.$ COMPTROLLER GENERAL OF THE WASHINGTON. D.C *B-ii59463 CF. Dear Mr. Eshleman: tg Your letter of October 21, 1971, requested that we furnish information on the requirement of a Government ccz-n-. ! 3c.11 that the Hamilton Watch Company purchase jewel b0eg.r_ings D ““” - J- from the William Langer *Jewel Bearing Plant, Rolla, North i> :yj1 I(* /” Dakota. The Government-owned, contractor-operated Langer un,;.-. was establi.she~%~~~fi~-zvernment to provide a domestic source for the jewel bearings needed in defense production so that the United States could be free of dependency upon foreign sources of supply that might be cut off in the event of war. The continued operation of the plant, the only facility in the continental United States capable of producing jewel bearings in large quantities, is considered by the Office of Emergency Preparedness (OEP) to be essential to the national security. The Langer plant is the mandatory source for jewel bearings contained in items purchased by the Government and for jewel bearings purchased for the national stockpile. _c...-_I_-w^... The Government contract awarded to the Hamilton Watch Company provides for supplying the normal wristwatch require- ments of the General Services Administration (GSA) Region 6 supply depot for the period from July 1, 1971, to June 30, 19 72. The estimated contract amount is $452,836 for 19,680 wristwatches . The contract requires that Langer plant jewel bearings be used in the performance of this contract or, al- ternatively, be used in equal quantity in commercial produc- tion. On October 19, 1971, the Hamilton Watch Company ordered 334,560 jewel bearings from the Langer plant at a cost of $85,214. Deliveries of the jewel bearings were scheduled to begin on December 1, 1971, when 25 percent of the total quantity was due. We discussed the procurement and the use of Langer plant jewel bearings with representatives of GSA and OLP who stated that the Langer plant was an essential part of the national mobilization base and that its continued operation as a do- c-gz?cg’of jewel bearings was essential to the -“*/_” national . security. GSA representatives stated also that the Langer 3’ pXZi’t”‘was not competitive in price with the Swiss jewel- I,\ bearing industry because of the Langer plant’s relatively high I :~.“~~~!“” cost of labor and low volume of production. Swiss of watch jewels is about 1,000 times greater than 5QTl-l AN 1921- 197 1 :, I( w B-159463 plant production. GSA representatives stated further that the higher price paid for jewel bearings from the Langer plant was necessary to support operations of this essential plant and that the higher price represented a charge borne by the Gov- ernment to ensure that the production capability of the Langer plant would be available when needed during a national emer- gency . The sales of jewel bearings from the Langer plant are made to Government contractors at prices that cover the costs of production, and such costs presumably are included in the price of Government contracts. In this way the Government pays a subsidy for operation of the Langer plant. On the basis of the bearings needed for one 17-jewel watch, the sub- sidy is equal to the Langer plant cost of about $4.30 less the Swiss price of about $.70, or $3.60. If the manufacturer has no alternative use in commercial production, the subsidy may increase to the full cost of $4.30. Your letter stated ‘that the Hamilton Watch Company would discard the jewel bearings purchased from the Langer plant because the company used imported movements (with jewels in them) which were completely assembled when imported. There - fore we asked OEP about the ramifications of discontinuing the production of watch jewel bearings at the Langer plant. An OEP representative told us that the production of watch jewel bearings at the Langer plant was necessary at the pres- ent time to maintain the operations of the plant. He stated that the current overall production of 40,000 jewel bearings a.week, or about 2 million jewel bearings a year, was about the minimum level at which the Langer plant could be operated. The OEP representative stated also that OEP would recon- sider the need to produce watch jewel bearings at the Langer plant when orders from Government contractors for other types of jewel bearings increased sufficiently so that the plant could be operated on these orders alone at a level that would employ the key workers and maintain their skills. According to the OEP representative, the Department of Defense and GSA are currently checking the extent to which Government contrac- tors are not complying with the mandatory requirement to B-,159463 purchase -jewel bearings from the Langer plant. He stated that preliminary indications were that improved compliance would increase the orders placed on the plant. Deputy ’ Comptroller General of the United States The Honorable Edwin D. Eshleman House of Representatives
Government Contract Requirement of Jewel Bearings From Specific Company
Published by the Government Accountability Office on 1971-12-28.
Below is a raw (and likely hideous) rendition of the original report. (PDF)