STATEMENT OF HARRY SPOKOWSKI, HEAD OF THE DISPOSAL BRANCH OF THE NAVY'S SURPLUS MATERIALS DIVISION IN WASHINGTON, D. C.

Mr. SPOKOWSKI. As to the personal history aspect of my job, I entered the Navy in 1941 as a civil-service employee. After spending 1 year helping to complete the disposal of World War I stocks, I served in the Army for 3 years and returned to civil service as a member of NMR and DA (Navy Material, Redistribution and Disposal Administration) Office in New York. Subsequent to that I remained with NMR and DA as Sales and Disposal Section Chief, working closely with War Assets Administration on disposal of Navy surplus property, until NMR and DA became a part of the Bureau of Supplies and Accounts as an operating division. At present my position is head of the Disposal Branch of the Surplus Materials Division and I am directly associated with the disposal of all surplus naval material wherever it may be located.

As you well know, Mr. Riehlman, in your past reviews of stratification and fractionation, the Navy is currently reviewing all of its stocks to determine which of these stocks and property have become excess to the needs of the service. With the cessation of hostilities in Korea we knew there would be large quantities of surplus material which had to be disposed of. Our sales media for disposing of normal amounts of surplus material had been adequate in the past but we realized that with this great influx of material this method would prove to be too slow. Thus the concept of Navy auction sales was born. So far we have had two auction sales of surplus material at the Philadelphia Naval Shipyard.

One we negotiated with the Samuel T. Freeman Co., Inc., one of the oldest auctioneers in the business. Their fee was $500 for the 2-day sale. We were furnished with 1 auctioneer and 2 associates. There were 1,300 lots sold. This sale took 2 days to complete. We found that bidders did not like a 2-day sale because they were afraid to wait until the second day of the sale because the material they wanted might be sold on the first day.

A second sale was held. It was on a competitive bid basis and again Samuel T. Freeman Co., Inc., was the lowest acceptable bidder. On the first sale the approximate statistics were:

The first sale cleaned out a backlog that had been building up at the yard which, until the auction sale, had never been substantially decreased. This first sale did the trick. Two months later Philadelphia again had a backlog and in view of this held a second sale. In both cases the auctioneer was paid on a per diem basis. Approximate statistics on the second sale were:

Cost of auctioneer.

Number of lots sold..
Overall cost of the sale.

Acquisition cost of material.

Gross return_

$1,927

579 $8,000 $485,000

$72,000

The figures on the second sale as compared with the first do not look as good, and actually this was proved to be true. But if we compare both types of material, that which we had at the first sale was better. The second was dregs and leftovers we found and wanted to clear out. Based on the types of material on the first and second, both were worth while from an auction standpoint and both sales were to the benefit of the Government. If sold under the sealed bid method, we would not have done as well.

Mr. BALWAN. Is it not possible that the enthusiasm for auction sales would not continue if you used this as a general practice?

Mr. SPOKOWSKI. The auction method is the method wanted by busi

ness.

If you have a competitive sealed bid sale you have to put up money as a deposit, and you're not sure you're going to get the lot. If we have a large sealed bid sale a man bidding on various lots has to tie up $1,000 to $20,000 before we make a final award, and he's never sure that he's going to get the material.

When a buyer comes to an auction and is a successful bidder, he gives his money and gets the material. The bidders seem to love the idea that we are not keeping their deposit money. They dislike our keeping their deposit money for the necessary 2 to 3 weeks.

Several months ago Captain Haynsworth and his officers decided that they had a backlog in Disposal and wanted to reduce it. They asked BUSANDA if they could have a trial auction sale at Bayonne. BUSANDA authorized it. Captain Haynsworth was in favor of hiring an auctioneer on a percentage basis rather than per diem. On a per diem basis, where the fee is inflexible, the auctioneer is likely to send out a boy to do a man's job. In view of this, the percentage method was tried. NPO, New York with Bayonne negotiated the contract on a percentage deal on a sliding scale basis divided in increments of $100,000.

We in BUSANDA recognize the value, effectiveness, and efficiency of the auction sale. We are here, Mr. McBride (assistant counsel, office of general counsel) and myself, as observers to gather material that might prove helpful in putting across the auction sale method for the whole Navy.

There are 2 or 3 points that should be resolved:

(1) There are 7,000 auctioneers all over the country. Out of that number we feel that 15 to 30 auctioneering firms are qualified to conduct our sales.

To clarify that statement here is an example: An auctioneer who sells farm machinery never had a big sale. In negotiating he can put in a bid and conduct a Navy sale for $500. A well-established firm might put in a bid for from 2 to 3 times as much, but his bid will be to the best interest of the Government. A farm auctioneer cannot sell our property.

Our problem is to find some 15 to 30 established auctioneers throughout the country and ask them for bids on an overall percentage basis. (2) The second point is security of naval bases. Some installations have highly secret projects. We cannot allow the public to visit some of these establishments. Bases like Bayonne have no problems. They are pretty well open and there is little threat to security.

(3) The third point is space. In many instances space is at a premium. It is not advisable to store material to be sold at auction on

the outside because the material would deteriorate. If you do not have covered storage you cannot sell out of the regular disposal warehouse.

NSD Bayonne is located in a good site because of its nearness to the industrial markets. Here there are 6 million prospective bidders. But if you go some place out West where you have to travel 3 or 4 hundred miles, the material has to be sufficiently attractive to have people travel that distance. Our problem is to find out and learn from the auctioneering firms, GSA, Congress, your committee, the public views, criteria, determinations, and set forth our own regulations and procedures with the naval activities conducting sales. We hope to go across the board for the whole Navy.

Mr. RIEHLMAN. You have given us a pretty good and clear explanation of the experience you have had to date and what you are trying to accomplish.

This has been our first experience and we'll be very interested to have complete information as to what transpires here today and what we have actually raised in the way of dollars in this sale. We will be following other activities, too.

I was much interested in the point that you brought out stating that this is a splendid location to carry out this type of sale. I am wondering whether or not you can go into isolated areas, carry on such sales, and create interest. If it is an inland depot, you are not going to have the attraction that you have here today. Has there been any thought given to that possibility, if this type of program proves to be highly satisfactory and you are getting a great percentage of return? The problem of transporting some of this surplus to an area where it might be displayed and sold should be considered. Transportation costs would have to be looked into very carefully. We are interested in acquiring every dollar we can in surplus property. We are certainly impressed with what went on at NSD Bayonne this morning. Mr. SPOKOWSKI. An isolated area need not be a detriment. If the material is sufficiently attractive and in a large enough quantity, the buyers will travel. For example: People from the west coast have traveled all the way to Bayonne to examine the material being sold here today.

Mr. BALWAN. It might be interesting to get an analysis of the bidders and registration showing where the people have come from.

Mr. SPOKOWSKI. Admiral Royar asked that a full report on the sale be furnished to Bureau of Supplies and Accounts. We will gladly forward a copy of this to you with full details.

Mr. TOLINO. The Office of the Secretary of Defense is preparing a summary in which you will have the Department of Defense viewpoint on the problems involved in transporting material for sale from port to port.

Mr. BALWAN. We will now have some comments from Mr. Pike, Deputy Assistant Secretary of Defense for Supply and Logistics.

Mr. PIKE. I am frankly amazed and delighted with the big auction that you are staging here today. They have certainly picked one of the topnotch outfits in this business which, I think, is good business. Just the way this thing started off here and from the conversation I have heard, you are going to accomplish some excellent returns percentagewise in relation to the acquisition cost.

I am quite new in the Assistant Secretary's Office for Supply and Logistics. This makes a fine opportunity for me to add to my education firsthand. I have already made one trip to Philadelphia. On my trip to Pennsylvania I have seen ASO and GSSO.

I will be very interested in seeing more detailed reports on the previous two of the sales. We have asked for them.

Mr. SPOKOWSKI. We have reports on those sales, Mr. Pike, and as soon as Captain Haynsworth sends in his report on the third sale, we will be glad to furnish you with copies of that, too.

Mr. PIKE. We are interested in all of the services. The other two services have conducted and will conduct similar sales but not on the same scale. We will be able to observe the sales of the three services to see whether they are beneficial or not. We will be able to see where it is presentable and where it is not.

Mr. SPOKOWSKI. In connection with personnel in the Disposal Branch of the Surplus Materials Division, we have only five people. I am head of sales in Disposal. I have an assistant, a secretary, and two clerks. They are all civilians. We are under the command of Commander Barnett, who is our military boss.

Captain HAYNSWORTH. There is one point I would like to stress. There is a great deal more to this than just crying the sale. There is the lotting of material. Mr. Spokowski has pointed out that a man who has just sold farm machinery is not in a position to lot up this material in such a manner as to get the most out of it.

Lieutenant PETTINGELL. We worked with the auctioneer and had representatives of Parke-Bernet, Inc., with us working with our people for about 2 weeks.

Mr. BALWAN. They assisted you in making up the lots?
Lieutenant PETTINGELL. Yes.

Mr. RIEHLMAN. What is the background of the men who were brought up here? Are they specialists in this field?

Lieutenant PETTINGELL. Yes, they are oldtime auctioneering people. Mr. RIEHLMAN. This is a very important point. I hope this type of procedure is followed wherever an auction is held.

I could understand today that some of the lots would be very attractive to one group or another. They would have an opportunity to put in the odds and ends of no particular value along with the more attractive material. You might find people who were interested in one item that would also be able to handle inferior types of equipment that would be in the lots. When you have a great deal of variety, you have an opportunity to gain more of a return.

It is a point that is certainly well taken and should be thoroughly considered when you are setting up future programs for auction.

Mr. SPOKOWSKI. As I mentioned before, in making a selection from the 7,000 auctioneers, the biggest headache is to set up criteria. We want to satisfy Congress and all the Government agencies. We are partial in that we want to select the best.

You cannot take an auctioneer with a small organization and hire him to run a sale similar to the one you have seen today. We too are interested in the small-business man. However, auctioneers with small, limited facilities cannot handle our sales. We must do business with firms organized to handle large sales.

Mr. RIEHLMAN. The point we want to make is that small business is very important and we want to do for them and give them as much as possible.

Mr. BALWAN. Mr. Brennan is not military. We might ask him if he has any comments. He is counsel for the GSA regional office for the New York area.

Mr. BRENNAN. I have not been in on any of the regional counsel policy discussions for the New York area. I have had some experience in War Assets in their methods of disposal.

One thing I am happy to see in this auction is that the terms are cash. I certainly don't think we should ever make the mistake of 5 years ago and extend credit to these bidders.

This is a very spirited auction and I agree that it certainly seems to take the place of sealed-bid sales. The personal element of competition is there. This quality is lacking in a straight bid sale.

I will be very happy to make my report, and I assume that Washington will be meeting with you folks about what is to be done in the future concerning these things. We are working very closely with. GSA in coming up with what we think is a solid disposal program not only on the sales but utilization and screening.

Mr. RIEHLMAN. This bring to light another interesting and important factor, that is, the paperwork that is going to be eliminated as far as the Navy is concerned in contrast with the sealed bid program. I think we will be touching on that as we move along following progress that has been made.

Mr. TOLINO. We think we can show by our proposal and plans that we can eliminate a lot of this paperwork. There are many phases of the old War Assets program that we don't want to become a part of our plan.

Mr. RIEHLMAN. I concur with what the counsel (Mr. Brennan) has said for GSA. I don't think you will find many people who will disagree.

Mr. BALWAN. On this question of lotting-are the lotting criteria different for sealed bid sales than for auction sales?

Mr. SPOKOWSKI. No. We try to break it into lots that are not too large to eliminate the small buyers.

Mr. BALWAN. Commander McIver, NPO, New York, negotiated the contract with Parke-Bernet Inc. and perhaps he has some comment to offer.

Lieutenant Commander McIVER. I am the contracting officer at the Navy Purchasing Office, New York.

I received a requisition from Bayonne calling for auctioneer services. It was a rather novel requirement because I didn't have one in New York before. Accordingly, I contacted BUSANDA and obtained information from them. We contacted Philadelphia and obtained a copy of their contract. The contract brought up several problems.

The first was whether we should go out on a formal competitive bid or whether we should negotiate a contract with auctioneering companies. On a formal competitive contract there is no knowledge available of the past history or performance of the auctioneer. That is something that is intangible on the basis of past figures. We have to evaluate ourselves on previous performance and history. Therefore, we decided we would negotiate the contract.