General HOLLIS. It is because of the frequency with which it occurs, and the amount of correspondence and negotiations which it entails in the administration of any given contract.

Mr. KENNEDY. Then if you had a Government contract officer who was not perhaps completely honest, he could make an arrangement with the contractor to allow certain deviations once the contract was let to him; would that be correct?

General HOLLIS. It would be difficult. My office has in force-and 1 do not say it would be impossible, but it would be difficult-a board whch examines these questions of deviations and there would of necessity be collusion, and I have the highest confidence in the members of that Board.

There would, however, always be the possibility that for a contract under $5,000, if my memory serves me, it would not be necessary for him to refer it to the Board.

I must add, so that I have not created any misapprehension, that there has been a diversity of practices over the course of years about this Board, and it has not always been so, so that under other circumstances it might be possible for someone dishonest to negotiate dishonestly with a contractor for his private ends.

The CHAIRMAN. General, at that point, would it not also be true that the Board would rely largely upon the recommendations and information procured and submitted to it by the field inspectors and contracting agencies?

General HOLLIS. Yes, sir; the Board has some experience. The Board also has to rely upon, in this particular commodity of which we are speaking, the so-called Clothing Evaluation Board, who are expected to be and presumably are highly skilled in the manufacture of clothing. That is for technical advice.

They also have at their command the services of our laboratories, our acceptance testing laboratories, if an item is understrength or underweight or will not stand up as to light fastness or abrasion, or any other quality which is involved. The laboratory report is always available to them.

If it is a matter of minor technique, in the manufacture of clothing, the laboratory report is not so significant.

The CHAIRMAN. Let me ask you another question. Assuming that there are deviations and the contracting agency through its inspectors simply accepts the product without submitting those deviations or reporting them to the Board, of course the Board would have no value! General HOLLIS. That is true, sir.

The CHAIRMAN. Certainly irregularities could occur down at that level, without the knowledge of the Board.

General HOLLIS. That is true, sir. I might expatiate on that for a moment if I may. The system currently used and generally recognized, I believe, in industry today, by the inspection people-I did not command the inspection service of the Quartermaster Corps, and it is a separate jurisdiction-their technique is to take samples of these things which it is recognized and has been recognized does not preclude the innocent, totally innocent acceptance of a defective item from time to time, but the thesis is that if you examine every pair of socks or some inexpensive item, that the cost to the Government for the inspection will transcend the cost to the Government for the occasional bad item that will get into the system if the spot sampling

method of inspection is used, and that is a scientific sampling system on which each lot is sampled and the lot is rejected if a sufficient number of defective items are observed.

The CHAIRMAN. Of course, defective items or defective products may occur, a unit of it, in any production. We all recognize that. But what I am speaking of is where the inspector readily detects the deviations in the complete lot or supply of the product, and then ignores it. That would not necessarily ever come to the Board's attention, would it?

General HOLLIS. That is true, sir.

The CHAIRMAN. If he wanted to be dishonest, he could accept a great deal of material and items procured, and he could accept a great many in which there was a deviation from the specifications upon which the contract was let?

General HOLLIS. We have had occasion, sir, where the inadvertent acceptance of substandard material has gotten into our depot system, and it has been complained of by the customer who was issued it, and we have frozen those depot stocks and investigated it to see whether it might have been intentional acceptance of these items.

Secondly, there is a system, and again I give you this by hearsay because I am not the commander of the inspection service, but I do know that they have itinerant supervising inspectors who drop in at unexpected times to check the work of the inspector, which would be a hazard for a dishonest man.

The CHAIRMAN. You are familiar with with a number of contracts that are involved in this inquiry, are you not?

General HOLLIS. I have seen some of them.

The CHAIRMAN. They have been identified to you?

General HOLLIS. Yes, sir.

The CHAIRMAN. Is it correct that you are now in process of reviewing all of those contracts?

General HOLLIS. That is correct, sir.

The CHAIRMAN. And in the course of that review of those contracts, have you already discovered some considerable deviations? General HOLLIS. We have discovered, sir, some items that have given us misgivings, and in certain instances we have taken vigorous action to transfer it to the appropriate Government agency for further investigation.

The CHAIRMAN. Have claims been lodged against contractors as a result of the investigation as far as it has proceeded?

General HOLLIS. May I consult with the counsel before I answer that question, sir?

(Witness consulted his counsel.)

General HOLLIS. The reason I wanted to consult with the counsel, Senator, is because I did not want in any way to interfere with the case which another agency might be conducting, and I did not want to give any publicity to it.

However, I would like to say this, that we have withheld certain moneys which we believe protect the Government's interest in the event that certain malfeasance shall have been established.

The CHAIRMAN. I am not asking for minute details but my understanding was that these contracts that are involved in this investigation, those that we discovered so far, are all in process of review, and that in the course of that review you have already found substantial

deviations, sufficient to warrant you in making claim or raising a question of the extent of withholding payment or asking for reimbursement.

General HOLLIS. Your premise is correct, sir.

Senator MUNDT. As I understand it then, without asking you to identify the cases, General, since they are not concluded, is it correct to say that you have taken steps to recapture for the Government money which may have fraudulently been claimed, provided your misgivings are borne out?

General HOLLIS. We have taken aggressive steps, sir, and to the limit that we think is appropriate without infringing this touchy boundary that I spoke of a moment ago, and I do believe that we have the Government's interest adequately protected financially, from everything that we have been able to learn. I have given that my close personal attention.

The CHAIRMAN. The committee will get into some specific cases later, and I do not think we are going to ask you to identify those cases at this time.

General HOLLIS. Yes, sir.

The CHAIRMAN. All right, Mr. Counsel.

Mr. KENNEDY. General, as I understand it, you also had a vigorous policy concerning your subordinates regarding their relationship with contractors; is that correct?

General HOLLIS. That is correct, sir.

Mr. KENNEDY. Would you tell us first without getting into these memoranda that you put out first, what is your personal feeling concerning contract officers, and contract administrators, and inspectors fraternizing with individuals who are interested in procuring Government contracts?

General HOLLIS. My personal feeling is that they should stay at arms length and that the relationship between them should remain formal. That is for two reasons. The first is that even an innocent intimate association may tend to bias or distort the judgment of a contracting officer, or a buyer, or an inspector; and secondly, because a disgruntled or disappointed competitor is always ready to draw an inference from such an association.

You asked for my personal views, and do you want me to stop there?

Mr. KENNEDY. Then, did you put into effect certain memoranda to carry out those views?

General HOLLIS. I did, and with your permission I would like to read it to the committee.

The CHAIRMAN. You may proceed.

Senator BENDER. Before you read that, I would like to ask the general what he considers to be arms length.

General HOLLIS. May I suggest, Senator, that I believe it will be defined in this memorandum.

Senator BENDER. That is good.

General HOLLIS. I said earlier that I had assumed command of the New York Quartermaster Procurement Agency on November 13 of 1951. On the 16th day of November, 1951, I called together people who were involved in the procurement and inspection activities and expressed my views to them in a meeting in the cafeteria of the building. That was in no uncertain terms.

In order, however, that there should be no forgetting or no interpretation of what I had to say at that meeting, I issued the following memorandum-Official Conduct of Personnel of New York QMPAdated November 16, 1951, to all military and civilian personnel in NYQMPA [reading]:

At a time when the military forces are spending such vast amounts of money as they are today, their procurement operations come under the closest scrutiny of the public, the Congress and other duly constituted agencies of the Government vested with authority over such matters. It is accordingly of extraordinary importance now that the official behavior of each of us in this Agency shall be impeccably correct. It is, therefore, directed that each individual within this command whose duties are directly or indirectly related to the missions of procurement or inspection shall govern himself by the standards laid down below. Relationships with contractors, bidders and potential bidders will be conducted with courtesy and consideration, but no personal favors, entertainment, gratuities or gifts will, except as noted below, be accepted from firms or representatives of firms in these categories. This will be construed to include the commonly accepted "business luncheon" over which business is discussed. It is expected that each of you will comply with this directive with the maximum of tact and courtesy if you receive invitations or are proffered gifts or other favors. Senator MUNDT. Is there a copy of that? I did not quite understand whether it includes or excludes luncheons.

General HOLLIS. It specifically prohibits anyone accepting an invitation to luncheon from a contractor or potential bidder.

Senator MUNDT. Thank you.

General HOLLIS (reading):

Your adherence to the spirit of this directive is required. The interpretation of compliance will rest with your good judgment and your conscience. There will, for example, be cases which will arise where you are visiting a contractor's plant, perhaps remote from a city, where you will receive an invitation to have luncheon as a guest of the contractor's representative. In such a case it may be impossible to decline without actually affronting the individual who has invited you. Under such circumstances it will be my personal policy to accept the proffered invitation and to send some small personal token later to the contractor by way of a return of the courtesy. I recommend this policy for your own consideration if you are confronted with this embarrassing problem.

It is the policy of the Department of the Army to encourage the maintenance of the best possible relationships between the Armed Forces and industry. Accordingly, your acceptance of invitations from trade associations, industry groups, chambers of commerce, civic organizations, or similar agencies is not only not prohibited but is encouraged. doubtful cases, the basic question becomes, “Am I indebted to a contractor or As a criterion for your decision in potential bidder by my acceptance of this hospitality?"

Variations of this theme will be many and diverse. The successful accomplishment of the basic objective can only be achieved if each of you to whom this is adressed follows out the spirit of this directive conscientiously and with consummate tact, diplomacy, and courtesy. I have no objection if you wish to cite or display this directive as a basis for declining an invitation or refusing a gift. I look to each of you for strict adherence to this policy in the interest of the good name of the Quartermaster Corps and the Army in which we serve.

My signature.

That was added to, as I say, by a talk in the same vein, and a vigorous talk so that I think there was a complete understanding of my personal views within the command.

Senator MUNDT. I did not have a copy, and you were reading pretty fast. I was not quite clear about the acceptances which you stated in connection with your personal policy, which you recommended to others. That is where you said that on occasion it might be embarrass

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ing and considered an affront to decline, and consequently some little courteous reciprocal gift should be sent.

Did that apply, or was that meant for luncheon and dinners, or did that create an escape hatch for the acceptance of gifts?

General HOLLIS. It was tied in, Senator, explicitly with the paragraph which illustrated the contingent case, where an officer or employee might be 5 miles from a city for an all day inspection and be asked by a representative of the contractor to come to lunch. I have had that happen to me.

My practice has been to send a note to the Army and Navy Club and ask them to send a box of their salted almonds to the contractor, which is the best return of hospitality that I know of.

Senator MUNDT. That was a device to be used solely in connection with the acceptance of hospitality in terms of a luncheon?

General HOLLIS. It was explicitly tied to the luncheon and under these particular conditions, sir. My office clearly understood that the acceptance of a luncheon at the hands of a contractor or potential bidder in the vicinity of the office in New York City was not condoned. Senator MUNDT. It was not under any remote situation to be construed to authorize an acceptance on the part of one of the people getting that letter of a box of cigars, or a case of whiskey, or a set of silk stockings, which in turn would be reciprocated in that way? General HOLLIS. It was not so intended, sir, and I am sure that it was not so construed. I think from the talk which I made in the fall of 1951, and another one which I made when ASTAPA was launched, and another one which I made later, that my policy is clearly understood, and it is considered to be a stiff-nicked one.

Senator MUNDT. As I got it from your reading it applied solely to luncheons and dinners, and possibly housing if you were staying in

some base.

General HOLLIS. I will be glad to furnish you with this copy at once. Senator BENDER. You did not send me any salted almonds, did you? General HOLLIS. I have not done it often, but I have been caught in that situation and I have visited a plant remote from a city and stayed for lunch with them, and sent them from time to time, and I know of no other solution.

Senator MUNDT. I do not think Congress would be critical of any situation which did not go beyond that. I do not think Congress would be critical of a practice which did not go beyond that.

General HOLLIS. Yes, sir.

The CHAIRMAN. Were these instructions in force and effect at all times after you took command?

General HOLLIS. They have been in effect in every command that I have had from November 16, 1951, to date, sir. They were reissued upon the initiation of ASTAPA in a slightly different guise, much of it or many of the paragraphs lifted verbatim from the earlier letter. I have the letter and I will be glad to read it if you so direct. The CHAIRMAN. Is it substantially the same that was reissued to ASTAPA, and is that dated September 26, 1952?

General HOLLIS. Yes, September 26, 1952, and the first five paragraphs, if my quick scrutiny serves me, are identical with the earlier letter. There is added to the earlier letter the following paragraphs [reading]: