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report, or a report to the committee indicating what has happened since this committee started its investigations of Navy paint operations.
There are several things which I would like specifically to bring to the attention of the committee. The first is that our experience has been that the Navy is changing its excuses for complete elimination of these manufacturing operations. First it was cost, and then at the request of the subcommittee the Navy Department asked for bids.
The CHAIRMAN. Off the record. (Discussion off the record.)
Mr. BOLAND. I should say the Harden subcommittee specifically asked for bids, and they were obtained, and it was found that the cost item was comparable on a private procurement basis as the cost item had been submitted by the Navy Department.
Some of these paints which are being manufactured by the Navy Department are patented items and are alleged to be special items. Some question has been raised that private procurement of them would result in the payment of royalties.
I have a telegram here which I would like to submit and read into the record. It is from the American Marine Paint Co., and it is addressed to Mr. Joseph F. Battley, president of the National Paint, Varnish and Lacquer Association, 1500 Rhode Island Avenue NW. It reads as follows:
We understand that Mr. Daniel Boland, general counsel for our association, will appear before the House committee on July 16, We wish you would convey to him the information that when a Government agency purchases plastic shipbottom paints directly from a private manufacturer such purchases are exempt from royalties.
The CHAIRMAN. Off the record. (Discussion off the record.)
Mr. BOLAND. I might say that the progress made on overcoming the arguments of the Navy Department finally have come down to where their main, major argument today for retention of these manufacturing facilities is quality control. Private industry maintains that they can produce items in as good quality and with as good a durability as the Navy does. We submit if this excuse for manufacturing paints is applied to all naval supply items, then private enterprise would have nothing to do in the defense field.
There are two paragraphs of my statement I would like to read and bring to the attention of the committee. That is, the first one that we have proposed to the Navy Department as a result of these hearings—the hearing by the Harden subcommittee-the establishment of a joint Navy-Industry Committee to study Navy paint requirements, quality controls, inspection methods, procurement methods, and improvement of specifications and other matters.
We think through that all of the know-how and technical ability of the private paint industry would be made available to the Navy.
The second proposal we submit to the Navy is that the industry through the association has offered to place the personnel from discontinued Navy paint plants in comparable positions in the paint industry, and to assist in the disposal of the machinery and raw materials in an orderly manner.
I might point out that the Navy has contended and still contends--and we find the contention in some of its correspondence to members
of the Senate and the House—that their Navy paintmaking operations are negligible and constitute only one-half of 1 percent of the total volume of the industry. This small percentage figure is very misleading, because actually their present production represents about 22 percent of the total volume of the marine paints made in this country.
We have very little if any information on the capital investment of the Navy in the paint plants. There are 2 of them, 1 in Norfolk and 1 at Mare Island. The hearings of the committee contain all of the information we have on this point.
The reason why we support 8832 is that we think it will create within the executive department an administrative agency that will handle these matters of Government competition, and that they will be handled by an impartial group. We think that the Congress has spent enough time on this subject of Government competition. The story has been told and retold, and the policies have been set. The Secretary of Defense and the President have affirmed those policies, but still some affirmative action must occur in the executive department to bring these things to a determination.
We think H. R. 8832 will furnish that means, and we ask that the committee give it a favorable and unanimous recommendation.
I think that is all I have to say.
Mr. OSMERS. You have partially answered the first of three questions which I have been directing to all of the witnesses after an executive session we had yesterday morning. That is, by expressing your favor for 8832 you obviously believe firmly that Congress should establish within the executive department a place where private industry may present its case and the facts and figures; and where the appropriate Government department may also state its case.
Mr. BOLAND. That is correct, sir.
Mr. OSMERS. Second, do you also feel it would be in the public interest for the President to be required to make a report each year to Congress concerning progress made by the executive department in this field?
Mr. BOLAND. I do, sir.
Mr. OSMERS. Third, do you feel before any Government department could enter into an unnecessary competitive business activity, that they should be required to present the justification for that to some Government department such as the Director of the Budget?
Mr. BOLAND. Yes, sir. Mr. OSMERS. In other words, the Navy is making paint and the Air Force is not.
Assuming the Air Force decided they wanted to start to make paint tomorrow, do you feel they should be required, before being permitted to do so, to present their case and prove it out before they can enter into that activity?
Mr. BOLAND. I do.
Mr. OSMERS. As I recall-and I would like to have you bring the committee up to date on it a little bit--as I recall, in our paint manufacturing report the Navy made the quality control contentions which you mentioned in your statement, and they also said that the patents on some of the antifouling paints were privately held. Is my recollection correct?
Mr. BOLAND. That is right, and that is why I read that telegram into the record, because it comes from the holder of the license the holder of the private patents is that company.
Mr. OSMERS. The American Marine Paint Co. Is that right?
Mr. OSMERS. As I recall it, the holder of the patent is a retired Navy captain.
Mr. BOLAND. A retired Navy captain named Petrie.
Mr. OSMERS. He is not, I assume, presently on active duty with the Navy?
Mr. BOLAND. That is my information.
Mr. OSMERS. Do you happen to know whether he is presently engaged in the private paint business?
Mr. BOLAND. I don't know that, sir.
Mr. BOLAND. That is right. I do know that the American Marine Paint of San Francisco now hold the patent, which it is my information they purchased from Commander Petrie; and holding it they are manufacturing these plastic paints under the patents. They stand ready to grant licenses, as they advised the former hearing of the Harden subcommittee.
Then this statement indicates that there would be no royalties payable on any Navy procurement of those items.
Mr. OsmERS. Mention was made here yesterday, I believe it was by Mr. Condon of California, who has some Navy installations lying within his district, that he thought it was quite necessary for the Navy to continue in the experimental field, that is, in the laboratory field in paints. Is there any private organization experimenting, testing, and developing in the paint field?
Mr. BOLAND. Every private paint manufacturer of any repute at all usually has a research and development staff for laboratory work, or it might be just one man. All those facilities are available. They are always constantly developing new products.
In that connection I might state, Mr. Osmers, that in our presentation to Mrs. Harden's subcommittee last June we recommended that the research and development phases of paints now existing in the Navy, be continued; that the Navy should continue its research and development and also work with private industry.
Mr. OSMERS. You feel that they should and it would be proper for them to do so?
Mr. BOLAND. That is right, sir. We think the research and development should be a joint enterprise between the Navy and private industry. The two of them are in there and it is already existing in the Navy, but we do think that the production should be private.
Mr. Osmers. I am inclined to agree with that conclusion. For example, the Navy is developing an atomic submarine in connection with the Electric Boat Co. up at Groton. It is obvious certain special paint requirements will arise as a result of that, and I assume for reasons of national security and experimentation it would be proper for them to continue on experimental operations in connection with paint.
Tell us a little bit about the contracting for plastic paints. How is that worked out?
The CHAIRMAN. Wait a minute. Was that not covered in the subcommittee hearings, Mr. Ward?
Mr. WARD. The thing there, Mr. Chairman, was that the Navy was going to make an experimental contract to see whether private industry could produce the plastic paints at a fair price and at the time of the hearings there was no evidence as to what had happened.
I think it would be helpful to have a statement, Mr. Chairman.
Mr. OSMERS. Could you bring us up to date on that? The Navy was just about to do something about that at that time. How did it work out?
Mr. BOLAND. It worked out as follows: I think they sent out invitations to a list of 45 to 50 paint manufacturers. As to the number of bids that were received, I do not have the exact figures, but they did receive bids from a substantial number of paint manufacturers. The award was made to a paint manufacturer who submitted a price that was practically comparable to the Navy's costs, and which I referred to in my testimony. Any number of paint manufacturers in their bids or by private correspondence with the Navy indicated they were willing to manufacture and submit their bid, but they were conditioned on the fact that they would require an expenditure of money to put the equipment into the plants to make these hot plastics, but they would be very glad to do that provided there was an assurance from the Navy that they would continue to purchase these plastic plants by private procurement.
As you know, that assurance was not given by the Navy. The bid was awarded to the American Marine Paint Co., which has the patent to manufacture those plastic paints.
Mr. OSMERS. So the plastic paints eventually were made by a private paint company. Is that right?
Mr. BOLAND. That is right.
Mr. OSMERS. Did that cover your question, Mr. Ward? Was that the point you wanted to get into the record?
Mr. WARD. Yes. As to where they stand now on plastic paint manufacture by contractors.
Mr. OSMERS. Apparently the only manufacturer who has the equipment to manufacture what you called hot plastic is the American Marine Paint Co.
Mr. BOLAND. At present. There are a number of private manufacturers who are ready to purchase and ready to install the equipment to produce these hot plastic paints and take a license from the patent holder, providing the Navy gives some assurance there would be a continuance of this private procurement of these products.
Mr. OSMERS. I have no more questions.
The CHAIRMAN. Of course, you realize that the claim is made that there is a monopoly among some of these paint manufacturers and that they are overcharging the Government, don't you?
Mr. BOLAND. That I think cannot be supported, because in the paint industry itself there are about 900 manufacturers, and I should say that
The CHAIRMAN. Of course, there are I don't know how many hundreds or thousands of oil stations, but nevertheless the Government found it necessary to get after the gasoline and oil boys. The fact that there are many of them does not prohibit a monopoly. It
tends to give us competition, but finally some of them get together and the rest of us pay the charge.
Mr. BOLAND. The only thing presently which would indicate some concentration of anything in this regard is these hot plastic paints which are patented items. But the holder of the patent is on record with the Harden subcommittee that he will grant licenses to anybody who wants to manufacture for Navy procurement.
The CHAIRMAN. Do you know what the holder of that patent gets out of it in the way of royalties?
Mr. BOLAND. No, I do not.
Mr. WARD. We asked the General Accounting Office to make a detailed study of the history of the development of that patent and who holds it and all of the facts, but they have not reported yet.
The CHAIRMAN. And how long it runs?
The CHAIRMAN. Of course, that is the argument, or one of them. As you said, it is suggested that it is one of the principal arguments for the Government getting into these different forms of business. That is, that the private manufacturers have been overcharging, which is natural, I guess.
Mr. OSMERS. You get as much as you can, Mr. Chairman.
Mr. Boland. I do not know of any such charge with respect to paints.
The CHAIRMAN. You never heard of that with respect to paints? Mr. BOLAND. No, sir.
The CHAIRMAN. I have no more questions.
Mr. BOLAND. There is one item I would like to bring to your attention, Mr. Chairman, about progress. It dovetails into our support for 8832. That is, the paint industry as a result of what has been done is now being investigated under a directive of the Secretary of Defense. That report is due on the 8th of August, but we do not know what it is going to say.
We wanted to point out in the directive of the Secretary of Defense it provides that the Navy shall pass on the question as to whether or not they shall stay in business.
The CHAIRMAN. Whether they shall what?
Mr. BOLAND. Whether or not they shall stay in the paint manufacturing business. We think 8832 by moving it over into an impartial agency will get rid of any such question as that.
The CHAIRMAN. Thank you very much for appearing. Your statement will be made a part of the record.
(The prepared statement of Mr. Boland is as follows:) STATEMENT OF DANIEL L. BOLAND, GENERAL COUNSEL, NATIONAL PAINT,
VARNISH AND LACQUER ASSOCIATION, INC. My name is Daniel L. Boland, an attorney at law, of Washington, D. C. general counsel of the National Paint, Varnish and Lacquer Association, Inc., with headquarters at 1500 Rhode Island Avenue NW., Washington, D. C., a voluntary, nonprofit, industrywide organization, originally established in 1888 and now comprising approximately 1,400 members, a large majority of whom are owners of small businesses. They are engaged in the manufacture and distribution of paint, varnish, lacquer and allied products, or of equipment and materials used in such manufacture. Collectively, they produce approximately 94 percent of the total national volume of all types of paints, varnishes, and lacquers.