the agreement between the Far East Bureau and the Army provides that on a case-by-case basis-that is, in the missions in other parts of the world that have drawn on ex- cess-the Army and the Far East Bureau will provide spare parts support on request. Now, in addition, I should add that as a result of the new look we are taking at this program, we are considering expanding the mission of this office to include a mission worldwide, not only for spare parts, but for publications and manuals. Senator GRUENING. Mr. Beaser. Mr. BEASER. I have one comment, Mr. Chairman. When I was in Bangkok in the latter part of April, the missi~p ~ - , ~. ~ w~ ~iv,uuu ror tne re- PAGENO="0043" library was estaoiisneu, anu vvv vvuui~t ~w~'j~#~ ~ ~ ~ time of your visit or shortly thereafter. It is now established. And we either furnish the manuals immediately from Tokyo, or go back to the military publications depot in St. Louis to obtain the manuals. If we determine that the manuals cannot be obtained, we advise the mission not to buy the equipment. But it is a recent thing. We started the action in January. Mr. BEASEE. After we were there. Mr. CROWNOVER. The official announcement to the missions-I cannot recall the exact date, but it might have coincided with your visit, or It might have been shortly thereafter. WIEAP ABOtT EtROI'E? Mr. BEASER. Let me ask Mr. Lee the question, then. What are your plans to unify the program rather than to split it up between a Far East mission or a European mission ? Far East seems to be doing something about manuals. What a~bout Europe? Mr. LEE. We discussed this with the people in Frankfurt the other day when I was there. And they are moving. Whether we will establish a worldwide facility or have one in Eurone and one in Asia-we simply some oi uiis equipluenu. c~ai~ ~ ~ .. `~ ~ ~ . ~,. ~ ~ ~-.- ~ an evaluation as to whether or not we will procee~ on any kind of equipment regardless of how good shape it is in unless we have ade~ quate manuals and operating instructions. NO MANUALS WITH EQtIP~ENT IN FAR EAST Mr. BEASER. But, in the meantime, equipment is going out without manuals? Mr. LEE. I am not sure whether we are sending out any equipment in the Far East without manuals. Perhaps Mr. Crownover can elabo- rate on that. Mr. CROWNOVER. The equipment is going out without manuals in the Far East. But the missions have now the capability to obtain the manuals in a separate arrangement with the Far East regional logistics. Mr. BEASER. What about Europe and Latin America? Is equipment going down there without manuals? PAGENO="0044" 48 AID'S MrSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM Mr. LEE. I cannot say whether it is or not. I know that `our people in Europe are attempting to get manuals, and I assume that as rapidly as they become available they are making them available. Whether we are sending equipment out without manuals right now, I could not say Mr. BEASER. Could you supply that for the record? Mr. LEE. We will supply that for the record. (The above requested item follows:) REPAIR AND SPARE PARTS MANUALS At the time of the hearing, AID's regional excess property offk~es were shipping equipment in a limited number ef cases to countries in Africa, Asia, and Latin ~ J~óf~M~'i~ëtiabiIitation work in the country-I discussed it with the people in Thailand and I am sure that they can rehabilitate many pieces of equipment. However, they expressed doubt on some types of equipment and here again I think flexibility is the thing that we have to have in this program. We' have not had it until recently. And we are planning to get more of it. But in order to have this kind of flexibility, we have to have a staff of experts. We simply have not been staffed to provide the kind of the expertise that is necessary to have flexibility. I can say that the situa- tion in Thailand-that is, the ideal situation-would be to send a. good share of our equipment to Thailand completely unrehabilitated; but only after a reasonably good inspection before acquisition. LACK OF TRAINED PERSONNEL REDtJCES FLEXIBILITY On the other hand, there may be some pieces of equipment that' Thailand would want which should be completely rehabilitated, either in Antwerp or Japan or at some other rehabilitation center. So I think our problem has been this lack of flexibility caused by the lack of trained personnel. And this is the thing that we are going to try to correct. So if Thailand wants a ni~e~ M' ~rnih-p~n~pf m~1i~-~1~ ~ PAGENO="0045" acquisition under 608." Senator GRtIENING. Suppose you cut it in half. Wouldn't that enable you to- Mr. LEE. Actually, we have slowed it down essentially. I believe that our output has been slowed down to one-half in both of these depots in recent months as a result of these investigations. "ROOM FOR BOTH" CLAIMS LEE Senator GRtTENING. If you cut it in half, the other half might go back to the people who paid for the property in the first place, the American people. Mr. LEE. Again, just an observation, Mr. Chairman. The amount that we are taking is such a small percentage of the program that I don't think it would make a great deal of difference. I think there is room for both. And here again I would like to refer back to this experience that ~L1~11) ~iugf~uu. ~ ~ ~ ~ 1 V~ ~ 1 ~ i ~ ~ TTT ~ ~ 1 ~ LIPPMAN QUERIES AID~S INERTIA . . Mr. LIPPMAN. Mr. Lee, I would like to get back to one thing. It is something of a mystery to us as to why AID didn't take on this question of the adequacy of repairs in past years. Why did they have to wait for the subcommittee to stir them up, so to speak, to get into an evalua- tion of this thing? AFTER REPEATED COMPLAINTS . . The record is replete with mission complaints going back for many years. And Mr. Crownover knows from his own experience in the Far East about this. In January he wrote a memorandum to Mr .Greenfield summarizing his surveys of this situation in the Philippines, in Thai- land, in Laos, and Vietnam, and concluded that there was a uniform agreement that there should be an upgrading of equipment. AID'S MISMANAGEMENT OI~' THE EXCESS PROPERTY PROGRAM 51 wrong with the excess property program. So you move in and you correct these. Next week or next month another subcommittee or perhaps this subcommittee will uncover some additional specific deficiencies and you move in and correct those. But the real funda- 1-~-,~i1 rnw~tinii it, s~~ms to me. relates to the system that you have, PAGENO="0046" wnldn aiiowect trie `situation to continue tor some years undetected by the top management and without any action being taken. Mr. Li~ni. T simply have not been in the program long enough or had enough of a look at it to give you a rood answer. T c~nn ~nii1~t~ T iepaii or overnaui tnat one snoulci tai~e until someone has nad a iittle experience. I think those complaints have been piling up certainly in recent months, and in the last year or two. And they got to the point where some corrective action had to be taken. Here again we still find a great deal of differences in our own staff as to how far we should go on the level of rehabilitation. And I think this goes back to the matter of selectivity. We cannot set one standard of rehabilitation across the world, around the world, and make everyone happy. I think we are going to have to tailor this program to the individual needs of the countries. And in a country like Thailand we are going to have to have more than one standard. Some of the equipment should go in there without one bit of work being done on it, and other equip- ment probably needs partial or complete rehabilitation. It is extremely difficult to evaluate at this point on why we made these mistakes. LACK OF EXPERTISE ANOTHER FACTOR I think the important thing is that we correct them, and that we get the flexibility that is needed in this program, and the selectivity. Here again we have made some mistakes on selection. And this is a normal mistake in any excess nronertv nrogram. I think you will fii~~d wiin i~iii, it I may speaI~ tranitly on this. I ou react to specitic deficiencies that are brought to your attention. Here are some things 52 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM you might carry that message back to your chief. This is a matter of overall policy over which I am sure as yet you have had no part in formulating. But I think that that is something that would greatly iw~Z~ ~ ii~vC y~~C~ty comments on that ~ TT(YT'1~'T~ ~) PAGENO="0047" tne DCSI 01 IiiaflageiIleiiiU WILUL vv - point where there will be no horrendous examples-not in this pro- gram, nor in other programs. I think that is not only the nature of government, but also of private business. All we can do is do our best to try to improve them. "LESS LADLING OUT OF FUNDS" your thoughts about the rogram are very sound. gram. And I think that ~s in the Congress, the AID'S MISMANAGEMENT own to ma ~em in Antwerp. I tL~ is going to result in any I ig expense caused some real discomfort in some this equipment. I think we can get re~ Mr. BEASER. Have you stopped payi INSPECTION-BEF~ Mr. LEE. - of experts there. eciuipment that PROPERTY PROGRAM 53 Senator GRUENIN needs of greater se' A~1 T T ~e, I think PAGENO="0048" L~L111 uiii~ gei~ uae~ i~o tms matter ot selectivity. I think all of these investigations have borne this out as one of the big needs of this program. Mr. BEASER. Another statement made by Harbridge House was that "no written standard for repair of excess equipment exists." Tool repairs are made on an inspect-and-repair only-if-necessary basis, And h~ isa ~t him to comment JACOBSON PUTS FIGURES IN ~~CORRECT PERSPECTIVE" Mr. JACOESON. Senator, I would like first to put some figures into what I think is the correct perspective. You made reference to $2 million worth of expenditures on the Japan Aircraft contract. The figure actually is $662,614.12. Senator GRVENIN~. $~6O,OOO? Mr. JA1~OBSON. $662,000-which covers the period from the corn- meflcement of the contract through January 1~67, `tke whole period for which the contractor has been paid by AID. ~~LL I) P~J~Li that~rhen we speak of the 40 percent being good, it was 40 percent in which everything that was required to be done had been completed. ON DEFECTIVE EQUIPMENT And when we speak of the 60 percent of defective work, it is to the effect that there were some item or items in that 60-percent value of equipment that had not been done, but not simply a total 60-percent nonperformance for which the contractor had been paid. Now, with regard to 104 Dieces of ~niiinmcrnf th~i+. h ~1 ~1~h1~ PAGENO="0049" some degree o'~ nonperf~rmance. ~o that we `took the percentage o~ nonperforrnane~ on that equipment, and `we extrapolated it back over the total man-hours of equipment that had been worked and paid for between August 1, 1966, through January 31, 1967. And that made up actually a little under $30,000 within the total figure that we arrived at as a total settI~ment. We had shortages in inventory, which made up a second category. Arid we had a third category where our inspectors, in the , proces~ of examining the equipment, considered the amount of hours charged, and came to the conclusion that for the ob specified the hours seemed unreasonably long. And they~ accordingly, made a subjective judg- ment as to what the proper number of hours ought to be. And they categorized that as excessive hours worked. Now, with regard to this category of the claim, the contractor raised a number of serious objeet~ons. First of afl, he said that he doesn't quite understand by what standards any man who comes and looks at a piece of equipment afterward that has had a considerable amount of `body damage work repair done, or has had a paint job done, can determine from the finished product what the condition was at the outset when the work was started. So that a large portion of this category he noted, ~ ~ `)c~ ~ r~iim~l~, il~+'~'~r~ antI c~iib~i.flcrc~ paid his labor. So that taking account of the third category, we settled it simply on the basis of the claims we made for the 67 pieces at hand without an attempt to extrapolate that. Mr. BEASER. May I ask one question ~ Mr. JACOBSON. Sure11~. AlO APPROVING WORK IN EXCESS OF AGREEMENT? Mr. BEASER. Under the contract, as I read it, you make out-AID makes out a work order or a contract. And that has to be approved by the AID man. What has been happening in fact as far as Japan Aircraft at least is concerned is that ex post facto you have been approving work in excess of the amount previously agreed on for items; is that not so? , Mr. JACOBSON. That is correct. PAGENO="0050" 56 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM BEASER QUERIES AUTHORITY TO AMEND THE cONi~AC'r. Mr. BEASER. Wha~t is your authority for paying that ? Mr. JACOBSON. I looked into this question, Mr. Beaser, and I found cumulatively over th& life of the contract this was-let me s~è-12;837 hours where the billings had exceeded the initial work order approva1s~ but that with respect to all of them, in each instance there* was a certification of approval on the part of either the officer in charge or the marshaling site~ superintendent accepting this. Mr. BEASER. Did he have authority? Mr. JACOBSON. He had authority to amend in advance. And equally,. it seems to me that he had authority to amend by ratification. Mr. BEASER. He isn't the contracting officer? JACOBSON'S DEFENSE: ". . . A MATTER OF FORM" Mr. JACOBSON. No, I think that is really a matter of form. What you are saying is that they could have stopped the work in the midst of the work and negotiated the new contract for additional hours as. discovered. As a matter of fact, I have been insisting that they should prc~ceed on this basis, notwithstanding that the contractor pointed out,. and had pointed out months before, that to do this would simply result in a paralysis of his operations, because as he got into the open-. ing up of an engine, or the equipment, and it was found that additional work was necessary, if he were unable to reach an agreement early with the marshaling site superintendent, it would simply mean that he left that piece of equipment in the stall it was being operated in, and within a short period of time he would have a fairly well paralyzed operation while he went back into negotations. PISTONS: ~~SHOULD I PUT THEM IN OR SHOULDN'T I?~~ Mr. BEASER. But isn't that, Mr. Jacobson, exactly what you do with a mechanic repairing your own car? He breaks it down, and sees that you now need pistons, and gives you a call, and says: "Should I nut PAGENO="0051" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY 1'ROGRAM 57 time-and-materials contract that was the standard contract of the Army Forces Procurement Agency, and It follows that which is in effect in Antwerp. . CONTRACT WITH JAPAN ~ AIRCRAFT A GI~ATUITY ? Mr. BEASEL That is what Mr. Lee says on page 31. However, if you take a look at your Navy contract, it does not refer to any minimum. What you have provided in the contract with Japan Aircraft ~ is a gratuity, actually. Japan Aircraft did not have to perform a single thing for AID, but was guaranteed a minimum of $400,000. ` Mr. JACOBSON. That is talking to a different feature of the contract. I quite agree, there was a minimum figure of $400,000 which had noth.~ ing to do with the work order operatiOn. Aircraft to the tune ~`f $400,000. Where is your authority for that~ JACOBSON AGRD1~S CRITICISM IS WELL TAKE~N Mr. JACOBSON. I think you might have been right, and I think your criticism is well taken as a general matter, but inapplicable in view of the fact that the contract expenditure far exceeded the minimum. Now, I can concede that if it had not, there might have been a windfall to the contractor. I don't know specifically what was in mind when this contract was negotiated on these terms. it is conceivable that a contractor who is undertaking a contract with someone for the first time and is being called upon to increase his work force wants to have some assurance that he is going to have the volume to put through. Mr. BFAASER. They didn't do it with the Navy. Mr. JACOBSON. They haven't done it in the negotiation of the second contract. LEG4LITY OP PAYMENTS SUBMITTED TO GAO? NO Mr. BEASER. Have you submitted this question on the legality of the payments under this contract to GAO? 1~iT~. T A ~ Mr~ T h `~ ~ T~T~ ~1 gw~ini c~r~ mu- `url+ll PAGENO="0052" ~58 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM whether all payments of the contract-which you indicate amount to only $662.~OOO, but our figures are three times that high-are not illegal. lawyers ~n the (ieneral Accountmg Ultice, who would advise us that ~ny pa~ynient in excess of the work specified on the worl~ o~der ap- pro~~by the AID. inspector j~an i~gai~~oi~int. I wo~14~Iiketo have you èomment on that. Mr. JACOBSON. i: haven't sce~i the opinion of the General Accounting Office. I am afraid until I see that I cannot comment on it. And I am quite prepared to submit our opinion in support of our position. SenatorGRUENING. We would like to have your opinion. Mr. JACOBSON. Surely. EXHIBIT 7 MEMO FIwM ML JE&~OME J. JACOBSON SUBMITTED TO MB. LESLrE A. GRANT (u.s. GOVERNMENT MEMORANDUM) Date : September 25, 1967. To : GC, Mr. Leslie A. Grant. From : GC/WOH, Jerome J. Jacobson. Subject : Submis~ton of OC Opinion to Gruening Committee. Senator Gruening requested submission for the Committee's record of a copy of the Opinion I referred to in my testimony of September 14, 1967. Attached for transmission is a copy of that opinion furnished to you on August 17, 1967- entitled, "Japan Aircraft Manufacturing Company-Excess Hours Ratified by Mar- ~h~11~ii S~tc. ~i ~ aul~'horized ~hours in the first instance ratified the increase, according to the terms of the endorsement. The defect appears to be one of form rather than substance, since the representative could have amended the work order to increase the hours. This would have coriiplied literally with the terms of the contract. However, nothing was found which indicated that the ratifica- tion was in fact itself improper. Instances were found in which the site superintendent refused to ratify excess hotirs not previously authorized by him. This group of unratified hours was taken up with the officer-in-charge on the basis of which in January, 1967, out of 4,465 excess man-hours billed by the Contractor, agreement was reached between the Contractor and the officer-in-charge to ratify 2,365 man-hours and disallow 2,100 man-hours. The billing was adjusted accordingly. No facts or grounds were found for questioning this negotiatecj settlement." I nr~ ~~ii c.~IHrrn fh~+ thc. hi~1c~ g~t' ~rn-rr.i-nc~y~f whh~h t~i rrit~-1 the. ~ cuB- I PAGENO="0053" sei~teu an amount or ~$21,43S.2O or 4.8% of the total man-hours worked and `billed `throughout the entire period under review. However,. as noted, it was found that except for 4,465 man-hours which were compromised, the Marshalling Site Super- intendent had in all other cases ratified the additional hours worked and billed in his signing for `the acceptance and delivery of the `applicable item of equipment 1y an endorsement which included the s'ta'tement : ". . . and accepted the work per- formed thereon in its entirety." Moreover, in reviewing the records of `the E'PRO-5 Office, we ascertained from a memorandum to the files of March 6, 1967, that the subject of performing addi- tional work without prior authorization had been the subject of a meeting on January 24, 1967 between the officer-in-charge, Mr. Carson Crocker and `the Con- tractor, and that subsequently at another meeting on March 2, 1967, agreement was reached to disallow 2100 direct-labor hours from the invoice. The relevant portion of the memorandum states: "7. At numerous `times before and after the January 24 meeting Mr. Har- ness had pointed out, a~t the shop level, examples of excessive man-hours on specified pieces of equipment. Fiiially, the invoice `submitted in February was held up in view of excessive man-hours. At a negotiating meeting on March 2, 1967, it was agreed that 2,100 direct-labor hours would be disallowed from the invoice. ~ ~ ~pa~Li~ Ui. t)WZ~ ~ rJAeesslve appears to nave been used by EPRO-5 in connection with the `cost limitation which GPR placed upon the rehabilitation program, namely of keeping rehatdlitation costs within the arbitrary 15% limits used in the program. This appears indicated in a portion of the memorandum to the file which stated: at a meeting on January 24, 1967, Mr. Crocker impressed on the Con- tractor the necessity to reduce cost, Our schedule of M211 cests was presented for discussion. Out of 137 ~ehi'cles con~pleted ta date, repair charges averaged 20% or $42,000 more than the 15% servIce charge. EPRO advised NIPPI `that these charges cannot be tolerated and `still maintain `the integrity of the revolving fund." AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 61 were highly doultful and that efforts along these lines would only have served to prejudice the course of the negotiations which were proceeding satisfactorily. I believe `that if we had sought to' repudiate the acts' of these officials we would have influenced the Contractor to bring his American Counsel in Tokyo h~'fc~ +h~ ~fi~titm~ ,nml ~rni1d have retarded the total negotiations without Mr. JACOBSON. NO,IhaVefl't. 86-277-67-5 PAGENO="0054" U.S. 544; Uf~. V. ~Standard 78. is that depot, Lorain? Mr. LIPPMAN. No, that is the name of the equipment. The depot is Frankfurt. We don't know whether it was done in Antwerp or Rota. (Displays exhibit.) Mr. JACOBSON. I cannot comment on Frankfurt; Mr. BEASER. But we are going to put this into the record. And it would be well if you did comment. INVESTIGATORS AT FRANKFURT Mr. LEE. I would be glad to comment on the Frankfurt operation. As I indicated earlier in my statement, we do have a team of investi- gators in there. We are going through the same type of detailed inves- tigation of all the work that they have done. And I think that we will have a report very soon. We would be glad to submit it to tht~ .~u11_, WOTK oruers; 2. 224 items or 29.2% had been completed within a maximum of 30 man-hours; 3. 179 items or 23.2% "found one or more major components missing, were matters he had authority to approve initially as an amendment to the work order. These ratifications were considered in two contexts. If the ratification by the Site Superh~tendei~t in some eases and the officer-in-charge in the others, came within their respective authority to approve the hours in the work order, the Government cannet repudiate their acts or deny its effect.1 This conclusion seemed unassailable in the absence of any evidence that the ratifications related to wrongful acts. Secondly, if these representatives of the Government lacked authority to ratify the additional work performed, but the circumstances under which they were operating were such that the most sensible conclusion to draw is that they had been authorized to take the action in question-the ratification-both contract appeals boards and the courts would draw this conclusion in support of the Contractor's position. Thus, where a person was in general superintendence of all the Contractor's activIties on the particular contract-technical and financial- although not officially appointed and authorized by the Contracting Officer for the purpose in question, he was held to be, in fact, an authorized representative.2 The entire circumstances were examined against these alternatives. I concluded that the prospects of repudiating the acts of the Marshalling Site Superintendent and the officer-in~eharge and sustaining a valid claim against the Clontractor Oil I PAGENO="0055" Fuel leaking from fittings on fuel pump and fuel tank; fuel pump leaking; general assembly dirty; spark plugs, contact points, and condenser defective; excessive paint ~n control levers. That is from Vietnam. (Displays exhibit.) Mr. JAcoBsoN. Where is that one from, Mr. Beaser? Mr. I *. Thank Because if you rely solely on the subcom- mittee s~a picking this up, it is hopeless. Mr. LEE. I realize that. On the other hand, if we do have specific complaints, then we will want to take a look at all the work that is being done. As far as I know-and perhaps we have some examples- I was not aware of the fact that we had had complaints on those facilities. If we have had, we will certainly look into the overall situation. But I think we have gone on another assumption that we had better supervision on those sites, because they were supervised by the Department of Defense. They have had a lot of experience in this type of thing, and generally I think they do a very good job. Senator GRUENING. Mr. Lee, on page 34 of your statement you say that you have found a number of instances of improper utilization of excess property preferred for Korea, Vietnam, and Turkey. Now, those are among the countries visited by the subcommittee staff. And I think it would be desirable to have Mr. Lippman give us a summary of the investigative findings in each of these countries. If your staff has any comment as Mr. Lippman proceeds, please don't hesitate to interject your questions. April yl9Tla i~d~th~ jiir~iction or the control of the Port of Saigon Authority. And the equipment that moved in here came directly off the ships as part of AID's excess prop- erty program, and was placed here in a hold status before it was sent out to the countryside and elsewhere to the recipients, who were Viet- namese Government agencies, authorities, and the like elsewhere. (Exhibiting large photograph) I MOST EQUIPMENT FOUND DEFECTIVE PAGENO="0056" I I *1 That is Rota. Now, I also have some that were repaired in the T5nited States. Mr. LEE. There again we look to the Defense Establishment for the s~ ~rvision of those contracts If you have some e ~, we 64 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM And at the time I visited these places they were undergoing inspec- tion by an Army team. The greater part of the equipment was found to be defective. [Photograph.] This is a 20-ton crane, with the U.S. handclasp on it, which was totally inoperative. And I believe this was one of the cranes that the Army inspector determined was beyond repair ; they couldn't do any- thing with it. And what they were doing was pulling out the parts, cannibalizing it, as the term is used in the Army, pulling out the parts and putting them on other pieces of equipment. As you notice, the engine is lying on the ground here. How it got thc~rc~ iix~ crn~~ ~e~iild r~i liv c~~nbtin 1PhMco~rcnh1 booked on commercial vessels. And they are ottloacteci in the rort o1 Saigon and moved to this area. Senator GimENING. Who pays the MSTS Mr. LIPPMAN. DOD pays them. Senator GRUENING. At what rates, commercial rates? DOD "HAS BEEN SUBSIDIZING AID . . Mr. LIPPMAN. These are under an MSTS industrial fund rate which does not allow MSTS to overall lose or make a profit. However, the Department of Defense has beein subsidizing AID on certain ship- ments by DOD billing AID for a much lower cost than the DOD cost concurred. Senator GRUENING. In some places, doesn't AID actually pay DOD not on a cubic foot basis but on the basis of valu&-that is, 15 percent of acquisition costs? Mr. LIPPMAN. Yes. However, the percentage applied to the acqui- sition cost varies depending on the services performed by the DOD- and we will hear from Mr. Allen at a later date, from the Department of the Army, on this subject. I would prefer that we get the answer from him. My understanding fli~f ~i-~ c~m~p ~ T)flT) ~m~,dvprtpntlv hillc~iI ATT) em tht~ basis PAGENO="0057" Senator GRUENIN~. But every time one of these useless pieces of machinery i's shipped and found to be useless, then the cost of trans- portation is just a total loss, is that it? ALL CAuSES ADD TO MILLIONS OP U.S. DOLLARS LOST Mr. LIPPMAN. Senator, the situation is much more unfortunate than that, more than merely the amount of repairs that have gone into it that are useless, and the transportation costs. These pieces of equip- ment were vitally needed to relieve the Port of Saigon of the tre- mendous congestion that existed there in 1966. They were not so used for the largest part, because they were inoperative, and they were defective pieces of equipment. This resulted in tremendous conges- tion at the ports where U.S. ships were tied up ; for 30 to 45 to 60 days, to 90 days in some cases. And for each day that these ships were tied up, as we found, the United States had to pay a demurrage charge of something in the neighborhood of $5,000 a day. So this deficiency, to put it mildly, resulted in a loss to the United States of millions of dollars over and above the repair costs that were uselessly put into the equipment. -~- . ~ ~ , , ~ ~ ~ . ~ 11 ~ ~ ,L1~ ~ _ ~ ~ ~ ~ ~ 4-1-S:,-, We found no evidence, for example, that the mission had made any inspections of the equipment to find out what its condition was on arrival, or that they had gone back to try to establish who was respon- sible for the inoperative equipment. Were the carriers responsible? If so, a claim should have been filed against them. Were the repair contractors responsible for putting equipment into this kind of shape through their repair shops? Then claims should have been filed against them. But the mission took no action on this thing. And we simply weren't able to find out why this situation was allowed to occur, and who was responsible for it. WHAT ABOUT SYSTEM DEFICIENCIES THAT CAUSED THE FIRES? Now, an internal audit report was made at the AID mission in Viet- nam in March in which they disclosed this situation. But that report, too, was superficial. It just talked about the situation that existed and the need for moving this property out into the users' hands. But PAGENO="0058" 66 AID'S MISMANAGEMENT O~F THE EXCESS PROPERTY PROGRAM it didn't pin down just why the situation was allowed to occur. I think this dramatically makes the point that I tried to make with Mr. Lee before : that the AID seems to address itself to specific instances that come to its attention by putting out fires, rather than by getting into the system-deficiencies that allow these situations to go undetected. Senator GRUENING. When a defective piece of equipment comes from, say, the Japan Aircraft, and is sent into Thailand as defective, and is repaired in Thailand, who pays for the cost of repairs? Mr. LIPPMAN. Well, this has been a mixed lot. In many cases the repairs will be undertaken by the AID or by the Thais. In Vietnam, as in Thailand, the AID mission has had to go out and award con- tn:~i'tq tn P1ii1~m -t~t-~r rn~-~-. ~ ~ ~ ~ ~ ~ a claim against it, we obtained some $29,000 for nonperformance. This pertained to the equipment that was serviced by the company between August, the beginning of August, and the end of January. Addition- ally, so far as the equipment on hand was concerned, the $6,600 worth of nonperformance, the contractor had to go back and redo those pieces of equipment. So that we had received under $30,000 in reim- bursement for what we could statistically, and not as a matter of proof, reach as a settlement. Mr. BEASER. What I am talking about is from the time of the sign- ing of the contract, which I think was in February of 1964, until, say, August 1966, a lot of this equipment was going out to Thailand and other places in poor repair. WHO IS RESPONSIBLE FOR THE NONPERFORMANCE? And Thailand and the other places, through AID money, U.S. money, had to repair it to make good on what Japan Aircraft had failed to do. What attempt was made to- Mr. JACOBSON. Mr. Beaser, we have no damage claims as such under the contract or against the contractor once property was received from them and shipped out. l~/l~T. ~ cxTL~~? ~ PAGENO="0059" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 67 sent out a `piece of equipment that was not in good operable condition, but also for which equipment we had not paid. Mr. BEA5ER. You may have or you may not. How do you know? Mr. JACOBSON. We don't know. But we must assume that the set- tlement is applicable to the equipment. Mr. BEASER. To the equipment on hand? Mr. JACOBSON. No; to the equipment that had been shipped be- tween August and January of- Mr. BEASER. Whatever happened to "from February to August"? Mr. JACOBSON. Pardon? Mr. BEASER. Whatever happened to the period between February and August? not cEo ; tills was not my runction. Senator GRiJENING. Go ahead. (Photograph.) Mr. LIPPMAN. We can quickly run through the other pictures to give an idea of the condition of the equipment. (Photograph.) Mr. LIPPMAN. I might add that this was only one of two areas, a great deal of equipment was in another location. Incidentally, Mr. Lee, in reference to our pointing out that there were other sites-repair contracts other than Japan Aircraft and Antwerp that were involved in this-you might note that this crane, which was defective and inoperative, bears a designation as to a site here in the United States. We can give you the supporting documents. (Photograph.) Mr. LIPPMAN. These other cranes have nameplates indicating the source of repairs other than Japan Aircraft and Antwerp. (Photograph.) Mr. LIPPMAN. Here are a variety of tractors. I think that about does it for Vietnam. LEE VERIFIES LIPPMAN'S STATEMENTS ON PORT OF SAIGON PAGENO="0060" 68 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM ow, ~wouu uie rime tnat mis equipment arrived, tne port situation had gotten so had that the Vietnamese Government was simply unable to cope with it. Finally the U.S. Army, as I understand it, was called in. They brought their own equipment, and moved in and took over the port. It was a battalion of some 500-odd men. They have cleared up the port. But since they brought their own equipment, much of the equipment that we brought in for the port authority was moved to Petrus Ky. This was a holding area until an alternative use for this equipment could be found. SOME AID EQUIPMENT USED Now it is also my understanding that when the U.S. Army moved in to clear port congestion, they used some of this equipment. It was loaned to them simply to get the job done, because of the urgency of the situation. Everyone that had something to contribute, contributed it. And much of this equipment went into the Army pool to help relieve port congestion. But a good many pieces were moved out, and at the time you saw it, it was sitting out there in the rain find mud, which is typical of Vietnam. Our nenn1~ l1flVi~ ipnvc~d ~f i-mt. ~3Q V~Thfll'~7 ~ ~ T ~v-~c~+~1 +b~ `~THESE KINDS OF MTSTAKES ARE BOUND TO HAPPEN~' I am going to ask Mr. Crownover to comment on some of the ex- amples here. As I say, I know, because of my very brief inspection, that some of these pieces of equipment are inoperative. Some have become inoperative after they arrived there. They broke down dur- ing the normal process. And some of them are not needed because the Army brought equipment of its own. Some of the equipment has been cannibalized to keep other equipm.ent moving. In cases where you have a big buildup, of war conditions, these kinds of mistakes are bound to happen. I PAGENO="0061" J~J'J `3 U 111i~J VY VV IWUIIWI U1J~~ .~ ~ these lines? "WE ARE CONSIDERING ALL THE ALTERNATIVES" work is all paid tor under a barter arrangement, wnicn reiieves tne dollar drain situation. Mr. LIPPMAN. Are you sure it relieves the dollar drain situation, Mr. Lee? AVAILABLE FACILITIES MUST DICTATE AREAS FOR REPAIR WORK Mr. LEE. No, I am not sure, because I do not understand all of the mechanics of the barter arrangement in relation to this particular contract. I do know that we have a barter arrangement there. On any barter arrangement there can always be a question as to whether this is a complete relief-it probably isn't in this case-but it is a factor. It relieves the situation, and it isn't an out-and-out drain to the extent that one might think on a casual examination. But we are well aware of the problem, and the desirability of getting this work out into the recipient countries if they can do it. Or if they can't do it entirely, to have them do it to the extent they can. I would not antici- pate that we would be able to close down either one of these rehabilita- tion depots in the immediate future. We are going to have to continue to do some repair work in areas where the facilities are available. GRUENING ADVOCATES DEVELOPING REPAIR AND MAINTENANCE CAPABILITY ju. AID'S MISMANAGEMENT O1~ THE EXCESS PROPERTY PROGRAM 71 "It is the sense of the Oongress that in ftrnishing assistance under this Act, excess personal property shall be utilized whenever practicable in lieu of the 11~'L~-.~Th+ ,\f' -~--~, 4',~,, TT~44~1 ~ ~ ~ impressive accomplishments. Nevertheless, tho~o very accomplishments have been subjected to official criticism, mainly on the grounds that, substantial though these accomplishments were, they were still less than what the critics asserted they should have been. PAGENO="0062" UI properly. Senator GRtIENING. Mr. Lee, it is now 12 :35, and we have a number of other witnesses. I think we had better postpone this second hearing until the call of the Chair2 perhaps next week sometime, when we would want to hear Mr. Griffin, Mr. Harding, Mr. Tuttle, and repre- sentatives of the Department of Health, Education, and Welfare. And AID may also have some further testimony it would like to present following these hearings. So we will stand in recess subject to the call of the Chair, and will probably have a meeting about a week from now. Will you be available? Mr. Lriv. We will he ~i,v~ii1fl.hle Prepared for the Bureau of the Far East, Agency for International Development, October 1966 (By Harbridge House, Inc., 11 Arlington Street, Boston, Massachusetts) PA1~TI INTRODUCIXON A. Baokgro~td The Federal Property and Administrative Services Act of 1949, as amended, directs all federal agencies to obtain and utilize excess property in lieu of new procurement. The foreign Assistance Act of 1901, as amended by passage of `the 1965 Act, singled out AID to particularize and intensify the above general directions. In part, the Act stated: facets of the existing excess property system that affect the Bureau of the Far East. The third Part undertakes to enumerate the various changes that may occur to the present excess property system over the next few years, while the final Part sets forth the recommendations of the Harbridge House task force. PAnT II THE EXCESS PROPERTY SYSTEM A. Purpose The purpose of this Part of the AID Excess Property Report is to provide a comprehensive analysis of the present excess property system-from the gen- eration of an item as excess, to its utilization by a mission. Such understanding is dependent upon familiarity with: (i) the multichanneled flow of excess; (ii) the scope and the dollar magnitude of the system's various segments; and (iii) the dynamics of the system and its subsystems. This Part of the report is divided into five sections. Section A presents the purpose of this Part of the report and details its overall organization. Section B presents an overview of the excess property system, and provides gross stati~tIes PAGENO="0063" vi ±ihX1i~tiLU. LVEUCII UL ILUS report's findings apply to Thailand and to Laos as well as to Vietnam. Nevertheless, its focus-like its preparation-is directed to Vietnam. U. Organization This report is divided into four Parts, of which this Introduction is the first. The second Part, the major portion of this report, undertakes to describe those 2. The $ize of the Ezoess Flow The movement of excess property from generation to utilization is presented, in toto, in Exhibit I. The intent of this exhibit is to show the four separate chan- nels by which excess reaches AID missions, and to indicate the dollar magni- tudes associated with the movement of excess property. Two of the four channels represent mission utilization via "Direct Acquisition." Direct acquisitions are those excess property utilizations made directly from the DOD (if foreign excess) and via the GSA (if domestic excess). The other turc~ `h~rni~1~ hMh ~ "1~AQ" ~ ~,,,, ~ - ~. - ANNUAL EXCESS I ($ in millions) Foreign Excess Domestic Excess Foreign "608" 63% Foreign Excess Total AID Missions' Utilization PAGENO="0064" ipersonal property is simply all property other than real property. There Is a third class in addition to excess and surplus: "exchange-sale" property, which is certain narrowly specified property (69 categories;) that the Congress allows the holding agency to "trade in" toward Its own new replenishment. 74 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM it from the EPRO. In other words, EPRO 608 acquisitions go into inventory and EPRO shipments to missions come out of that inventory.2 Turning from flow to size, the first point to `be made is that these figures are expressed, as excess property figures almost universally are, in terms of original acquisition cost (OAC) . What stands out in scanning the dollars reflected in Exhibit I is the minute percentage of total excess generations `that wind up as AID utilizations. All told, in FY66, only 1.7 percent of excess property genera- tions were utilized by AID. C. The e~vcess property flow Familiarity with the flow of excess is a prerequisite to understanding the reference to AID, that is, as it affects any federal agency engaged in utilizing excess. Roughly 95 percent of all domestic excess property is generated by the DOD, thus the flow presented herein assumes DOD origin. An understanding of the flow begins with an understanding of "reportable" or "nonreportable" excess property. Weapons and other items of a specialized military nature are generally nonreportable, as are salvage and scrap and, in general, those items whose condition, though better than salvage, is ex- ceecUngly poor. GSA handles many, and AID acquires a few, nonreportable items of domestic excess ; but since the overwhelming bulk of AID acquired items is reportable, Exhibit II presupposes reportable excess. The DOD has three categories of long supply : economic reserves, contingency reserves, and potential excess. The excess flow begins with the DOD deter- mination that an item is potential excess. Later on, it may become "declared excess." After having been found to be potential excess, the item undergoes nearly four months of intensive DOD internal screening, both intraservice and interservice. During this 120-day DOD utilization screening period, items are cross-screened, largely by automatic data processing methods. At the end of the 120 days, `the item will take either of two paths in accordance with `its original acquisition cost (OAC) . If an item's OAC is $3,000 or over, and it is not a major item,3 it remains potential excess and is publicized in a listing made up weekly by the Defense Logistics Service Center, Battle Creek, Michi- gan. The listing provides DOD utilization screening supplementary to that effected by ADP. Within the DOD, the listing is widely distributed. Copies are not generally available outside the DOD, but they do go to three domestic AID EPRO's and to Saigon, alerting their recipients to possible excess availabilities. If, at the end of 30 days, no DOD activity has claimed the item, it is declared naiftIlnig ~ iii~Abj-rinau,~eu. i~OW ~ieilt~iveiy~ ~uinur ~urOttgnuuL ~iLU AIIiT6U( transactions are especially so to the Bureau of the Far East. So called "major" items are published separately in "flyers" anti are declared excess is GSA Form 120 is sent to the GSA. Excess property does not physically leave the holding agency unless and until an acquiring agency removes It. PAGENO="0065" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 75 EXHIBIT II DOMESTIC EXCESS: GENERATION AND UTILIZATION Item Determined to lIe POTENTIAL Exèess 120-Day DOD Utilization Screening (Not Required) (Not Required) (Mainly to States) (No longer excess; recipient pays only for handling and transportation) special treatment. It is automatically cataloged and, upon cataloging, the first 15- day screening is reserved for DOD claimants. The DOD priority under this (By DOD) 86-277-67-6 PAGENO="0066" I 76 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM utiiei iype~ ~iL iiem~ ne,~u nuu ut~ c~tuiiu~eu ii' ye uiiii~eu , ~ ~uune' can or iwu will suffice. Finally, if an item is on an agency's "want" list, presumably there is little need to catalog it. GSA effects transfers of excess by "authorizing," that is, approving, them for transfer. Ordinarily, the transfer is initiated by an informal freeze,° which often is followed by a physical inspection of the subject property, and which, with few exceptions, is followed up by transfer (GSA Form 122) . Property not transferred within the normal 60-day utilization screening is automatically declared surplus and immediately becomes subject to a 15-day donation screen- ing period. During these 15 days, and even thereafter, the property may still be claimed by a federal agency, and, if still available, may yet be utilized by reversion from surplus to excess status. However, any item already transferred or donated normally lies beyond later reach. Moreover, only rarely (and reluctantly) will any item be withdrawn from sale for utilization as excess. Unclaimed civil excess is sold by GSA ; the DOD sells its own. Whereas Exhibit II shows the general flow of excess from generation to utilization by a federal agency, it does not reflect the various additional factors peculiarly involved in any AID mission acquisition of domestic excess. Exhibit III endeavors to present these consideratons. Specifically, it analyzes the par- ticulars of the two systems, Direct Acquisition (DA) and Advance Aequisi- tion (AA or 608) initially brought to attention in Exhibit I. Throughout, Exhibit III assumes AID-financed transactions only.7 a. The Domest~c Advance Aoq~tsition System.-TJntil 1903, when Congress established the Advance Acquisition (608) program, Direct Acquisition (DA) was the only system available to AID for other declared domestic excess. Direct Acquisition remains the nominal system for satisfying missions' known ni'i~d~ Th~ A~v~iio~~ Aiij~if3rn~ `c~o'v~ ~ hi~i~-i ~ ~ A T1~ it aione gets, anu witn wnicn it deals exclusively. Transfer of the item on GSA Form 122 may or may not be preceded by its cataloging. If not, the EPRO is informally notified of its availability. In any event, in all likelihood the EPRO freezes the item before perfecting its transfer. T~ypically, the EPRO freezes the item orally, probably by telephone but perhaps in person at the GSA. office. The freeze may merely cover the paperwork time lag. More prob- ably, however, It is made to give EPRO personnel an opportunity to inspect the item, especially if the item is an equipment item. 5 MInus, for DOD-generated items under $3,000, the 15 days of DOD utilization screening. ~ Most, but not an, GSA regions honor freezes, treating them as almost inviolate reserva- tions to be set aside only for drastic reasons. Nevertheless, to GSA claimants, freezes are privileges, not rights In both FY 65 and FY 66, total Non-AID-Financed (607) transactions were less than 10 percent of AID's total utilization each year. In FY 65, less than 4 percent of total Far East excess utilization was 607; In FY 643, the percentage was less than 6 percent; In FY 65, Vietnam's 607 utilIzation was zero. For these reasons, 607 transactions are given little consideration throughout this report. PAGENO="0067" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 77 EXHIBIT UI AID MISSION ACQUISITION OF DOMESTIC EXCESS DIRECT ACQUISITION Declared Excess ADVANCE ACQUISITION (DA) r~6~i ("608") I Region I I-i~i5i~:o--____I ~ I. Copies of ~ ~esand (often E ~ all 122's 1 Inspects desirable) ~: ~ ~ to I c~ ~OTE: If EPRO thsappro~es ~ ~ Saigon for ~ (new) tern rn~y yet be ac- ~ Advance ~ t~ - quired,~or mission ~ ____________ `1 ~ EPRO * ~ ~li~te~1 (no condition a 0 under 608" g Tn annual 5 GSA to ~ t `160!' ~ code) Authorizes Transfer `~ ~1~ii~on - `-Ii ~ [Fzes~''I ~ ~q MR/GPR/I (not required) E [~nsfer :~: Washin~~j by GSA Item itself) ~ ~. ~ ~ ~ ,~ -4~ to Mission (no charge for ~ ~* ~,, ~ ~1 1~~ckst 5~.. S _____________ I and Ships I I i-~-;--:~ ~-:--i (flat 1~% E' Mission via I ~[,~~G~Jservice charge Commercial ~ Washin ton for item) at Mission I ~T~yPacks(usuallY ~lat . Carriers ______________ Expensej ~ ~-` ~ -- -~ -~- _t ~an&SbiIt~~ I~%~cl~ge movement of the item from the holding agency-usually, from some military activity's disposal yard-to the EPItO's own warehouse, or, if the item re- quires rehabilitation, to the rehabilitation site. Rehabilitation may begin im- mediately or not, as determined by a variety of factors: the nature and degree of the rehabilitation required; the rehabilitation agent's backlog; the supply of similar items already available for issue; the demand for such items or, perhaps, the demand for that particular item; and the source of the demand PAGENO="0068" step is a recently adopted (midyear) innovation. Every 15 days, MR/GPR/W sends copies of all GSA. Form 122's to Saigon for 3O~day priority screening. This Vietnam priority is absolutely overriding ; it applies to all acquisitions, including any that were made to satisfy some other mission's specific requirements. Domestic excess property items are rarely reserved for particular missions prior to their first cataloging, for, apart from Saigon's screening of the Form 122's, most missions rely on the catalog to inform them of new availabilities. The three domestic EPRO's issue a consolidated catalog triannually, the issu- ance taking place a month after the date as of which the inventory is listed. Listed by EPRO, the items carry no condition codes, but they do list accessorial changes. Nominally, the mission pays nothing for the Item itself, but must pay a fiat 15 percent of the original acquisition cost to the MR/GPR for its services. These services include : reimbursement of the EPRO's inbound trans- portation expense ; rehabilitation (if any) ; storage ; and other incidental costs, exclusive, however, of packing and outbound transportation. (Thus is the revolving $5 million fund maintained.) After receiving the catalog, the mission may submit a purchase order for particular items, sending it to MR/GPR/W ; but commonly, it will first request a freeze upon whatever it seeks, again sending the reqeust to MR/GPR/W. If the items are still available, MR/GPR/W will direct the EPRO to freeze them for the mission. Such freezes have been broken only rarely in behalf of Saigon, though they can be. T~ypica11y, the freezes are followed by the mission's purchase order, then by shipment to the mission. The cost of packing and outbound transportation is-for domestic 608 excess only-ordinarily another fiat charge: merely 3 percent. Far and away most domestic excess (and virtually all such domestic excess Direct Acquisition program fell so low that, if the same level is to be maintained in the future, Direct Acquisition will assume only minor overall importance, Domestic Direct Acquisitions totalled about $1.1 million in FY~G, with Vietnam taking the lion's share, $8f18,000, or nearly 80 percent of AID's total domestic Direct Acquisition. The Direct Acquisition program is dependent upon the mission's obtaining a copy of the particular GSA regional catalog listing the item. MR/GPR/W instructs GSA which of the ten regional catalogs are to be sent by GSA to what mission, so that few, if any, of the eighty AID missions receive copies of each GSA catalog. (It is understood that Saigon receives all.) The flow shown in Exhibit III presupposes that the subject mission received the subject catalog. The mission does not request the item directly of GSA ; rather, it submits its request via the EPRO which has jurisdiction over the GSA region. The request is also, in effect, directed to the EIPRO, for the EPRO has the authority to approve or disapprove it. Upon receipt of a mission request, the EPRO gets in touch with the regional GSA office and, if the item is still available, freezes it. Again, physical inspection by EPRO personnel normally follows the freeze. At this point, the EPRO may disapprove the mission's request, although such disapproval is not necessarily fatal to the acquisition. (The item may be acquired for the mission by the EPRO under the Advance Acquisition program, perhaps because the 608 route is cheaper.) If the EPRO approves the mission's request, the transaction Is then between the mission and GSA, again using Form 122. The GSA packs and ships at 80 AID' S MrSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM PAGENO="0069" Direct Acquisition program. Its principal handicap is the likelihood that by the time the EPRO receives the misSion request, the item is no longer available. Obviously, it takes time for GSA catalogs to reach missions, and many Direct Acquisition requests arrive at the EPRO only after-often Zo~ng after-the auto- matic release date has passed. Even if this date has not yet passed, the item is likely to be already transferred to, or at least be frozen for, another federal agency. Some sixty times, from mid-June to the end of July, Saigon bad to be sent the disappointing message, "NA" (not available ) , in response to requests for domestic excess under the Direct Acquisition program. 2. The Foreign Flow Happily, the foreign flow of excess property is much simpler than the domestic ~:h_~___ . ~-~-~-- -~-,` ~- ~_1-~ ~-~-~--~ ~ _ - - ~ ~ -~`-~`-, `-`-~-~`b ~ ~` ` £t]~wJJII1I~.Y ~ t,iIIle ii) ~id1II1 it. It appears that in many, if not most, instances there is no prescribed excess screening period. Items tend to move directly from potential excess status to surplus status. Listings of excess DOD stocks are sometimes available to the two foreign EPRO's and the missions, but typically, the only catalogs avail- able are sales catalogs of surplus property. As' a result, the foreign EPRO'S are largely dependent for their acquisitions upon personal contacts with DOD property disposal personnel. Recently, two changes have occurred within DOD in regard to excess stock. The first change is this : heretofore, for foreign excess, only items of $5,000 or more OAC bad to be reported to Defense Logistics Services Center (DLSC), whereupon they were published in the aforementioned 30-day listing that DLSC issues weekly for DOD utilization screening. This threshold has now been dropped from $5,000 to $500; as a result, perhaps somewhat fewer items will escape the two foreign EPRO's notice.8 The second change `affects only Vietnam. Whereas before there were no list- ings of excess generated within Vietnam, some weeks ago the Army in Vietnam 8 Because of this change, foreign excess items between $500 and $2,999 now receive wider DOD utilization screening than do their domestic counterparts! (1 ~ percent) went to ~. rts 2. Fa~ East Ecocess Utilization Exhibit V refines and expands the prior exhibit, especially with reference t~ the Bureau of the Far East interests in excess property. Several striking relationships are revealed by this exhibit: EXHI BIT V-WORLDWIDE EXCESS GENERATIONS-Al D UTI LI ZAT1 ONS (2-YEAR SUMMARY) [Dollar amounts in millions original acquisition costs~ Fiscal year Fiscal year 1965 1966 DOD utilization $857. 0 $1, 456. 0 DOD domestic excess 4, 420. 0 2, 572. 0 DOD foreign excess 694. 0 686. 0 Total DOD excess ~ 115. o 3,258. 0 1 289.0 PAGENO="0070" importance or the various steps in the excess property process, some knowledge of dollar data is necessary. Three tables are presented in the next three exhibits. The first such table, Exhibit IV, in analogous to Exhibit II in that it looks only from generation to utilization by AID generally-~no Bureau of the For East figures or mission figures are included. Its time span is only the last two fiscal years. The second table, Exhibit V, extends over the last five fiscal years and focuses mainly on various breakdowns of AID utilization figures, including breakdowns of particular import to the Bureau of the Far East. The final table, Exhibit VI, shows, in several important categories, the relative volumes of domestic and foreign excess, and in addition presents the breakdown of Advance Acquistion shipments to Vietnam, over FY66, by quarters. 1. Wo~rld Wide Generation~s-AID Utilizatioa of Ea~oess Several facts worth noting are generated by Exhibit IV: (1) DOD utilization increased tremendous]y (70 percent) from FY65 to FY66 even though DOD generations fell sharply; (2) reportable excess screened by GSA is less than the nonreportable excess screened by it; (3) although the reportable excess circular- ized by GSA increased absolutely in FY66 over FY65, it decreased relatively; as a percentage of total reportable excess, the amount circularized fell off by 7 percent; (4) DOD records confirm AID being virtually the only u~er of foreign 82 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 1 percent to a high 86 percent of all excess property utilized by the mission, averaging about 50 percent of all such excess property. These facts indicate that the Bureau of the Far East is a large (if not the largest) single customer of MR/GPR, and that the Vietnam Mission is also a lage (if not the largest) user of excess property within the Bureau. Finally, these data indicate that the largest single source of excess property employed by the Vietnam Mission Is the Advance Acquisition program. Clearly, the Bureau of the Far East should have a lively interest in, and has every right to examine in detail, the policies, procedures, and regulations MR/GPR employs in operating ~ (Again, the explanation lies largely in the utilization of situs country excess in Korea, Taiwan, Vietnam, and the Philippines.) EXHIBIT VI.-FOREIGN AND DOMESTIC EXCESS ACQUISITIONS [Dollar amounts in millions, OACJ Fiscal year Fiscal year Fiscal year ion~i iot~'z PAGENO="0071" one-vn~ra of all such excess property; (ii) The Vietnam Mission (one of 80 such AID missions) has also increased its utilization of excess property, from a low of 17 percent to a high of 40 percent of all Bureau of the Far East utilizations, averaging, again, more than one-third of all such excess property utilized; (iii) The Vietnam Mission has likewise increased its utilizations of property via the Advance Acquisition (608) program, from alow of less than AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 83 figures, of the $919,000 of foreign excess obtained under the Direct Acquisition program during FY66, all but $89,000 was situs country excess, (and of the $89,000, $83,000 was for two items, a rug and the Butler Building), while all Vietnam's 607 (only $24,135) was situs country excess turned over to voluntary agencies operating in Vietnam. E. system dynamics To this point in the report, discussion has centered on the flow of domestic and foreign excess property into AID, and on the size of this flow, measured in dollars. It remains to this section to discuss the inner workings of the AID excess property system and to analyze the regulations, constrains, procedures, and attitudes which impinge on this flow and materially affect the use of excess property by the Bureau of the Far East. Since the GSA, MR/GPR, and the Bureau of the Far East all interact to generate (and solve) the many problems relative to the use of excess property, the inputs of each these organizations are analyzed 1to~trjsL~ ~t, ~IRci1~oThp]f ~ ~riln~~i~ Mta~i~ Chapter 2, Paragraph 35, directs its regional utilization officers to consider "national defense requirements, emergency needs, equitable distribution and transportation costs," in making its excess property transfers. Expressly subordinated to those four factors, a further order of precedence is then laid down: " ( 1 ) Transfers which will preclude current procurement. (2) Transfers for immediate use . . The next three priorities are of exceedingly narrow applicability. The sixth priority is "transfers for international economic aid programs." The GSA Manual then goes on to sanction "first come, first served" approvals, if none of the four listed factor or the six priorities subordinate are applicable. In theory, the application of these regulations by the GSA regional office to available excess might best wait until the automatic release date (ARD) . At that point in time it would be possible to determine which claim among several competing claims rates the highest priority, and the transfer (or award) could be made accordingly. In practice, that is almost never done. Rather, the preponderance-~of transfers is effected on a "first come, first served" basis. Moreover, the first served is often the only claimant served, the beneficiary of preferential notification ef the item's availability. Usually the advance notification is by telephone, "Would you like . . . ?", the Items having just come in ; that is, the GSA regional office had just received its 120 Forms. By no means is AID always the preferred claimant, but at least one GSA region makes copies of major 120's available to the AID EPRO's for immediate prescreening. In such an atmosphere, freezes against `available excess property are not to be ~ ~c~; ~ PAGENO="0072" that it is J~oth a ~ f~Ri~aie interested In customer relations as their customers are in seller relations. And if one must disappoint a customer, the best way to do it is to avoid his even be- coming aware of the disappointment. If an item is transferred without catalog- ing, those who never learn that the item was available will not be disgruntled at its loss. The next-best way to disappoint a customer is to play a passive role, whereby blame for the loss bounces back upon the customer himself ; that is, to indicate that the system operates on a "first come, first served" basis. In view of the GSA "first come, first served" practice, the domestic EPRO's deserve commendation for achieving the volume of 608 acquisitions that they have recorded. Their personal relations with GSA, so critical to them, appear to be good to excellent. b. The G$A $outheast A .~ia Priority-On 2~ March 1966, the Commissioner of the GSA's Utilization and Disposal Service wrote the AA/MR, promising "special treatment" to requests for domestic excess for Southeast Asia ( Saigon, Bangkok, and Vietnam ) . Except for a prior request from another federal agency constitut- ing a "national defense requirement or a domestic emergency need," he wrote, such an AID request for Southeast Asia would be approved "in those cases where the property is available upon receipt of the request." One month later, the Commis- sioner formally instructed the ten regional GSA offices to honor this priority, add- ing that it would apply both to the Direct Acquisition and the Advance Acquisition programs which the EPRO's identified as requirements of those three missions. Initially, the EPRO's used their own discretion as their ba~ds for invoking priority. But almost immediately a problem developed : GSA discovered and pro- tested the shipment to a Latin American Mission of an item that an EPRO had claimed under the Southeast Asia priority. MR/GPR/W was obliged to respond. `j ~ ~ ~ ~ ~-"~-`--`- . ~--`-~` -.-~--- ~-~- j~-~-.--~ ~---- -~`~ ~ -~--- ~ £~ _ relations with their GSA counterparts is certainly not misplaced. 2. MR/GPR Inputs a. Back-ground--The dollar data presented in Section D of this Part of the Report (particularly those data presented in Exhibits V and VI) , argue that the Bureau of the Far East is, perhaps, MR/GPR's single largest customer of excess property. As such, the Bureau of the Far East has a major interest in the vicis- situdes of MR/GPR operations, since it is the single Bureau most affected by these operations. This Section of the Report presents an in-depth examination of MR/GPR operations as they affect the Bureau of the Far East, in response to this interest. b. Ena~ing Legislation.-The Material Resources/Government Property Re- sources Division (MR/GPR) organization administers all excess property for the Agency for International Development. It carries on its work under legisla- tion found in the Federal Property and Administrative Services Act of 1949 (under which the Direct Acquisition program of the Agency is operated), and the Foreign Assistance Act of 19~l1, as amended. Three sections of the Foreign As- A ~ `~. fi'~4- ~ 1~I1T~ /11 rrn ~ ,. .~. nit. -- - PAGENO="0073" AID'S MISMANAGEMENT OF THE EXCESS rI~OPEETY PROGRA~[ 85 (i) $e~tio~ 102 of the Act-which requires AID to utilize excess property in lieu of new procurement; (ii) Section 607 of theAct-whichestablishes the Non-AID-Funded excess refer to unordered, rather than to unshipped items.) (ii) The $45 million vo'ume constraint. (App1ica~bi1ity : all domestic ex- cess.) Just like any other federal agency, AID may claim and utilize domestic excess, but only up to $45 million annually. Under the same law, when claims for excess exceed $45 million, AID not only loses its right to claim additional excess, hut thereafter comes second to the states ; that is, only after donation screening may AID claim surplus property and, if successful, reconvert it to excess. (This provision of the Act suggests the identity of the political in- terests most antagonistic to AID's utilization of excess.) (iii) The Advance Acquisition constraint. (Applicability : all &~8 excess.) In establishing the Advance Acquisition program, the Congress decreed that the $5 million revolving fund might be used to pay the costs of excess prop- erty "in advance of known requirements therefor." Neither the second nor the third constraints enumerated above has affected AID excess property operations : the second, because its threshold has not yet been reached ; the third, because it is disregarded. The first, however, is felt, and some- time's keenly, as when occasionally an EPRO has to delay the transfer of follow- ups to its GSA freezes, pending receipt of purchase orders to reduce its own un- ordered inventory. c. Ecccess Property Ofllces.-MR/GPR administers the five regional excess property offices (EPRO's) , three in the United States (Atlanta, New Oumberland, and Sharpe) and two overseas (Frankfurt and Tokyo) . MRJGPR has redis- tributed the statutory $15 million limitation on excess inventory among the three domestic EPRO's, limiting New Cumberland and Atlanta to $5 million each, and Sharpe to $3 million. The remaining $2 million Is reserved for special contin- ~ latter. As an example, the MO on excess property establishing intra-AID priorities for claiming foreign excess (for which AID is virtually the only claimant) gives any Advance Acquisition claim prece- dence over aiiy Direct Acquisition claim. Other typical preferences include: (i) Subjecting Mission requests for Direct Acquisition to EPRO approval; (ii) Subjecting Mission accessibility to GSA catalogs to MR/GPR deter- mination; and (lii) Limiting the benefits of the AID-Army transportation agreement covering domestic excess to Advance Acquisition stocks. Preference for the Advance Acquisition program over the Direct Acquisition program is caused in part by the "profit motive" built into the revolving fund. As might be expected, MR/GPR desires' to preserve the integrity of its revolving fund so that it can continue to do business. As a result, the organization is motivated to show a gain in the fund. PAGENO="0074" The $5 million revolving fund was invaded, of course, to get the 608 program underway during FY 63 and FY 434, but gains of $1.2 million in each of FY 65 and FY 416 more than offset this initial investment, so that at the end of FY 65 (despite one EPRO being still cumulatively in the red) , the revolving fund registered a surplus of more than $8 million, for a 16 percent "profit" over the two-year period. MR/GPR has been able to record gains to the revolving fund because its average of all costs expended, per excess item, has been something less than its 15 percent accessorial charge. Numerous rehabilitated items, in fact, cost more-sometimes very much more-than the 15 percent charged ; but many other items, particularly those that require no rehabilitation whatsoever, cost substantially less. Without exception, each EPRO must secure "non-rehab" items to support its operation (a factor which aggravates the domestic EPRO's otherwise difficult role vis-a-vis the GSA) . Moreover, the same compulsion occasionally discourages the EPRO's from acquiring low-value lots, irrespective of their condition and of their utility, because of the relatively high cost of handling them as measured against their original acquisition cost (OAO) . Indeed, the MR Program Guidance Manual discourages EPRO acquisition of line items having an OAC of less than $1,000. e. sales and Service.-As with any organization moving large volumes of used equipment from one user to another, MR/GPR considers itself something of a "sales and service" organization. Notwithstanding the high personal dedication which characterizes the individuals in the MR/GPR organization-personal dedi- cation to the service of their country and to the service of AID-assisted under- developed nations-it woi~1d appear MR/GPR personnel are much more "sales- 01 ~[L' e~ees~ pi ujiei t~y ~ ~ ~ ~ ~ ~ ~ . ~. ~. ~ ~ ~ ~ utilization by the missions consists of mechanical equipments. Data obtained via analyses of recently published MR/GPR information reveal that as of 30 April 1966, more than three-quarters of the dollar value of the Inventory was In equip- ments ($7.7 million out of a total inventory of $10 million). Likewise, it is clear that a few high-dollar equipments account for most of the dollar value of this inventory. An analysis of the composition of the domestic Advance Acquisition Inventory is presented in Exhibit VII. Analysis of this exhibit reveals that equip- ments with original acquisiton costs of $5,000 or more accounted for only 14.7 percent of all items of equipment inventory, but that these same items accounted for nearly 80 percent of all inventory investment equipments. EXHIBIT Vu-EXCESS EQUIPMENTS, ITEMS AND DOLLARS I Items Dollars Original acquIsition costs Number of ------------------ Amount (in items Percent Cumulative thousands) Percent Cumulative percent percent $40,000 or over 14 0.5 0.5 $889 11.5 11.5 $20,000 to $39,999 65 2. 5 3. 0 1,950 25. 4 36. 9 $10,000 to $19,999 135 5. 2 8. 2 2, 025 26. 3 63. 2 $5,000 to $9,999 167 6.4 14.6 1,253 16.3 79.5 $3,000 to $4,999 193 7. 4 22. 0 77 1. 0 80. 5 $1,000 to $2,999 483 18.6 40.6 966 12.5 93.0 $500 to $999 398 15.4 56.0 299 3.9 96.9 $100 to $499 870 33.4 89.4 218 2.8 99.7 $1 to $99 276 10. 6 100. 0 13 . 3 100. 0 - 2,601 100.0 7,690 100.0 PAGENO="0075" - - -~ w 14m1) i~4t~JW'~ inrere~t in mechanical equipments derives in part from the greater competition for them, for it is obvious that most federal agencies- and the states-desire to obtain such equipments. Perhaps in the excess property market, as in other markets, demand determines value. In any event, the opposi- tion of those antagonistic to AID utilization of excess property springs perhaps more from envy over mechanical equipments acquired by AID than from any other single source. Whereas the EiPRO's have acquired large quantities of mechanical equipments and some electrical equipments, they have acquired very, very few electronic equipments. A number of MR/GPR personnel possess backgrounds endowing them with some knowledge of mechanical equipments, but few, if any, possess familiarity with electronic items. While dollar data on equipments are useful in assessing the makeup of the total Advance Acquisition inventory, it reveals little or nothing about the utility of such equipments to their ultimate users, the missions. Utility-in part, at least- is determined by the age of the equipment, the assumption being that the older the equipment is, the less useful it is. Accordingly, as part of this study, an analy- sis was undertaken of the ages of equipments listed in the current domestic excess property catalog. This analysis revealed that of the 2,601 items listed, some 535 (or about 20 percent) had the model year specified in their catalog descriptions. The results of this analysis are presented in Exhibits VIII and IX. Exhibits VIII, which indicates ages of equipments by five-year increments, reveals that more than 50 percent of all equipments analyzed were 16 or more years old, with more than 90 percent of all such equipments being 11 or more years old. EXHIBIT VIII.-EXCESS EQUIPMENT AGES,1 NUMBERS AND PERCENTS EXHIBIT IX.-EXCESS EQUIPMENT AGES Equipmen Number Total original 1 to 5 6 to 10 11 to 15 16 to 20 21 to 25 Over 25 ages of items acquisition cost years years years years years years specified 694 $1,404,429 332 1,343,203 2 15 38 12 72 Machine tools_ - Vehicles Construction equipment__ 275 3,321,716 0 Materials han- dling equipment 72 Compressors, generators, and pumps~-- Other Totals - - 64 22 338,159 0 1 53 37 36 443 785 2,601 11 182 0 114 11 9 539, 162 743, 763 7, 690, 432 0 0 2 5 84 14 0 43 0 13 21 9 17 49 196 181 4 17 89 Source: `Domestic Excess Property Catalog No. 4," May 31, 1966, published by MR/GPR, Washington, D.C. 8 21 56 86 535 Exhibit IX presents these same data broken c classes of equipment : machine tools, vehicles, const: handling equipment compressors pumps nd g exhibit reveals, the composition by ~ ~ ~ ace tools being the oldest. For them, ~_ mode ; whereas for vehicles, it was elevi equiprnent(which accounted for nearly C `wil into several arbitrary `~n equipment, materials ~ 9,~ and others. As this ~ to classification, machine ty year interval was t rs. Dated construct in PAGENO="0076" they accountect ror ~3 percent or au suen items. x~eIaiiveiy iew ma~~a~ ~ equipments were dated ; of those that were, the preponderance fell mo the eleven-to-fifteen-year interval. The same interval constituted the mode for com- pressors, generators, and pumps. (2) Standards of Rehabilitation : It is the announced policy of MR/GPR on rehabilitation of excess equipments to restore such equipments to 70 percent of their original serviceability before shipment to missions for use in the field. While this policy is voiced many times throughout the MR/GPR organization, it is likewise clear that actual rehabilitation is undertaken on an ". . . inspect and repair only as necessary" basis.1° And, what is necessary depends primarily upon - --.- -~- ~ £~ :-~ ~ ~ T~113D(~ ~ i~ urv~fttTh MR/(4P~ stsndards for frequent complaints registered against excess equipment, as recorciect in tne various AID reports, concerns bald tires. Research has disclosed that most excess equipments ready for shipment this summer had poor tires-either poor tread or poor casings, or both. In June 1966, the Director of MR/GPR sent a memorandum to each EPRO Officer-in-Charge, attaching a copy of a Saigon report which indicated a ". . . very serious problem of deterioration of rubber componentry in mechanical items." The Director's memorandum concluded: "As a matter of policy, I fully endorse USAID's recommendation that all such parts subject to deterioration be replaced during the rehab process, even though the part may meet our normal Section 608 criteria. Please take the action re- quired and implement this direction at once." What effect the Director's memorandum has had to this point is uncertain. Certainly, when he was informed of one EPRO's interpretation of his words "ruhber cemponentry" as not requiring new tires, the Director stated that he would correct the EPRO's misinterpretation. On balance, it is clear that AID cannot afford to rehabilitate equipments to the level of serviceability undertaken by the Department of Defense. But AID is not limited to a mere choice of either retaining present minimum standards or going to military rebuilding criteria. Other possible levels lie in between. (3) EPRO Operating Differences : (a) Differing rehabilitatio~i levels.-Re- search conducted in Vietnam confirmed the view that foreign excess equipments are often rehalilitated to higher standards than domestic. One reason for this difference is the existence of written standards in the Tokyo EPRO's largest rehabilitation contract. Another reason, perhaps, is the matter of labor rates, which range from about 24 cents an hour in Korea to something over a dollar incieeu, tne nunules VL ile ~ ~ ~ ~ ~ this year employed "inspect and repair only as necessary" as a criterion for the conduct of rehabilitation operations. 11 The Tokyo EPItO has developed a series of written standards for rehabilitation of the equipments undertaken by one of its contractors-Japan Aircraft. By lay standards, these criteria appear to be thorough, viable, and reasonably explicit. I PAGENO="0077" I ~ ~ runctect mi~ii~i purchase order . . . must accompany the special listing." In practice, Mission "want" lists are funded virtually never, nor is the re- quired format observed. Rather, the few "want" lists that are generated tend to be relatively informal documents. As a result, the EPRO's do not treat them systematically by any form of rigorous cross-screening against their inventory. Most EPRO personnel are necessarily bent on, and devote the bulk of their time to, making acquisitions. They find "want" lists useful more as general, than `~`-~ `~)`-, -`-,~- `~ f~-.-~'--(-~'-~ ~ ~ ~J ~ 111~M~i UiI1t~1IL ~wt1ii~er~ aL an estimated total new procurement cost of $2,610 (60 at $43.50) . The FSN was 6530-299-8392, but the item description explicitly stated "Sub NS 6530-708- 4570." As of the beginning of the year, the domestic 608 inventory contained 2088 sterilizers numbered 6530-708-4570, as shown by the consolidated domestic catalog, published 31 January 1966. (Note that this catalog was published to the field after the generation of the "want" list by Saigon.) All had an OAC of $61, and were available to the field at $9 each (15 percent of $60 = $9) . In addition, the sterilizers held at New Cumberland and at Atlanta were in N-i condition.12 Other items on the PA/PR included X-ray equipment, corrosion-resistant sterilizers, and other similar equipments, of which some substitutes held in inventory might have been possible. It is plain, however, that until the missions standardize on the use of "want" lists, and the EPRO's screen them in depth against their inventories, items will be purchased which might have been pro- vided from excess. (13) Cataloging ina4eq~acies.-MR/GPR catalogs of excess stock on hand do not contain condition codes. MR/GPR is opposed to publishing available data on equipment condition, on two grounds: (1) condition may be reported in- correctly, and (2), since all Advance Acquisition excess held in inventory is serviceable, by definition, no condition Information is needed. 12 Condition codes are not reprinted in the excess property catalogs-data on conditions are available at the EPRO's. 46-6059 46-6059 46-6059 46-6059 46-6059 46-6059 27-6082 27-6082 27-6082 27-6082 195 196 197 206 207 220 12 13 24 26 28 30 55 Kettle, steam (40 gal., gas fired) Scaffolding hoist Bearings Fillings (elbows, tees, etc.), stainless steel Gate valves Transformers Automotive parts, Willys Nuts and washers Oil seals Lot Lot Lot 5-in, lot Lot Lot Lot 128,000 27-6082 27-6082 27-6082 27-6082 27-6082 $655 450 907 4,465 1,200 847 10,423 11, 459 6,380 19,219 Hardware (screws, bolts, etc.) Automotive parts, Willys Bushing, Marion shovel Gasket, GM Lighting fixtures and lamps Lot Lot 209 449,707 Lot 24,915 20,470 470 62,959 2, 171 PAGENO="0078" 27 25-7008 28 25-7008 29 25-7008 30 25-7008 31 25-7008 52 25-7008 54 25-7008 58 25-7008 78 25-7008 98 25-7008 29 46-6059 41 46-6059 49 46-6059 50 46-6059 51 46-6059 58 46-6059 62 46-6059 63 46-6059 70 46-6059 71 46-6059 72 46-6059 80 46-6059 114 46-6059 141 46-6059 143 46-6059 Wire rope (stainless steel) _ __ do ~ Float, steel Hardware spares, miscellaneous nuts, bolts, washers, etc. Calipers, machinist's Hardware, rivets, bolts, washers, ~ Lubricants Pumps and pump parts Refrigeration ~ Radio ~ do - do Electronic equipment (power supply, amplifiers) Electrical ~ Electric motors Lamps, lighting fixtures Circuit ~ Cable, power, electrical Diesel engine components Tube steel Brake unit (Warner) Engine coniponents Lot 41 Lot Lot Lot 10 158-in. lot__ Lot 58 Lot Lot 102 50 Lot 92 AID'S MiSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 3. AID Miss'tom Inpv~ts a. Backgrou&i.-Most AID missions operating in cooperating nations have established excess property organizations to help in administering excess prop- erty. The Vietnam Mission has located its Excess Property Section in the Pro~ curement Management Branch. At the time o~f our research conducted in Vietnam, the Excess Property Section consisted of a chief and two assistants, plus. administrative help re- cruited from the Saigon population. The official functions of the Vietnam Mission's Excess Property Section are excerpted in Exhibit XI. EXHIBIT XI OFFICIAL DUTIES OF THE SAIGON MISSION 6. Arranges for the transféii5Otflë TNof~öth~r) non-AID-financed excess property . 7. Maintains close working relationship with the Program and Economic De- velopment Office, technical divisions, the MR/GPR/W, EPRO's General Services Administration, and Defense Service Logistics Center . 15 58 24 150 Lot I 945 27,608 11,424 115, 950 9, 749 11,184 1,168 8,545 2,997 7,248 2,916 12, 500 19,440 12,870 2,090 7,508 13, 758 4, 499 9,396 1,~87 1,623 520 5, 194 PAGENO="0079" 31 Paris 66-77 Housing, flywheeiana clUtch, REO, truck 234 3,323 The listing should not be interpreted to suggest that AID should have claimed all or even most of its items. Indeed, it is deemed obvious that many were unsuitable. Rather, the intent is to show that some items do survive screening and, in connection therewith, to indicate the types of items that have survived. 86-277-67-7 AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 93 b. 1~eceipt of E~vcess.-AID Advance Acquisition (608) shipping doeuments carry the notation : - "In accordance with the Administrator's directive . . . the USAID excess property office should inspect all items covered by the subject purchase order immediately upon arrival in the host country and report their condition to MR/GPR/W." Over 30 percent of the FY66 shipments of domestic excess to Vietnam came through the port of Saigon during the two months of April and May. The weight and cube of those shipments slightly exceeded 1,600 metric tons. It would appear that three excess property officers in Saigon would find it Impossible to carry out this responsibility. Fortunately, in the Vietnam, Mission, responsibiilty for arrival inspection of excess property has been assigned to the Maintenance or- ganization, and Maintenance has, at least in part, contracted it out. On balance, it appears that excess property staff personnel share the general MR/GPR attitude that once an item of excess has been delivered to the host country, AID's concern with it ceases. In excess property, as otherwise in Viet- nam, no density figures are available. The Section's records show what excess o)rnni~rtv h~i ~ h~m ~ ~ ~-i ~ ~ ~ ~ ~ ~ ~ tion process is, as it were, difficult enough without making maintainability a further limiting factor. Mission noncompliance may perhaps be attributable to the separation of supply and maintenance functions, or perhaps to the widespread attitude that mission responsibility ceases upon delivery of the item to the host government, or to a combination of both. In any event, and notwithstanding formal policy declarations, maintenance in general and spare parts in particular remain a major, unsolved pro~Mem In the AID excess property program. The minutes of the Excess Property Seminar conducted May 23-25, 1966, in Panama (held for Latin American personnel) state that ". . . spare parts support on excess property is far more complicated than on new procurement and . . . the likely need for spare parts in the case of old equipment is greater than in the case of new, yet, at the same time, spares are more difficult to come by." The Bureau of Latin America has a proposed Spare Parts and Maintenance Policy (which, as of 27 September 1966, lacked only MR/GPR clearance to become official) . This Policy declares "No excess property . . . which requires spare parts for normal maintenance will be authorized for use in any grant or loan program in Latin AmerLca unless . . . the Borrower/Grantee . . . will immediately make arrangements to assure the availability of `spare part's normally `required." d. Equipment v8. Commodity Ecrees$.-The 608 program as operated by MR/ GPR involves a flat accessorial charge of 15 percent against all items of excess property, irrespective of the item. Since roughly 75 nercent of ~11 i1n11rr~ ~ th~ PAGENO="0080" 94 AIWS MTSMANAGEMENT OF THE EXCESS PROPERTY PROGRAM i~cni~titiitpd ~546.OOO. The next 1~irgest `item was wire $154,000. In total, these two lion a year, rrnt tne pros~~ w i~ujii ~ ~ ~ ~ ~ ~ ~ ~ ~, ~ whatever situs excess can be utilized not only saves money (the only cost being local transportation ) , it saves much time and effort, particularly procurement effort. Unfortunately, the prospect of additional situs country excess is ~s limited as it is attractive. The amount of DOD excess generated iu Vietnam is large; but one can estimate roughly that at least 90 percent of the excess in the property disposal yards is junk, and although some part of this junk might be salvaged, the amount may be too minute to justify the sorting effort. Since the DOD itself utilizes much of the remaining tenth, declared excess is still less. The new Army policy of listing that usable remainder will surely operate to Improve AID's utilization. Nevertheless, this new policy does not countermand the older one of retainIng whatever is repairable, pulling It out of Vietnam and sending ~it to Okinawa for repair. It is this latter ploicy which severely limits the magnitude of prospective improvements in the Mission's utilization of situs country excess. Another limiting factor is the impossibility of one Individual's knowng all AID's needs in Vietnam. Nevertheless, an inc,rease of $250,000 in situs country utilization may well be the equivalent of an improvement in other excess utilization of, say, $500,000. At the very least, the former avoids the delays in consumption which are incident to all in-bound transoceanic shipments, and avoids making port congestion worse. 4. Generic Problems of Tikocess Property a. Baokground.-A number of problems concerning the utilization of excess property by the Bureau of the Far East are not under the primary control of any one organization within AID, or for that matter, any organization external to it. Some of these problems are attitudinal ; others relate to the overall ceo- slohliLy, br euiurein~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ first source of supply." In keeping therewith, among the Comptroller General's four general recom- inendations, one was that AID: ". . .. require a written certification from i~esponsible individuals that, for each purchase of new property, either no suitable excess property was available or available excess property was not used for a stated reason." It can be argued that in the field, as distinguished from Mission headquarters, the problem of utilizing excess property is less one of apathy than of ignorance and lack of attention. To be sure, some field personnel are indifferent, or even antagonistic, to the use of excess. Perhaps more often, however, they are unin- formed-in part because they are so busy with other matters. So far as research has disclosed, no AID-wide effort has ever been made to acquaint all professional Mission personnel, particularly technicians, with the PAGENO="0081" AID'S MTSMANAGEME~T OF THE EXC~ PROPERTY PROGRAM 95 Of cou~, ac~ia1ntanee with the nature of excess ~t~ek does not solve th~ whole prob1~m, or even t1~e 1~rgest part of it. ~ivén both a general knowledge of the excess property potential and a high degree of willingness to Utilize it, I~urean ~f the Far East field personn~l face a `dilllciilt problem in learning abO~tt sj~ëcifie e±c~s~ avail~bllities. The tWenty-1~e copies of 608 catalogs that Saigon Mis~1on ~Oceives certainly caxmnot provide all who might profitably examine them the opportunit~ to d~ so. At present, only favored personnel can be afforded that chance. Morèôver, mere acOess to catalogs is not enough ; the access ffius~ be tim~ly, ei~e whatever itern~ are selected rna~v well have been pre- empted by other c1aimanl~s. C. E~l~c~8s Propert~j Lead Timeg.-Over the pttst fe~ ~S1e~rs, a niiihher of corn- plaints about slow deliveries of excess stock have been rn~de by the Far East Mission to AID/W. Research of e±cess property lead times indicated nothing conclusive can be stated-either absolutely or relatively to Thad times for new procurement. Outcomes vary widely from case to case, d~pending upon such factors a~ : whether the itern is obtained tinder the Advance Aèquisition or Direct Acquisition pro~rarns ; ~vhether an Item is ready for is~ué or reQuires rehabi1ita~ tion ; and ~rhether shipping space can be obtained, espeethily if the item is being shinned under snecial, suace-available rates In ~neraL it wn~ih1. ~vn~ar th~it eAe~~eu~ wu percent or tue reportea utijization. i~quaiiy, no aou~t, tnere are instances where the savIngs are negative, whore the outlay for the excess exceeds its rnarket value or-far more important-its value to the tiltimate user. Such savings, positive or negative, cannot be evaluated other than on a case~ by-case basis. No universally applicable cost/benefit formula exists for their meas~ urement, noi~ can one be. easily devised. The insufficiency of cata1o~ descriptions of the condition of items aggravates the problem ; but the problem would still exist, even if the condition of every item were fully and accurately known in advance of ordering it. What matters, of course, is value of the item of excess to the end user, and that value has nothing to do with cost. Where the item of excess under considera- tion is precisely the same as the given new item and is in the same condition as the new item, the value of the excess item to the user is exactly the same as the value of the new one. And, if the excess item is available and the new one would otherwise have to be procured, the savings are clearly real savings. However, the actual decisions are seldom that clear-cut. The substitute excess may not be exactly the same as whatever new item would be selected ; for example, the item may be gasoline-engine driven instead of diesel-engine driven. And even if the excess item is precisely the same as what would be ordered new, its condition probably is not the same. Certainly, if the item is an equipment item, the odds are astronomical against its condition being the same as that of a new item. Here, relative values will turn on several factors, but most notably on the intensity and the duration of its past and on its projected use. Making sound cost/benefit comparisons of new versus excess equipments is peculiarly difficult in Vietnam, because of the maintenance situation there, Re- search indicates the life of an equipment item in Vietnam tends to end with its ~ ~ 15 PAGENO="0082" 96 AID'S MES~~LANAGEMENT GE TEE EXCESS PROPERTY PROGRAM whether the new equipment will lttst longer than the several used ones which could be obtained for the same dollar outlay. The question remains, and ~t vc~~i ~i ~ ~ iiy~ ~i ii ~ f. Want$ vs. Needs.-It is axiomatic in the field or government procurement that the government buys for only Its minimum requirements ; that is, it satis- ties only needs, never wants. That principle has not been extended to the utiliza- tion of excess. Nevertheless, the Comptroller General's report of April 19115 objected that: ". . . most, if not all, of the excess property has been provided as additions or supplements to the regular approved and programmed assistance and, as such, has resulted in an additional expenditure of United States resources rather than in a dollar savings to the United States. . . . Moreover, excess prop- erty items were being transferred as additions or supplements when the same types o~ items were simultaneously being purchased new for AID-financed proj- ects and programs." MR/GPR is wont to take the position that no distinction can be drawn between excess used in substitution for new proceuremer~t and excess used in suppl& mentation of programmed requirements.1° Thus, AID protested to the Comptroller General that the provision of supplementary excess was not a valid basis for criticizing it. To which the Comptroller General retorted: "We . . . have no objection to continuance of this practice. Our concern and our report deal with AID'~ failure to place primary emphasis on those uses of excess property which would result in savings . . . consideration ( should ) first be given by AID to the use of excess property in AID-financed pro~jects and pro- grams, and only after it is assured that such excess property is not needed for these activities should AID allow it to be transferred as supplementary assistance." The supplementary excess issue is of significance to the Yietnam Mission, so long as the port of `Saigon remains congested. Whereas the volume `of excess - ~ . ~ , ~ - - ~` j- -~---`-~ _ -~ ~ ~ ~ 4-~~ ~ ~ cable requested dispatch in replying, the required information being urgently "necessary in order to release balance of rec~uirements for new procurement using current fund this fiscal year." ~ 16 Although, at the Panama Seminar on Excess Property, an MR/GPR spokesmau in dicated "that the Congress prefers that excess property be a substitute for new acquisitions rather than as a supplement to the approved USAID program." 17 MR/GPR/W replied May 2, projecting full satisfaction of the pickup and station wagon requirements, gnd all the two-and-one-half-ton trucks, if automatic transmissions were acceptable, but only 200 *jeeps. Tokyo replied on the same date, projecting partial quantities In each category, including 90 jeeps, and sent MR/GPR/W a copy of Its reply Whether Frankfort has responded, MR/GPR/W did not know In August. (The decentraliza- tion of inventory control In MR/GPR makes this lack of coordination typical. Whereas co~pIes of the MR/(IPR/W to Saigon were sent to the three domestic EPRO's, no copies were sent to Frankfort or Tokyo.) PAGENO="0083" I AID'S MISMANAGEMENT OF TIlE EXCESS PROPERTY PROGRAM 97 PART III PROSPECTS FOR CHANGE A. Introduction The prior Part of this Report has dealt at some length with the excess prop- erty flow, and the dynamics of day-to-day operations of excess property as it affects the Bureau of the Far East. No discussion of future ~enerstions of e~os~ Fiscal years Domestic excess generations (OAC) 1966 1967 1968 Gross value reportable 800 700 700 Gross value nonreportable 3, 900 3, 500 3, 500 Totals 4, 700 4, 200 4,200 While it may be doubted that extrapolation has any validity whatsoever, the following trend is noted: Total worldwide excess generations : Fiscal year 1964 ~ $6, 900m Total worldwide excess generations : Fiscal year 19G5_ 5, 300m Total worldwide excess generations : Fiscal year 1966 3, 300m 2. Prospect$ fo~" Fore~Lgn Ewces$ Presumably, the OSD forecast did not take into account the military roll-up in France, inasmuch as GSA's request was for domestic excess generations. In any event, that roll-up should portend large acquisitions by the Frankfort EPRO. The Tokyo EPRO, however, has no such roll-up in view, and recently reported trouble acquiring needed quantities of excess property By the end of FY66, its available inventory was clown to less than $3 million, and its Officer-in-Charge in1~ormed members of the resear~h team that unless conditions cbanged-4hat is, unless larger quantities of excess again became available-~-heexpected to have toreducehis staff ~tIiç~çppç~, ,q~' ~s~nji~pji~1 ~ ~ ~ ~ very recently, however, the DOD felt itself constrained to do otherwise, offeriTi~ its DEXS to other agencies for no-cost transfers, as though it were excess. Of the FY65 excess screened by GSA, $105 million was DEXS, of which $37 mu- lion was trans~ferred as exceSS. In FY66, those figures ~i1ropped to, $77 million and $30 million respectively. In each year DEXS was therefore about 5 per- cent total GSA transfers. Now, however, the DOD has authorized it~ depart- 18 The OSD is apparently concerned lest the reg~ional character of the GSA-provided DOt) screening inhibit maxitnutn utilization of such items. PAGENO="0084" agency fashion. Presumably, Uiis action wiii nave tne ertect or reuucrn~ ~ domestic excess availabilities. 4. Political Factors The DOD increase in utilization of its o~vn property cannot help but have an impact on future excess generations. Another impact on generations is caused by the ebb and flow of political opinion regarding the generation and use of excess property. At lea~'t one Senator, Senator Ernest Gruening (Democrat, Alaska) , has exhibited a lively interest in excess property over the past two years, and it is entirely possible that his activities may alter the generation of excess property by DOD, and its use by AID. The threat to AID's utilization of excess property is embodied in Senator Gruening's Bill, S. 3385. He proposes `therein to submit all Advance Acquisition inventories, foreign as well as do- mestic, to donation screening by the States before AID might utilize them. Ac- cording to the Director, MRJGPR, the Bill has no serious prospect of passage. Another effect of Seiiator Gruening's activities is felt through DOD genera- tions. Specifically, the Senator has severely criticized DOD disposal practices, and has requested DOD to study the dissimilar departmental (Army, Navy, and Air Force) policies toward repair vs. disposal, with a view to establishing greater uniformity therein. * The DOD denies that Senator Gruening has in- fluenced its disposal policies and practices. Nevertheless, guidelines, as well as rules, operate in disposal practices, 50 discretion is involved ; and the exercise of discretion appears to have been influenced. The off-the-record statement of a headquarters-level DOD representative was to the effect that, in situations where a year ago an inventory manag~r would have elected to excess certain items on the rationale of holding costs probably exceeding new procurement ~_,. ~,w,nin~urjf ~ - . ~ ~ . - ~ j--- £~ . ~. ~.. ~. ~ ~ ~ No categorical assertions can be made, but all things considered, it appearS likely that the amount of DOD-declared excess will be reduced in the foreseeable futrire. Based on all of the foregoing inputs, the reSearch team forcasts the following worldwide excess generations (exclusive of the eventual roll-up in Vietnam): Forecasted wor'dwide ecocess generations Fiscal year 1D~7 $4, 500m Fiscal year 19fl8 4, 200m Fiscal year 1969 3, 800m C. Changes in AID ea,cess property operations A number of changes in AID excess property operations appear in prospect over the next two years or so. Among them are the following: (i) The AdDance Iwventory-Uhanges in Mie.-The trend of Advance Acquisi- tion shipments has been consistently and sharply upward over the past few years. Unless the mix between equipments and commodities changes, however, it would appear that the trend cannot continue upward for more than a year or two. Part of the reason for this potential "topping-out" relates to the fact that about 75 percent of all items held in the 608 inventory are equipment items and, therefore, require rehabilitation. Given the fact of a $15 million ceiling on this inventory, the rehabilitation cycle itself establishes a ceiling on the turnover of these equipment items. This situation is further worsened by the fact that items rehabilitated for known needs are being included in the reported on-hand inven- tory. This inclusion quite naturally tends to limit the quantity of goods that can be acquired and stored in advance of genuine needs therefor. PAGENO="0085" V ) Utbwfl4/e;~ w JIJrI~IJ ~3 urgafl~iZatiOfl.-At various times uuring rue t~our~e w. task force research, refei~ences were made to the possibility of the Bureau of the ~ . Far East assuming cognizance over EPRO 5 ( Tokyo ) . Examination of this orga- nizational approach by members of the research team revealed that removal of this organization from MR/GPR would probably harm that organization, and would not materially help the Bureau of the Far East. Phat EPRO 5 happens to have so much of its business with Vie:tnam is mci- dental. It remains, like the other four EPRO's, an office whose business is AID- wide, worldwide. Currently, the Vietnam Mission can obtain as many of its acquisitions from EPRO 5 as Saigon `chooses. It hais not ~ho'sen, and presumaibly would never choose, to take all. The other Far East Missions are in a position to claim as much of the remainder as they will, since they obtain Tokyo's cata- log's earlier than do the Missions elsewhere. Finally, it appears that the transfer of EPRO 5 to the Bureau of the Far East would create difficult and highly sensi- tive liaison problems with MR/GPR. (vi) Management Analysis of MR/GPR.-Within the last few weeks, submis~ sion was made of the report of a special in-house survey of MR/GPR. The report is outstanding, and if its recommendations are adopted, highly important changes will ensue. The survey team of the Management Analysis Division of the Office of Management Planning reached the central conclusion that many of the prob- A. Introduction Part I of this Report has served to introduce the subject of excess property to the reader. Part II, the major portion of this Report, analyzed the excess flow throughout AID: its dollar magnitude and the system dynamics of excess prop- erty, with particular reference to its impact on the Bureau of the Far East, and the Vietnam Mission. Part III assessed the prospect for change, and indicated the probable size of excess property generations over the next tL~ree years. It remains to this Part of the Report to present recommendations for improvement in excess property operations. fi increase in e F rty ut: tion by t . in FY62 to I] U in I E; makes exc ~ business" in this Mission. According~ Excess ~ Y Section should be promoted to Branch level, and the ~ the Branch should be expanded to include-in addition to its current ~ promotion of the use of excess property by Mission staff members and tech- nical personnel, including the injection of excess property planning into Mission programming. C. Recommendations beyond the power of the Bureau of the Far East to implement The recommendations provided in this Section of the Report are presented with the knowledge that the Bureau of the Far East cannot undertake these proposed changes; rather, that the office of concern is more directly the Mate- rial Pronertv Resources Division of AA /MR Tt is ohvions however thst n ulim- PAGENO="0086" mum, the following functions : (i) That within the Bureau's Missions he both promote the use of excess ~ ~ ~-1-~ ~ ~ 1f~fc~ ~-~f ~iwh ii~ v~nf~~ th~ Riirc~ii sirv (v) That in the event MR/(~PR does not prepare materials to educate a Mission staff members respecting excess proj~erty, he prepare them for all such staff members under the Bureau of the Far East jurisdiction. (vi) That he spend a minimum of two months annually in the field to acquaint himself thoroughly with the user's point of view toward excess, and with each Mission excess property officer's problems. (vii) That he consider and investigate the feasibility of a centralized, combined Far East screening of excess property listings (especially GSA's) on behalf of the Far East Missions. (viii) That he develop records and cause to be reported annually excess equipment densities in each of the Far East Missions, together with minimum data on their usage and condition. ( ix) That he concentrate more upon the substitution of excess for new pro- curement than upon its supplementary use, and that he advise the Assistant Administrator on budget controls, over the latter. (x) That he consider and advise on the feasibility and advisability of such matters as: Establishing a forward holding point for Vietnam refugee items: say, at Poro Point; Establishing standardization policies for excess equipments, particu- larly for Vietnam; Establishing age guidelines therefor (for example, no excess equip- mer item over twenty years old should be acquired) (xi) -- t for the C n of the congestion in the port of Saigon, he monitor ?tnam's~ US( lementary excess, notifying the Assistant of 102 AiD'S MISMANAGEMEcN~T OF TIhE; EXCESS PROPERTY PROGRAM 2. $eek Legis'ative Authority to Combine the Advance Acquisition and Direct Acquisition Programs Such legislation should be so drafted that the Advance Acquisition program would become the one channel for satisfying both known and anticipated future needs. Shipments for both known and future anticipated needs would then in- volve an accessorial charge ( as is now the case with anticipated needs' only), and the Missions would then deal solely with the EPRO'a-never with the GSA, and never with the DOD excess property disposal officers, except for situs coun- try excess. Such legislation would remove any cloud upon the legality of present practices, and would alleviate the $15 million constraint, removing from it the many items awaiting or undergoing rehabilitation, frozen in recognition of ex- isting needs therefor. ~t. `- - - - - MR/GPR requires central control over excess if such property is to be pro- vided to the Missions in an effective and economical manner. Specifically, cen- tral control should be established over: (i) Mission "want" lists; (ii) cross-screening; I PAGENO="0087" u~eu w me ~peciiic prooiems or spare parts for excess equipments, includ- ing the claiming of many more spare parts for the Advance Acquisition in- ventory. (vii) That MR/GPR prepare a booklet on excess property utilization for field personnel. In addition to d~cribing the entire excess property system and AID's operations therein, the booklet should stress (as MR/GPR per- sonnel do privately) that in some situations it is just as mistaken to use excess as it is, in others, to reject it. USAID The Excess Property function Is part of the Office of Commodity Imports. Until the arrival of Mr. A. Guidette, the duties and responsibilities of this pro- gram were handled by Mr. John May, Chief, Office Commodity Imports and Mr. John Bourne, Deputy Chief, Office Commodity Imports. Until assignment of Mr. Guidette as Excess Property Officer (EPO), the USAID did not and could not handle the function of this office in the manner in which it should have been done. Basically, prior to the assignment of the EPO, the USAID approved practically all the requests for excess property by the GOT on a pro forma basis without much, if any, investigation as to need, capability, budgetary support, etc. PAGENO="0088" 104 AnD'S MISMANAGEME~NT OF THE EXCESS PROPERTY PROGRAM tion of the property, (6) concur In the allocation and reallocation of all excess property and (7) provide the TJSAID with general surveillance over the entire program A man of this type would also require the following qualifications: ~a) familiarity with the country, (b) with GOP requirements, (c) with the language, and (e) a proven ability of getting along with the Turks. During my stay in Turkey, I visited the following GOT installations and viewed excess property in operation: (1) Men'$ TeohiUoal Teacher Tra~ining College, Ankara, accompanied by the following USAID/T personnel : H. Kerwin, Chief, Education Division ; K, ilar- ris, Branch Chief, Vocational Education Branch, and A. Guidette, Excess Prop- erty Officer. During the visit, I met and discussed the program with the following Turks : A. Erkan, Director ; G. Erci, Department Head, Machine Shop ; 11. Dogan, tiictu (i~ `~) ~~--~--`--` -`~~`-`~~ -.---- ~-. -~-,~`---- -~ ~ ~ ~---~ _-_ ~- `-- ~. ~ ~- A ~- ~ - and one other school on a pilot basis and has agreed to use every means avail- able to assist the Turks to obtain excess property. During the visit to this Institution, I noticed the following niachine tools, which were stored on a ramp outside a warehouse and were not in use: (1) 12B Pratt & Whitney Profiler and Milling Machine (production item). (1) Red Ring Gear Grinder (production item). (1) Fellows Model E Gear Shaper (special-production item). (1) Gear Grind Grinder (production item). (1) 61A Fellows Oear Shaper (production item). I was not able to learn if these items had been acquired by the GOT for this institution or if they had been ordered by a Contract Team, Spring Garden Institution. Sufficient to state that they had been in country for some time and had not been utilized. I brought this matter to the attention of 1JSAID personnel, who in turn notified OIEC/GOT, who then informed me that the property would be reallocated as quickly as possible. (2) Ataturk &tnitorium, Ankara, accompanied by the following 1JSAID/T personnel : J. Bouros, Deputy Chief, Offi'c~ Commodity Import ; A. Gui'dette, EPO, and K. Intepet, E~PO (local) . During the visit, I met and discussed with Mr. Cafer the use of the excess property which had been obtained by this institution. All excess property was obtained under the PA Program and totaled $333,135 ac- quisition cost. $320,569 came from Turkey and $12,566 from Europe. The prop- erty consisted mostly of beds, medical equipment and supplies. I was very in- pressed with the utilization of excess by this institution. In one instance, I saw a lamp which had been modified, and was informed that this was used during operations. This, in my opinion, was a classic example of the Turks ingenuity in h&iw nh1c~ t~ ~idsnt an item to a critical need. Also, Dr. Cafer informed m.e that ihe types or property receivect consistect, in LLIC main, oi veiiieie~, ewi~ui u~twii and road building equipment, material handling equipment, etc. Regarding the 608 equipment received so far, Mr. Sahinbas mentioned that there had been a few PAGENO="0089" AID'S MISMANAGEMENT OF THE EXCESS PROPERTY PROGRAM 105 minor defects but that he was perfectly satisfied and preferred the 608 equip- ment ( serviceable) over the DA equipment (as is-where is) . I viewed their en- tire maintenance facilities and found them to be good but small. Their capability, not only for maintenance, but also for remodification and re-engineering, is far above average. I viewed an excess truck which had been re-engineered from a cargo truck to a fire tank pumper with a 40 foot extension ladder. Mr. Sahinbas informed me that if he had to buy that piece of equipment now, it would cost `in the neighborhood of $50,000. I also viewed (1) Super `0' Tv~rna4ozer in operation at the municipal garbage dump, and was informed that this was one of sixteen obtained from excess under the PA Program. lie has ordered approxi- mately $40,000 worth of spare parts from the U.S. in order to place the other Super "Cs' in operable condition. I also viewed a `Oat D 7 in operation, working on a street in the City of Istanbul. I was informed that in the past, he was forced by OIEC, to take excess property that he did not want. Sahinbas was very happy urifh thc~ T~(Th1~1'l~'~7 h~ h~-1 ~ ~-~1 ~ ~ .~ 14~4 ~-~4' ~ 44-~~-~ ~ The plant has a full capacity of 800' tons per day but was running at 600 tons. The reason for not running at full capacity was due to a part shortage of gravel. During 1966, 500,000 square meters of asphalt were laid in `the repair of streets. Mayor Kiber estimates that 1,300,000 `square meters will be laid in 1967. Using excess equipment, the price for doing this work dropped from $3.00 per square meter to $0.96 per square meter. Up to December 1966, the Municipality had received $593,884 acquisition cost of property, of which $400,586 was obtained through the 608 program and $193,298 from the DA Program. Mayor Kiber made the following statements : ( a) pre- ferred 608 equipment over DA, ( b ) preferred commercial type vehicles over military vehicles because of economical operation, (c) in order of preference, he prefers 608 equipment from (1) domestic sources and (2) Antwerp Mar- shalling Site. He has not been satisfied with property from the Rota Marshalling Site, (d) he has been cannibalizing PA equipment for parts, (e) does not believe PA equipment has the same value as 608 and, therefore, does not take as good care of it as he possibly should, (f) has been remodifying equipment in order that it will perform more economically for his purposes, (g) intimated that gas engines removed from equipment, and replaced with diesel engines, were being sold without USAID knowledge or approval, and (it) he had personal knowledge of OIEC misallocating equipment to recipients. I viewed a considerable amount of equipment, some of which are as follows: 5 ton dump trucks (only one had the AID emblem), beaters, asphalt finishers, P 7 dozer, road grader, etc. The following items viewed were not in operation: one 10 ton Baldwin Lima Hamilton, full track, crane. Mayor Kiber stated that he required a shovel front for this item. The crane had only arrived approxi- mately 3 weeks earlier but was checked out and was ready to work, one bitumi- PAGENO="0090" iurti ui. iuiiu~s w it~iauiL&tau~, t)~~[~J ~ ~ ~ ~ ~--`-~ ~ ., `-`-~`-~ ~`-~ £~ into operation, and he hoped they could be ready this year. At the present time, he does not `have sufficient funds in his budget to rehab all of the seven vehicles this year, but he hopes to be able to obtain supplemental funds for this purpose. If this is not possible, the items will be completed next year. I viewed the entire operation, and it appears to be an excellent operation. Also, I saw a complete stock room filled with spare and repair parts for communication equipment which was obtained through the DA Program. This agency supports and fur- ni~hes services to the following GOT agencies : Forestry, Agriculture, Civil Aviation, Maritime, and Fishing. (6) D.$.I.-State Hydra~1ic Works, Ankara, with Mr. Bozoglu, OEIC/GOT; A. Guldette, USAID/EPO, and K. Intepet, U~SAID/EPO (local) , and met S. Sanal, Chief, Machinery and Supply Department. DSI has received approxi- mately $2.5 million acquisition cost of excess property under the DA. They have not received any 608 property as yet, though they have approximately 25 to 30 items on order which will total approximately $400,000. The types of equipment they have received so far from excess consist of construction and road building equipment as well as vehicles. All property was acquired from Europe or Turkey and had to be rehabilitated prior to utilisation. To rehab the equipment now in operation, they have ordered approximately $500,000 of spare parts from commercial sources in the United States. Most of the working items were out of the city, but I did view the following items in op~ration : one 21/2 ton, 6x6, truck, which had been modified to add a water tank on the chasis ; one fire truck; sixteen buses, most of which were Chevy and Ford, but one was a GMC coach; one 4 door Chevy automobile ; four 1/~ ton jeeps ; one 15 ton semi-trailer, and one Bedford bus, manufactured in England, which was obtained from excess thru -t~'rn:~~Th 4 c~mwwim~th]v thrpç~vp~r~ ~i2~o~ for mamtenance worn on tnis type or operation wouia DC approximaLely ~ Mr. Sanal stated several times that he was very appreciative of receiving excess property, and that it had helped tremendously in his operation and that he was looking forward to receiving the 608 items that he had on order. Maintenance capability was very good. (7) Bolu Forestry Base Maintenance Depot, Bol~, with Bozoglu, GOT/OJEC; Guidette, USAID/EPO, and Bertshay, USAID/Forestry technician met with Mr. Salith Brean, Director. Viewed the entire operation, and the maintenance capa- bility of this organization was exceptional. The following is a partial listing of equipment received under both the 608 program and the DA Program : nine D 7 cat tractors ; two road graders ; three TD18 tractors ; five M series 21/2 ton, 6x6, trucks (Reo"s) ; two Clark fork lift trucks; two 1A3 cu. ft. `cement mixer's; two 300 Amp welders; one jeep; one ambulance, and one battery charger. The TD18 tractors and the battery charger, according to the Director, were obtained from 608, while the balance of the equipment was obtained from the DA Program. The three TD18 `tractors were acquired with straight blades, and the Forestry requires angle blades. They intend to refit these items with angle blades, but, PAGENO="0091" AID'S MISMANAGEMENT OF THE EXCESS PEOPERTY PROGRAM 107 in the meantime, they have been using them with the straight blades. The items have been in the country for approximately one year, and the maintenance cost has been light. The main `coin~plaint with this organization, as with all others visited, was the lack of spare parts and the necessity to obtain foreign exchange to buy the required parts. I inspected one No. 3 Brown & Sharpe Universal Milling Machine in their machine shop. The foreman of the shop was very pleased with this piece of equipment, which was obtained from the 608 program. The following average repair cost were obtained for DA equipment which had been rebabed by this organization during the period of 1961-1963: Description Item Truck mounted crane, 20 ton 1 66-20 Straddle truck 1 58-93 Crane TMD, 3 ton 1 58-61 Agency Municipality of Merzifon 4UP351 Turkish Approximate _Q_u~~t~y ~raDoHaLs~ acquisition Pratt Whitney 2 Wheel Gear Grinder (2UP-546)2 Micromatic Model 7-10~-2 ~ #3 Bardons & Oliver Ram Type Turret Lathe ~ Fosdick Floor Type Drill Press Mr. Ercan stated the following : (a~ Excess Property acquisitions was one of the main reasons for the success of the forestry operations in Turkey ; ( b ) he preferred 608 equipment over DA ; (c) approximately 10% of all of his equip- ment was obtained from excess sources ; ( d) Forestry could not have accom- plished as much as they did without excess property, and (e) the eacess prop- erty program of the U.s, wa~~ one of the best forms of AID that could be given to another country for their economic development. POET OF ISTANBUL (POET NO. 62 HASKOY CUSTOM AREA) The following items were waiting to be picked up by recipients: L/O number Identification Arrival number date Municipality of Ardesen A-3572-D June 1965. De- cember 1965 Turkish Maritime Banks 2UP64133 January 1966. Shop van truck, mounted 66-113 Municipality of Kirsehir 4UP943 No- - -- -`~-- - j~-- -,--`------`-, ~ ~ ~ ~ ~ %~`)U1U 11~V~ ilIIIlLeU appilcau.on Forestry. It Is on the list of requirements for the Yeni Mahalle Pilot School, and I was informed that this item would be transferred to the school. 86-277-67-8 PAGENO="0092" Tourna Dorer Semitrailer, tank Truck, wrecker, 1 arm Truck, wrecker, 2 arm Truck, utility Do 3 truck chassis Tractor, MRS 66-172 Do 66-172 Trailer, lowboy 58-89 Compressor,truck mounted Truck, 23'~ton Truck, chassis Do Truck, 3% ton Municipalityof Cal 2UP-66-48 Municipality of Aydin 2UP-66-48 Public Works of laparta 5UP-043 Municipality of Sarkikaragec_ - - 411 P-985 Municipality of Evciler A-1725 Municipality of Usek A-1809 1966. (2) (2) (2) Nov. 1966. Nov. 1966. April 1967. (2) (2) Nov. 1966. Do. Do. Jan. 1966. Nov. 1966. Sept. 1966. Dec. 1966. (2) I Form DD1149 documents are not received up to date. 2 Items shipped from KPRO 4. DISCUSSIONS WITH GOT/QIEC (MINISTRY OF FINANCE) air compressor (210 Leroi or equal) , one sneepsroot rocier, wie iruew. ii~tuw~ (5 ton) , one road grader (C)it 12 or equal), one front end loader (2-4 en. yd.), five ~ Cu. yd. dump trucks, one 21/2~3 cu. yd. dump tru~ck, one 10-15 ton road roller, one 2OOO~-5OOO gal. water truck, one 1/2 ton pickup truck, one lubricating & servicing unit, one 300 Amp welder, and one maintenance truck complete with equipment ; (11) the estimated utilization of equipment in the pools will vary, due to weather, but it was estimated by the GOT that 150 days per year would be a minimum ; (e) the 1000 trucks width the GOT has ordered from EPRO 4. These items will be used for the following purposes : 300 border control ( to con- trol smuggling) , 200 Ministry of Interior (law enforcement) , and 500 for large municipalities ; (1) GOT advised that they hope to acquire 50 million dollars acquisition cost of excess property in the near future for their economic develop~ melt, and that was just a start; (g) how excess property will help the GOT; (1) build more farm to market roads, (2) enable the farmer to earn more money, (3) send more children to school, (4) more jobs, (5) GNP will increase, (6) 66-442 66-442 66-442 58-109 Municipality of Immir________ 58-109 66-442 (I) (1) (1) 2U P-66-17 ____do_______.________.. 2UP-66-17 Truck, utility ___ _______________ 66-58 Municipality of Islamkoy _____ (1) Trailer-van, cooling~_~___~_______________ 66-329 Municipality of Kinik _~______ (1) Water tank, truck mounted ____~_______ 66-92 Municipality of Kires _______. 4UP-936 __do._______._________ A-4150-D 58-271 Truck, cargo, 23'~ ton ----_-----_-_---_--- 66-198 66-192 No identification ____~_~_________do__~______~________________________ 66-451 Municipality of Daniali _______ (1) 110 AID'S MISMANAGEME~T OF THE~ EXCESS PROPERTY PROGRAM PAGENO="0093" - ~ I ) ine proposeu procedure, wflldfl is in tne process or rorrnuiauon vy iiie GOT, be completed and placed into operation within four (4) months, or the program be stopped until this is accomplished. (2) That the following deficiencies now evident in the program be corrected: (a) ordering by the GOT of non-required items by recipients, (b) misallocations by the GOT to recipients, (c) forcing of non-required and unwanted property on recipients by the GOT, (d) possible sale of excess property by recipients withOut USAID approval (I did not find any evidence of this practice, but it was intimated that this had occurred in the past), (e) immediate transfer of past misallocated property by the GOT, (f) enlargement of the OIEC/GOT staff and (g) filling of vacant slots `by the USAID which will assist the GOT. (3) AID emblems be put on all 608 excess property in country. To: Mr. Joseph Lippmafl, Staff Director, Subcommittee on Foreign Aid Expendi- tures, Room 162, Old Senate Office Building, Washington, D.C. 1. Reference AID Conference held at New Cumberland Army Depot on 20 June 1967 in accordance with Priority Message DA 819984 from DCSLOG/MCD, dated 19 June 1967, subject as above. 2. DA Forms 5-23, Item Data Sheets for Agency for International Development and Department of Army Rebuild, covering Caterpillar Tractor D-7, FSN 2410- 191-0536, are furnished as requested. L0NNIE E. HARPOOL, First Lieutenant, AGO, Adjutar~t, (For the commander). AID'S M1.3MANAGEMENT OF THE EXCESS PROPERTY PROGRAM 111 T'r~M T'IA'T'A ~T4EE~P ~ T~ AWr?~ITT~Tm 1IT~ AT~MV p~~~r?T~ ~ T~A DATA SH~T FOR ENG~N~R QJ~1~~1 ( `~ ::~~ :] ~oL ... ~ t~ ~ ~ ~ -"~ -~"~- ~ ~ `. TO: 4. U*. S. Army Mobility Equipineflt Center Tobyhanna i~ rmy Depot St. Louis, 1v:o. Tobyhanna, Pa. . L. B. Smith, inc , Camp Hill; Pa. ______ ~ . 2410-191-0536 Tractor, full tracked,.DE ~ w/bulldozer blade, cable operated, front power control unit, rear mounted winch .-~ PAGENO="0094" TOTAL SCORE Id. ic .O.~) (C~o~o~ ~ ~ ii ~rouseCs o,~d ~te s~cccJ