Secretary KENNEY. I do not know whether I understand your question, Senator.

Mr. MACOMBER. Not Senator, Mr. Kenney.

The CHAIRMAN. He is acting as counsel for the committee.

Secretary KENNEY. I would construe that we had made a complete disclosure to the committee, to the two committees, as to what our plans were. The details of those, we had not gone into. As soon as we knew what the details of those were and had entered into an agreement, we advised the committee.

I construe Public Law 289 as a law which requires primarily advice to the committee. I do not construe that necessarily as being. a condition precedent to our authority to act, because if you will note here, the mere recital of compliance with this proviso in any instrument of conveyance by the Secretary of the Navy under authority of this or any other act shall be conclusive evidence of the Secretary's compliance with this provision as to the property conveyed.

Mr. MACOMBER. Yes; but also does not the act say that prior to the acquisition or disposal by lease or otherwise of any land acquired, the Secretary of the Navy shall come into agreement with the Naval Affairs Committees ?

Secretary KENNEY. That is correct. I would construe it to say that we had by reason of our earlier notification advising as to the disposition, come into agreement with them. The committee certainly evidenced no disagreement with that. Senator Walsh was given a lengthy explanation, and was also given a copy of the agreement, and he gave the reply which I read to the committee just a moment ago. Mr. MACOMBER. Then, you contend that your authority of the previous spring went so far as to authorize the insertion of the provision in the contract that at intervals of 5 years-this is on page 3 of a copy of the original contract-the city may in writing request the contracting officer to name and set a purchase price of said aqueduct, and thereafter the city may purchase said aqueduct for the price so named, and that terminates the lease.

Mr. HILL. Actually, if I may in that connection, they had so-called option rights in them which permitted the Secretary of the Navy or the Chief of the Bureau of Yards and Docks to fix a price.

Now, if it be supposed that that price be unreasonable and indefensible, that provision, I assume, would be subject to question. I think that you will find that that provision is not an uncommon provision. It preserves a flexibility if conditions change in the interim which would permit reexamination which would otherwise not be possible. Senator THYE. Well, Mr. Hill, at the time you entered into this particular contract with the city, how long did you expect that you would remain as a naval department in that vicinity, wherein you would have to depend or rely upon that source of water supply?

Secretary KENNEY. San Diego is a permanent naval installation. North Island, the marine training base, the supply depot, and the headquarters of the Commandant of the Eleventh Naval District are all permanent installations. There are other ones there besides that, are there not. Admiral?

Admiral MANNING. Yes, sir.

Senator THYE. You understood that you would remain there and you would have to depend upon the city for that source of water supply?

Secretary KENNEY. Absolutely.

Senator THYE. And, if you remained, your installations would be continued in just exactly the same manner as now for an indefinite number of years? The city would have to have that source of water supply in order to meet your needs.

There is another question in my mind, as you were the authority that executed the contract. Had you actually commenced construction work, outside of the construction of a naval building which was going to be used as a headquarters for the supervisory staff that would be involved in the construction work of the aqueduct?

Secretary KENNEY. I do not know myself how far along construction work had proceeded prior to VJ-day, but I asked Admiral Manning this morning to get that information.

Admiral MANNING. Of the four contracts, so-called construction contracts which were authorized or executed prior to VJ-day, there had been no work actually done on the immediate trace of the aqueduct line. In addition to those four contracts, we had contracts for the manufacture of a particular type of flange connection for the pipe-line section of the aqueduct. That contract was awarded in May, and contract manufacture was proceeding.

The contracts for the actual construction of the line, the four contracts, had work under way in a preliminary stage, such as accumulation of equipment, organization of forces, organization of camps and their sites, the building of temporary office buildings and field offices for the contractors, and the building of access roads, but the actual work on the aqueduct site did not take place until September.

Senator THYE. Admiral, what type of contract did you have? A cost-plus contract?

Admiral MANNING. We had competitive bid contracts, very favorable to the Government.

Mr. HILL. Lump-sum competitive bid contract.

Admiral MANNING. A lump sum in which the Government carried no further risk. The work was guaranteed for completion as contracted at the contract price.

Secretary KENNEY. According to our information, I believe the contractors are losing money on the contract.

Admiral MANNING. And, were the contract to be terminated, we would have to bail them out for any loss that did accrue.

Senator THYE. What are the safety measures that the contractors have from the standpoint of the contract? Did you have a certain fixed amount of the contract which the Navy Department would have to forfeit as an expenditure on the part of the contractor in the preparation, and so forth? Would it be just what he had expended to date? Admiral MANNING. Yes, sir; but it would be his actual expenditure. Mr. HILL. Including overhead, sir, and material costs, and that sort of thing. It would be as governed by the Contract Settlement Act of

1944.

Senator THYE. Who constructed the roads? Was that a naval operation, or was that contracted for?

Admiral MANNING. Contractors.

Senator THYE. The contractor, in other words, upon the entire contract, would have to have the facilities and all that which was necessary for him to complete the contract?

Admiral MANNING. Completely.

Senator THYE. He had moved that in, and started construction of the road?

Admiral MANNING. He had started construction of roads, segregation of equipment. The Navy Department had no people on the job directly, other than engineers and inspectors supervising the work. Mr. HILL. But, we had spent $300,000, approximately, for the formulation of designs.

Secretary KENNEY. It was $900,000.

Mr. HILL. In just designs and plans for the job, $300,000.

Admiral MANNING. The reclamation people did the design and drawings.

Senator ROBERTSON. I would like to ask the Admiral if he could give offhand a guess as to how much it would cost if we terminated this and bailed those contractors out.

Admiral MANNING. I doubt if you could get out of it at the figures which now guarantee the completion of the project to us.

Senator ROBERTSON. That is just a suggestion I made.

Admiral MANNING. Because of the percentage of the work completed, the fact that the work is entirely contracted for, and under the contract termination clause we would have to make up any loss, and we have reason to believe losses have been sustained by the contractors on this work.

Senator ROBERTSON. You might wind up paying more.

Mr. HILL. I think the total contract price would be the ceiling, but we might well pay up to that.

Senator THYE. That is the reason I made the statement to the mayor, that I would vigorously support the completion of that project, because it would be an utter waste of Federal funds for the Government to step out and leave that installation uncompleted, as it would be. In fact, I would not quarrel with any one of you about the completion. I possibly would quarrel from the standpoint of proceeding at the time VJ-day came, and you had only proceeded in part to get construction work there. That is the only question.

Secretary KENNEY. I might agree with you, Senator, but for the fact of the permanent installations that we have there. That is our largest group of marines. They are located in San Diego. And our marines are still in China, and that is a support in back of those marines as well as support for other naval installations.

Senator THYE. Congress might have a just complaint against the Navy for having proceeded in an emergency manner as if the war was still being prosecuted, with your expenditure there, and with VJ-day coming and Congress in session, you might well have come back to Congress and asked Congress what would have been their views and would they support you in that situation.

Secretary KENNEY. Remember, Senator, the only thing that we did after VJ-day was to make an arrangement with the city of San Diego whereby we recouped our costs. That is the only thing we really did subsequent to VJ-day—to arrange to bail the Federal Government

out.

Senator MCCLELLAN. That is the only affirmative action you took? Secretary KENNEY. We already made commitments to

Senator MCCLELLAN (interposing). That is the only affirmative act you have committed since VJ-day?

Secretary KENNEY. I believe that is correct, is it not?

Admiral MANNING. Some contracts were entered into after VJ-day, but they were all in the over-all picture.

Secretary KENNEY. They were minor in character. The projects had been started.

Mr. MACOMBER. Were there not actually eight prime contracts of which four had been let prior to VJ-day?

Admiral MANNING. Yes; $6,000,000 in the four contracts prior to VJ-day. Others were all in process at VJ-day.

in.

Mr. HILL. Invitation for bids had gone out. Bids were coming back

Admiral MANNING. Yes.

Mr. HILL. Under the bills which pulled back appropriations, I have no doubt this particular project was scrutinized. You remember, Congress withdrew by reversion bills in fiscal 1946 and 1947, and the projects that were continued presumably had the blessing of Congress.

Mr. MACOMBER. On the other side, is it not the fact that during that fiscal 1946 there was a limitation of $250,000 on the use of Lanham funds, because the committees were informed that the Federal Works Agency was proposing to allocate some 32 million dollars to San Diego?

Mr. HILL. I can only go on the record. I know that the $250,000 limitation was put on, but I cannot make an interpretation.

Mr. MACOMBER. Did not the head of

Mr. HILL (interposing). He indicated that the limitation had been put on his funds.

Mr. MACOMBER. Did he not indicate in his letter to the Secretary of the Navy of August 1945 that in his opinion it was done because of the project to allocate 312 million dollars of Lanham funds?

Mr. HILL. Only as regards the amount which had been earmarked from the Lanham Act. As a result, the Navy Department agreed to make such accompanying appearance and such representations as might be necessary to the Congress on that.

Senator ROBERTSON. Mr. Secretary, would you analyze for us the complaint that was made at your undertaking by the Comptroller General and give your answer to that?

Secretary KENNEY. Well, I think that that is set forth in my letter of the 1st of February to the committee. It is the opinion of the Navy Department that there was ample statutory authority for it to proceed with the construction of these contracts under Public Law 289 of the Seventy-eighth Congress, to which we have already referred, and Public Law 347 of the Seventy-eighth Congress. Also, that there was authority under the First and Second War Powers Acts to enter into a contract for disposition of the property, whereby the Federal Government recouped its costs.

Mr. HILL. In that connection, I might refer to page 7 of the committee print, the letter from the Comptroller General. It is the second full paragraph on the page. As I read it, it indicates that there is no question that we had authority for the disposition, and the question which is being raised is as to the authority for the lawful acquisition. While the Secretary under the War Powers Act of 1942 authorizes the lease or other disposition of facilities and properties, it can only be construed as relating to facilities or property lawfully acquired.

Read in conjunction with Public Law 289, which I would suggest conferred the authority to acquire or construct, I am a little bit confused as to where that leaves the legal question which has been raised by the Comptroller General.

The CHAIRMAN. I think representatives of the Comptroller's office will probably make an explanation of that matter.

Senator MCCLELLAN. Under what clause of Public Law 289 do you say you had authority? Under what clause of 289 do you claim the authority to construct this project?

Mr. HILL. There is a miscellaneous item of $24,360,000 under which this project was placed.

Senator MCCLELLAN. Now, I want to ask you this question. Did you ever at any time present to the Congress or to any committee of the Congress this particular project as being a miscellaneous item covered?

Mr. HILL. The letters which Secretary Kenney has referred to, which went to the House and Senate Naval Affairs Committees, referred to the project. I am not aware that they said that the projects were being earmarked under miscellaneous.

Secretary KENNEY. In the letter of Admiral Morrell of January 6, 1945, to the House Naval Affairs Committee, he refers to Public Law 289 and lists various projects, and included in the end is the miscellaneous structures and facilities.

Senator ROBERTSON. Has it been the policy of the Navy Department to earmark general funds with a letter or testimony before the Naval Affairs Committee instead of the Subcommittee on Naval Appropriations of the House Appropriations Committee?

Secretary KENNEY. Senator Robertson, that notification was sent to the Naval Affairs Committee pursuant to the proviso of Public Law 289, which requires us to come into agreement with those committees. That is the reason why that notification was sent to those two committees. Now, in our appropriation act, which is Public Law 347, the Secretary of the Navy was authorized, in accordance with the provisions of the act approved April 4, 1944, which is Public Law 289, to enter into contracts for public works, equipment, materials, and construction, including collateral public works items and acquisition of land in the amount of not to exceed $1,474,931,400.

Senator ROBERTSON. So, it is your contention that you got a bill for $700,000,000 plus to do certain construction work, and that under another statute certain miscellaneous items that were not enumerated had to be reported to the Naval Affairs Committee and you had to come into agreement with them on those?

Secretary KENNEY. That is correct, Senator Robertson. Senator ROBERTSON. Then, the money was received under one act and the authority on this specific project under another act, and therefore you came legally into the possession of this project, and you say the Comptroller General said if you came legally into possession of it, you had a legal right to dispose of it?

Mr. HILL. I am reading from his letter, sir. I do not want to place an interpretation on his own letter, but, as I read that paragraph, that is what it says.

Senator ROBERTSON. Read it out to us again.

Mr. HILL. The Second War Powers Act of 1942-and I might add from my own standpoint that the First War Powers and other acts