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Senator FERGUSON. The Navy must know. They must allot certain officers to a project.

Mr. Hill. It would be possible, I should think, to develop the cost of those officers assigned to the project, but when you go beyond that and attempt to take the total cost of the Naval Establishment last year and allocate a portion of it to this particular contract, I think you would probably end up with futility.

Admiral MANNING. I think we can get what would normally be considered the cost.

Senator McCARTHY. Also the amount of money that the Bureau spent in carrying out its plans, so we will know what the over-all cost of the project is.

Mr. HILL. I think it has been indicated that that cost was around $300,000. But I will be glad to have that furnished and put in the record.

Senator FERGUSON. Was that considered when you sold the property?

Mr. Hill. When we sold the property!
Senator FERGUSON. When you made the contract.

Mr. HILL. All that goes into the true cost. I think we can supply the answer to that by looking at the definition of what true cost is under the contract.

Senator FERGUSON. Will you let us know that?
Mr. HILE. I will.

Senator FERGUSON. True cost. Is that the word you use, or actual cost?

Mr. HILL. I think it is true cost.

Senator FERGUSON. But at least you could say that no overhead for the Navy officers would be in it?

Mr. HILL. I think it would not be, no, sir. Senator FERGUSON. Could you give us the number of civilian employees that would be assigned to the work?

Admiral MANNING. That will be included in the same overhead cost.

(The information requested was furnished to the committee in the following form :)

NAVY DEPARTMENT,

Washington 25, D. C., March 26, 1947. -Hon. GEORGE D. AIKEN,

Chairman, Committee on Expenditures, United States Senate. MY DEAR SENATOR AIKEN: In the course of the hearings on the San Diego aqueduct project, representatives of this Department were requested to furnish the committee with information as to (i) the nature and extent of administrative and other costs (other than direct contract costs), incurred by this Department in connection with such project and (ii) what the interest on an amount equivalent to the Federal Government's investment in such project would approximate.

Such administrative and other costs will aggregate $855,000 on a projection to completion basis, as follows: Field administration, inspection and surveys (by A. and E. and by group IVb employees).

$628, 000 Provision, upkeep and maintenance of field offices, equipment, and camps including supplies and utilities--

157, 000 Provision of field concrete testing laboratory

5, 900 Field rentals and leases--

9, 100

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Estimated total cost directly chargeable to project funds--

800,000

$15, 000

Resident officer in charge (Navy pay) 242 years at $6,000_
Proration of the administrative expenses of the District Public Works

office

40,000

855, 000 In this connection, attention is invited to the provisions of contract NOy-13300 defining the meaning of the “true cost” of the aqueduct. Such provisions are contained in article 3, which reads as follows:

"ARTICLE 3—TRUE Cost to GOVERNMENT OF AQUEDUCT "(a) The true cost to the Government of the aqueduct is herein defined as the sum of (i) the cost of acquisition of all rights in real property acquired for either the construction or operation of the aqueduct, including incidental costs such as appraisals, surveys, maps, title evidence, court costs, and the like, (ii) the cost of construction contracts utilized in the accomplishment of the aqueduct plus the reasonable value of Government-furnished material and equipment furnished with respect thereto, and (iii) those costs incurred in the field for Government or other employees (exclusive of naval officers) and equipment in connection with the work on the aqueduct (excluding that required in the preparation of presently existing specifications) which the contracting officer finds to be in excess of those costs which would have been incident to the ordinary maintenance of Government establishments in the absence of such work.

(0) It is anticipated that the city and the contracting officer will be able to agree upon all items of such true cost. To the extent agreement is reached, such agreement shall, in the absence of fraud, supersede for the items covered the application of the above stated definition of true cost. To the extent that agreement is not reached, the determination of whether disputed items are a part of true cost within said definition shall be deemed a question of fact within the meaning of article 9 hereof."

Of the above incurred and estimated costs, $800,000 would seem clearly to fall within the meaning of “true costs"; $15,000, representing the salary of the officer in charge, would appear to be expressly excluded; and the remaining $40,000, representing proration of the administrative expenses of the district public works office would seem to be includable assuming the method following in the proration accords with sound accounting principles and the amount so prorated is found by the contracting officer in effect to be directly attributable to the project.

It will be appreciated that it would be premature and improper for this Department to make the definitive determination of "true cost” to date at this time and in this manner and that the above figures are an indication only for the particular information and guidance of the committee. Of these administrative costs a total of $650,389.14 had been expended as of March 1, 1947.

The total number of Navy civilian employees assigned full time to the project has ranged between 36 and 134, with the mean number 75. Ninety-one are currently employed. In addition, a part of the $40,000 proration of administrative expense item represents the apportionment of salaries of civilian personnel indirectly connected with the project. Any attempt to apportion the salaries of other civilian employees with a remote indirect connection with the project (such as employees in the Navy Department in Washington) would be unsuccessful.

As to the inquiry concerning interest, on an estimated total true cost of $14,235,000, with interest computed at 2.3 percent (the rate which the Treasury Department has indicated the Federal Government is currently paying on an equivalent amount of long-term debt), the sum would amount to $4,825,745. This further assumes yearly payments on account of principal of $500,000 until payment of the "true cost” has been completed. On the same basis, except for the substitution of a 1.947 percent interest rate (the average rate to maturity which the city of San Diego advises it will pay on $6,000,000 of bonded debt incurred in 1945), the sum would amount to $4,085,098. Respectfully yours,

J. J. MANNING, Rear Admiral (CEC) United States Navy, Chief of Bureau.

OFFICE OF THE GENERAL COUNSEL,

DEPARTMENT OF THE NAVY,

Washington 25, D. C., March 5, 1947. Hon. GEORGE D. AIKEN, Chairman, Committee on Expenditures in the Executive Departments,

United States Senate, Washington 25, D. C. DEAR SENATOR AIKEN : In the course of my testimony before the Senate Committee on Expenditures in the Executive Departments on the San Diego aqueduct project, I was requested to furnish information as to the amount expended and to be expended by the Bureau of Reclamation in the preparation of plans and designs, including surveying and engineering work.

Accordingly I enclose a letter from Mr. William E. Warne, Assistant Commissioner of Reclamation, to me, dated March 3, 1947, with its enclosure, a letter from Mr. Michael W. Straus, Commissioner, to Mr. George Field, Commissioner of Community Facilities, Federal Works Agency, dated January 17, 1947.

As I recall, I indicated that the amount so expended and to be expended according to my information would aggregate $300,000, which is confirmed by the January 17 letter from Mr. Straus. Very uly yours,

JAMES T. HILL, JR., General Counsel.

UNITED STATES DEPARTMENT OF THE INTERIOR,

BUREAU OF RECLAMATION,

Washington 25, D. C., March 3, 1947. Mr. JAMES T. HILL, Jr., General Counsel, Navy Department,

Washington 25, D. C. MY DEAR MR. HILL: At the hearings before the Senate Committee on Expenditures in the Executive Departments in connection with the San Diego aqueduct, Senator McCarthy requested you to supply for the record, among other things, information as to funds expended by the Bureau of Reclamation in surveying and engineering work and preparation of plans and designs for the construction of the San Diego aqueduct.

There is enclosed a copy of Commissioner Michael W. Straus' letter to the Federal Works Agency, dated January 17, 1947, which contains a tabulation indicating expenditures thus far made by the Bureau of Reclamation, and the estimated funds necessary to complete the Bureau of Reclamation's portion of the work. These funds were advanced by the Federal Works Agency. Sincerely yours,

WILLIAM E. WARNE,
Assistant Commissioner.

JANUARY 17, 1947. Mr. GEORGE FIELD, Commissioner of Community Facilities,

Federal Works Agency Building, Washington 25, D. C. MY DEAR MR. FIELD: In Assistant Commissioner Markwell's letter of July 24, 1946, you were advised that quarterly reports would be furnished on the status of the Lanham Act funds allocated to this Bureau for the purpose of carrying on field work and the preparation of designs and specifications for the San Diego aqueduct.

The following tabulation indicates the status of the Bureau's work on the aqueduct as of December 31, 1946 :

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You will note that the estimated cost of the design and specifications work has been increased by $8,000. The necessity for additional expenditures for design work has developed in conjunction with the construction progress. The contingencies item was accordingly reduced by the same amount. Sincerely yours,

MICHAEL W. STRAUS,

Commissioner. Senator FERGUSON. Now, is there anything else that counsel wishes to present?

Mr. Hill. It was indicated this morning by the Comptroller General that the Navy Department had shifted ground. I think that rather than the Navy Department shifting ground, the Comptroller General shifted ground. As I indicated, the June letter, the June 1946 letter from the Comptroller General, was considered to inquire as to the authority of the Navy Department to make disposition of the aqueduct. The authority which was cited was the act of July 24, 1940, which was made applicable to the Navy Department by Executive order 9262 and the First and Second War Powers Acts. I would like to correct the record in that respect. Mr. Fisher indicated that we had cited section 1 of the act of July 2, 1940. I was unable to find any such citation. We did refer to section 1 (b).

Mr. MACOMBER. Mr. Hill, in this connection, on page 5 of the Comptroller General's report there is what purports to be a quotation from the letter of the Secretary of the Navy, which I think does quote the Navy, at the bottom of page 5.

Mr. HILL. Yes. What I wanted to make clear is that subsection (a) of section 1 of the act of July 2, 1940, quite clearly had reference to construction projects which were authorized to be performed by the Secretary of War.

Section 1 (b) had to do with the disposition of those projects. It was the authority to dispose of that was picked up and made available to the Navy Department under Executive order 9262. I just wanted the record to show that. Naturally, under 9262 authority both for construction and disposition was purportedly given to the Secretary of the Navy.

Mr. MACOMBER. But in this particular connection, the reliance is upon the authority to dispose of. Actually, the contract with the city of San Diego contains a provision binding the Navy Department to construct as well as for disposal.

Mr. HILL. May I ask in that connection, is that any more than a recognition of an obligation which already existed? Contracts were outstanding.

Senator FERGUSON. Will you answer that?

Mr. HILL. I think it is a recognition of an obligation that was existing at the time.

Mr. MACOMBER. Mr. Hill, isn't it expressly provided that the Government, at its own expense, should construct this aqueduct?

Mr. HILL. It would have been possible to recite that "Whereas, the Navy Department has entered into contracts for the construction of an aqueduct,” and so forth. It referred to the fact that the contracts for construction had already been entered into.

Senator FERGUSON. Mr. Hill, were you General Counsel when this was carried out?

Mr. HILL. I was not.

Senator FERGUSON. Have you reviewed all the legal opinions given in connection with this project?

Mr. Hill. I would like to say in that connection, sir, that it has not been the practice during the war for a formal written opinion to be rendered on each contract. Contracts were being made in numbers which made it completely impossible to have a formal written opinion on each contract. Each contract was reviewed, and the evidence of that review was indicated.

Senator FERGUSON. Do I understand then that there were not legal opinions given on this after the President selected a commission to look into the financing of the project, that it was carried on without any opinion?

Mr. HILL. May I say in that connection I am not aware of what the Bureau of Reclamation may have, what Mr. Warne may have in his files.

Senator FERGUSON. Has the Navy Department tried to locate all the legal opinions or memorandums concerning the legality of this project?

Mr. HILL. We have, and as I have indicated, we have no formal written opinion in the files, to my knowledge, but as I wanted to point out, it would have been impossible to render a formal written opinion on every contract that was entered into.

Senator FERGUSON. But here is one out of the ordinary, because a commission is appointed, and there is some question about its legality.

Mr. Hill. I understand that the question was fully gone into, but that as far as the Navy Department files show, no formal opinion was rendered. It was a composite opinion of the lawyers for the Army engineers, for the Navy Department, for the Bureau of Reclamation. Now, meticulously I would assume that after this discussion and deliberation a memorandum opinion might well have been prepared.

Senator FERGUSON. Have you gone through the files to try to find that memorandum?

Mr. HILL. I have not been able to find such a memorandum opinion.

Senator O’Conor. Since this question has come up, since the GAO raised the question and brought the matter to your attention, has the matter been fully considered ?

Mr. HILL. Has it been fully considered?

Senator O'CONOR. Has there been the rendition of any formal opinion?

Mr. HILL. The letter which Acting Secretary Kenney wrote to Senator Aiken indicated that we were of the firm view that the contract for—what I will term the contract for construction was legal and that the contract for disposal was legal.

Senaor O'CONOR. I think our question relates more to the legal opinion rather than to one of policy.

Mr. Hill. That was intended as a legal opinion. It was addressed to the Comptroller General.

Senator FERGUSON. Has counsel for the committee had access to all papers, memorandums, documents of any kind, in relation to this project, including all legal memorandums?

Mr. Hill. I think counsel for the committee can answer that better. If they have not, they are certainly at liberty to examine them at

any time.

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