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should be no greater danger of failure to demilitarize under this sys

since a property disposal official must certify that the demilitarization has taken place after a personal inspection of the demilitarized items.

After all, it is just as easy to certify falsely that demilitarization has been consummated by American employees as it is to certify falsely that it has been consummated by the purchaser's employees.

Now, we are trying to make it even more difficult for inefficient or dishonest personnel falsely or erroneously to certify that demilitarization has taken place, since we have instituted the requirement that two persons, at different echelons of command, so certify.

Moreover, we have also been considering placing the responsibility for demilitarization with the originating unit. Again, lack of facilities may impede implementation of this concept.

Finally, Mr. Buzhardt yesterday mentioned certain audits being carried out by the Defense Department. I have some further information about these audits, and I wish now to present it to you.

The main audit of which Mr. Buzhardt spoke was conducted from January 11 until June 16 of this year. During that period, seven auditors from the Defense Department, with assistance from 18 auditors from the Army and Air Force audit agencies at times, conducted a thorough audit of property disposal facilities. At this time the findings are in draft form and are being circulated to the Army and Air Force agencies concerned for comments.

Mr. Buzhardt alluded to two other audits which had been planned. After consultation with the subcommittee's staff, these audits, which were to have been conducted of the Army Materiel Command, Europe, and of our ammunition facilities in Europe, have been postponed for a period of approximately 1 year.

This postponement was initiated because of the present state of flux in supply management procedures and in the belief that an audit at a later date would , rovide a truer picture of how these commands were functioning.

That, sir, completes the statement that you so kindly allowed me to read this morning.

Chairman McCLELLAN. Before we go to the interrogation on your original statement, there is one thing in this statement I wish to clear up.

On page 5, you say, · However, for certain items and in certain circumstances, most notably when the DOD yard lacks necessary facilities, we contract with the purchaser physically to demilitarize the equipment.”

Is there presently any followup on that to know definitely that he has actually performed, or do you just take his word for it, a certification from the purchaser?

Mr. BELIEU. I have not personally seen this type of action. I asked that the other day. There are inspectors. The contractor also is supposed to certify. This is one of the places where we have a problem. The type of equipment that this would be, as I mentioned yesterday, would be a tank or something so large that it could not be done in the PDO yard itself.

I think we have had a couple cases where this equipment then has to go someplace where you have heavy cranes, torching and all the things that would be necessary to handle it. They can do it night or day. So that it lends itself to a certain amount of lack of follow-up procedures.

But a representative is required to follow this equipment and certify it. I think where the loopholes might beI am guessing at this, but it sounds logical—if they award a contract to demilitarize, let us say, 20 tanks, he can do it night and day and if he takes out certain spare parts or sighting devices that might be worthwhile, it might be hard to follow through.

Chairman McCLELLAN. You say you contract with a purchaser to do the demilitarizing.

Do you pay him? You say you contract with him. Do you pay him to do it?

Mr. BELIEU. As I understand that, sir, when he acquires the equipment, there would be a stipulation in the contract that he would have to do this.

Chairman McCLELLAN. He does that in addition to what he bids? You don't pay him specially for doing it? That is a part of the consideration of his bid for the equipment? Am I right?

Mr. BELIEU. Yes, sir. That has been the situation in the past.

Chairman McCLELLAN. I would like to know about that. It seems to me he puts a bid on the equipment and he says, “I will charge you as much as I paid for the equipment to demilitarize it."

Mr. BELIEU. He might have 10 tanks. He could not bid on 10 whole tanks. He would bid on 10 tanks as junk. The residual value would be the value he got out of this after he demilled.

Chairman McClELLAN. I know, but if you were going to pay him to demilitarize the tanks he might get all his money back in making junk out of it.

Mr. BELIEU. In effect, he is paid because he buys the tanks for junk.

Chairman McCLELLAN. He buys them on condition and with the understanding that he will thereafter demilitarize?

Mr. BELIEU. The new regulations will require that all this demilitarization be done on government installations. This is where we have had the problem in the past. I still think there may be conditions where we may have to bring in equipment to do it.

Chairman MCCLELLAN. I don't know whether I make myself clear or not. I think I understand what happens. Here he comes in and he buys a junkpile that has a dozen tanks in it. It should be demilitarized. He pays blank dollars for this pile of junk. The bid is accepted. Now, he is required in order to carry out the contract of purchase to demilitarize it at his own expense.

Mr. BeLIEU. We do not pay him a stated sum, no. I was not clear in my answer. We do not pay him to demilitarize. That is a condition of his contract when he acquires the equipment.

Chairman MCCLELLAN. That is what I was getting at.
Very well.

Mr. CONSTANDY. Perhaps one of the gentlemen can answer this. At times the contractor buys heavy equipment in large numbers. When he bids for it he agrees to purchase it for a given price as scrap derived from those vehicles. One of the conditions of the contract is that he will reduce it to scrap before he has fulfilled the contract; in other words, for that one bid process he is obliged to demilitarize. Have there been requirements which would prohibit the contractor from removing that equipment from the military installation ?

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Mr. BELIEU. I think Colonel Buswell could answer that question.

Colonel BUSWELL. Basically, until he fulfills the obligations of his contract, he is not authorized to remove. If he is to reduce the vehicles that you have mentioned, sir, to a state of scrap, until that has been accomplished he has not fulfilled the terms and conditions of his contract; thus, title does not pass to the contractor and removal is not authorized.

Mr. CONSTANDY. So if we present information in the course of these hearings that at times the contractor was permitted to take the tanks as tanks to his own yard where he had equipment to handle them and demolish them, that would have been improper; is that correct?

Colonel BUSWELL. Yes, sir; unless it was at that time a condition under which the contract was let, either for removal to a certain specific location, demil under U.S. Government supervision at that location, under the contract.

Mr. CONSTANDY. So at times that was permitted, is that correct?

Colonel BUSWELL. I would believe, until the change we have previously discussed in the regulations, the contract itself would establish the parameters under which the demilitarization was to be performed.

Mr. CONSTANDY. This becomes very significant later on because we will have situations where it will be shown that the contractor was permitted to take large items in fairly large numbers to his own yard. We have to reflect on it for a minute. You cannot have an inspector present 24 hours a day watching that materiel while it is in his yard. He has the opportunity during the night time or Saturday or Sunday to do what he wants with it.

Now, if the equipment is in the numbers that we have learned of, it sometimes takes him from 4 to 6 months to completely demolish that equipment, and to be able to effectively control the demilitarization of it would have required an inspector, not just a guard, an inspector would have had to have been present with that equipment from the time it was taken from the military installation until he finalized the demilitarization.

I think we will be able to show the situation when that was not done and during the hours when the inspector was not present he continued to work, removing components from the equipment and spiriting them away. When the inspector returns the next day or following Monday, he is looking at what remains, each time less the critical components.

Mr. BELIEU. This is the contract I had in mind when I was responding to the Senator's question a moment ago. I don't know whether the colonel knows about it, but you and I talked about it before.

There is no question that is a wrong procedure and should not be allowed to happen. It has happened in the past. I do not know whether in that particular case it has happened on the basis of the lack of follow-up regulations, but the new regulations should plug that hole.

Mr. CONSTANDY. I think that there is one further point we will show in the course of the hearings.

On occasion, the equipment is retained on the American base and the inspector is not physically present during the entire time the contractor's employees are.

They, again, remove such things as breechblocks and other critical components from the pile of junk.

the case.

Mr. BELIEU. There is no question it has happened. We even have it on new equipment at times when we are building new equipment.

Mr. CONSTANDY. You fully appreciate one has to get a picture of what takes place in these yards when there is a constant coming and going of contractors moving about the yard in an unrestricted way and they are free to do pretty much as they please. At least that has been

Chairman MCCLELLAN. Mr. Secretary, I have just a few questions here. On the middle of page 4 of your statement yesterday, you said, “Annual surplus sales throughout the Defense Department are about $150 million for property which originally cost approximately $512 billion.”

Am I correct that those figures are for fiscal 1970?
Mr. BELIEU. That is correct.

Chairman McCLELLAN. The figures for 1971, I believe, were $122 million.

Mr. BELIEU. You are correct, Senator.
Chairman MCCLELLAN. For property originally costing $5.9 billion ?
Mr. BELIEU. That is approximately right.

Chairman McCLELLAN. These figures are worldwide; this is the total received from the sale of surplus military property, am I correct?

Mr. BELIEU. That is correct, sir.

(The following documents were introduced as exhibits on pp. 232, 233.)

EXHIBIT No. 101 The following listed figures apply to dollar values of R. & M. transactions in Europe during calendar year 1971 : I. Property reported to R. & M.:

Million A. MAP

$175. 1 B. Army

149. 3 C. Navy--

6.3 D. Air Force

117. 2

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VI. Total returns realized :

A. MAP
B. Other.

3.5
7.7

11, 2

Total 1 Refers to combined Army, Navy, and Air Force totals.

All of the above figures were provided to the subcommittee through the Washington offices of Deputy Comptroller for Internal Audit, Office of the Secretary of Defense (OSD).

EXHIBIT No. 102

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Chairman McCLELLAN. These figures show a gross return on all usable materials and scrap sold in 1970 of 2.5 percent and 2 percent for 1971. In other words, a return, if this is correct, a return of only 1 percent higher, 3 percent, or 312 percent on the original investment. On an acquisition cost of $5 billion, that would bring from these sales $50 million more income a year.

Mr. BELIEU. Yes, sir, if we could get 1 percent more.
Chairman McCLELLAN. So we are not dealing here with pennies.
Mr. BELIEU. Not a bit.

Chairman McCLELLAN. We are dealing with millions and millions of dollars.

Mr. BELIEU. No question about it.

Chairman MCCLELLAN. Do you not believe that greater efficiency will produce a substantial increase in the recovery of the original cost from the sale of scrap and surplus property?

Mr. BELIEU. Based on the figures we have to date, sir, if we could increase by efficiency or increase the income from sales at least 1 percent, that would be $50 million.

Chairman McCLELLAN. Don't you think that is possible !

Mr. BELIEU. I hope it is. I think it is if we can get that price. I don't want to hedge. On the other hand, this has something to do with the market, of course.

Chairman MCCLELLAN. Apparently there is a pretty good market. It is just a question of what we are getting out of it.

Mr. BELIEU. If we look at the fact that the people who buy this sometimes sell it for quite a lot larger amount of money than we would anticipate, the answer to your question is absolutely yes, we ought to get more money for it.

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