Summary of Government exposure on copper under Defense Production Act and national stockpile contracts, June 30 to Dec. 31, 1958

Mr. COBURN. Now, Mr. Witness, you referred to the situation on August 31, 1954. Do you find that on the chart?

Mr. LAWRENCE. Yes, sir.

Senator SYMINGTON. At the time the supply of copper on hand plus the fixed commitments to deliver, plus the maximum put rights of the contractors substantially exceeded the objective.

Mr. LAWRENCE. That is correct.

Senator SYMINGTON. On that date.

Mr. LAWRENCE. But actually the supply of copper on hand on that date must be related to the objective above that date.

Mr. COBURN. The one of August 31 must be related to September 5, 1952?

Mr. LAWRENCE. That is correct, sir.

Mr. COBURN. So that at that time, August 31, 1954, we had on hand or under firm commitment to the Government the equivalent of our objective?

Mr. LAWRENCE. That is correct, sir.

Mr. COBURN. It was at that time not counting any of the optional copper at all, is that right?

Mr. LAWRENCE. That is right, sir.

Mr. COBURN. And it was shortly after that date that there was a substantial increase in the objective?

Mr. LAWRENCE. That is correct, sir.

Mr. COBURN. By which it was increased by more than 100 percent! Mr. LAWRENCE. Yes, sir.

Mr. COBURN. I believe that is all I have of this witness, Mr. Chair

man.

Senator SYMINGTON. Senator Beall, do you have any questions?
Senator BEALL. Not at the moment, Mr. Chairman, thank you.
Senator SYMINGTON. Is that all of this witness, Mr. Counsel?
Mr. COBURN. That is all I have.

Senator SYMINGTON. Thank you very much, Mr. Lawrence.
Who is your next witness?

Mr. COBURN. Mr. George K. Casto.

Senator SYMINGTON. Mr. Casto, come forward, please.

Raise your right hand.

Do you swear that the information you give will be the truth, the whole truth and nothing but the truth, so help you God?

Mr. CASTO. I do.

TESTIMONY OF GEORGE K. CASTO, DIRECTOR, PROJECT ADMINISTRATION DIVISION, DEFENSE MATERIALS SERVICE, GENERAL SERVICES ADMINISTRATION

Mr. COBURN. State your name, your address, your present employment, Mr. Casto.

Mr. CASTO. I am George K. Casto.

I live at 5203 Westport Road, Chevy Chase, Md.

I am employed as Director of the Project Administration Division, Defense Materials Service, General Services Administration.

Mr. COBURN. How long have you been connected with the General Services Administration?

Mr. CASTO. Since its inception in 1949.

Mr. COBURN. Mr. Casto, at my request, have you made a study of the responsibilities of the General Services Administration under the Stockpile Act and the Defense Production Act?

Mr. CASTO. Yes, sir.

Mr. COBURN. Would you tell us from the beginning what the responsibility of the General Services Administration has been with reference to procurement contracts-I mean by the contracts for the purchase of materials for the stockpile?

Mr. CASTO. The General Services Administration and its predecessor agencies, pursuant to the Strategic and Critical Materials Stockpiling Act, Public Law 520, 79th Congress was responsible for the negotiation and execution of contracts for the purchase of strategic and critical materials in accordance with directives issued by the Army-Navy Munitions Board of the Department of Defense during the period 1946 to 1953.

From June 12, 1953, to July 1, 1958, the purchase directives were Issued by the Office of Defense Mobilization, which agency then became the Office of Defense and Civilian Mobilization, and on September 6, 1958, the agency was renamed the Office of Civil and Defense Mobilization.

During the period from September 6, 1958, to September 22, 1961, the directives were issued by OCDM.

On September 22, 1961, OCDM became the Office of Emergency Planning, which agency has issued the purchase directives up to the present time.

During the Defense Production Act, from the time of its enactment in 1950 to date, with the exception of 1951 to 1953, hereafter explained, GSA negotiated and executed the contracts for the expansion of production or the purchase of materials in accordance with certificates of necessity issued by the policy agency.

From August 28, 1951, to August 14, 1953, DMPA performed the function of negotiating contracts pursuant to certificates of necessity. But this function was returned to GSA on August 14, 1953, when DMPA was abolished.

From 1950 to 1953, the Defense Production Administration issued the certificates.

From February 4, 1953 to 1958, ODM issued the certificates. From 1958 to 1961 OCMD issued these certificates. In 1961, the responsibility was given to OEP, where it presently remains.

The certificates of necessity were somewhat more specific than the purchase directives under the Strategic and Critical Materials Stockpiling Act and authorized GSA to enter into contracts for the purchase of specific materials or the expansion of production.

As to the storage of materials, GSA has been responsible during the entire stockpiling period for all materials acquired under the Strategic and Critical Materials Stockpiling Act, the Defense Stockpiling Act and the supplemental stockpile.

As to the disposition of materials under the National Stockpiling Act, where there has been a determination that materials are no longer required for the stockpile, GSA, pursuant to a revised determination by the policy agency and upon express authorization, proceeds to develop a plan of disposal in accordance with the requirements of DMOV-7.

Once the proposed plan has been approved and all interested agencies have approved it, GSA publishes in the Federal Register its intention to dispose of the material and then must await the required 6 months' period.

GSA must also secure the express approval of the Congress except where the material has been determined to be obsolete or no longer useful in time of war, in which case, the specific approval of the Congress is not required."

Under the Defense Production Act, the Government has the right to dispose of material freely. Here ODM and later OEP issued directives to GSA to prepare disposal plans pursuant to DMOV-7.

As to the reduction of contracts of purchase, GSA negotiated the reductions of active contracts of purchase after having received a general directive to cancel or reduce in certain categories from the policymaking agency.

Senator SYMINGTON. Excuse me; what was the date of that?
Mr. CASTO. This was in 1957.

With reference to diversions or deferrals, GSA received specific directive from the policymaking agency to permit the contractor to divert or defer over a certain period of time. This required in each instance an amendment to the original contract. The national stockpile, supplemental stockpile and the DPA inventory are all stored separately. This, among other things, because of the difference in the method of disposing of each and the method of accounting for each material.

Mr. COBURN. Mr. Casto, I wish you would tell us a little more what you mean by the word "negotiate." As I understand it, you say it was the responsibility of GSA, acting under either directives or certificates received from the policy agency, to negotiate contracts of purchase of materials for the stockpile. What do you mean by negotiated? What did you do?

Mr. CASTO. The Congress, in creating the Strategic and Critical Materials Stockpiling Act, specifically exempted the acquisition of materials for the national stockpile from the policy requirements of sealed bids. It is my understanding that the intention behind this was that the quantities of material that would be procured under directives which would be issued by the policymaking agency were so substantial that if sealed bid technique was used and we went out onto the market advertising the full requirement that we had, we would have a disruptive influence upon the market.

Consequently, we simply made known that we were interested in securing materials for the stockpile and were receptive to offers. If offers were then made to us, we checked the reasonableness of the price, we checked the availability of that material as to whether it would be in excess of civilian requirements, and we made purchases for the stockpile.

Mr. COBURN. You are now talking about purchases under the Stockpile Act?

Mr. CASTO. That is correct.

Mr. COBURN. Well, what I am getting at is this: As I understand it, you got a quite general directive from the policy agency to make purchases of certain materials under the Stockpile Act, or you got a quite general certificate, for that matter?

Mr. CASTO. That is right.

Mr. COBURN. Under the Defense Production Act to negotiate for the purchase of a certain kind of material.

Now, when you got such a directive or certificate, what did GSA do? Did you have a negotiating officer who got in touch with the contractors and negotiated the contracts with them?

Mr. CASTO. Yes, sir; we had contracting officers who were responsible for the acquisition of materials.

Mr. COBURN. You contacted the contractors yourself, or the contractors contacted you; is that right?

Mr. CASTO. In either instance, yes.

Mr. COBURN. Then your negotiating officer entered into formal negotiations with the contractor?

Mr. CASTO. That is correct.

Mr. COBURN. And he was a GSA man?

Mr. CASTO. That is correct.

Mr. COBURN. Was it the spirit and intent of the procedure as you understood it that GSA should negotiate these contracts without interference from outside?

Mr. CASTO. Yes, sir.

Mr. COBURN. From any other agency?

Mr. CASTO. Yes, sir.

Senator SYMINGTON. Could I ask a question, counsel?

Mr. COBURN. Yes, indeed.

Senator SYMINGTON. In the nature of your negotiations, you say that you did not advertise but you spread around that you were interested in the material.

Mr. CASTO. That is correct.

Senator SYMINGTON. Inasmuch as the people who raised or lowered the price would be the trade, what would be the difference from the standpoint of market reaction if you spread it around informally or spread it around formally?

Mr. CASTO. If you spread it around-say your sealed bid of 5,000 tons of any given material would be multiplied by the total number of bidders responding to you.

Senator SYMINGTON. If you negotiated informally and in some secrecy a bid, the results of that negotiation would become trade knowledge fairly rapidly, would they not?

Mr. CASTO. Yes, sir.

Senator SYMINGTON. Another question. As a result of these negotiations, inasmuch as there was a considerable volume involved, did you normally buy below the market?

Mr. CASTO. I would say we bought at market, what we considered market to be at that time. We endeavored to buy below market wherever feasible. I recall one instance where we bought 20 million pounds of nickel as an example on a firm basis at 29 cents a pound. It took 3 years to deliver it and by the time it was completed, the purchase was substantially below the market.

Senator SYMINGTON. So that you probably were helped by negotiating on the side

Mr. CASTRO. Very much so.