tract called for the construction by said company of a 12-inch cast-iron pipe line of approximately 19,400 feet and the installation of an 8-inch compound meter at the station near the 1,000,000-gallon tank at the naval air station, Klamath Falls, Oreg. Such construction work was to be completed by December 1, 1945; and to cost not in excess of $50,636, to be paid for by the Federal Government and later to be reimbursed the Government by means of deductions of 15 percent from all monthly water bills payable by any department or agency of the Federal Government which may at any time use the subject premises. The contract further provides that the said line shall be built of such capacity as to furnish the naval air station with a minimum of 40,000 cubic feet potable water per day, at a minimum water pressure of 65 pounds per square inch, with the stipulation that the Government shall not resell any water except to Government-controlled activities located within the premises and that there shall be no interconnection of pipe lines to other sources of supply.

The other contract, that with the city of Tacoma, Department of Public Utilities, Water Division, provides that the city shall build a 12-inch, 150-pound water line approximately 4,800 feet from the city limits along a certain route to a 10-inch water meter located on the northeast corner of the naval advance base, old Mueller-Harkins Airport site, at a cost of not to exceed $45,000. The provisions of this contract with respect to reimbursement of the construction advance are about the same as those contained in the contract described above. In fact, all other provisions of this contract are of the same nature as those previously mentioned in connection with the first-described contract. The work was to be completed by approximately November 1, 1944.

Based solely upon an examination of the written provisions of these two contracts, the projects involved do not appear subject in any sense to the objections raised by the Comptroller General in the San Diego case. In the first place, the amount of public funds involved indicates that the contract work here constitutes merely the enlargement or expansion of existing water-supply systems for the exclusive use of particular naval stations. It is probable that the pipe lines to be constructed became necessary during the war by reason of an increase in the number of personnel located at these posts. The terms of the contracts indicate that the pipe lines were to be constructed directly to the stations involved for the sole use of the Navy or such Federal Government activities as might be located within the subject premises.

The difference between this situation and that involved in the construction of the San Diego aqueduct is readily apparent. There the aqueduct was to be used by the city under arrangements to be made with the San Diego County Water Authority, it having been brought out that the Navy Department alone could not bring a drop of water through the aqueduct. Then, again, the mere fact that there is involved in the San Diego case the expenditure of approximately $15,000,000 would seem sufficient, in and of itself, to warrant the conclusion that such a project should not have been undertaken without specific authority of the Congress.

As above indicated, the comments made herein are based solely upon an examination of the contract documents and without any knowledge of the facts concerning the physical aspects of the construction work. It might be mentioned also that there is some indication that contract No. N406s-9542 with the California-Oregon Power Co. was later terminated. However, to date it has not been ascertained at what point in the construction of the project such termination took place or how much money was expended prior to such termination. The other contract presumably was completed prior to both VE-day and VJ-day.

E. L. FISHER, Assistant General Counsel. R. E. CASEY, Principal Attorney.

Senator MCCARTHY. One further question. I am not sure you are the proper witness for the question, but assuming that this project was illegal as to construction, assuming that the disposal of the project was illegal, at this time the cookies are gone, aren't they?

Mr. CASEY. Yes.

Senator MCCARTHY. We can't get them put back into the jar very well.

Senator FERGUSON. Not quite.

Senator MCCARTHY. There is about $5,000,000 to be spent yet, I understand. From a practical standpoint there has been $10,000,000 spent and there is $5,000,000 to be spent. Even assuming that the whole project has been illegal, I wonder if there is anything this committee can do at this time except to make the record clear so it will not happen again?

The CHAIRMAN. I understand that this committee is required to report the findings on this matter to the Senate.

Mr. CASEY. I might say at this point, which we had intended to cover a little later, that we discussed that very matter with the Comptroller General yesterday after the hearings had developed that $10,000,000 had been spent, that the project as it now stands is of no use to anyone, and that except with the cooperation of the city of San Diego no water whatever can go through it, and he stated that in his opinion the only sane approach at this time would be authorizing legislation to ratify the contracts that have been entered into, the contracts for construction and for disposal. However, in that connection we have one objection to the contract for the disposal of the aqueduct to the city of San Diego. You will note that the contract provides two alternative methods by which the city of San Diego can buy this aqueduct at periodic intervals during the lease.

Senator FERGUSON. They can buy but they don't have to buy.

Mr. CASEY. They don't have to buy, but they will eventually buy if they live up to the terms of the lease, by paying in the full, true cost of the aqueduct, as described in the contract.

Senator FERGUSON. But no interest.

Mr. CASEY. No interest. But the provision that we have particular objection to is the provision whereby the contracting officer, if called upon at intervals of 5 years by the city of San Diego, can set his own price on the aqueduct, his own sales price to the city of San Diego. Senator FERGUSON. In other words, he could sell for a song if he desired?

Mr. CASEY. I believe that if you ratify this contract in its entirety, legally he could sell the aqueduct for a song. We might question his judgment or the price that he set, but so far as the legality of the transaction is concerned, I believe he could sell it at any price.

Senator MCCARTHY. The contracting officer would be who? Mr. CASEY. The Chief of the Bureau of Yards and Docks. Senator ROBERTSON. Let me see if I understand your position. After discussing this matter yesterday with the Comptroller General you recommend that we uphold your contention that this is an illegal transaction; that we report that charge against the Navy, plus a charge against the House and Senate Naval Affairs Committees, that we don't like the way they have handled it by a subcommittee instead of the full committee; that we now proceed to do what the Navy is now undertaking to do, because that is the only sensible thing it can do? Is that what you recommend?

Mr. CASEY. In substance, Senator, except there was no censure contemplated of the Naval Affairs Committees. We did not discuss that phase with the Comptroller General.

Senator MCCARTHY. He said the cookies had been stolen, and there isn't much we can do?

Senator ROBERTSON. That is his point, not mine.

Senator FERGUSON. It seems to me as if only two-thirds of the cookies have been taken from the jar; that there are still a few in the jar, and Congress has the right to act in relation to those few, plus the fact that we have right to act in relation to the sale of this property.

Mr. CASEY. It is to be understood that this is only the Comptroller General's own view, and that he recognizes it is purely a question of policy for the Congress to act upon.

Senator FERGUSON. And retrieve the cookies that have disappeared, as has been said here.

Senator THYE. Mr. Chairman, I would like to call to the attention of the committee the first statement and the question that I asked of the mayor, and also of the naval officials. My own interest in this entire project is the possibility that the city of San Diego might default. There is no reason in the world why they cannot default and simply say, after the aqueduct is completed and water is flowing through it, the city of San Diego could say: "Well, we are awfully sorry, yes, but we don't propose to pay any more money." And the Navy could not do a thing about it. They could not carry it away. They could not carry away their installations, and the Navy would just sit there and finally say: "We will have to declare this a surplus project and dispose of it through another Federal agency." And the Federal agency would go in and sit down and negotiate with the city of San Diego, and the city of San Diego could do as is done with any other military project, say: "We will give you 10 or 12 or 15 cents on the dollar. Take it or leave it, gentlemen. That is our offer." And by that transaction the city of San Diego could get their project for less than $2,000,000. It has been done, and that is my only concern right here this morning-in what manner does Congress wind up the deal so that 5 or 6 years from now, when some of the rest of us may not be on this committee, and the present mayor may not be mayor of San Diego, with all his good intentions to carry through, some other mayor might not say: "Well, I am going to say for the city of San Diego, that is what we are going to do." There wouldn't be a thing in the world that could be done except to accept it. Senator ROBERTSON. Mr. Chairman, in that connection, it is a little embarrassing to me to discuss the contingency that a great city in California, which is a long way from Virginia, would be guilty of a dishonorable act, but I

Senator THYE (interposing). Not a dishonorable act, Mr. Robertson-just the question that here is surplus property, so far as the Navy is concerned, and the Navy has just got to deal with the city of San Diego.

Senator ROBERTSON. It is my understanding-and I will ask these gentlemen from the General Accounting Office if I am wrong—that we are to have a legal contract for the payment of $500,000 a year, and that the city of San Diego, being an incorporated municipality, can be sued for its contracts if they do not live up to them.

Mr. CASEY. There is no question about that.

Senator ROBERTSON. Everybody out there will have to go broke before the contract would be uncollectible.

Senator THYE. But I think there is a charge here against my statement made by Senator Robertson, and for that reason I must make

reply to it, Mr. Chairman, and that is that in the statements I have seen so far, you have to renegotiate at the end of 5 years.

Mr. FISHER. You don't have to. You can.

Senator THYE. All right, you can. They can take the question up and renegotiate at the end of 5 years.

Mr. FISHER. That is right.

Seantor THYE. And that is the reason I raise the question, renegotiation at the end of 5 years. That is what you might be faced with. The CHAIRMAN. I would like to interpose a question here. Isn't it a fact that when the Comptroller General determines that money is being spent illegally by any department of the Government, even on a project such as this, which has merit from at least some standpoints, isn't it his duty to stop any further payments on such projects unless and until approval of the Congress or proper authorities has been given?

Mr. FISHER. That is right, sir.

The CHAIRMAN. In other words, if he determined that this money is being spent illegally, has he any authority to honor any further drafts on the Government until it has been legalized?

Mr. FISHER. That is a peculiar

Senator FERGUSON (interposing). May I just say I think one additional difficulty is that the work of the Geenral Accounting Office is a postaudit proposition, therefore they cannot stop payments; they can' only say after the horse has been stolen that the lock was not on the door.

The CHAIRMAN. That answers my question.

Mr. FISHER. We can do this, Senator: If they sent a warrant over to get money out of the Treasury for the Bureau of Yards and Docks, we can refuse to countersign that warrant, and they cannot get the money. But, of course, millions of dollars have already been gotten. out on the warrants, so it is pretty difficult to stop payments.

The CHAIRMAN. And even though the Comptroller General realizes that this money is being spent illegally, even if he so determines, he can do nothing about it?

Mr. CASEY. Except report to Congress, as he has done under the Budget and Accounting Act.

Senator FERGUSON. And the next payment that comes along, they will not be consulted; payment will be made by the Navy, and then a few months or a few years later the GAO will go over and say, "Now, there is another illegal payment."

Mr. CASEY. I might say in connection with Senator Thye's question

Senator MCCARTHY (interposing). On the question of the legality of the contract, I have attempted to read over the preliminary contract, but can you tell me whether it does recite that the provisions of Public Law 289 have been followed?

Mr. CASEY. No, sir.

Senator MCCARTHY. Then let me ask you this: In its present form, in view of the fact that this contract has not been approved by either of the two committees, the contract is invalid?

Mr. CASEY. We believe so.

Senator MCCARTHY. And while normally, if it were a valid contract, the city could not repudiate the terms of the contract and would have

62917-47- -12

to levy taxes and collect the money, if, as you contend, the contract is invalid, unless some action is taken to enter into a valid contract, the city could repudiate the contract at any time?

Mr. CASEY. Yes, it would be invalid for both sides.

Senator ROBERTSON. Would you read us that section? Because that is not in keeping with my understanding of the contract. I did not understand that the city of San Diego had the right at any period to completely repudiate this contract, and I want him to read the section in the contract that authorizes that, or else retract the statement. Mr. CASEY. Only if the contract is determined to be illegal.

Senator MCCARTHY. Senator Robertson, let me point this out to you: : You need not have a clause in the contract saying that you can repudiate it. If the contract is invalid, we know you can repudiate it at any time, and if, as the Comptroller General's Office claims-and as I personally claim-if this contract is invalid, we don't care much what the terms of the contract are, because there just is no contract, and the city can repudiate it. I believe it is vitally important that we do enter into a valid contract with the city of San Diego. Wouldn't that really answer your question?

Mr. CASEY. Yes, Senator.

Senator ROBERTSON. They really say in the contract, assuming that it is legal, that the city of San Diego is permitted to repudiate it? Mr. CASEY. No, Senator.

Senator ROBERTSON. That is what I thought.

Senator HICKENLOOPER. Is it your contention that while the city of San Diego may have acted within its complete capacity in making this contract, yet if the Government action had no legal foundation, the city of San Diego can say: "We dealt with someone that had no authority. There is no authority on the other side to make this contract, therefore we are not bound"?

Senator MCCARTHY. There is great possibility there.

Senator HICKENLOOPER. You are merely talking about the law now. Senator MCCARTHY. Might I say this, however, that if the city gains this substantial benefit, and if they allow the Government or the Navy Department to proceed and finish the aqueduct without raising any question as to the validity of the contract, I am inclined to think that the court might say the city of San Diego would be estopped from setting up this defense.

Senator HICKENLOOPER. Yes, after they have received the benefit they can not repudiate it.

Senator MCCARTHY. It could go into a long drawn out lawsuit. Senator FERGUSON. I want to put on the record that I would want to know more about the law of California, as to the rights of the city to enter into this contract, whether they had home rule or what their rights were, before I would want to pass judgment on the right of the city to repudiate a contract, even though they had received benefits. Senator MCCARTHY. I believe that is the function of the proper committee to decide.

Senator HICKENLOOPER. Let me ask you this, Senator McCarthy: would the city of San Diego, under general principles of law, be estopped from repudiating such a contract, and whether the only person that could raise the question of lack of contractual ability is someone else who might be interested—that is, someone besides the Government-that might be interested in the contract?