Construction of TNT Lines and Related Facilities at the Newport, Indiana, and Joliet, Illinois, Army Ammunition Plants

Published by the Government Accountability Office on 1971-12-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                              COMPTROLLER        GENERAL     OF     THE    UNI
                                               WASHtNGTON.    DC.     20548


‘1 Dear Mr. Chairman :
                 This is in further          reference      to your request of June 17,
         1971, that we investigate              certain     charges against the Chi-
 1       cage District          of the Army Corps of Engineers made in a letter
    f.   to you dated March 31, 1971.                  These charges, pertaining               to
               “--.“~---=“,~~*of TNT lines and related           facilities       at the New-
         port,      Indiana,     and Joliet,      Illinois,    Ar-unition               plants,
         are summarized as follows:                  (1) Corps officials         had given
         preferential         treatment    and inside information             to Hi-Way Elec-
8’       tric     Company, a firm which received much of the subcontract
         work, (2) there was collusion                 between Corps officials            and
         bidders and among bidders in the award of contracts                          ’ and (3)
         the Corps had mismanaged the Newport and Joliet                         projects.

                 We found that the charges of an improper relationship
         between Corps officials     and Hi-Way and collusion   in the                    award-
         ing of contracts     were based on hearsay and rumor but we                      could
         not find any supporting     documentary evidence.    We found                    also
         that the contracts     had some cost growth and some delays                      in
         completion.     Each of these matters   is discussed below in                     more

                 In September 1968 the Corps, because of the urgency of
         TNT requirements,       awarded a cost-plus-a-fixed-fee          contract      to
         a joint    venture of Fegles Construction         Company, Inc.,        and
         CEI/Girdler,      Inc.,  for the construction      of the Newport TNT
         project.      Subsequently TNT requirements        eased and the Corps
         decided to convert the project        to a fixed-price-contract             ba-
         sis.     The Corps terminated     the Fegles-Girdler        contract     in
         December 1969 and later        awarded a series of 15 formally             ad-
         vertised     contracts   to complete the Newport project;            the last
         contract     was awarded in March 1971.        The contracts       for the
         Joliet    TNT project    also were formally      advertised.

                The author of the March 31, 1971, letter   to you informed
         us that he had worked for Fegles on previous projects        at the
         Joliet   plant in 1965 and on the New-port TNT project    later   and
         that he had been in charge of all administrative      matters   in-
         cluding purchasing   and accounting.  He could not provide

                                      50Tl-i   ANNIVERSARY                1921-1971

specific    instances,  within   his personal knowledge, of the
Corps’ having influenced       Fegles’ selection    of Hi-Way as a
subcontractor     or of Hi-Way’s having had inside Corps infor-
mation.    He told us that the statements        in his letter had
been based largely     on general comments made by the Fegles
project   manager and by a Fegles vice president.

      We interviewed    the project  manager and the vice presi-
dent.   Neither one, however, supported the statements       made
in the letter.     They stated that the Corps had not pressured
Fegles into selecting      Hi-Way.  In our review of records at
the Corps and at Fegles, we did not find anything       irregular
in the selection     of Hi-Way as a subcontractor.

        The Fegles project   manager stated also that he could not
recall    specific instances   of Hi-Way’s having had access to
inside Corps information.       He informed us that the work per-
formed for Fegles by Hi-Way at Newport and Joliet      was of high
quality    and had been accomplished with reasonable   efficiency.

      The March 31 letter    also stated that the Defense Con-
tract  Audit Agency had accused Hi-Way of irregularities       in
the handling of reimbursed funds relating        to vendors.  De-
fense Contract  Audit Agency representatives       informed us that
in June 1969 complaints     were made by several of Hi-Way’s ven-
dors that they were not being paid on a timely basis.         We un-
derstand that this problem was resolved when Fegles-Girdler
assumed the purchasing    functions   of Hi-Way.

        Officials     of two major prime contractors    currently    work-
ing on the TNT projects        informed us that they had selected
Hi-Way because its price had been the best offered.               Both con-
tractors      disclaimed   any Corps influence   concerning    their  se-
lection     of Hi-Way and indicated     that they were satisfied      with
the quality       of Hi-Way’s work.

        We found that all the current     fixed-price    contracts    at
Newport and Joliet     had been awarded to the lowest responsive
bidders,    pursuant to wide advertising.        We found no evidence
that bidders had colluded to simulate competition.              Like-
wise, we did not find that unsuccessful          bidders had become
major subcontractors     of the winning bidder,       as claimed in the

      The March 31 letter     also questioned       the method of award-
ing a warehousing contract       to Transit    Warehouse Corporation
as well as the need for the contract.            The records showed
that the warehousing contract       had been formally         advertised
and awarded competitively      and that Transit        had been the low-
es t responsive   bidder.    We believe that the warehousing con-
tract  was necessary to ensure proper handling and accountabil-
ity of Government-furnished       material    arriving     at Newport prior
to start-up    by the various    construction      contractors.

       In regard to the question     of the adequacy of the Army’s
management of the Newport and Joliet          TNT projects,      we noted
that costs had increased and that the completion              dates had
been deferred.      Specifically   Newport’s    fixed-price-contract
costs had increased from $35.3 million          to an estimated
$40.8 million     to date, excluding    claims of $4.3 million         for
Government-caused     delays.    The original     target    completion
date of August 1970 for the Newport TNT lines has been de-
ferred   repeatedly   and is now estimated      to be May 1972.

       The Joliet     TNT project    was started  in July 1970 and was
scheduled for completion          in January 1972. At the time of our
preliminary     inquiry,   the changes formalized     on the Joliet
project    were not significant       but there were indications    that
substantial     claims would be made and that completion         might be
deferred    as much as a year.

       The above summarizes the information      we promised to your
office   in discussion     on August 31, 1971. As agreed in the
discussion,    we are reviewing     the reasons for cost growth and
completion   delays of the Newport and Joliet      projects   in more
detail   and will   report   to you on these matters   at a later  date.

                                     Comptroller  General
                                     of the United States

The Honorable William Proxmire
Chairman, Joint Economic Committee            “1)’: 4 b?,-I, 1
Congress of the United States