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Mr. CLAPP. Three years on the average. Some of them will reach 50,000 miles much sooner than that. You will notice on page 3 of exhibit D, which the chairman was referring to, that when we had an average accumulated mileage of vehicles in service of 72,000 miles our direct repair cost alone was about twice as much as it is now with an average mileage of about 30,000 miles.

The practice we are trying to observe now is to replace our vehicles at about 60,000 miles and thereby eliminate that major overhaul, which does not produce as good a result as a new car.

Senator ROBERTSON. Around 50,000 miles do you get good oil usage?

Mr. CLAPP. That I do not happen to know. We get very economical operation with these automobiles to a certain point.

Senator ROBERTSON. You do better than I do with mine.

Mr. CLAPP. The secret is in being able to replace on a reasonably rational basis.

Senator HILL. This data is in the record?

Senator MAYBANK. Yes.

Senator HILL. I just want to bring out the fact how this cost goes up if you keep the car too long and how you can operate on your own much more economically than you can by renting a car or some other transportation.

Mr. CLAPP. That is right. The additional expense that additional rentals would require in 1953 if we are not able to buy new cars in sufficient number would take care of about a third of our proposed replacements.

Senator HILL. You mean just for that one year?
Mr. CLAPP. Yes, sir.

COST TO REPAIR AUTOMOBILES

Senator CORDON. There is a curious relationship in that direct repair cost per mile as exhibited on page 3. I notice in 1945 the costs were much less than they are today. It cost 1.93 cents per mile repair cost for your cars averaging 52,900 miles of service. În 1949, when the price was much higher, 48,400 mile average, cost you only 1.90 cents. In 1946, which was 1 year later than 1945 when there had not been much change, 58,600, only 1.96 cents, or three-tenths of a cent more per mile than the year before. In 1945 it was 1.96 cents. In 1946 though your vehicles are almost 6,000 miles per vehicle older, it is only three one-hundredths of a cent more. Then when you take 1948 where they were much lower in average mileage, only 48,400, and where costs had gone up very considerably, we are down to 1.90 cents. There does not seem to be any logical relationship between average costs, mileage, and the rate of cost of doing business.

Mr. CLAPP. Senator, I think you are citing differences so small in the cost column as to be differences without a meaning.

Senator CORDON. If they had no meaning, you should not have put them in there.

Mr. CLAPP. The meaning is in the marked contrast when you begin to approach the extremes.

Senator CORDON. There is an extreme between 48,000 and 58,000, but maybe not to you.

Mr. CLAPP. The figure at 72,000 which shows 2%1⁄2 cents per mile direct repair cost and the figure at 58,000 which shows 2 cents approximately, 1.96, which to me would be 2 cents, the difference between 2 cents and 21⁄2 cents I would suppose would be significant.

Senator CORDON. So is the other figure.

Mr. CLAPP. As to why they vary just that way by hundredths of a cent, I do not know. Maybe our automotive experts would know. Maybe it is not right for me to say those differences do not have meaning. They may have great meaning to our automotive engineers.

Senator CORDON. Any time when you go from 48,000 to 58,000 or add 10,000 miles to the average life of your car and only have that difference in increase of cost, I cannot understand a sudden jump at any particular spot. I have driven cars up to 50,000 and 60,000 miles. Most of us have.

Senator MAYBANK. Are there any further questions?

FURTHER DISCUSSION ON PERFORMANCE-BOND REQUIREMENTS

I ask unanimous consent to place this letter in the record. It says, The TVA appropriation bill will be before the Senate very soon and I sincerely hope that Congressman Gore's amendment to Congressman Baker's amendment will be stricken out, making it mandatory that contractors with the TVA furnish performance bonds guaranteeing performance on contracts which are awarded them.

Senator ROBERTSON. Who was writing that?

Senator MAYBANK. The Nashville Coal Co. It says further:

Such a requirement will eliminate the speculators and undoubtedly insure that TVA will secure its coal at the lowest possible prices based on certainty of performance. As a matter of proper procedure, contractors who presently hold contracts to furnish coal to TVA should be required, even at this late date, to furnish performance bonds covering those contracts. This would insure delivery or, failing delivery, indemnify the TVA and protect that agency against increased coal

costs.

The statement has been made that TVA has not lost a penny on its coal purchases. That may be true as of today. If, however, the coal market should change, as it might, and the fly-by-nights and the speculators, who have not been required to furnish performance bonds, fail to deliver under the contracts which have been awarded to them, the TVA may pay much more for the coal, which it must have, by reason of having to enter a seller's market. Awards to responsible coal people, backed up by adequate performance bonds, will result in TVA securing its coal for its many steam plants on a sound and proper basis.

(The letter referred to follows:)

Hon. BURNET MAYBANK,

NASHVILLE COAL CO., INC.,
Nashville, Tenn., April 9, 1952.

Chairman, Senate Appropriations Subcommittee,

Senate Office Building, Washington, D. C.

DEAR SENATOR MAYBANK: As you know, there has been considerable publicity given to the methods by which the Materials Division of the TVA has awarded coal contract involving between $65,000,000 and $75,000,000 for its various steam plants.

According to independent investigation, the results of which have been widely published, the great majority of these contracts have been awarded to companies which have no coal mines, no dependable sources of supply and no financial stability. Frankly, our company, like many others, has made bids on many invitations, has the coal, is financially able to guarantee performance, but has received awards on only a small amount of the tonnage bid upon, although in two instances, we were low bidder. This circumstance, however, is not the reason for this letter although, like every other company, we are always striving for business. The awards which have been made by TVA indicate that there is something very

peculiar in its methods, and, as citizens and as taxpayers, rather than sellers of coal, we are interested in seeing that proper procedures are followed in the spending of taxpayers' money. The TVA, in its invitations to bid, states that bidders to whom awards are made shall, within ten days after the award, execute a bond guaranteeing performance under the contract but nullifies the value of this requirement by a proviso to the effect that the authority may, at its option, waive execution of the bond, in which case the cost of the bond shall be paid to the Authority by the contractor. So far as we are able to determine, bonds have been waived. Whether the cost of the waived bonds has been paid in to TVA, we do not know. So far as we are concerned we have not been required to furnish bonds on such business as we have received and neither have we been required to pay the premium on the waived bonds to TVA.

In a debate upon the floor of the House on March 21, Congressman Howard Baker offered an amendment to the TVA appropriation bill, which amendment provided that no funds appropriated for the TVA shall be used for the purchase of coal unless the purchase is made under a contract with a contractor who has executed a bond guaranteeing performance of the contract. Congressman Baker's amendment was further amended by Congressman Albert Gore, by the insertion of the word "performance" before the word "bond" and adding after the word "bond," the words "or other satisfactory warranty.' "Or other satisfactory warranty" is an extremely indefinite phrase and leaves the determination of what constitutes a "satisfactory warranty" completely in the hands of the Purchasing Department of the TVA, which already is being criticized because of its methods. With the awarding of contracts involving millions of dollars, it seems that all companies which merit such awards should be financially responsible and capable of securing bonds guaranteeing performance.

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The TVA people are insisting that if bonds are required, it will increase the cost of coal to them. This does not make sense, since their invitations to bid, as stated above, provide that if the performance bond is waived, a successful contractor shall pay the cost of the waived bond to the TVA. Therefore every bidder must or should figure the cost of the bond in his bid. Of course, it is highly probable that no bidder would consider the cost of a performance bond in the price of the coal upon which he was bidding. Even if he did, however, the cost would be infinitesimal. As a matter of fact, taking a specific instance, a performance bond on a contract recently awarded would cost less than 2 mills per ton. And even if the cost of a performance bond was added to the bid price of the coal, would it not be worth 2 mills per ton to TVA to insure performance on a contract involving many millions of dollars?

Parenthetically, it might be pointed out that TVA should be interested not only from the dollar standpoint but from the standpoint of national security, inasmuch as a great part of TVA's present expansion program is reputed to be designed to furhish power for the Atomic Energy Commission. Nonperformance by irresponsible bidders and fly-by-nights who have been awarded contracts involving many millions of dollars will undoubtedly hamper the Atomic Energy Commission's power program and result in increased cost and certainly disrupt various coal markets and endanger the national security.

The TVA appropriation bill will be before the Senate very soon and I sincerely hope that Congressman Gore's amendment to Congressman Baker's amendment will be stricken out, making it mandatory that contractors with the TVA furnish performance bonds guaranteeing performance on contracts which are awarded them. Such a requirement will eliminate the speculators and undoubtedly insure that TVA will secure its coal at the lowest possible prices based on certainty of performance. As a matter of proper procedure, contractors who presently hold contracts to furnish coal to TVA should be required, even at this late date, to furnish performance bonds covering those contracts. This would insure delivery or, failing delivery, indemnify the TVA and protect that agency against increased coal costs.

The statement has been made that TVA has not lost a penny on its coal purchases. That may be true as of today. If, however, the coal market should change, as it might, and the fly-by-nights and the speculators, who have not been required to furnish performance bonds, fail to deliver under the contracts which have been awarded to them, the TVA may pay much more for the coal, which it must have, by reason of having to enter a seller's market. Awards to responsible coal people, backed up by adequate performance bonds, will result in TVA securing its coal for its many steam plants on a sound and proper basis. With kindest regards, I am

Yours very truly,

JUSTIN POTTER.

TVA COAL PROCUREMENT

Senator ROBERTSON. I assume that letter relates to the question that I saw in the newspapers about a contract which was let to somebody, a very large one, somebody who was not in the coal business and he had no financial responsibility at all. He was just a fly-bynight promoter who stuck in a low bid and got a tremendous contract without any visible means of delivering.

Mr. CLAPP. Whatever impression the news stories did convey or intended to convey, that summary of the situation is not an accurate

one.

Senator ROBERTSON. Please outline what the news stories were that I read. I am sure you remember them better than I do. You were at the far end.

Mr. CLAPP. The Chicago Tribune was trying to make the point. we were not dealing with the big coal dealers who are, as they put it, more responsible than those who have access to small mines that do not have big outputs.

Senator CORDON. Were they not really trying to make the proposition you were not dealing with coal dealers at all?

Mr. CLAPP. Some of them, but they knew better than to make that flat assertion, because the large bulk of our coal contracts are with big coal suppliers.

Senator CORDON. They made that flat assertion.

Mr. CLAPP. Then they were wrong.

POSSIBLE CONTRACT WITH NONCOAL PRODUCER

Senator CORDON. They discussed a contract they said you made with a tavern keeper, according to the article I read, who never dug a pound of coal or a ton. What about that?

Mr. CLAPP. He may have been a tavern keeper. He also handles coal. Whether that is an appropriate relationship for a businessman to get into, I do not know.

He

Senator ROBERTSON. That was not the newspaper statement. will handle coal after you have agreed to buy it from him because he went out to buy and get somebody to go in with him. The article I saw said that when you made the contract with him, he not only was not in the coal business but never had been.

Mr. CLAPP. Senator, let me explain how these coal problems develop and how we handle our coal supply.

Senator CORDON. Why not give a responsive answer to the question, Did you make a contract with a man who was not and never had been a coal producer? You can say "Yes," or "No."

Mr. CLAPP. I am sure we have made contracts, not just one, but we have made contracts with men who act as agents or who have plans to get into the coal business. It is not a business that is closed to all newcomers. There must be a first time for an operator to become a coal operator.

Senator CORDON. That is a platitude and we all understand it. The answer is "Yes." Now please go from there.

Mr. CLAPP. The question of course is whether or not we will get the coal. We have every reason to believe we will. If we do not get the coal from the contractor, we do not pay him any money. Senator CORDON. That is all perfectly clear.

COAL SUPPLY

Mr. CLAPP. The situation with respect to TVA's coal supply is this: In those plants that are to be supplied primarily from the Tennessee and East Kentucky deposits, we will have to and we will rely upon the Tennessee mines for a substantial portion of our coal for plants near those deposits. Those deposits in Tennessee are mostly small deposits. They are scattered. They are not the big mines such as you find in East Kentucky, in southern Illinois, in west Kentucky and down in central Alabama. We have had experience with the production in those mines. We have been buying coal from the Tennessee deposits for the Watts Bar steam plant for 10 years. Last year about half of the coal we got for the Watts Bar steam plant came from large producers.

Senator HILL. That was one of the first steam plants you built? Mr. CLAPP. That is correct. We built that in 1941. It has a capacity of 240,000 kilowatts. Half of the coal that we have been buying for the Watts Bar steam plant comes from what is referred to in the trade as large suppliers. But the other half comes from small producers who produce, say, roughly, under 50,000 tons a year, which would be in the order of 100 to 150 tons a day. That is a small mine. During the 10 years we have been buying coal from these small producers, a large number of whom have supplied as much as one third to one half of our coal for that Watts Bar steam plant in recent years have performed just as well under their contracts as the large suppliers have.

Senator CORDON. There is not any reason why they should not if you make a contract with them on the basis of their known ability to supply. You could not expect them to make the same kind of a record if you asked them to supply more than the reasonable experience indicates they could supply, or if you made a contract with one who had never supplied any, because you are gambling then.

Mr. CLAPP. Some of these who have supplied coal to us at Watts Bar gained their first experience in the coal business in supplying us. There has to be a first time for somebody always in anything. He is not born into the coal business. You are

Senator CORDON. Hardly. I think I understand that. not born supplying coal. I agree with you.

Mr. CLAPP. The record of performance of these small operators is a good one.

Senator CORDON. As long as you are into that, you and I are going to have to work it out. I want to know how many contracts you made and for what amount and when were people to supply you with coal who had never produced coal? What the record was in each

instance, also.

Mr. CLAPP. We can undertake to find that out.
Senator CORDON. Let us have it.

Mr. CLAPP. I do not have it with me.

Senator CORDON. But I want it.

Senator MAYBANK. Without objection, will you get the statement up that Senator Cordon has asked for, the amount of coal purchased from them, people who never sold coal before?

Mr. CLAPP. Yes. We will try to get that up, Mr. Chairman. (The statement referred to follows:)

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