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EFFECT OF AMENDMENTS CONTAINED IN AUGUST 1935 ACT ON AUTHORITY

PURCHASING POLICY

Representative JENKINS. Just in line with that, I wanted to develop one proposition, and I wonder if that would take too much of your time. Here is what I mean: Under section 9 of the regular T. V. A. Act, it refers to these purchases that we had up yesterday. Subsection (b) there provides in the proviso:

Provided, That advertisement shall not be required when (1) an emergency requires immediate delivery of the supplies or performance of the services; or (2) repair parts, accessories, supplemental equipment, or services are required for supplies or services previously furnished or contracted for; or (3) the aggregate amount involved in any purchase of supplies or procurement of services does not exceed $500.

Here is one point that I wanted to bring out, and have you submit some information on it: I understand that the T. V. A. in making their purchases buy thousands and many thousands of dollars of supplies without any regard to this $500 limitation, or without any regard to this section at all, in this way, I will give an example:

Suppose that they go to work and they buy supplies from A Co., and they start an account, and they open that account legitimately, and in conformity with the statute; but that after that account is opened up once, they buy thousands and tens of thousands of dollars under the interpretation of these words, under No. (2) (reading]:

(2) Repair parts, accessories, supplemental equipment, or services are required for supplies or services previously furnished or contracted for

In other words, I can easily see if they would buy a steam shovel and pay $40,000 for it, they could under that law buy parts for that. steam shovel-especially if it was necessary to put the steam shovel into operation—to buy some additional parts, and I can see how that could be done without regard to these advertisements or anything About it; but if they were to buy, for instance, a wheel from some company that makes a steam shovel, and that wheel could be bought for $500 or less—if it cost more than $500 that would have to be advertised for-but that wouldn't justify them after they start that account to go and buy a steam shovel to fit the wheel.

Now, I understand that they are doing that all of the time, and I want you to bring me some information on that, if

Senator SCHWARTZ. I would like to have the witness tell us how many wheels that they bought and how many steam shovels that they bought subsequently to fit the wheel.

Representative JENKINS. That is an illustration.

Senator SCHWARTZ. I think that I might remark in view of the original observation, that it was said that there were only three of us here, that there are now six members of the committee present.

Mr. Tulloss. I don't know how I can obtain that information. It would only be available to us by investigation at the source, that is to examine the accounts and see to what extent this condition exists. If the Tennessee Valley Authority stated its vouchers as within the law, and didn't indicate that it had a running account with this concern, we would, giving full faith and credit to their certificate in the case, we would have no suspicion that there was anything wrong with it.

So that we may not have any data on this. If we have found such cases, we could develop them and advise you. Otherwise, it would

you will.

necessitate a trip to the offices of these contractors, to ascertain just what took place.

Representative JENKINS. I understand that you can get the information because it is coming to me, and maybe I can help you a little.

Mr. TULLOSS. That would be fine.

Representative WOLVERTON. Doesn't your report point out such instances—and maybe I am wrong, I have one particularly in mindwhere you

make reference to McČlum & Co. of Knoxville, and point out that expenditures with that concern run from as much as fortysome dollars to over $11,000 per month, without any submission of bids or competitive buying, isn't that true?

Mr. Tulloss. You are speaking as to the 1934 report? Representative WOLVERTON. Yes. Mr. Tulloss. I understood the proposition to relate to transactions subsequent to the act of August 31, 1935, and not prior to that. Now, we know that there were such cases, as shown by the report, prior to that amendatory act.

Representative WOLVERTON. Now, what is the practice now with respect to cases like McClum & Co., to which you took exception in your 1934 report? Does that situation pertain at the present time?

Mr. OWEN. They are complying substantially with the $500 provision, but McClum & Co. purchases were made as an emergency, at the very beginning, when they claimed that they did not have the time to get out an offering for bids, and they had to have the stuff immediately to get started.

Representative WOLVERTON. I am familiar with the many ways that governing bodies, municipal and otherwise, have of getting from under the provisions of the law, and getting purchases into the hands of favored individuals, claiming emergencies, and claiming this and claiming that, and taking them outside the law, but as I understand your report in 1934 you criticized it on the basis that there was not competitive bidding, and that subsequently you raised the point in either that or other instances, that there had been not sufficient evidence raised or given of an emergency existing.

Mr. TULLOSS. That is correct.
Representative WOLVERTON. Isn't that true?
Mr. TULLOSS. That is true.

Representative WOLVERTON. So that the mere claiming that an emergency exists doesn't cure the situation, it depends upon what the

Now, for the same reason that you criticized the Volunteer Portland Cement Co.—there was a company that wasn't operating at all when T. V. A. went in there, and it is now in operation day and night, so I understand, on a price fixed for cement without any competitive bidding on that, but in some instances the cement has even been bid for at a lower price by others.

Now, what I am trying to get at is, and as I said before, I am a bit handicapped because the only thing that I have to give any consideration to is the report for 1934—that is the reason that I am saying that this committee is handicapped. If we had the report of 1935, and 1936 and 1937 and 1938, and knew these objectionable items, and by inquiring into the T. V. A. standpoint we were able to understand the

facts were.

view point that they take, then we would determine whether there is need for additional legislation to stop practices that might seem improper, but all I can do is base my criticisms on what appears in the report of 1934, because that is all that we have before us, at the present time, and it seems unfortunate to have to go away back to 1934 for something that we are trying to cure now, in 1938, so that I am intensely interested in knowing what are the practices that are now being carried out by T. V. A. that are a subject of criticism on the part of the General Accounting Office.

In other words, can we be brought up to date, and as I understand, that is the endeavor, but no promises are made as to when it will be.

Mr. Tulloss. We are doing our best to bring that about.

Representative WOLVERTON. I have no doubt of that. I hope that we can get the benefit of it.

CATTLE FURCHASES

Now, take that situation that you have referred to on page 359 of your report, under the term of a "dairy,” in which you set forth that a herd of 25 cows and i bull was purchased, from various owners, in May of 1934, at prices ranging from $50 to $950 each, averaging $372 per head, an aggregate of approximately $10,000, and then your report states:

It appears that some of the stock bought at prices as high as $950 per head at the auction sale was offered to the Authority shortly prior to the sale for $200 per head, an that several months later, on September 6, 1934, two of these highpriced cows were sold for $396—or $198 each.

Now, what I would like to know with respect to that is not only what became of the rest of the herd, but whether that practice of buying without competitive bidding or without specifications doesn't lead to that very thing that is criticized in your report of 1934, or if not, then why is the criticizm in the report of 1934.

Mr. Tulloss. The criticism there is addressed to the seeming high price for cattle, which did not appear to be reasonable.

Representative WOLVERTON. Well, I understand that. There is an instance where you say that stock was bought at $950 a head at an auction sale that had been offered just a short time prior for $200 & head.

Representative Thomason. Now that there has been criticism, if there is any explanation, may we have that?

Representative WOLVERTON. Yes; that's what I want.
Chairman DONAHEY. Isn't this already a matter of our own record?

Representative WOLVERTON. No; this is not the one that I touched on in Knoxville. That was about the bull. This is a different situation.

Representative THOMASON. There is a bull here, too.

Senator SCHWARTZ. I just wondered if we had the mechanical Jack yet that is supposed to come from Missouri.

Representative WOLVERTON. I don't know, we have had some that looked like Jacks.

Representative Thomason. If there is an explanation I think we ought to have both sides of it, Mr. Chairman.

Representative WOLVERTON. Of course that's what I want.

Mr. Tulloss. On page 331 of the reply of the Tennessee Valley Authority, the following is said:

Cpon page 359 of the report, some question is raised as to the purchase by the Authority in May of 1934 of a herd of 25 cows and 1 bull from various owners, involving an aggregate of approximately $10,000. The comment is made that it appears that some of the stock bought at prices as high as $950 per head at the auction sale was offered to the Authority shortly prior to the sale for $200 per head and that several months later two of the cows were sold for $396, or $198 each. This statement is incorrect. The two cows that were later sold by the Authority cost $100 and $135, respectively, and were sold at a total net profit of $161 to the Authority.

Representative THOMASON. What is that-sold at a profit?
Mr. Tulloss. Sold at a profit of $161.

Representative WOLVERTON. Just like the bull. They increased in value.

Representative BARDEN. Right at that point, may I ask this witness if that explanation is sufficient to justify you to cancel your criticism of that transaction, if correct?

Mr. Tulloss. If correct it might, so far as the reasonable price for cows is concerned. But it does not take care of the $950 cow.

Representative BARDEN. I know, but now just at that point-
Representative WOLVERTON. That's what I'm interested in.

Representative BARDEN (continuing). Who in your department is an expert cow appraiser?

Mr. BIDDLE. Or bull appraiser?

Mr. Tulloss. I claim some ability along that line myself, but I didn't happen to appraise these, however.

Representative BARDEN. Now, you don't believe that either you or Mr. McCarl or anybody else could sit up here in Washington and appraise a cow or buli in Tennessee?

Mr. Tulloss. No, sir.
Representative BARDEN. Without ever seeing it.

Mr. Tulloss. No, sir; but we probably would not appraise them as high as $950.

Representative BARDEN. Why, don't you know that-don't you know there are plenty of cows that bring more than $950?

Mr. Tulloss. Yes, sir; I recently saw one sold for $1,050. Representative BARDEN. Yes, sir. Representative WOLVERTON. Could you have bought it a little while before for $200?

Mr. Tulloss. I wouldn't have given $200 for the cow. dairyman I didn't consider the cow a good investment at $200.

Senator SCHWARTZ. Let's investigate that dairyman after awhile. Will you read the rest of that report there? That is what we are interested in.

Mr. Tulloss (reading):
It is true that on April 9, 1934, bids were requested on 25 registered Jersey

Mr. Herbert Farrell, in response to such invitation, offered a bid. It was recognized that Mr. Farrell was the owner of one of the finest purebred Jersey herds in America, and when it was determined to establish such a herd at the town of Norris, the Authority was anxious to secure some of this herd. The prices submitted in response to the invitation for bids were so high that the Authority hesitated to accept the bid. It was learned that Mr. Farrell contemplated conducting a dispersal auction sale of the entire herd, and it was thought that it would be possible to obtain some of the herd at the auction at a price less than the bid. It happened, however, that when the cows were offered

As a

COWS.

for sale they brought considerably higher prices than had been expected. Eight Cows were purchased at the auction sale, and it is true that for seven of these, the Authority did pay $1,100 more than the price at which they had been offered to the Authority in the bid. The eighth cow purchased at the auction had not previously been offered to the Authority. The fact of the matter is that the employees of the Authority who were familiar with the situation were honestly mistaken in their judgment that the cows could be procured more cheaply at the auction than by accepting the bid. On the other hand, had the cows sold for less at the auction than the price offered in the bid, the Authority would have been subject to criticism if it had accepted the bid rather than wait for the opportunity of purchasing at auction.

Ås we understand the report, it is not contended that R. S. 3709 applies to this purchase. This was clearly a case where the desired article was available through only one source. In such cases, competitive bidding is not required. Nevertheless the effort to obtain competitive bids was made.

The clear inplication of the section of the report dealing with this purchase is that the expenditure involved was unjustified. We believe that the sole question of importance involved is whether under all the circumstances this purchase was the result of a rational exercise of administrative discretion and was actuated by an honest desire to accomplish one of the purposes set forth in the act, and in 80 doing, to promote the public interest.

Representative THOMASON. Don't you think that was a very reasonable explanation?

Mr. Tulloss. I think that is a reasonable explanation, but I-
Representative THOMASON. Satisfactory?
Mr. Tulloss. Yes, sir; but I still-

Representative Thomason. Under the circumstances, if they thought they might be able to buy for less at auction than they could have under the bid. Now, nobody is able to determine exactly what an article is going to sell for at auction, with a lot of excited bidders.

Mr. TULLOSS. That is true. Our criticism was addressed solely to the higher prices.

Representative Thomason. I think your cricitism was absolutely justified at the time, but in view of the explanation, don't you think, as Mr. Barden suggested, that perhaps that criticism now ought to be canceled out?

Mr. Tulloss. I don't know what the action of the Comptroller General will be on that item.

Representative WOLVERTON. What has become of the herd since 1934; is it still in existence or has it been disposed of? Have they gone out of the milk-producing business or are they still producing milk?

Mr. Tulloss. I understand that they have disposed of most of the herd, and I would assume that those undisposed of are in production. I do not know.

Representative WOLVERTON. Well, was there any authority on the part of the General Accounting Office to go into the question of why this herd was purchased to produce milk in a country that had herds on every hilltop?

Mr. Tulloss. We take the position that all expenditures for the Government must be necessary, must be necessary to the carrying out of the purposes of the law. We were not sure, and I still have doubt in my mind, that a dairy herd was essential to the activities of the T. V. A., and I have even graver doubt that a high-grade registered herd, pedigreed herd, was essential.

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