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Printed for the use of the Committee on Government Operations

U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 1975

50-191

For sale by the Superintendent of Documents, U.S. Government Printing Office

Washington, D.C. 20402-Price 70 Cents

COMMITTEE ON GOVERNMENT OPERATIONS

ABRAHAM RIBICOFF, Connecticut, Chairman JOHN L. MCCLELLAN, Arkansas

CHARLES H. PERCY, Illinois HENRY M. JACKSON, Washington

JACOB K. JAVITS, New York EDMUND S. MUSKIE, Maine

WILLIAM V. ROTH, JR., Delaware LEE METCALF, Montana

BILL BROCK, Tennessee JAMES B. ALLEN, Alabama

LOWELL P. WEICKER, JB., Connecticut LAWTON CHILES, Florida SAM NUNN, Georgia JOHN GLENN, Ohio

RICHARD A. WEGMAN, Chief Counsel and Staff Director

PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

HENRY M. JACKSON, Washington, Chairman JOHN L. MCCLELLAN, Arkansas

CHARLES H. PERCY, Illinois JAMES B. ALLEN, Alabama

JACOB K. JAVITS, New York SAM NUNN, Georgia

WILLIAM V. ROTH, JR., Delaware LAWTON CHILES, Florida

BILL BROCK, Tennessee
JOHN GLENN, Ohio

HOWARD J. FELDMAN, Ohief Counsel
DOROTHY FOSDICK, Professional Staff Director
STUART M. SPATLER, Chief Counsel to the Minority

Ruth YOUNG WATT, Chief Clerk
ROLAND L. CRANDALL, Staf Editor

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MEMORANDUM

To: Members of the Permanent Subcommittee on Investigations.
From: Henry M. Jackson, Chairman.
Subject: Military Procurement of Oil Products.

In late December of 1974 this Subcommittee learned that the military had reached an impasse with the major oil companies in contracting for its petroleum supplies for the following year, just days away: The oil companies refused to supply data to back up their prices and would not enter into contracts containing these clauses, and clauses requiring conformance to certain cost accounting standards. The military felt

that it could not legally accept petroleum supplies without a contract even if offered by the oil companies.

Thus the uninterrupted flow of oil to the military and especially to strategic overseas bases was threatened.

The Subcommittee took an active role in trying to break this impasse and work out an accommodation between the parties. After I wrote the oil companies and urged them to meet their national responsibilities and enter into these critical contracts, a contract to continue to supply the Navy's "Operation Deepfreeze" in Antarctica with appropriate clauses requiring backup data and compliance with cost accounting standards was agreed upon.

Subsequently, other companies agreed to cooperate and began supplying additional data to the Defense Fuel Supply Center which the Center said established market prices against which Defense purchases could be measured. Because this meant that cost or pricing backup data need not be submitted by the oil companies I asked the General Accounting Office to examine if such exemptions were warranted. I am awaiting their report.

In the course of its activities Subcommittee staff began an intensive examination of military procurement practices and prices paid by the military for its oil products.

The Staff's findings are deeply disturbing. Defective Military oil purchasing practices have added millions of dollars to the cost of petroleum purchases. Others must also share the blame. The oil companies have not been forthright in their negotiations with Defense by constantly refusing to supply adequate backup data to contracting officers. The Federal Energy Administration, though asked by Defense whether prices charged were reasonable, failed to properly assist a government agency making such massive purchases. Indeed, FEA, by its own regulations governing the "pass through" of increased costs by the oir companies, may have provided justification for the companies' higher jet fuel charges for the military as compared to commercial airlines.

The Defense Fuel Supply Center has informed us that after the Subcommittee began its investigation, prices previously offered by the oil

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