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)

                                  COMPTROLLER     GENERAL     OF     THE
                                                WASHINGTON.    D.C

          CF. Dear Mr.    Eshleman:
                       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.
                      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-
                      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
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          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

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