One other thing, when he first quit work and showed evidence he was not going to complete the projects under that contract it was some several months before action was taken. Was it not the FHA's duty to move in and take over those contracts under the law?

Mr. ARRINGTON. The problem arose in connection with the closing of a mortgage area at Beale Air Force Base. Because of a substantial number of liens on record which had been filed, the FHA required Mr. Hayes to bond a considerable amount of money to insure payment. of these liens if they were determined valid, or to the extent they were determined valid, and the FHA and Mr. Hayes could not reach an agreement as to the amount of money which should be escrowed for this purpose. At this point Mr. Hayes not only stopped work on the Beale project, but also almost simultaneously on the other six projects. I don't believe that the FHA could have properly taken any action until certainly after the work stoppage.

Mr. RAINS. What I want to find out, Mr. Arrington, is if there is anything wrong with the law. There was nothing to prevent FHA as the insuror from stepping in immediately once work was stopped and taking over, was there? I am talking about in the law now.

Mr. ARRINGTON. No, sir, there is no defect in the law. We have made an improvement in our regulations which govern the program. FHA does not in Capehart mortgage corporations hold preferred stock, which it does in other type mortgage corporations under other programs. We did propose to FHA last fall, and they accepted, an amendment to our capital stock escrow agreement which will permit FHA to take action within about 20 days after work stoppage. Under the procedures prior to this particular change, FHA could not take action until it had received an assignment of the mortgage. Therefore, last summer our entire efforts were directed at trying to persuade the mortgagees and the bonding company to take action to complete the contracts without resorting to the longer assignment route.

Mr. RAINS. Is there any need as your understand it and as one who has been connected with the program since its inception for any change in the law so as to give FHA more ability to proceed early or will this regulation that you have told us about take care of it? Mr. ARRINGTON. I think the change in the regulations will take care of it without any requirement for a change in the law.

Mrs. GRIFFITHS. Mr. Chairman, could I ask who lost half a million?

Mr. ARRINGTON. The lose of the half million will be borne by the Armed Services Mortgage Insuring Fund and the FHA will have a legal right to proceed against the bonding company to recover. Mr. RAINS. The Government lost the half million.

Mrs. GRIFFITHS. Well, I want to get this on the record.

Is the Detroit Teachers' Pension Fund going to be taken care of? Mr. ARRINGTON. Of course, the Detroit Teachers' Pension Fund has already received debentures in exchange for its mortgages at Fort Bliss.

Mrs. GRIFFITHS. Yes, but did it get the same amount of interest that it would have gotten under the original contract, because if it didn't, it seems obvious to me that will be the last investment that Capehart is going to get out of them or anybody else they talk to.

Mr. ARRINGTON. If my memory serves me correctly, I just saw a paper across my desk where they are buying a new mortgage.

Mr. RAINS. What we anticipate is that the bonding company which the FHA is proceeding against will have to pay off this.

Mr. MCDONOUGH. Is this half million a residue of the losses on the six projects or is it on any one?

Mr. ARRINGTON. It is the residue on the six.

Mr. MCDONOUGH. And is it the same bonding company on all of them?

Mr. ARRINGTON. Yes.

On some projects we actually have a plus in the amount of funds available. We have more funds available than are needed to complete. On others, of course, we have a minus, and adding up these plusses and minuses leaves us with a half-million dollars approximate loss.

Mr. MCDONOUGH. Mr. Chairman, I would like to ask Mr. Arrington how many units of the Capehart housing are affected by the closing of these various airbases according to the last Executive order of the President.

Mr. ARRINGTON. To the best of my knowledge, 500 units at Laughlin Air Force Base, Tex.

Mr. MCDONOUGH. Out of all of the areas we are going to close, only 500 units will be affected?

Mr. ARRINGTON. Yes.

Mr. MCDONOUGH. Will they be vacated, left on the market of the adajcent communities, or what?

Mr. ARRINGTON. We are currently studying the best way to proceed in order to insure the best disposition of these units at the minimum loss to the Government.

Mr. MCDONOUGH. Is there a community adjacent to the base that could absorb them?

Mr. ARRINGTON. I understand that the base is relatively isolated, and we have a problem for that reason.

Mr. MCDONOUGH. What is that base again?

Mr. ARRINGTON. Laughlin Air Force Base, Tex.

Mr. RAINS. Any questions, Mr. Widnall?

Mr. WIDNALL. Mr. Arrington, 80,000 units have been completed. Are there any lawsuits involving those 80,000 units between contractors and the Government?

Mr. ARRINGTON. Do you mean other than the Hays litigation? Mr. WIDNALL. Other than what we have just been talking about, the Hays situation.

Mr. ARRINGTON. I think there have been some minor disputes. As to lawsuits, I would have to ask Mr. Mayer.

Mr. MAYER. I do not know of any lawsuits outstanding at the present time other than the action being brought in the Court of Claims by Centex, the builder at Camp Polk, La., where that project was terminated for convenience.

Apart from that lawsuit in the Court of Claims, there are minor claims pending before the various panels of the Armed Services Board of Contract Appeals, but I do not know of any which have actually reached the stage of litigation.

Mr. WIDNALL. The point of my inquiry was this:

I have had several contractors speak to me about these Capehart programs, and they said it was a nightmare with the constant change in specifications demanded by the armed services. I know they said from now on they wouldn't think of bidding on these projects, because they run into all kinds of difficulties the minute they are in on the deal.

I don't know whether anybody else in the congressional delegation had this type of complaint. I have had that complaint in the past on other matters concerning the armed services, where there were changes in specifications, to the point that it was extremely uncomfortable for the contractor.

Mr. RAINS. We were just talking about that, Mr. Widnall.

We hear from a great many people who are building these and have built them as to arbitrary changes in plans. They say the commander on the base changes the plans when he gets ready, after the contracts are signed. They tell me plans have been changed on them, causing the costs to be run up, and causing them to lose money. I think it would be wise for the committee to put in the report that once these plans are approved, no matter who is the commander, he doesn't have any business making arbitrary and unfair changes against the contractor.

Is that what you mean?

Mr. WIDNALL. Yes, sir.

It certainly is extremely unfair, because the Armed Forces are in a position that a normal contracting party doesn't find himself in. They can be completely arbitrary about it and say, "All right, sue me," and then where do you get when you are suing the Government? You have an entirely different approach to negotiation or settlement of a contract when you do run into such conflicts.

Mr. MCDONOUGH. Shouldn't that authority be vested in you, Mr. Arrington?

Mr. ARRINGTON. What authority is that?

Mr. MCDONOUGH. When the contracts are signed, the specifications are known, and there should be no change in the specifications. If we were to write into the report, where should the authority rest to see that the contract is carried out, according to original specifications, without change?

Mr. ARRINGTON. I suppose, sir, if you mean review of proposed change orders in order to insure their essentiality, that should either rest with our office or with the headquarters of the three military departments.

Mr. RAINS. It seems it ought to rest with the Secretary of Defense to review any changes, instead of having it come under the commander of the base.

Mr. MCDONOUGH. The Secretary of Defense that the contractor is working with, Air Force, Navy, or what.

Mrs. GRIFFITHS. May I ask how many change orders do you send out on these contracts?

Mr. ARRINGTON. I don't know that there is any standard number. Mrs. GRIFFITHS. I mean customarily, would there be 1, 2, 100, 60? Mr. ARRINGTON. Of course there are various types of change orders. Sometimes change orders are essential to correct inherent design defects which were not apparent at the time the contract was signed.

Others are made to adjust to unusual soil conditions which were not anticipated, things of that sort.

Mrs. GRIFFITHS. If you make the change order the contractor has a right to ask for money, hasn't he?

Mr. ARRINGTON. Each change order is evaluated in order to determine whether or not it involves more cost. If it involves more cost, then the contractor does have a right to receive more money.

Mr. ASHLEY. Mr. Arrington, when do you expect this study to be completed with respect to the impact on military housing that will result from the closing down of the 52 domestic installations and the ones affected abroad by the closing of the oversea installations?

I ask this because it is clear, at least on the basis of statements from Defense Secretary McNamara, that these are only the first of a rather more substantial number of installations that will be closed down, and I have one in my district.

I think you might possibly be mistaken as to the housing affected, because I think there was some in my district. But at any rate, I think it will be a matter of considerable importance to the Congress and this committee in particular just what your study shows as to the method of disposition and how you will proceed.

Mr. ARRINGTON. There is military family housing involved at other installations in the list of bases to which you refer. Only at Laughlin Air Force Base, Tex., is there a Capehart-Rains project. There we have a problem with our continuing obligation on the mortgage in which we have guaranteed payment of principal and interest for its term. We have to consider there whether it would be better for us to prepay the mortgage. This is an early mortgage where we had better prepayment privileges.

On other types of projects, such as public quarters, those we own outright, the disposition of those projects will take place together with the disposition of the other base facilities.

If an industry, for example, could be found to come in and utilize the whole base and the housing too, this sort of solution, of course, would be ideal.

Mr. RAINS. Are there any other questions?

(No response.)

Mr. RAINS. Thank you, Mr. Arrington.

Thank you, ladies and gentlemen of the committee.

We will meet tomorrow here at 10 o'clock.

(Whereupon, at 3:44 p.m., the subcommittee adjourned, to reconvene at 10 a.m., Tuesday, April 25, 1961.)

HOUSING ACT OF 1961

TUESDAY, APRIL 25, 1961

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

SUBCOMMITTEE ON HOUSING,

Washington, D.C.

The subcommittee met at 10 a.m., pursuant to adjournment, in room 1301, New House Office Building, Hon. Albert Rains (chairman of the subcommittee), presiding.

Present: Representatives Rains, Addonizio, Barrett, Mrs. Sullivan, Mrs. Griffiths, Rutherford, McDonough, and Fino.

Also present: Representatives Multer, Finnegan, Harvey, Scranton, Reuss, Widnall, and Miller.

Mr. RAINS. The committee will please be in order.

The first witness this morning is Mayor Wagner of New York. Come around, Mayor. We are delighted to see you again and we are going to give our esteemed colleague from your great city, Abe Multer, the honor of introducing you.

Mr. MULTER. Mr. Chairman and my distinguished colleagues on the Banking and Currency Committee, I know that our very distinguished mayor from the city of New York needs no introduction to this committee. He has been here many times before and I am very pleased to have the opportunity to present him to you again so that he may testify on this very important legislation.

I hardly need add anything more than that, because to do otherwise would be like trying to gild the lily. So I will now turn the mayor over to you and I am sure that he will get the usual courteous hearing that you always accord to every witness. I am pleased to present His Honor, Robert F. Wagner, the mayor of the city of New York.

Mr. RAINS. Mayor, let me express my very warm welcome to a good, long-time friend and tell you that we are happy to have you before our committee again. The last time I saw your picture in the paper you were lying in a hospital like you were enjoying life. You look in fine fettle today and we are glad.

We are pleased to have you present your remarks. I notice you have a written statement, so you may proceed with your statement, Mayor. STATEMENT OF HON. ROBERT F. WAGNER, MAYOR OF THE CITY OF NEW YORK

Mayor WAGNER. Thank you very much, Mr. Chairman, and members of the subcommittee. I first of all want to thank my good friend, Congressman Abe Multer for being kind enough to present me once again to you and to thank you for your remarks and to express again