of said Corporation; that said contract was duly signed for and in behalf of said Corporation by Authority of its governing body and is within the scope of its corporate powers. Lieutenant Commander McIVER. I would like to add one other point. Parke-Bernet asked whether if this auction was successful they would have the inside track on other auctions. As far as NPO is concerned, the answer is "No." The Navy is not going to make a monopoly of the services of any one auctioneer. Almost every other company called me up and asked the same question. Mr. BALWAN. It is obviously a feather in the firm's cap if they performed the services well. Would it be possible to contract the services of Parke-Bernet to handle your next five auctions? Lieutenant Commander McIVER. We could develop an open-end type of arrangement. Mr. SPOKOWSKI. We are looking into that and there is much for and against an open-end contract. Our legal people have shown us pitfalls in this. We have not made a final determination on having an open-end contract but we had thought of an open-end 6 months contract. Whether we had 6 or 12 sales at Brooklyn, Bayonne, or the supply facility in New York, they would handle it. There are a lot of legal interpretations. The Purchase Division of BuSandA which has jurisdiction over NPO does not feel too receptive to having an open-end contract. Mr. BALWAN. I would like to know what the Navy's feelings are in negotiated sales of aviation spare parts or ships' parts using industrial agents for such technical property. Probably they would do a pretty good job on that field. Mr. TOLINO. We went all through that 12 years ago. We had open hearings in that problem. I personally made an extensive trip across the United States and to the west coast and talked to manufacturers of aircraft on setting up agents to dispose of parts and supplies coming to the aircraft. I also talked to the agents themselves. Spoke to and have on record agents that did this job in the past-people that were engaged in that activity in the past. That was tried once. They brought in the people who are interested in the sale of automotive parts, electronics, aircraft. That involves movement of parts, and cataloging of parts. The aircraft industries association voted it down. We had conferences all the way across the country on the problem. Mr. BALWAN. Do you have the reports? Mr. TOLINO. We have made a complete report on it. Mr. BALWAN. A report was made. You are talking about conferences you had across the country. That would be a big saving in time to us because that is what we are discussing. The question that comes to my mind is that since we have all of this experience back of us, can we take advantage of it? Do we have to go through that again? Mr. TOLINO. We didn't have the volume as we did after the first The impression I got is that we had learned once. It is not war. advisable to go into it again. I think it was the Cook Commission that went into this. Mr. RIEHLMAN. I have had no actual experience in that field of disposing of airplane parts. This was before my time. After the last war the War Assets Department got into the agent-disposal program. It was not very good. Mr. BALWAN. Might we not learn some of the good and bad points of it? Mr. TOLINO. The report that we are going to give you on ways and means will touch on the agent proposition for certain types, categories, and conditions. We feel that agents might possibly be used for selling certain type items, particularly those items which would be a detriment to the Nation if they were thrown on the public. We are still in the working stage of the thing. When you do get your report it will definitely make some comment on agents and determine if we think it should be used. Mr. BALWAN. We have the disposal officer for NSD who offered to get acquisition costs on the first 8 or 9 items that might be of interest to us. Also, what is the volume of surplus on the base and how has the trend as to receipt of this surplus been running, and roughly how much of a backlog will you have after you get rid of this thing? Lieutenant PETTINGELL. I don't have the sales prices. However, the first lot had an acquisition cost of $6,600. This material consists of bunk springs and is practically useless commercially. Springs of this sort are generally sold as light iron from about $18 to $20 a ton. The second lot was oxygen masks, 142 each, with a total value of about $8,800. These, incidently, were not all complete, but according to the sales price we got almost a 33-percent return on the acquisition cost. The next lot was gas masks, 24 each, or a total value of $600 acquisition cost for the lot, and I believe we got about 50-percent returns on those masks. The next lot was ladders, 30 each, totaling about $390 and on these we received about a 20-percent return. The next lot was conveyors for a total acquisition cost of $40. The next lot consisted of wooden ladders, 71 each, a total acquisition cost of $330, and we received a return of a little better than 20 percent. The last lot I have is out-of-date film, lot No. 7, the acquisition cost of which was $2,800 and we received $780 or about 25 percent of the acquisition cost. Mr. BALWAN. Is it correct that some of this film is of no use after you open it? Lieutenant PETTINGELL. All the film is out of date, this is true. There is no guaranty made. The woolen blankets we sold for $3 apiece cost about $5 and $5.50 apiece. Actually we anticipated a return of about $1 a blanket. Mr. BALWAN. Do you have any information to give us on the total amount of surplus you have on hand? Lieutenant PETTINGELL. In 6 months, it has increased. doubled itself. It has Lieutenant Commander HEMPSON. We have received an estimated $2,500,000 a month. Mr. SPOKOWSKI. In June of this year we made an agreement with GSA and the Department of Defense and were able to limit the categories of material that must be screened and reported to SMD. Mr. BALWAN. What are the classes? Mr. SPOKOWSKI. Departments themselves were given the prerogative to use their own judgment as to what they can screen-ships spare parts, automotive spare parts peculiar to vehicles 6 years old or older. Any line item which is not over $100 is not reportable. Regardless of line item similarity, under the old procedure if you had a box of nuts and bolts that were not similar you could not include them in that category. Now, even if they are not similar they are not reportable. We do anticipate quite a number of tremendous sales from now on because we feel that the services themselves have finally gotten on to the paperwork and the auctioneering method. Material that has had to be screened before can now be gotten rid of. This went into effect July 22. Reports are not quite out yet because it takes a little while to get them rolling. Mr. RIEHLMAN. We appreciate the courtesies extended to us this morning, your cooperation in showing us around, and the information your staff has gotten together for us in a rather extremely short time, because we kind of dropped in on you unexpectedly. It has been an enlightening and very interesting forenoon here and we are happy to have this as part of the record we are trying to establish in the field of surplus property. Mr. BALWAN. I would like to extend the same sentiments as the Congressman for myself and my staff. Hon. R. WALTER RIEHLMAN, House of Representatives, DEPARTMENT OF THE NAVY, Washington, D. C. MY DEAR MR. RIEHLMAN: Five copies of the auction-sale report held at the Naval Supply Depot, Bayonne, N. J., are enclosed for your information. This report is factual and gives in detail the approach used in contracting for auctioneering services through final consummation of the sale. The net sales return of 13.84 percent exceeds the return usually obtained by the sealed-bid method. The sale indicates that the auction-sale method allows for a fast and orderly disposal of surplus property and should be used in disposing of large quantities of surplus property. This is especially true as evidenced by the acceptance and response received by the general public. The Bureau of Supplies and Accounts believes sufficient trial auctions have been held by the Navy. Instructions have been issued to field installations to utilize the auction-sales method as a standard means of disposing of surplus property. It is anticipated that auction sales will become the general method of disposal with sealed-bid sales used only when insufficient material is available to conduct an auction sale. I trust the foregoing information will be sufficient for your purposes. If I can be of further assistance, please do not hesitate to call upon me. Sincerely yours, M. L. ROYAR, Rear Admiral, (SC), USN, Chief of Bureau. REPORT ON PUBLIC AUCTION SALE OF SURPLUS MACHINERY, EQUIPMENT, AND SUPPLIES HELD AT THE UNITED STATES NAVAL SUPPLY DEPOT, BAYONNE, N. J., NOVEMBER 4, 19531 Capt. Hugh C. Haynsworth, Jr., SC, USN, commanding; Lt. Comdr. J. F. McIver, SC, USN, contracting officer; Lt. (jg.) Garrett L. Pettingell, SC, USNR, disposal division officer; F. J. Gregory, property disposal officer; Leona Rapport, property disposal assistant COMMANDING OFFICER, The Naval Supply Depot, Bayonne, is proud to have participated in this experimental method of disposing of material which is surplus to the needs of the armed services. This report reflects, I think, the success of disposal by auction. All aspects of the sale are covered in some detail; however, additional information is available on file and can be supplied on request. Reactions, both here at the depot and on the part of the public, have been universally favorable and the Navy has unquestionably enjoyed intangible returns in the form of good public relations. BACKGROUND FOR AUCTION HUGH C. HAYNSWORTH, Jr. The idea for an auction sale of disposal material at NSD Bayonne was born largely through the necessity of discovering a way by which a large backlog of material could speedily be sold with the most advantageous return to the Government. In addition to eliminating the backlog, it was felt that there was a definite necessity for enlarging the field of Bayonne's sales potential to include buyers from outside the immediate locality. Under the sealed bid system, buyers from a localized area were successsfully solicited and although satisfactory prices (in accordance with the Navy-wide average) were attained for most surplus and excess material, it was felt that a sale of greater magnitude, coupled with extensive advertising, could produce a higher return. The sealed bid method of sale, although satisfactory in some cases, limits both the Navy and the buyer. There is little or no competitive interest in sealed bid buying, for the buyer must examine the material, and on his examination alone, place a bid which he thinks will be high enough to out-bid his competitors, yet low enough so that he may in turn sell the material at a profit. He, supposedly, has no idea what his colleagues are bidding, and in many cases an unsuccessful bidder will, immediately after the sale, seek out the successful bidder and purchase the material from him at a profit. It would seem that this method of sale, therefore, is impractical in many cases, for the Navy should receive the highest dollar for its material. At an auction sale, all bidders have an opportunity to increase their bids up to the final fall of the auctioneer's hammer. Therefore, the Navy can be reasonably sure of obtaining the top dealer dollar for its merchandise. It was also felt that in addition to eliminating a large backlog and obtaining better prices, that an auction sale with the proper publicity would serve as a means of inviting favorable public comment, in that a larger portion of the buying public would be solicited. GROUNDWORK Therefore, in view of an apparent need for an auction sale at NSD Bayonne, permission was requested and received from the Bureau of Supplies and Accounts to conduct such a sale. With this in mind Disposal Division proceeded to examine the pros and cons involved in selling a large amount of material effectively at public auction. Prior to the Bayonne sale, there had been two Navy auction sales conducted at the Philadelphia Naval Shipyard in April and June of 1953. Philadelphia was the first naval activity to explore this medium of sale since 1929. A survey of the two Philadelphia sales was made, and, by 1 Sale conducted by Parke-Bernet, Inc. (machinery, surplus, and real estate division). Louis J. Marion and Harry E. Loree, auctioneers; Mary Vandegrift, advertising and publicity director. personal contact and correspondence, all available details concerning these sales were incorporated in the basic plans for the Bayonne sale. In both the first and the second sales at the Naval Shipyard, Philadelphia, the services of Samuel T. Freeman and Co. were procured and the contract let to this firm on a per diem basis. In examining this means of employing an auctioneer, NSD Bayonne was of the opinion that a contractor hired on a per diem basis would have little personal interest in the outcome of the sale. It was felt at Bayonne that better results could be obtained were the auctioneer contracted for on a percentage basis. It is an accepted fact that auctioneers traditionally operate on a percentage contract, receiving a certain portion of the gross proceeds as their fee. It would seem, therefore, that an auctioneer working on a perdiem fee would have little or no interest in the final outcome of the sale. In an arrangement such as this the auctioneer receives his fee whether the sale is successful or unsuccessful and so there is little purpose in his leaning over backward to extend all the facilities of his company or in any manner going out of his way to put forth extra effort. On the other hand, an auctioneer working for a percentage fee becomes part of the sale, He must earn his fee. If the sale is unsuccessful the auctioneer will suffer the consequences along with the contracting agency. In other words, an auctioneer working for a percentage of the 'take' must work for every dollar he receives. After determining the approximate date and other pertinent details concerning the proposed sale, Navy Purchasing Office, New York was consulted as to the procurement of a suitable auctioneering firm. Due to the fact that there are many thousands of registered auctioneers in the United States, Lt. Comdr. J. M. McIver, contracting officer at NPO, was obliged to sift through the list and arrive at a reasonable number of qualified auctioneers who could be invited to bid. The fellowing auctioneering firms throughout the United States were solicited: Industrial Plants, Inc., New York, N. Y. Parke-Bernet, Inc., New York, N. Y. Joseph P. Day, Inc., New York, N. Y. Samuel L. Winternitz & Co., Chicago, Ill. M. W. Federman Association, Inc., New York, N. Y. J. B. Whitman Co., Detroit, Mich. Hetz Constructors, Inc., Warren, Ohio. Ralph J. Rosen, Buffalo, N. Y. W. E. Hancock & Association, Madison, Fla. Lieutenant Commander McIver contacted BuSandA and Philadelphia Naval Shipyard to obtain background information that could be used in constructing a contract. The contract itself posed several problems. The first involved a decision as to whether NPO should go out on a formal competitive bid or whether they should negotiate a contract with the auctioneering company. On a formal competitive contract there is no knowledge available as to the past history, or the performance of the auctioneer. With this in mind it was decided that the contract would be negotiated. Based on this, NPO sent proposals to the above-listed auctioneering firms considered to be the leading companies in this field. Auctioneers from all over the country were solicited. The proposal called for quotations on three bases, the first being to quote on a fixed or per diem fee. Only one bid was received on that basis. The feeling was universal among the auctioneers that the element of incentive was completely removed where a fixed fee was involved. The second alternative was to quote on the basis of a fixed or per diem fee plus a percentage of the proceeds from the sale. Two of the firms invited to bid quoted on this basis. Again the feeling seemed to be that the fixed fee offered no incentive on the part of the auctioneer to sell. The third basis requested the contractor to quote on a percentage of the proceeds computed in increments of $100.000. For example, the bidder would quote on percentage desired for the first $100,000, the second $100,000, and the third $100,000 realized from the sale. All auctioneering firms solicited |