38. Assisting State and Local Purchasing Agents To Negotiate Purchases of Surplus Personal Property Prior to Its Being Advertised for Public Sale.

(a) Summary.-In 1967, the subcommittee, at the direction of the chairman of the full committee, began working with GSA to obtain regulations which would systematize the negotiated sale of Federal surplus personal property to State and local governments and their tax-supported agencies at estimated fair market value, as authorized by sec. 203 (e) (3) (H) of the Federal Property Act.

Such regulations have now been promulgated by GSA as revisions of 41 CFR 101-45.304-2 and 304-12 (34 F.R. 7329; May 6, 1969). In addition, GSA has issued a brochure entitled "How State and Local Governments May Purchase Personal Property From the Federal Government," dated June 1969. Letters were sent to heads of all State agencies for surplus property and other State officials advising them of this regulation, and pointing out that it represents for them an additional avenue for obtaining surplus property, including exchange/ sale property having a value of not more than $500 (41 U.S.C. 5).

Correspondence was also exchanged with the Administrator of General Services to insure that GSA's regional offices were fully advised so as to assist inquiries submitted by the State and local governments.

(b) Benefits. The interest being expressed to the subcommittee by State and local governments indicates that more Federal surplus property will be moving into public use as a result of the subcommittee's work.

39. General Services Administration and Department of DefenseDisposal of Property by Exchange or Sale.

(a) Summary.-Section 201(c) of the Federal Property Act authorizes Federal agencies to dispose of personal property by exchange or sale for replacement purposes. This is property which has not been declared excess under the act. The proceeds or allowances from these transactions are applied to the cost of acquiring the replacement items. The committee studied the administration and the effect of the exchange/sale program in the 89th and 90th Congresses. H. Rept. No. 2319, 89th Congress dealt particularly with a policy of the Department of Defense, announced in 1966 and put into effect in 1968, under which property disposal based on the exchange/sale authority will, in general, be given priority over disposals as excess or surplus for further Federal use or for donation.

Sec. 201(c) as well as GSA's implementing regulations (41 CFR part 101-46) allow broad administrative discretion within each disposal agency as to what property items or classes of items will be disposed of under exchange/sale authority. The subcommittee has maintained continuing surveillance of the efficiency and economy of exchange/sale disposal within the Department of Defense so that its impact on the donation program might be moderated. Property which would bring very little through exchange or sale is often extremely useful to another Federal agency or to a donee.

In May 1969, the Department of Defense furnished tabulations of its exchange/sale transactions from July through December 1968, covering both sales and exchanges by Federal Supply Classification

(FSC) group numbers. As a result of a prior subcommittee request, the tabulations included information beyond that required by 41 CFR Part 101-46; namely, the amount of dollar return and the percentage which this return bears to acquisition cost. In October 1969, the Defense Department furnished the tabulations for the fiscal year 1969. They reveal that several Federal supply groups of particular interest to donees brought a relatively low percentage of return when disposed of by sale. For example, motor vehicles, trailers and cycles; tractors: electric power equipment; and office machines and data processing equipment yielded under 10 percent. Disposals by exchange resulted in somewhat higher percentages. Of course, when the original acquisition cost of most of these items is adjusted to reflect current price levels, the percentage of return is, in effect, even lower.

In December 1969, GSA supplied a consolidated report on exchange/ sale transactions of all Federal agencies. It included original acquisition costs but no data on actual sales proceeds or allowances. However, since DOD's practice is to include such data, and since its transactions comprise almost one-half of all exchanges and one-third of all sales within the Federal establishment, the DOD percentages of return should be representative.

GSA's fiscal year summary of reports submitted by Federal agencies pursuant to its exchange/sale regulations has not been completed yet. However, DOD's report for the period shows exchanges of $4.5 million and sales of $35.8 million-original acquisition cost. This represents a 25-percent decrease in exchanges and a 10-percent increase in sales over fiscal year 1969. For most property groups, the percentage of return on original Government acquisition cost was slightly higher during fiscal year 1970.

On September 17, 1969, the Comptroller General submitted to the subcommittee chairman, pursuant to a subcommittee request dated March 21, 1969, a report concerning specific sales of personal property under sec. 201 (c) by the Defense Surplus Sales Office, Norfolk, Va. Five sales covering 1.141 items were analyzed. Almost 90 percent of the items had been subjected to prior screening for further Federal utilization or donation under the old DOD exchange/sale policy. Among the findings of this report are: (a) Sales proceeds of items not subjected to prior utilization and donation screening were not appreciably higher than proceeds from other items sold; (b) most vehicles and equipment items were bought by persons purchasing five or more items at a time; (c) there was inadequate compliance with the general DOD requirement for prior economic evaluation of each exchange, sale transaction: (d) records were not maintained by the activities turning in property to permit determination that items disposed of under exchange/sale were replaced by similar items, but there was control of proceeds received from the sale and the amount used for purchase of replacement items; (e) in some cases, substantial amounts of such proceeds were never used to buy replacement items but instead were returned to the general fund of the Treasury; and (f) the percentages of return for items sold varied widely: a significant number of motor vehicles brought less than 10 percent return.

The subcommittee also looked into the sale by GSA of some 2.200 late-model passenger cars from regular motorpool stocks. Most of the sales were made pursuant to the exchange/sale authority. GSA responded in June and August 1969 to questions submitted by the sub

committee relating to the economics and the advisability of such vehicle sales, explaining that the sales were a test to determine the most economic replacement policy for Government-owned passenger vehicles.

A general policy of selling cars 1 or 2 years old under the exchange/ sale authority would naturally result in almost no passenger vehicles being made available for utilization or donation. No change in GSA's vehicle replacement standards or sales policy has been announced yet.

Investigation was also made into an exchange/sale disposal by a field activity of ESSA, Department of Commerce. On the basis of information developed by the subcommittee in May 1970, the subcommittee chairman requested the Comptroller General to examine a sale of laboratory equipment and tools, to ascertain the justification for the sale, to check possible violation of GSA regulations or other law, and to inquire into GSA's role in this type of transaction, since it had actually conducted the sale and issued the sales catalog. The sale covered 303 numbered items or lots, representing an original Government acquisition cost of $414,000.

The GAO report, dated July 27, 1970, stated that ESSA had used the exchange/sale procedure in order to hold the proceeds and add them to other funds available for acquiring property for an equipment rental service pool.

GAO revealed an array of violations in the case: (a) Excess property was included in the sale; (b) the agency did not intend to acquire similar items for all those sold; (c) property was sold that had not been utilized prior to sale; (d) several items of equipment in new or unused condition were sold; (e) the agency did not completely screen other Federal agencies known to use or distribute such property; and (f) the agency did not prepare a written administrative determination to apply the proceeds of sale in acquiring replacement property. ESSA explained that this resulted from an official's construing the law too liberally and being unfamiliar with GSA restrictions. As to GSA's role, the report noted the view of GSA officials that GSA merely acts as a sales agent and that the property-holding agency has the responsibility to determine whether the property is eligible for exchange/sale. GAO concluded, though, that GSA should have declared items listed as "new" or "unused” by ESSA to be ineligible under GSA regulations and that GSA should have questioned the eligibility of all the property because ESSA had listed the property to GSA on "excess property" bulletins. By definition, "excess" or "surplus" property cannot qualify for exchange/sale disposal. GSA has taken the matter up with its regional office.

On November 5, 1970, the Department of Commerce provided comment on the GAO report. So that future exchange/sale transactions will be handled correctly, the letter stated, ESSA has issued a new manual provision and has circulated the GAO report. Moreover, $12,300 in sales proceeds being improperly held for new procurement were transferred to the general fund of the Treasury.

Also, a planned second sale of such items by the ESSA activity was canceled as a result of the investigation. The sale would have covered 371 numbered items or lots whose original acquisition cost was nearly $275,000. The property was comparable to that of the prior sale. Proceeds of about $10,000 could have been reasonably anticipated had the sale been conducted.

This case demonstrates that the economics of unguided exchange/ sales are frequency submarginal. The percentage rate of return for the sale was less than 3 percent.

In March 1969, GSA was requested to review the annual exchange/ sale reports to GSA from the Department of State, AID, and USIA to determine whether these agencies had distinguished between overseas and domestic disposals. Previously the latter agencies had felt that overseas property should be excluded from the GSA reporting requirements. GSA advised the subcommittee in April that it was considering revision of its regulation to make clear that exchange/sale transactions, wherever located, must be included in the annual summary report. The revision, GSA stated, would also provide for separate reporting for domestic and overseas transactions. The revised regulation was issued by GSA in October 1969 (41 CFR 101-46.407; 34 F.R. 17170; Oct. 23, 1969).

(b) Benefits. The subcommittee's continuing efforts have brought to the fore the complicated economic and administrative factors involved in exchange/sale disposal so that as further statistics and other information become available, better evaluation can be had of this type disposal and comparisons made between its benefits and those accruing from excess and surplus disposals for further Federal utilization and donation. Increased agency awareness and improved practices have resulted from the subcommittee's investigation and monitoring. Also, in the case of the above ESSA sale, $12,300 of funds slated for unauthorized expenditure were returned to the Treasury. Cancellation of the second sale forestalled an additional unauthorized expenditure of $10,000.

40. Agency for International Development-Excess Property Pro

gram.

(a) Summary.-The subcommittee continued investigation of AID's excess property program. Subcommittee hearings were held in Washington, D.C., on June 12, 1969, and July 16, 1970, at which witnesses from AID testified. The investigation followed up not only matters dealt with in House Report No. 865, 90th Congress, but also developments in the program occurring as a result of the aforementioned report and new requirements imposed by the Foreign Assistance Act of 1968 (sec. 301(b)). The subcommittee was principally concerned with program operations under the advance acquisition authority granted by sec. 608 of the Foreign Assistance Act of 1961, as amended, under which AID spends from a $5 million revolving fund to acquire, repair, and restore property in advance of known requirements. AID thus has been able to accumulate an inventory of property available for later use in its programs and projects.

The subcommittee hearings explored important changes during fiscal years 1969 and 1970 in organizations, staff, procedures, and concepts. These have resulted in a newly structured office of Government Property Resources (AID/GPR) and in centralized management of procurement, rehabilitation, and issuance of section 608 property. Among these changes are the replacement of the excess property regional offices (EPRO's) by field offices in the United States and abroad

and the establishment at the New Cumberland, Pa., Army Depot of an AID Logistics Service Center (LSC), a central inventory management point for all section 608 property to serve AID missions quickly and efficiently. Toward this end, computer programs have been developed and communications channels opened. The LSC also renders technical support for manuals and spare parts and otherwise assists the missions and countries in overall management of property shipped. In the reorganization, slow-moving, unsupportable equipment was removed from inventories at domestic and overseas locations. Equipment retained is issued in accordance with much higher rehabilitation standards.

AID now concentrates on a relatively small list of useful, highvalue items, mainly vehicles and mechanical equipment. AID issued a handbook called the Selected Item List (SIL) and has revised it from time to time. The SIL deals with property to be handled under section 608 on a regular basis, and includes items that can be supported with spare parts, manuals, and other technical data. In addition, the LSC publishes an "Availability Listing," which fully describes property items on hand and against which AID missions and development loan borrowers may submit specific requests.

AID's revised Manual Order 1415.6 was issued September 1, 1970. It is for use by the missions and provides a full range of guidance on acquisition and management of excess property not only by the missions but by the recipient countries.

An on-site investigation was conducted at the field offices at Sharpe General Depot, Lathrop, Calif., and at the Tooele Army Depot, Utah, in connection with the equipment of potential AID use being retrograded to the west coast from bases in the Far East.

AID testified in July 1970 that, while it had received requirements forecasts from its missions concerning property representing an original Government acquisition cost of $23 million, it did not have readyfor-issue inventory in volume or type to fill them all. It also testified on a new program called Operation Payload to dieselize trucks and jeeps before shipping. Dieselized operation of a vehicle can bring savings to some AID recipients of 1,000 percent over gasoline operation, plus longer life and cheaper maintenance. In one year, AID claimed, the savings in fuel alone can equal the incremental cost to the recipient of converting the vehicle to diesel propulsion. AID stated it planned to send 36 dieselized dump trucks to Nigeria, of which 12 have now been sent and 25 are ready for early shipment. Also, AID is furnishing a few countries having their own repair capability certain unrehabilitated equipment at a service charge of only 6 percent rather than the normal 25 percent.

AID reported that its missions in the Pacific area are using DOD's PURA (Pacific Utilization and Redistribution Agency). The PURA project stores, as computerized data, records of property that is locally excess to allow screening for other Pacific theater or worldwide use by DOD. Thereafter, it may be screened for utilization by other Federal agencies like AID and GSA. AID missions work through a special office in Japan which checks the PURA file in Okinawa to see whether a desired item is available. However, PURA deals mainly in smaller items rather than those on which the advance acquisition. program now concentrates.