oversight

Management of Selected Aspects of the Strategic and Critical Stockpile

Published by the Government Accountability Office on 1971-12-09.

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

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               rategic And Critical


Office of Emergency Preparedness
General Services Administration




BY THE CQMPTROLLER GENERAL
CC’ THE UNITED STATES
                                                    c-        .C


                       COMPTROLLER      GENERAL          OF    THE      UNITED    STATES
                                      WASHINGTON.         D.C.       20548




       B- 125067




       To the      President      of the Senate  and the
jd‘f   Speaker       of the    House of Representatives
   /
                 This is our report        on management    of selected     aspects
       of the    strategic    and critical    stockpile  by the Office    of Emer-
       gency     Preparedness      and by the General      Services     Administra-
       tion,

                Our review  was made pursuant    to the Budget                                    and Ac-
       counting    Act, 1921 (31 U.S.C.  53), and the Accounting                                     and Au-
       diting   Act of 1950 (31 U.S.C.  67).

                 Copies    of this    report   are being sent to the Director,      Of-
       fice of Management             and Budget;   the Director,   Office   of Emer-
       gency     Preparedness;          and the Administrator     of General
       Services.




                                                              Comptroller               General
                                                              of the United             States




                               50TH    ANNIVERSARY                      1921-    t97t
             COMPTROLLER
                       GENERAL'S                                 MANAGEMENT OF SELECTED ASPECTS OF THE
     I
             REPORT
                  TO TRECONGRESS                                 STRATEGIC AND CRITICAL STOCKPILE
                                                              J Office  of Emergency   Preparedness   74tc'i
                                                              ~-General   Services Administration   8-125067                     17
                                                          I

              DIGEST
             ------


             WRYT'HEREVIEWWASMADE
                    Strategic   and critical          materials  continue          to be stockpiled      to prevent
                    a dangerous    and costly         dependence  of the          United   States   on other   nations
                    for these materials       in      time of a national           emergency.

                    The Office       of Emergency    Preparedness      (OEP) establishes       the             stockpile
         I          objectives,        the minimum quantity       of a material    which should                  be stock-
2
    ‘I              piled.       Guided by OEP, the General         Services    Administration                 (GSA) buys,
                    sells,      and maintains     the stockpile.

                    The General     Accounting     Office     (GAO) has reviewed   the management                   of cer-
                    tain strategic      and critical      materials    to consider   whether  they                 should
                    be stock$l*e~~      are p~~;iT?y'suitdbie            for use, and are stored
                                                                                             ---                   economi-
                    cal ly-~-----~-

                    At June 30, 1970, the stockpile     contained   46 million     short   tons                     of ma-
                    terials  having  a market value of $7.3 billion.         These materials                        were
                    stored  at 136 locations  around  the country.


             FINDINGSANDCONCLUSIONS
                    Three materials--molybdenum,        cordage   fibers,              and vegetable    tannin   ex-
                    tracts--having      a total  market  value of $181                million  no longer     need to
                    be stockpiled     for an emergency     and therefore               should  be eliminated     from
                    the stockpile.

                    Synthetic      substitutes      are available       for cordage     fibers     and tannins.
                    After     GAO's completion        of fieldwork      and discussions        with OEP officials,
                    OEP eliminated          the stockpile     objective     for molybdenum.          (See p. 7.)

                    These materials         cost about         $12.5   million    (including       interest)      annually
                    to maintain.         (See p. 8.)

                    Certain   materials         in the stockpile--such              as rubber,      cordage    fibers     and,
                    to a lesser       degree,      magnesium,       tin,    high-carbon       ferromanganese,         and
                    antimony     sulfide      ore--are     deteriorating          in quality.        When excess quan-
         I          tities   of some of these materials                  were sold,      GSA realized       less than
                    market   prices      from their      sale because          the materials        were deteriorated.




             Tear Sheet
    In June 1970 there     were 2 million     tons of these stockpiled                    materials
    that would have had a market        value of $1.4 billion    if the                  materials
    were in good condition.      (See p. 21.)

    Although       stockpiling       law provides     for the rotation         of materials--
    the replacement             of materials    in the stockpile     with      new materials--to
    prevent       deterioration,         none of the materials     which       are subject       to
    deterioration           have been rotated      since  1962.

    OEP and GSA should      determine     whether      a long-range     rotation      program      is
    required    to maintain    the quality      of the materials        at a level        necessary
    for emergency     use.   An adequate      rotation      program   should maintain           the
    quality   of the stockpile       and could be less costly           to the Government
    than losing    part of the investment           in materials    through      deterioration.
    (See p. 21.)

    In the 20 years        or more that strategic         and critical       materials         have been
    stockpiled,     objectives       have been reduced       and materials       sold.         As a re-
    sult    many of the GSA depots         now have unused storage           space.      In     June
    1970 about 16 million          of the 44 million       square    feet    of storage         space at
    the 30 GSA depots         was not being used--including            about 4 million            of the
    14 million     square     feet   of warehouse     space.     Maintaining       these       depots
    costs GSA about        $4.8 million     annually.       (See p. 28.)

    Although    further    study is required        for the formulation        of specific      plans,
    it appears      that  substantial    reductions       in storage    costs    are possible      by
    closing    some depots      with considerable       unused storage      space and closing
    certain    warehouses     at other   depots.       The materials     at the depots       and
    warehouses      could be sold where'feasible,           or moved t o other      depots.

    A number of factors        should     be considered,       however,     in reducing     the number
    of depots     and the amount of warehouse            storage      space 9 such as costs     of
    moving materials,       depot locations,         types of storage         available   at various
    depots,   further    reductions       of stockpile      objectives,       and the ability
    to sell   excess storage        space.     (See p. 28.)


RECOMVEiVDATIO~?S
               OR SUGGESTIONS

    OEP and GSA should     join       in   an intensified         effort    to effect     economies     in
    stockpiling.   Specifically:

      --The Director       of OEP should        eliminate    the stockpile      objectives      for
         cordage  fibers      and tannins       and adopt measures       that will      result    in
         more prompt     identification         of materials     in the stockpile         which no
         longer  need to be stockpiled             for an emergency.        (See pQ 19.)

      --The Director        of OEP and the        Administrator          of GSA should    consider
         developing      and implementing         a long-range         program  for rotating
         perishable      materials.      (See     p. 26.)




                                                      2
                     --The Administrator   of GSA should review the use of storage areas
                        in the depots and, where possible and economically feasible,
                        intensify GSA"s efforts  to consolidate materials in warehouse
                        space and dispos e of unneeded depots.  (See p. 35.)

I
I       AGENCYACTIONS AND UNRESOLVEDISSUES
I
               OEP is of the opinion that cordage fibers and tannins are no longer needed
               in the stockpile.   OEP has asked the Department of Commerce to confirm this
               view.  (See p* 19.)

               OEP did not comment specifically   on GAO's recommendation that it adopt
               measures that would result in more prompt identification    of materials
               which no longer need to be stockpiled   for an emergency. OEP noted, how-
               ever, that the resources necessary to carry out detailed studies involved
               in revising stockpile   objectives were limited, and therefore these re-
               sources were allocated to achieve the most immediate results,    such as
               allocation  to materials with an apparent immediate disposal market.
               (See p. 19.)

                Because disposal arrangements cannot be undertaken until materials         have
                been freed from classification     as stockpile    objectives, it is important
                for OEP to effect prompt changes after the conditions that warrant adjust-
                ment of these objectives     have occurred.     (See p. 19.)
I
I              OEP and GSA acknowledged that certain materials   in the stockpile were
I              deteriorating in quality.   They believe, however, that deterioration   has
I              not precluded usefulness of the materials.    (See p. 26.)
I
I
I              The quality of these materials is less than it was when the materials were
I
I              acquired for the stockpile.   Under these circumstances GAO believes that
I              OEP and GSA should consider rotation of the deteriorated materials making
I
I
               up the stockpile  objectives.  (See p. 27.)
I
 I             GSA believes that appropriate attention   is being given to the consoli-
I              dation of warehouse space and disposal of unneeded facilities.     GSA
               states that it will inactivate two depots by the end of fiscal year 1973.
               GAO recognizes that GSA is reducing storage space and that many factors
               must be considered in making the reductions.     The fact remains, however,
               that many of the GSA depots contain a high percentage of unused open and
               warehouse storage space.

                GSA is in a position to bring about further economies by consolidating
                materials in warehouse space and disposing of unneeded depots.    Disposi-
                tion of cordage fibers,   tannins, and deteriorated rubber would enhance
                GSA's ability  to consolidate storage facilities.   (See p- 36.)

    I   MATTERSFOR CONSIDERATIONBY THE CONGRESS
    I

    I           Improvements are needed in the management of the strategic      and critical
    I
    I
                stockpile.
    I
        Tear Sheet
    I                                                 3
    I
                           Contents
                                                              Page

DIGEST                                                          1

CHAPTER

      1    INTRODUCTION                                         4    :

       2   REQUIREMENTSFOR STOCKPILING MATERIALS NEED
           TO BE REVISED                                        7
               Molybdenum                                      10
               Cordage fibers                                  12
               Tannins                                         16
               Recommendation                                  19
               Agency comments                                 19

           ROTATION OF MATERIALS SHOULDBE CONSIDERED           21
              Rubber                                           21
               Cordage fibers                                  23
              Other materials                                  24
              Recommendation                                   26
              Agency comments                                  26

           POSSIBLE REDUCTIONS IN STORAGESPACE                 28
              Recommendation                                   35
              Agency comments                                  35

           SCOPE OF REVIEW                                     38

APPENDIX

       I   Letter   dated May 20, 1971, from the Director,
             Office   of Emergency Preparedness, to the
             General Accounting Office                         39

  II       Letter    dated June 15, 1971, from the Adminis-
              trator   of General Services to the General
             Accounting    Office                              42

III        Principal   officials responsible  for the
              policies  and the conduct of the activities
              discussed in this report                         55
                            ABBREVIATIONS

GAO   Gen.eral Accounting      Office

GSA   General    Services    Administration

OEP   Office    of Emergency Preparedness
COMPTROLLERGENERAL'S                           MANAGEMENT OF SELECTED ASPECTS OF THE
REPORTTO THE CONGRESS                          STRATEGIC
                                                       ANDCRITICALSTOCKPILE
                                               Office         of Emergency   Preparedness
                                               General         Services  Administration            B-125067


DIGEST
v----w

WHYTHE REVIEW WASMADE

     Strategic   and critical     materials  continue                to be stockpiled      to prevent
     a dangerous    and costly    dependence  of the                United   States   on other   nations
     for these materials       in time of a national                 emergency.

     The Office       of Emergency     Preparedness      (OEP) establishes        the stockpile
     objectives,        the minimum quantity        of a materi-al    which should      be stock-
     piled.       Guided by OEP, the General          Services     Administration     (GSA) buys,
     sells,      and maintains     the stockpile.

     The General    Accounting     Office    (GAO) has reviewed                   the management     of cer-
     tain strategic     and critical      materials   to consider                   whether they    should
     be stockpiled,     are physically      suitable    for use,                 and are stored     economi-
     cally.

     At June 30,       1970, the stockpile   contained    46 million     short   tons                of ma-
     terials     having    a market value of $7.3 billion.         These materials                   were
     stored    at 136 locations     around the country.


FINDINGS AND COlK'LVSIOiKS

     Three materials--molybdenum,              cordage        fibers,    and vegetable    tannin   ex-
     tracts--having        a total market       value       of $181     million  no longer     need to
     be stockpiled       for an emergency           and   therefore      should be eliminated from
     the stockpile.

     Synthetic      substitutes     are available       for cordage     fibers     and tannins.
     After     GAO's completion       of fieldwork      and discussions        with OEP officials,
     OEP eliminated         the stockpile     objective     for molybdenum. (See p. 7.)
     These materials        cost about      $12.5    million        (including       interest)     annually
     to maintain.        (See p. 8.)

     Certain   materials        in the stockpile--such            as rubber,      cordage    fibers     and,
     to a lesser       degree,      magnesium,   tin,     high-carbon       ferromanganese,         and
     antimony    sulfide       ore-- are deteriorating          in quality.        When excess quan-
     tities   of some of these materials               were sold,      GSA realized       less than
     market   prices      from their      sale because       the materials        were deteriorated.




                                                          1
    In June 1970 there were 2 million    tons of these stockpiled                       materials
    that would have had a market    value of $1.4 billion   if the                     materials
    were in good condition.   (See p. 21.)

    Although       stockpiling        law provides    for the rotation    of materials--
    the replacement             of materials    in the stockpile     with new materials--to
    prevent       deterioration,         none of the materials     which are subject     to
    deterioration           have been rotated      since  1962.

    OEP and GSA should      determine     whether      a long-range       rotation     program      is
    required    to maintain    the quality      of the materials           at a level      necessary
    for emergency     use.   An adequate      rotation      program      should    maintain     the
    quality   of the stockpile       and could be less costly              to the Government
    than losing    part of the investment           in materials        through deterioration.
    (see p. 21.)

    In the 20 years or more that strategic                and critical       materials        have been
    stockpiled,      objectives     have been reduced and materials              sold.        As a re-
    sult    many of the GSAdepots now have unused storage                    space.      In    June
    1970 about 16 million          of the 44 million       square    feet    of storage        space at
    the 30 GSA depots         was not being used--including            about 4 million           of the
    14 million     square     feet   of warehouse     space.     Maintaining       these      depots
    costs     GSA about $4.8 million        annually.       (See p. 28.)

    Although    further    study is required        for the formulation        of specific   plans,
    it appears      that  substantial    reductions       in storage    costs are possible      by
    closing    some depots      with considerable       unused storage      space and closing
    certain    warehouses     at other   depots.       The materials     at the depots     and
    warehouses      could be sold where feasible,            or moved to other     depots.

    A number of factors        should      be considered,       however,     in reducing     the number
    of depots     and the amount of warehouse             storage     space,    such as costs of
    moving materials,       depot     locations,      types of storage         available  at various
    depots,   further    reductions        of stockpile      objectives,       and the ability
    to sell   excess storage        space.       (See p. 28.)


RECOMMENDATIONS
              OR SUGGESTIONS

    OEP and GSA should     join       in   an intensified      effort    to effect      economies        in
    stockpiling.   Specifically:

      --The Director       of OEP should        eliminate    the stockpile      objectives      for
         cordage  fibers      and tannins       and adopt measures       that will      result    in
         more prompt     identification         of materials     in the stockpile         which no
         longer  need to be stockpiled              for an emergency.       (See p. 19.)

      --The Director       of OEP and the Administrator               of GSA should    consider
         developing      and implementing     a long-range          program  for rotating
         perishable      materials.      (See p. 26.)
       --The Administrator      of GSA should     review  the use of storage         areas
          in the depots    and, where possible       and economically      feasible,
          intensify   GSA's efforts    to consolidate     materials      in warehouse
          space and dispose     of unneeded   depots.      (See   p.  35.)


AGENCYACTIONS AND UNRESOLVEDISSUES

    OEP is    of the opinion    that cordage  fibers  and                 tannins  are no longer    needed
    in the    stockpile.     OEP has asked the Department                    of Commerce to confirm     this
    view.     (See p. 19.)

    OEP did not comment specifically                on GAO's recommendation               that    it adopt
    measures       that would result         in more prompt      identification           of materials
    which no longer           need to be stockpiled       for an emergency.               OEP noted,        how-
    ever,     that    the resources      necessary     to carry     out detailed          studies      involved
    in revising         stockpile    objectives     were limited,         and therefore         these re-
    sources      were allocated       to achieve     the most immediate            results,       such as
    allocation        to materials      with an apparent       immediate        disposal       market,
    (See p. 19.)

    Because disposal   arrangements      cannot    be undertaken        until      materials  have
    been freed  from classification       as stockpile      objectives,          it is important
    for OEP to effect    prompt changes      after   the conditions           that warrant    adjust-
    ment of these objectives        have occurred.      (See p. 19.)

    OEP and GSA acknowledged              that   certain   materials      in the stockpile            were
    deteriorating  in quality.               They believe,     however,     that deterioration               has
    not precluded  usefulness             of the materials.          (See p. 26.)

    The quality     of these materials       is less than it was when the materials      were
    acquired    for the stockpile.       Under these circumstances      GAO believes  that
    OEP and GSA should       consider  rotation     of the deteriorated   materials  making
    up the stockpile      objectives.      (See p. 27.)

    GSA believes       that appropriate        attention        is being given to the consoli-
    dation    of warehouse       space and disposal           of unneeded     facilities.         GSA
    states    that it will       inactivate      two depots       by the end of fiscal          year 1973.
    GAO recognizes        that GSA is reducing           storage    space and that many factors
    must be considered         in making the reductions.                The fact       remains,   however,
    that many of the GSA depots             contain      a high percentage          of unused open and
    warehouse     storage     space.

    GSA is in a position         to bring      about further        economies     by consolidating
    materials     in warehouse     space and disposing             of unneeded     depots.      Disposi-
    tion    of cordage   fibers,     tannins,      and deteriorated         rubber   would enhance
    GSA's ability      to consolidate        storage   facilities.          (See p. 36.)


MATTERSFOR CONSIDERATIONBY THE CONGRESS

    Improvements       are    needed    in   the   management       of   the   strategic      and critical
    stockpile.


                                                       3
                              CMPTER 1

                            INTRODUCTION

      Over $7 billion    of strategic  and critical  materials
are stockpiled    in the United States.    In recent years the
Congress has been concerned with the management of these
materials   by the Office of Emergency Preparedness and the
General Services Administration.

       We have reviewed the management of certain      materials
stockpiled    in the United States.     We have considered whether
the materials     (1) should be stockpiled,    (2) are physically
suitable   for use, and (3) are stored economically.

        The Congress intended that strategic       and critical    ma-
terials     should be acquired and stockpiled      to prevent a dan-
gerous and costly       dependence of the United States on foreign
nations for these materials        in time of a national      emergency
(Strategic     and Critical   Materials   Stock Piling Act, 50 U.S.C.
98).     Also some materials    were acquired and stockpiled       under
other acts.

       OEP establishes   the stockpile    objectives  (the minimum
quantity   of a material   which should be stockpiled)     for stra-
tegic and critical     materials.    Guided by OEP, GSA buys,
sells,   and maintains   the materials    in the stockpile   (Execu-
tive Order 11051, September 27, 1962, 27 F.R. 9683).

     OEP's Stockpile     Policy Division    is responsible for pro-
grams for stockpiling     materials   and the impact of these pro-
grams on our national     security.

     The Stock Piling Act and OEP policy and procedures pro-
vide for setting  objectives, rotating  materials, and dispos-
ing of excess materials.

     --Objectives

            Strategic  and critical   materials   shall be avail-
     able in the stockpile      to meet a 3-year emergency period
     without    having to rely in the first     year on foreign
     sources other than Canada, Mexico, and the Caribbean.


                                   4
     In the succeeding     years   other   foreign   sources   may be
     used.

           OEP obtains advice and information       from Federal
     agencies and interdepartmental      committees in setting
     the quantities     of materials  to be stockpiled.    For ex-
     ample, the need for some materials       is determined by
     the Departments of Agriculture      and Commerce for civil-
     ian purposes and the Department of Defense for military
     purposes.     Objectives   are to be reviewed periodically.

     --Rotation

           Certain materials     which deteriorate      over    time are
     to be rotated    to maintain    the good condition        of the
     stockpile    for use in emergency.     Gterials      in    the stock-
     pile are replaced with equivalent        quantities       of the
     same material.

     --Disposal

           Excess materials   are to be disposed of only after
     approval by the Congress unless the material          is found
     to be obsolescent    because of deterioration,       development
     or discovery   of a new or better   material,     or no further
     wartime use.    They can be transferred       to another Govern-
     ment agency or sold to industry.        The United States,
     however, is to be protected    against avoidable        losses
     on sales of the materials.     Further,     the producer,      the
     processor,   and the consumer are to be protected          against
     avoidable disruption    of the market for these materials.

       The stockpile   objectives     were originally    based on the
quantity   of each material     which would be needed in an emer-
gency period lasting      5 years.      In 1958 this period was re-
vised to 3 years.      As a result      the quantity  of some materials
in the stockpile     was greater     than would be needed in a
3-year emergency period.         Further,   subsequent revisions    in
objectives    have resulted    in excess materials     in the stock-
pile.

      At June 30, 1970,    the stockpile     contained 46 million
short tons of materials      having a market value of $7.3 bil-
lion (acquisition  cost    of $6.5 billion).       Of these materials
23 million  short tons having a market value of $4.5 billion
constituted  the stockpile  objective and 23 million    short
tons having a market value of $2.8 billion   constituted      the
excesses.

       As of June 30, 1970, the stockpile     contained 71 mate-
rials with objectives   and 16 materials     without objectives.
These materials   were stored at 136 locations--30      GSA depots,
35 military   depots, 39 industrial   sites,    and 32 other loca-
tions.

        We evaluated certain    aspects of the management of eight
materials --molybdenum,     cordage fibers,  vegetable tannin ex-
tracts,    rubber, magnesium, tin, high-carbon     ferromanganese,
and antimony sulfide     ore.    The market value of these mate-
rials was $1.6 billion      at June 30, 1970.
                                  CHAPTER2

             REQUIREMENTSFOR STOCKPILING MATERIALS

                           NEED TO BE REVISED

         OEP should eliminate        molybdenum, cordage fibers,         and
tannins having a total market value of $181 million                   from the
stockpile     because they are no longer needed in the stockpile
to meet an emergency.            Molybdenum was stockpiled        because its
production      facilities      were concentrated     in certain    geograph-
ical areas.        OEP, however, has eliminated          geographical      loca-
tion as a criterion          for stockpiling.       Synthetic    substitutes
are available        to replace cordage fibers        and tannins.       OEP
criteria     provide that strategic         materials    are to be replaced
with nonstrategic          materials   in all end products where sub-
stitution     is known to be feasible.

       OEP officials      told us that the stockpile          objectives      for
the three materials         probably would be eliminated          eventually.
They indicated,       however, that, because the stockpile             con-
tained excess materials          which had not been sold, eliminating
the objectives       would only result        in additional    excess mate-
rials   being in the stockpile.             Consequently one reason for
not having reduced the stockpile              objectives    was that the
market conditions       prevented the selling          of the excess mate-
rials.    Although we recognize that market conditions                 affect
the sale of excess materials,             these conditions,     in our opin-
ion, are not satisfactory          criteria     for maintaining      or re-
vising stockpile       objectives.

       Another reason given by OEP for not eliminating          the ob-
jectives   was that many bills     were pending before the Con-
gress for disposing of materials.          We believe that this is
not a valid reason for postponing action in evaluating
stockpile    objectives    and making appropriate    revisions.    Fur-
ther the provision       of the Stock Piling Act which permits
disposals without       specific congressional    approval under cer-
tain circumstances       would seem to apply to cordage fibers
and tannins.

       Because the elimination of a material   from the stock-
pile   must be preceded by a determination   by OEP that the


                                        7
  material  is no longer strategic       and critical     to emergency
  needs, the more promptly that OEP makes this determination,
  the sooner the objective       can be revised and arrangements
.for excess material       disposal can be made. Disposal arrange-
  ments cannot be undertaken until        the materials       have been
  freed from classification       as stockpile    objectives.      There-
  fore it is important      for OEP to effect     prompt changes in
  stockpile   objectives    after the conditions      that warrant ad-
  justment of these objectives       have occurred.       Consideration
  of congressional     work load or current market conditions
  should not be viewed by OEP as a basis for delaying action.

      The annual cost of maintaining                                              molybdenum, cordage                        fi-
bers, and tannins in the stockpile                                               was $12.5 million.
(See table.)

                                      Quantities,  Market Value, and Annual         Maintenance
                                      Costs of Molybdenum, Cordage Fibers,          and Tannins
                                                       As of June 30, 1970

                                                                                                Annual maintenance           costs
                                                  Stockpile          Material       Market     Interest
                   Material                   classification        quantities       --value   (note a)    Storage            -Total
                                                                                                    (millions)
 Molybdenum          (pounds)                     Objective          36,500,OOO     $ 66.5      $ 4.0          $0.1            $ 4.1
                                                  Excess              6,302,263      11.0.           6          -A- 0           --2- 6
                                                        Total       ~~42,802,263     77.5         4.6            -2             - 4.7
 Cordage         Fibers    (pounds)               Objective         125,000,OOO        14.6             -9            .3          1.2
                                                  Excess            158.471,295        22.4       1.4            .4             - 1.6

                                                        Total       283,471,295      -- 37.0        2.3          -2.-7          3.0
 Tannins         (long    tons)                  Objective                69,600       18.3         1.1               .2         1.3
                                                 Excess                  184,693       48.3       2.9            .6            - 3.5
                                                       Total             254,293       66.6       4.0            .8            4.8
Total      for     the three      materials      Objective                             99.4         6.0            .6            6.6
                                                 Excess                              81.7         4.9            1.0           5.9
                                                       Total                        $181.1      $10.9
                                                                                                 -               $1.6         $12.5
aComputed          by multiplying  the market value and cost of storage               by the average effective             inter-
 est rate          of 5.986 percent at June 30, 1970, on U.S. Treasury                marketable      obligations.

       The table shows that about $6.6 million          of the mainte-
nance costs were applicable       to the materials      constituting
the stockpile    objectives    and that about $5.9 million         were
applicable    to the materials    constituting      the excesses.     The
maintenance costs include interest           (annual savings in inter-
est costs that would occur if the revenues from sales of


                                                                8
these materials  were applied to the public debt) and GSA
storage costs.   The entire  savings in maintenance costs
($12.5 million)  will not be realized   until  all the materials
are sold and entire depots or entire activities      at depots
are inactivated  through relocation   of remaining materials.

      In February 1971, after completion   of our fieldwork    and
our discussions   with OEP officials,  OEP eliminated   the stock-
pile objective   for molybdenum.




                                9
MOLYBDENUM

       Because molybdenum no longer needs to be stockpiled        as
a strategic    and critical    material  it should be declared ex-
cess and sold.     These actions could have been takenas        early
as February 1970 when OEP eliminated        the criterion  for stock-
piling   molybdenum.      The disposal of all the molybdenum will
result   in an annual savings insmaintenance       costs of $4.7 mil-
lion.

      The United States is not dependent upon any foreign
source of supply for molybdenum and apparently         will   not be
dependent for the remainder of this century.          For example,
100 million    pounds of molybdenum--70 percent of the total
free-world    production --were produced by the United States
in calendar year 1969; the demand for molybdenum in the
United States was 57 million       pounds.   According to a commod-
ity report    of the Department of Interior,      the projected
annual production      of molybdenum by the United States for
the year 2000 ranges from 168 to 332 million         pounds whereas
the projected     annual U.S. demand ranges from 95 to 150 mil-
lion pounds.

      As of June 30, 1970, about 42.8 million     pounds of mo-
lybdenum having a market value of $77.5 million      were in
the stockpile.   Of this total  36.5 million    pounds constituted
the stockpile  objective and 6.3 million     pounds were excess.

       Molybdenum, a metallic         element of the chromium group,
is used to harden and strengthen             steel and to increase the
resistance    of steel to corrosion          and high temperatures.
Molybdenum was stockpiled         because the production        facilities
were concentrated     in Arizona,        Colorado,    New Mexico, and
Utah, and the roasting       facilities       were concentrated      in Penn-
sylvania.     For materials     like molybdenum, a criterion             was
established    in 1954 which provided that the material                would
be stockpiled    if it was produced at facilities            which were
concentrated    geographically        (Defense Mobilization      Order
8600.1A, 33 F.R. 19079).          These materials       were to be stock-
piled to cover the risk of loss by bombing of any facility
which produced more than 20 percent              (changed to 25 percent
in 1963) of the U.S. emergency supply.




                                    10
        In February 1970 the Director      of OEP eliminated     this
criterion    in establishing     stockpile  objectives     on the basis
that it was unrealistic       in the light   of the existing     threats
to national     security.    During congressional      hearings  in
March 1970, the Chief of OEP's Stockpile           Policy Division
stated that,     because the criterion      had been eliminated,
the objective     for molybdenum would also be eliminated.

       The objective for molybdenum, however, had not been
eliminated   as of June 1970. An OEP official        stated that
there were too many bills     pending before the Congress for
disposing   of excess materials.     He stated also that there
was no immediate need to eliminate       the objective    for molyb-
denum because the 6.3 million      pounds of excess molybdenum
would have to be sold first      and that there was a poor market
for molybdenum in June 1970.

      There was a good market previously, About 13             million
pounds of molybdenum were sold by GSA to producers             of mo-
lybdenum products during the period September 1969             to May
1970. GSA arranged with the producers to purchase              the mo-
lybdenum at prevailing  market prices.

       In February 1971, after  completion       of our fieldwork
and our discussions    with OEP officials,       OEP eliminated   the
objective   for molybdenum.




                                    13
CORDAGEFIBERS

       In October 1964 we reported1       to the Congress that,    be-
cause synthetics     were available,    OEP should eliminate    the
objective    for cordage fibers     and dispose of them orderly
without   disrupting   the market for these fibers,       OEP sub-
sequently    lowered the objectives     for these fibers.

       We believe that the existing        stockpiles   of the cordage
fibers --abaca and sisal --should       be declared excess and
should be sold since synthetics         are available    for use in an
emergency.     We recognize    that the March 1964 objectives         of
100 million    and 300 million     pounds for abaca and sisal,        re-
spectively,    were lowered to 50 million        and 200 million
pounds, respectively,      in June 1965 and were further         lowered
to 25 million    and 100 million      pounds, respectively,      in April
1970. We believe,      however, that OEP and GSA should eliminate
the remaining cordage fibers        from the stockpile,       Such ac-
tion would save annual maintenance costs of $3 million              for
stockpiling    cordage fibers.

       OEP officials     told us that the objective       for cordage
fibers   probably would be eliminated        after   their next review
of objectives,       We believe that OEP should immediately         elim-
inate the objectives        for cordage fibers     so that GSA can plan
for disposing      of these materials.

        Abaca is a plant of the banana family.          The sisal plant
is related     to the fleshy-leaved      century plant,    As of
June 30, 1970, the stockpile         contained about 83,5 million
pounds of abaca with a market value of $19.6 million              and
200 million     pounds of sisal with a market value of $17.4 mil-
lion.     Of these totals    25 million    pounds of abaca and
100 million     pounds of sisal constituted       the stockpile     ob-
jective    and 58.5 million     pounds of abaca and 100 million
pounds of sisal were excess,          Details   on our review of the
need for abaca and sisal fibers         in the stockpile    follow,


1
 Report to the Congress on "Questionable          Need for Stockpil-
  ing Cordage Fibers" (B-125067, October         26, 1964~).




                                  12
Abaca

        Abaca was originally      stockpiled  because it was needed
to produce marine and other heavy-duty          cordage (rope).       Re-
cently,    however, a majority       of the abaca making up the
25-million-pound     stockpile     objective  was designated for use
by the paper industry        for producing specialty      paper products.
The remaining portion        of the stockpile   was still    designated
for use in marine cordage.

      Substitutes    for abaca are available    for producing ma-
rine cordage,     An   OEP study of cordage  fibers  dated March
1970, on which the current objective       is based, stated that:

         --There are few uses for which synthetic    fiber rope
            cannot be used in place of natural  fiber rope when
            cost is not a major consideration,

         --Synthetic   fiber rope compared with natural fiber rope
            is less expensive over a longer period of time for
            most marine cordage uses because of its greater
            strength  and longer service life.

         --Synthetic     fiber ropes--nylon,     polyester,    and polypro-
            pylene--have     an advantage over natural      fiber ropes
            because they do not rot and do not require drying.
            In addition,     polypropylene   rope floats.

      Synthetic    fibers   are being used more and more in place
of natural   fibers,      A Cordage Institute report  shows that
in April 1970 sales of abaca rope in the United States were
79 percent of the sales in April 1969.        This reduction   in
sales continued the downward trend in sales since 1966.

       Because there are synthetic     fibers  available  to meet an
emergency, the current objective       for abaca to produce marine
cordage appears unrealistic.       In April 1970 a Department of
Commerce official    responsible   for reporting    to OEP on re-
quirements for cordage fibers      informed us that there was no
current need for stockpiling     abaca and that sufficient      syn-
thetic   rope was being produced to meet the nation's       needs in
an emergency,

         Regardless of the use intended for         abaca, it is deterio-
rating     inthe stockpile.  Representatives         for the Cordage

                                       13
Institute--which       is composed of rope and twine producers--
informed us that, because of the age of the abaca and the
small objective      quantity,   abaca should be eliminated  from
the stockpile.       Further,  GSA stated that a substantial    por-
tion of the cordage fibers had aged to the extent that the
fibers would no longer meet OEP's standard of quality.           De-
terioration      of cordage fibers   is discussed in chapter 3.

         A majority     of the abaca in the stockpile          is to be used
in an emergency for specialty              paper products such as abra-
sive backing materials,             sausage casings,   electrical      cable
fillers,     and dielectric        paper.    The study used by OEP to
establish     the objective        for abaca, however, contained no
statistics      showing abaca consumption in connection with the
production      of the above paper products.           Further,     the study
indicated     that no reliable         estimates  of this need for abaca
could be made. In our opinion,               any study used to establish
an objective        for a material      should demonstrate the need to
stockpile     the material        and should contain reliable         support-
ing estimates         and statistics.

       There is a market for abaca.          A GSA official     informed
us that about 22 million        pounds of abaca was sold during
fiscal   year 1970. Further,        he stated that annual sales
from the stockpile       were limited    to 12 million      pounds by an
informal    agreement between the Department of State and the
Philippine     Government-- the main supplier        of abaca.      Because
Philippine     production    was curtailed,     however, GSA was al-
lowed to sell an additional         10 million   pounds,

Sisal

       The 100 million    pounds of sisal constituting       the objec-
tive is stockpiled     primarily   for use in baler twine for
agricultural   products,      In an emergency, however, all the
sisal in the stockpile      could not be converted      into baler
twine because of the limited       production  capability      in the
United States to make such conversions,

       Most natural   fiber twine is produced by one company.
In June 1970 a GSA official       informed us that the company
was cutting    back its production     of agricultural      twine (baler
twine) and would producehigh-price         natural     fiber twine in
the future,     Consequently   its need for sisal will be sub-
stantially   reduced.
                                     14
        Even though there is limited      production    capability      for
natural    fiber baler twines,    representatives     for the Cordage
Institute     stated that synthetic    twine production     was suffi-
cient to meet the needs of agriculture          and industry       in the
United States,       Synthetic baler twine,      such as polypropylene,
is being produced by more than 20 manufacturers            in the United
States and three manfacturers        in Canada.

       According to representatives         of the Cordage Institute,
agricultural    and industry      twines made from henequen--a suit-
able substitute       for sisal --could    be acquired in an emergency
from Mexico.       Further,   Mexico has both the production       capa-
bility    and sufficient     henequen to produce natural     fiber
twines in large quantities.           In fact the Mexican industry
was established       by the United States during World War II to
supply cordage fibers        and has since expanded to seven pro-
ducing plants.

      The June 1970 Foreign Agriculture        Circular,    distributed
by the Department of Agriculture,       stated that demand for
both sisal and henequen as raw material         for cordage continues
to be depressed due mainly to competition          from synthetic       fi-
bers,   A Cordage Institute     report  shows   that,    in April    1970,
sales of sisal twine in the United States were only 73 per-
cent of sales in April      1969-- the continuation      of a downward
trend since 1966.




                                    15
TANNINS

         In our opinion,    tannins should be eliminated         from the
stockpile      because synthetics     are available     for use in an
emergency.        Further,  the military    and civilian     uses of the
three types of tannins--chestnut,           quebracho, and wattle--in
tanning and treating        leather are now negligible.         Also, the
oil-drilling       industry   is using a synthetic      in its drilling
fluids      in place of the tannin quebracho.          The elimination
of tannins from the stockpile          would save annual maintenance
costs of $4.8 million.

        The objective   for tannins specifies     the quantities
needed in an emergency to (1) process a specific             number of
cattle    hides into sole leather for shoes for military           and
civilian     uses and (2) sustain oil-drilling       operations.      The
stockpile     contained 254,293 long tons of tannins with a
market value of $66.6 million       as of June 30, 1970,         Of this
total,    69,600 long tons constituted       the objective    and
184,693 long tons were excess.

        The tannin chestnut is made from the wood of the chest-
nut tree, the tannin quebracho is made from the heartwood
of the quebracho tree, and the tannin wattle     is made from
the bark of the wattle tree.     Details  on the military,  ci-
vilian,    and oil industry needs for these tannins follow.

Military   requirements    for   tannins

       The information used in determining     the amount of tan-
nins to be stockpiled    to meet military    needs may be out-
dated.    The last change in the objective     was made in January
1967 based on information    reports   prepared by the Department
of Defense in 1963.

      To ascertain   the need for stockpiling     tannins for mil-
itary  footwear,   we determined the number of combat boots
and dress shoes ordered by the Defense Supply Agency in
calendar year 1969 and the amount of leather          in the foot-
wear which required     tanning by natural   tannins.     About
4.1 million   pairs of combat boots and 955,000 pairs of
dress shoes or about 5.1 million     pairs were ordered.




                                   16
       Flost of the combat boots were made entirely           of syn-
thetic     materials    which did not require    tanning.     Of the
4.1 million       pairs of combat boots, only 6,084 pairs con-
tained any leather which required         natural    tanning.    The
leather was a welt (a narrow strip         of leather     between the
upper part of the shoe and the sole to which each part is
stitched).

       The dress shoes were made of leather,  but the leather
in the upper part of the shoe was chrome tanned syntheti-
cally.    The sole, insole, and welt were designated   for nat-
ural tanning;   however, a synthetic  has been developed for
tanning this leather.

Civilian    requirements    for   tannins

        In producing civilian     footwear,    tannins are used pri-
marily in treating       heavy leather    for soles,    Information
supplied by OEP, however, shows that a synthetic              has been
developed which can be used to tan heavy leather,                In addi-
tion,    synthetic  materials    are being substituted       for leather
in some products,       such as shoes.      As a result   less tanning
of leather     is required.    According to an OEP study of tan-
nins dated December 31, 1968, there has been an upward trend
in the use of synthetics       for producing soles and a downward
trend in leather      tanning for over a decade in the United
States.

       Although there are still       some uses for tannins,     the
domestic leather      industry    cannot use tannins on a large
scale.     An OEP official     told us that, because the leather
industry    could not use a substantial       supply of tannins,     the
excess tannins in the stockpile         might have to be written
off.

Oil   industry   requirements     for    tannins

         About 30 percent of the objective       of 50,600 long tons
of quebracho is designated        for use as a thinning        agent in
oil-drilling     fluids  which, according to OEP, is the most
important     use of this tannin.     (The drilling     fluids    support
the walls of the oil well to prevent cave-ins,)               However,
a substitute     product for quebracho is available.            Conse-
quently this portion      of the stockpile    of tannins could be
eliminated.
                                        117
       GSA officials     informed us that the oil-drilling      indus-
try was using waste products        ('humic acids) of the paper man-
ufacturing    industry     in place of quebracho.    These waste
products,    according to industry      sources, are satisfactory
replacements      for tannins and are less expensive,

      We asked OEP officials about the substitute     and they
informed us that they had not performed any studies to de-
termine whether quebracho could be eliminated     from the
stockpile.



        OEP officials   stated that the objective        for tannins
 would probably be eliminated       during their next review which
 would be conducted in about 1 to 2 years.             In our opinion,
 OEP should eliminate      immediately     the objective    for tannins
 so that GSA can plan for disposing           of these tannins when
 market conditions     or possible     future technological      changes
 permit,    A future technological        change could make the tan-
‘nins marketable,     as happened with abaca,         The demand for
 abaca only recently     rose because of the interest          expressed
 by the paper industry      in using abaca in certain         paper prod-
 ucts l




                                    18
RECOMMENDATION

      We recommend that the Director        of OEP eliminate    the
stockpile   objectives    for cordage fibers     and tannins and
adopt measures that will result         in more prompt identifica-
tion of materials      in the stockpile    which no longer need to
be stockpiled    for an emergency.

AGENCYCOMMENTS

     OEP and GSA commented on a draft of this report in let-
ters dated May 20, 1971, and June 15, 1971, respectively.
(See app. I and II.)

       OEP stated that its current analysis of the cordage
fibers    and tannins indicated     that our findings   that these
materials    were no longer needed in the stockpile        were ac-
curate.     OEP has asked the Department of Commerce to make a
detailed    study of these two materials     to confirm this analy-
sis.    OEP stated also that, after completion        of the detailed
study, it planned to review the possible applicability            to
these two materials     of the provision    of the Stock Piling
Act which permits disposals without        specific   congressional
approval under certain      circumstances.

       OEP did not comment specifically          on our recommendation
that it adopt measures that would result            in more prompt
identification       of materials    which no longer need to be
stockpiled       for an emergency.     OEP noted, however, that the
resources necessary to carry out the detailed             studies in-
volved in revising         stockpile  objectives   were limited,   and
therefore      these resources were allocated       to those areas
where there would be the most immediate results,              such as
allocation       to materials    with an apparent immediate disposal
market.

       As stated previously,       although we recognize        that market
conditions    may prevent the sale of excess materials,               these
conditions    are not satisfactory       criteria    for maintaining       or
revising   stockpile   objectives.       Future technological         changes
could make unmarketable       materials     marketable.      Disposal ar-
rangements cannot be undertaken until             the materials      have
been freed from classification          as stockpile     objectives.


                                     19
            Therefore  it is important      for OEP to effect  prompt changes
            after the conditions     that   warrant adjustment of these ob-
            jectives  have occurred.




     ,:--
,.i”
  .,




                                              20
                               CHAPTER3

         ROTATION OF MATERIALS SHOULD BE CONSIDERED

        Certain materials     in the stockpile--rubber,        cordage
fibers,     and to a lesser degree, magnesium, tin, ferromanga-
nese, and antimony-- are deteriorating           in quality,     When ex-
cess quantities      of some of these materials        were sold, GSA
realized     less than market prices from their         sale because
the materials      were deteriorated,     In June 1970 there were
2 million      tons of these stockpiled    materials      that would have
had a market value of $1,4 billion          if the materials       were in
good condition.

      The Stock Piling Act        provides for the rotation         of mate-
rials --the replacement of        materials      in the stockpile    with
new materials--to      prevent    deterioration.       Nevertheless     none
of the materials      which are    subject to deterioration         have
been rotated     since 1962.           -

       In some years GSA did not request f,unds in its budget
for rotating   materials; in other years GSA requested funds
for rotating   only one material,    cordage fibers,     but the re-
quest for funds was removed from the budget by the Office
of Management and Budget.      In fiscal    year 1970 funds for
handling costs were approved for rotating         cordage fibers.
To minimize Federal expenditures,        however, OEP directed    GSA
not to rotate the cordage fibers.

        We believe that OEP and GSA should determine whether a
long-range     rotation   program is required   to maintain the
quality     of the materials    at a level necessary for emergency
use.     An adequate rotation     program should maintain    the qual-
ity of the stockpile       and could be less costly to the Govern-
ment than losing part of its investment         in materials    through
deterioration.

      The condition   of the six materials         and the need for
their rotation    are discussed below,

RUBBER

     The rubber in the stockpile   is deteriorating.              Neither
GSA nor the rubber industry  consider the rubber              to be high-

                                      21
quality    natural    rubber.    Because the rubber does not meet
OEP's standard of quality7          we believe that the rubber needed
to meet the objective         should be considered for rotation       and
the rubber in excess of objective            should be sold rapidly     to
avoid further      loss of revenues because of increasing         dete-
rioration.

      OEP established     an objective      for rubber which required
that high-quality     natural     rubber (Number 1 Ribbed Smoked
Sheet) be stockpiled.         In a national     emergency, the rubber
would be ,used primarily        to produce truck and airplane     tires.
The following     data indicates,      however, that the rubber in
the stockpile     is not high-quality       natural  rubber.

      --During     congressional   hearings in December 1970, a
         GSA official     acknowledged that there had been a dete-
         rioration    in the quality    of the rubber.

      --In November 1970 representatives    of three major rub-
         ber companies told 'us that the quality   of rubber in
          the stockpile was less than high-quality   natural rub-
         ber.
      --As of March 1970 GSA inspectors   had recommended that
         123,000 tons of rubber be sold to deter further  de-
         terioration.

      --In late 1969 the National Bureau of Standards and
          three major rubber companies at the request of GSA
          studied the condition  of rubber in the stockpile.
         The study showed that the rubber was losing its
          strength  and was not a high-quality  natural rubber.
         The study showed, however, that the rubber could be
         used when blended with other rubber,

      --We observed at various depots that bales of rubber
         were moldy, stained, and distorted.   GSA representa-
         tives told us that most of the rubber in the stockpile
         had been stored for about 20 years.

      Because the rubber has deteriorated,   GSA must reduce
the price of the excess rubber that it sells from the stock-
pile.   Between January 1968 and September 1970, GSA sold
89,000 tons of excess rubber for $40 million    which is

                                    22
$5 million  below the then-prevailing     average market price.
During this period GSA had to increase the discount        (reduc-
tion) from market price because the rubber continued to de-
teriorate.   By the first  part of fiscal     year 1971, the aver-
age discount was about 3 cents a pound, or 15 percent of the
average market price.

       GSA representatives      told us that discounts     from market
price of 2 cents a pound would be likely         if GSA sold any of
the rubber required to meet the stockpile          objective.    As of
June 30, 1970, 356,000 tons of rubber having a market value
of $167 million     were in the stockpile.      Of this total    200,000
tons constituted     the stockpile    objective  and 156,000 tons
were excess.     We estimate that discounts      from market price
totaling   $17 million     would be needed to rotate the 200,000
tons of rubber and sell the excess.

CORDAGEFIBERS

        Substantial  portions    of the cordage fibers  are deterio-
rating,    and as a result    do not meet the standard of quality
set by OEP. Further,        synthetic  fibers  are now available
within the United States to replace cordage fibers.            (See
ch, 2.)     Therefore GSA should not continue stockpiling        cord-
age fibers.

      Although these cordage fibers   currently  are not needed
in the stockpile,   at one time they were needed and should
have been rotated to maintain the good condition     of the
stockpile.    None of the cordage fibers   have been rotated
since fiscal   year 1962.

        GSA criteria     call for the periodic       rotation   of cordage
fibers,    and inspection     reports     show that some of the cordage
fibers have been weakened because of deterioration.                  A GSA
representative       told us that the cordage fibers          had lost per-
haps 10 percent of their         original    strength.

        In its fiscal    year 1970 budget request,     GSA stated that
a substantial     portion    of the cordage fibers    had aged to the
extent that the fibers would no longer meet OEP's standard
of quality.      GSA noted, however, that the fibers       were of a
quality    which could be used in industry       in the production
of many commercial products.

                                    23
CrrHER MATERIALS

      Other materials--magnesium,     tin,  ferromanganese,    and
antimony-- are also deteriorating     but to a lesser degree than
rubber and cordage fiber.       Some of these materials     may have
to be considered for rotation      and the portions   which are ex-
cess should be sold.

      These materials   have specific uses in a national     emer-
gency . Magnesi,um is used in producing structural      forms and
sheet metal for aircraft,     Tin is used in plating    sheet
steel and in producing solders and bearings,       Ferromanganese
is used in producing all grades of steel,    and antimony is
used in producing alloys.     Details on the condition     of these
materials  in the stockpile   follow.

Magnesium

        Some of the magnesium is deteriorating    at nine of 10
depots, according to GSA inspection      reports,   We observed
at one storage site that bars of magnesium were pitted,
flaked,    and chipped.

       In March 1970 magnesium was removed from the list      of
materials   to be stockpiled.    Consequently the magnesium in
the stockpile--   104,000 tons having a market value of $76 mil-
lion,   as of June 30, 1970--is   excess.    Because the magnesium
has deteriorated,    price discounts   of $432,000 were required
to obtain sales of $18 million      made during the 15-month pe-
riod ended June 30, 1970.

Tin

      Some of the tin is deteriorating     at five of 18 depots,
according to GSA inspection   reports.     We observed at one de-
pot that some bars of tin had blisters      on the surface and
were crumbling at the edges,

      As of June 30, 1970, 254,000 tons of tin having a mar-
ket value of $949 million       were in the stockpile.   Of this
total  the stockpile    objective   was 232,000 tons having a
market value of $865 million,       leaving an excess of 22,000
tons.    A GSA official    told us that, when sales of excess
tin are authorized,     the deteriorated    tin will be sold first.

                                24
Ferromanganese

       GSA inspection    reports showed that      some of the ferroman-
ganese was cracking and crumbling at six           of the 14 depots.
One inspection     report recommended that,       when sales are au-
thorized,    the deteriorated    ferromanganese      should be sold
first.    We also observed at one storage         site that some fer-
romanganese was cracking and crumbling.

      About 1.2 million    tons of ferromanganese having a mar-
ket value of $178 million      were in the stockpile    as of June30,
1970. Of this total     the stockpile    objective   was 600,000
tons valued at $91 million,      and the remainder was excess
material.

Antimony

      GSA inspection   reports on one of two locations     noted
that some antimony had turned to a white powder as a result
of oxidation.     We observed at the other location    that the
antimony had started     to oxidize.

       As of June 30, 1970, about 2,200 tons of antimony hav-
ing a market value of $7.6 million     were in the stockpile and
constituted   the stockpile objective.



      GSA officials told us that tin, ferromanganese,    and
antimony had not deteriorated   to the extent that rotation
was needed.




                                  25
RECOMMENDATION

       We recommend that the Director   of OEP and the Adminis-
trator  of GSA consider developing and implementing    a long-
range program for rotating   perishable   materials.

AGENCYCOMMENTS

       In commenting on our draft report,           OEP stated that,
although certain      materials    had deteriorated      in storage, the
deterioration      had not precluded their potential         usefulness
in a period of national         emergency.    With   regard  to rubber,
OEP noted that the study by the National Bureau of Standards
and three major rubber companies in late 1969 had pointed
out that rubber in the stockpile,          although somewhat deteri-
orated,     could be blended with other rubber to meet national
security     needs.

       GSA stated that rotation      of the six materials       had not
been pursued because the strategic,         technical,     and market-
ing conditions     did not warrant the initiation         of rotation
programs.     According to GSA, although there are undoubtedly
some situations     under which active rotation        programs should
be pursued, to rotate      stockpile   materials   with the sole
objective   of improving the quality       of the stockpile       inven-
tory is not necessarily       always advantageous to the Govern-
ment.

      GSA stated also that rotation          might not be warranted
in some cases if the material         was currently     usable and rea-
sonably satisfactory       to industry     in its present form or in
cases where the stockpile        objectives     were likely    to be re-
duced or eliminated.        GSA stated further      that there was no
assurance of an eventual increase in financial              return to
the Government from the sale of the replacement material
through rotation     because subsequent technological            changes
and continuing    deterioration      of the replacement material
can nullify    the advantage of a rotation         program.

       GSA acknowledged that most of the organic products
such as rubber and cordage fibers would undergo change with
the passage of time.    GSA stated that rotation     had been
practiced   when it had unfilled    objectives  but in recent
years, after the objectives      had been reduced to quantities

                                   26
which were considerably   below the inventories   on hand, em-
phasis was placed on the disposal of the lower grades or
qualities  of these materials.    GSA also acknowledged that
inert materials   such as tin, ferromanganese,   and magnesium
would undergo alteration    of character  and some loss of value,
GSA stated that over the years this matter had been the
subject of a number of research projects.

       GSA believed that our      report tended to overstate   the
amount of material    affected     by time as well as the degree of
change.    GSA, as did OEP,      noted that the study by the Ma-
tional   Bureau of Standards      and three major rubber companies
showed that rubber in the        stockpile  could be used when
blended with other rubber.

        The Stock Piling Act provides for the rotation          of ma-
terials    to prevent deterioration.     Everyone seems to agree
that certain     materials  in the stockpile--particularly        rub-
ber and cordage fibers-- are deteriorating          in quality.

      In the case of the cordage fibers,  GSA attempted to
start a rotation  program in recent years but did not re-
ceive approval to do so. As stated previously,     we believe
that GSA should not continue stockpiling   cordage fibers    be-
cause of the availability  of synthetics.   Therefore   a rota-
tion program for cordage fibers   is not needed.

       In the case of rubber and the other materials,            GSA and
OEP apparently      do not believe that the quality      has deteri-
orated to the extent that a rotation        program is required.
The fact remains, however, that the quality           of these mate-
rials    is less than it was when the materials        were acquired
for the stockpile.       Under these circumstances      we believe
that GSA and OEP should consider rotation           of deteriorated
materials     making up the stockpile   objectives.




                                   27
                              CHAPTER4

             POSSIBIX-- REDUCTIONS IN STORAGESPACE

        In the 20 years or more that strategic    and critical   ma-
terials    have been stockpiled,    objectives have been reduced
and materials     sold.  As a result many of the GSA depots now
have unused storage space.       Further unused storage space
would result    from the sale or consolidation    of the materials
discussed in chapters 2 and 3.

       Although further      study is required     for the formulation
of specific     plans, it appears to us that substantial          reduc-
tions in storage costs are possible by closing some depots
having censiderable       unused storage space and closing certain
warehases      at other depots.      The materials     at the depots and
warehouses could be sold where feasible,             or moved to other
depots.     k recognize,      however, that a number of factors
should be considered       in reducing the number of depots and
the amount of warehouse storage space, such as costs of mov-
ing materials,      depot locations,     types of storage available
at various     depots, further    reductions    of stockpile    objec-
tives,    and the ability     to sell excess storage space.

        GSA incurred    storage costs of $6,8 million    in fiscal
year 1970--$4.8      million   at GSA depots, $1.9 million    at mili-
tary depots, and $0.1 million        at commercial and plant sites.
A map en page 29 shows the locations         of the 30 depots oper-
ated by GSA. Our review of the storage of materials            was
limited    to the GSA depots.

     About 16 million     of the 44 million square feet of open
and warehouse storage     space at the 30 GSA depots was not be-
ing used as of June 1,     1970. The table on page 30 shows by
GSA region the percent     of storage space not used.




                                   28
                                                    LOCATIONOF GSA DEPOTS




LEGEND

0      GSA REGION NUMBER (DOES NOT REFLECT
          IN REGIONAL BOUNDARIES EFFECTIVE
                                              CHANGES
                                             7 ‘1 71)
*      GSA REGIONAL   OFFICE


GSA DEPOTS
  1.   NEW BEDFORD, MASSACHUSETTS             11    POINT PLEASANT, WEST VIRGINIA   21. MARION, OHIO
 2.    BELLE MEAD, NEW JERSEY                 17.   EAST POINT. GEORGIA             22. TERRE HAUTE, INDIANA
 3.    BETHLEHEM,    PENNSYLVANIA             13    GADSDEN, AiAEAMA                23. TOPEKA,   KANSAS
 4.    BINGHAMTON,    NEW YORK                14    JEFFERSONVILLE,      INDIANA    24. BATON ROUGE, LOUISIANA
 5.    BUFFALO,   NEW YORK                    15.   DAYTON, OHIO                    25. FORT WORTH, TEXAS
 6.    MARIETTA,   PENNSYLVANIA               16    HAMMOND, INDIANA                26. CLEARFIELD,   UTAH
 7.    SCOTIA, NEW YORK                      17     PORT CLINTON,    OHIO           27. DENVER, COLORADO
 8.    SOMERVILLE,   NEW JERSEY               18.   NEW HAVEN, INDIANA              28. BELL, CALIFORNIA
 9.    VOORHEESVILLE.    NEW YORK            19.    SHARONVILLE,    OHIO            29. MIRA LOMA, CALIFORNIA
IO.    CURTIS BAY, MARYLAND                  20.    WARREN, OHIO                    30. STOCKTON,   CALIFORNIA
              Number        Total         Space not     Percent of
  GSA           of          space            used       space not
 region       depots   (square feet)   (square feet)        used

Region    1        1         850,115         121,766        14
Region    2        8     12,930,565       4,874,247         38
Region    3        2      4,649,913          771,212        17
Region    4        2         576,035         242,875        42
Region    5        9     17,538,482       7,678,902         44
Region    6        1         478,394          29,794         6
Region    7        2      6,125,819       2,257,336         37
Region    8        2         343,677          53,667        16
Region    9     -- 3         684,400         203,940        30

    Total      30
               _         &LL_77*403      16.233,739
                                         ----
The total space includes 13,808,082   square feet of warehouse
space, of which 3,667,976 square feet,   or 27 percent, was not
used.

      &cause Region 5 has more total        storage space and more
unused storage space than any other region,         we reviewed how
space was used and what materials       were stored in Region 5.
About 7.7 million,    or 44 percent,    of the 17.5 million    squsre
feet of storage space at the nine GSA depots in Region 5 was
not being used as of June 1, 1970.         The total Region 5 stor-
age space includes    5.6 million    square feet of warehouse
space, of which 1.6 million       square feet or 29 percent was not
used.   The following    graph shows the percentage of total
storage spaze used and unused at the nine depots.
        GSADEPOTS

          SHARONVILLE,              OHIO


        NEW       HAVEN,       INDIANA


                    DAYTON,        OHIO


            HAMMOND,           INDIANA


JEFFERSONVILLE,                INDtANA


                     WARREN,       OHIO


                     MARION,       OHIO


        PORT       CLINTON,        OHIO


    TERRE         HAUTE,       INDIANA


                                                        1                       I                    I                 I
                                                    25                        50                    75               100
                                                               PERCENT    OF STORAGE  SPACE
                                                                      USED AND UNUSED

                                           UrnSED           ShtCE     1         f            USED    SPACE             I



     The total costs of storage                                     in fiscal         year     1970 at the
nine depots in Region 5 follow.

                                                                           Storage cost
                                                        Warehouse              Outside
                   GSA depot                             storage               storage                       Total
Sharonville,    Ohio                                $          31,929               $ 67,108             $    99,037
New Haven, Indiana                                            456,064                 69,132                 525,196
Dayton, Ohio                                                  115,518                   I-                   115,518
Hammond, Indiana                                              188,143                 45,931                 234,074
Jeffersonville,     Indiana                                    94,859                  1,563                  96,422
Warren, Ohio                                                  313,339                 84,657                 397,996
Marion, Ohio                                                  248,130                  5,067                 253,197
Port Clinton,    Ohio                                          27,418                 13,233                  40,651
Terre Haute, Indiana                                           18,105                  2,583                  20,688

                                                    $1.493.505                      $289.274             $1,78,2,779



                                                        31
Storage costs    consist of payinents   for   salaries,   utilities,
guard service,    and maintenance.

      Two depots in Region 5, in our opinion,            could be closed
since a significant      portion    of their  storage space is unused.
Further,   the used storage space contains materials            which
should be sold or disposed of by rotating           and consolidating
the replacement     materials    with similar    materials    at other
depots.

      --At the Dayton depot 45 percent of the storage space
         is unused.   (See graph on p. 31.)    Further,   caf the
         space used-- 359,000 of 650,000 square feet--most
         (330,000 square feet) is filled   with deteriorated
         rubber and cordage fibers.

        GSA inspectors   have recommended disposal of the rub-
        ber.   We are recommending disposal   of the cordage fi-
        bers.   (See ch. 2.1 If these materials     are sold, this
        depot could be closed by moving the remaining materi-
        als to other depots.     As a result, the annual storage
        cost of $115,518 could be eliminated.      (See table on
        p. 31.1

      --At the Jeffersonville      depot, 38 percent of the storage
         space is unused.     Materials   are stored in 229,000 of
         the total  storage space of 372,000 square feet.        Most
         of this space (170,000 square feet),       however, is used
         to store deteriorated     rubber and cordage fibers    that
         are no longer needed.

        If the rubber and cordage fibers   were disposed of and
        the remaining materials  moved to other depots, the
        Jeffersonville  depot could be closed.   Annual storage
        costs of $96,422 could be eliminated.

       Not only could two depots be eliminated     but materials
in warehouse storage space in two other depots could be con-
solida-t&d.    The Marion and Warren depots have warehouse stor-
age space of 2.5 million    square feet of which only 1.7 mil-
lion square feet (69 percent)     was being used for storage as
of June 1, 1970.     As shown in the following    table most of
this space was used for storing     rubber,  cordage fibers,     and
tannins.


                                  32
                                  Warehouse stor_ane (square feet)
                                   Marion       Warren
                                     depot       depot      Total

Total warehouse        storage
  space                            1,161,586 -   1.351.800    2,513,386
                                                              -__
Total     space used                 867,859       876,604    1,744,463

Percent     of space used                   75           65           69

Space used for rubber,
  cordage fibers,  and
  tannins                            572,820       586,100    1,158,9213

Percent    of used space                    66           67           66

Space used for     all    other
  materials                          295,039       290,504      585,543

Percent    of used space                    34           33           34

      If the rubber,     cordage fibers,   and tannins were sold or
consolidated   with similar     materials  at other depots, econo-
mies could be achieved by closing and disposing          of unused
warehouse storage space and would thus reduce protection,
maintenance,   and utility     costs through consolidation.      After       .
these actions only a small portion        of the total   warehouse
storage space at the Marion and Warren depots would be used--
585,453 square feet of the tots.1 storage space of 2.5 million
square feet or 23 percent.

       At the Hammond depot some consolidation            of storage
space, and resultant        reduction    in storage costs, has already
occurred.      Since the institution        of a program in July 1968
to consolidate      materials     and operate the depot on a smaller
scale, GSA has reduced the overall             size of the depot from
132 acres to 70 acres and the amount of warehouse storage
space from 739,000 square feet to 137,000 square feet.                The
reduction    in storage costs from $424,000 in fiscal            year 1968
to $234,000 in fiscal         year 1970 clearly     demonstrates   the ad-
vantages of consolidating          storage space.      The unneeded part
of the depot was essentially           deactivated    in July 1969; how-
ever, GSA did not declare the property             excess to its needs
until   May 1971.
                                   33
       Of the 137,000 square feet of warehouse storage space
remaining at Hammond, 123,000 square feet was being used.
About 58 percent of this space was used for storing         tannins.
If the tannins were sold or consolidated       with similar   mate-
rial   at other depots, consideration    then could be given to
relocating    the minor amount of material   remaining    in ware-
house storage,    and the closing and disposition     of the ware-
houses.

        The New Haven depot has 1.7 million square feet of ware-
house storage space of which 1.3 million    square feet (76 per-
cent) was being used for storage as of June 1, 1970. About
48 percent of this space was used for storing     rubber, cordage
fibers,    and tannins.  If these materials were disposed of,
economies could be achieved by eliminating    unused warehouse
storage space.

      At the three remaining depots in Region 5 (Port Clinton,
Terre Haute, and Sharonville)     either a high percentage of the
total  storage space is being used or low-cost    outside  storage
is being used.    -Further, at the Shsronville  depot all but one
warehouse is being offered    for sale.

      GSA officials    agreed that the disposition  of rubber,
cordage fibers,     and tannins would enhance their efforts    to
reduce the number of depots and the amount of warehouse
storage space.




                                34
RECOMMENDATION

      We recommend that      the Administrator    of GSA review the
use of storage areas in        the depots and, where possible and
economically    feasible,    intensify   GSA's efforts  to consolidate
materials    in warehouse    space and dispose of unneeded depots.

AGENCYCOMMENTS

       In commenting on our draft report,            OEP stated that spe-
cific    comments on whether certain        depots could be closed
must be left to GSA. OEP noted, however, that it had in-
structed     GSA to use cost-effectiveness          analysis   in the de-
termination       of disposal plans and in the selection            of mate-
rials    to be held against stockpile         objectives.      A part of
this selection       process is the determination         that, if techni-
cal quality       of the stockpile   material     is adequate for na-
tional     security   needs, the decision on which material            to
hold will be based on cost-benefit            factors,    including    the
possibility       of reducing storage costs.

        GSA stated that our conclusion          that GSA could use its
storage space more effectively          and economically        by selling
the excess and deteriorated          materials,     consolidating    several
depots, and disposing of unneeded depots was in complete ac-
cord with GSA's policy.          GSA stated also that it was con-
stantly    reviewing   the utilization       and operating      cost of
storage facilities       with the goal of reducing and consolidat-
ing activities      so that maximum efficiencies          and economies
would be realized.

        GSA summarized the actions that had been taken at the
GSA depots and other storage locations          to eliminate     or re-
duce storage space and realize        resultant     economies.    Accord-
ing to GSA the selling       of excess materials      stored in ware-
houses, particularly      rubber and cordage fibers,        is the key
to these economies,       By thus reducing stocks, the point is
reached where the expense of relocating           remaining stocks is
justified    by the resultant    savings in recurring       storage
costs.

      GSA states that the disposal of partial   quantities    of
materials  from a depot does not result   in specific    economies
unless the entire   depot or an entire activity   at the depot

                                     35
is completely  inactivated     through relocation       of remaining
materials  to other depots.       Without this inactivation,        ex-
penses of protection,     maintenance,    and utilities     would con-
tinue at substantially     the same level.

        GSA was of the opinion that statistics     showing under-
utilization       of open areas at the GSA depots presented an
unrealistic       picture because most of the depots were acquired
from the Department of Defense and a large portion         of the
open areas have never been utilized       in the stockpile   pro-
gram.       In such cases we believe that GSA should consider de-
claring       the unused areas in excess of their needs and initi-
ate disposal action.

      GSA believes that appropriate         attention   is being given
to the consolidation       of warehouse space and disposal of un-
needed facilities.        We recognize that GSA is reducing stor-
age space and that many factors must be considered in making
the reductions.       The fact remains, however, that many of the
GSA depots contain a high percentage of unused open and
warehouse storage space.          Therefore we believe that GSA is
in a position      to bring about further      economies by consoli-
dating materials      in warehouse space and disposing of un-
needed depots.       We recognize also that disposition        of rubber,
cordage fibers,      and tannins would enhance GSA"s ability         to
consolidate     storage facilities.

        In commenting on the Region 5 depots discussed in this
report,    GSA stated that it will inactivate     the Dayton and
Jeffersonville     depots by the end of fiscal    year 1973 and
achieve annual savings of $210,000.        GSA stated that, after
the rubber, cordage fibers,      and tannins at the Marion and
Warren depots are sold, economies would be achieved by con-
solidating     the remaining materials.    GSA believes that the
cost of consolidation      prior to the sale of the three mate-
rials would be prohibitive.

        GSA stated that, because of the large quantities    of ma-
terials    in open storage at the Hammond depot, operations     at
the depot would continue at substantially      the same level
even if all the materials    in the warehouse were sold or re-
located.     GSA stated that the three remaining warehouses at
the Hammond depot were situated     in the central  part of the
depot and disposal of these buildings     would not be feasible

                                   36
until  surrounding areas utilized for metal storage were va-
cated.   GSA noted that savings in operating costs could re-
sult if the sale of metals reduced the inventory   to a point
where the guard force could be reduced.

       Implementation   of the above plans, particularly  at the
Dayton and Jeffersonville     depots, should achieve substantial
reductions   in storage costs.




                               37
                              -CHAPTER5

                           SCOPEOF REVIEW

       To evaluate the management of the stockpile           of selected
strategic   and critical materials, we:

     --Examined pertinent       laws,   regulations,    and policies
        of OEP and GSA,

     --Examined production     and consumption statistics,       re-
        ports on stockpile    activities,     and minutes of meet-
        ings on the stockpile      to ascertain   the need for
        stockpiling  molybdenum, cordage fibers,        and tannins.

     --Examined inspection    reports  to determine the condi-
        tion of rubber,  cordage fibers,   magnesium, tin, fer-
        romanganese, and antimony.

     --Interviewed        representatives      for the Cordage Institute
        on the extent of deterioration             in cordage fibers   and
         the availability       of synthetics.

     --Interviewed   officials  of the major rubber          companies
        on the extent of deterioration   in rubber.

     --Observed   the use of storage space and conditions  of
        selected materials  at the GSA storage sites in Ra-
        venna, Marion, Port Clinton,  Sharonville,  and War-
        ren, Ohio; Scotia, New York; and Hechanicsburg,   Penn-
        sylvania.

     --Interviewed   officials    of the Departments of Agricul-
         ture,  Commerce, Defense, and Interior     to determine
         the need for stockpiling    certain materials.

     --Discussed  our review with officials      of the OEP and
        GSA headquarters  in Washington,    D.C.




                                  38
                                                                                                  APPENDIX I

                          EXECUTIVE         OFFICE       OF THE           PRESIDENT
                            OFFICEOFEMERGENCYPREPAREDNESS
                                         WASHINGTON.       D.C.   20504

MAY 20 1971                                                                                       OFFICEOFTHE     DIRECTOR




Mr. Max A. Neuwirth
Associate     Director
General     Accounting         Office
Washington,      D. C.         20548

Dear    Mr.   Neuwirth:

This is in reference              to your draft     report   transmitted        to me for                review
and comment,  entitled              "Management   of the Strategic         and Critical                  Stock-
pile."  OEP comments              and suggestions      on the draft      report    follow.

First,     the reference       to the obsolescence               authority          contained       in the
Stock Piling       Act, made on page 2 of the draft                        report      under the heading
of DISPOSAL, accurately             notes     the three        reasons        for which an obsolescence
determination        can be made, but fails               to mention          that the entire            pro-
cedure is based upon "obsolescence".                        I suggest         that the last           paragraph
on page 2 be revised          as follows:            "Excess      materials          are to be disposed             of
only after       approval    by the Congress             unless      the material           is found to be
obsolescent       because    of (1) deterioration,                 (2) development            or discovery
of a new or better          material       or materials,          or (3) no further              usefulness
in time of war."          The possible          applicability            of the obsolescence              authority
to the tannins         and cordage       fibers     will      be reviewed           by this     Office      upon
completion       of a detailed       study of these two material                       areas that we have
requested      from the Department            of Commerce.             It should          be noted,      however,
that all three         of the tannins         and the two cordage                 fibers,     abaca and sisal,
are still      in daily     commercial        use in the U.S.



                                   [See GAO note,                 p. 41.1



In Chapters      2 and 3, references            are made to the annual                  costs of maintaining
 (including    interest)        molybdenum,        cordage    fibers,       and tannins           in the
stockpile.       The implication          from the text          is that      the costs        given are
the costs of retaining             these materials         against       stockpile         objectives.
However,    as the table          on page 11 indicates,             the cost        figures      used represent
costs of maintaining            the entire       inventory      of these materials               including
that portion      classified         as excess.        Opportunity         cost of maintaining
materials     against      stockpile      objectives       should      relate      only to that portion
which is considered           to be held against           stockpile         objectives,          i.e.,    the
$12.5 million       indicated        on page 4 includes            $5.9 million          in cost for the



                                                           39
 APPENDIX I


excess      in inventory.     Finally,       the use of opportunity         costs of maintaining
materials      in the stockpile        includes     the assumption      that the subject
material      could be readily       sold.      All three    referenced     materials  have
substantial        excesses authorized         for sale,   yet sales have been slow or
nonexistent.

Our officials,        in their    discussion      with your representatives,              did
indicate     that preference        in allocation        of OEP resources         for revisions
of objectives        was given,     and would continue           to be given,       to those materials
for which      there    is an apparent       immediate      disposal      market.      The resources
necessary      to carry     out the detailed        studies      involved     in revising     stockpile
objectives       are limited    and it seems only reasonable                that    these resources
should     be allocated      to those areas where there would be the most immediate
results.



                                       ke       GAO note,           p. 41.1




Our current     analysis      of the cordage   fibers    and tannins    indicates     that
your report's       comments appear      to be accurate,     As indicated,        we are under-
taking   a detailed      review    of these two materials.




                                     [See     GAO note,          p. 41.1




Chapter       4 of your draft         correctly         states      that OEP withdrew            rotation
authority         in 1970 because        expenditure           of funds would adversely                 affect    a
budget      already      in deficit.        Although         certain      materials      are subject           to
deterioration          in storage       (particularly           agricultural         materials),          current
analysis        has shown that deterioration                  has not precluded            usefulness          in
a period        of national       emergency.          As pointed        out by the National               Bureau
of Standards         and three       major rubber          companies         in late   1969, rubber            in
the stockpile,           although     somewhat deteriorated,                   could be blended           with
other     rubber     to meet national           security        needs.




                                                        40
                                                                                                   APPENDIX I

Specific     comment on whether             or not certain            storage       locations         could be
closed    and thus save costs to the Government                           must properly           be left       to the
General    Services      Administration.              In August         1969, OEP instructed                the        '
General    Services      Administration            to use cost effectiveness                    analysis        in
the determination         of disposal          plans and in the selection                     of materials            to
be held against        stockpile        objectives.           This has meant that                 in terms of
holding    materials      for the stockpile,               a part of the selection                   process       is
the determination         that if technical              quality        is adequate         for national
security     needs,    the decision          on which material               to hold would then be
based on cost benefit            factors,        including        the possibility             of reducing
costs of storage.           It is our understanding                  that      since that         time,    the
General    Services      Administration            has been following              this     policy,       and that
they have been reducing              the number of storage                 locations.           During     calendar
year 1970, two storage             locations        were closed,           and efforts          are being made
to close other       sites.        Your report          correctly         mentions       that closure          of
a storage     site   may involve          transportation            and other         costs     for the remaining
stored    materials      which must be compared with the savings                              from closing           a
site.

If your staff       desires,       members of my staff     will    keep                them informed      on
developments      in the analysis         of stockpile    objectives                   for cordage    fibers
and tannins.        Your staff       may make these arrangements                       by calling    Mr. William
Lawrence,    Chief,      Stockpile     Policy   Division.

Sincerely,




GAO note:         The deleted comments relate to matters which were discussed
                  in the draft report but were omitted from this final report.




                                                         41
   APPENDIX II
                                     UNITED         STATES        OF AMERICA
                           GENERAL          SERVICES              ADMINISTRATION
                                           WASHINGTON.            D.C.     20405


  JUNE 15 1971

Honorable      Elmer     B. Staats
Comptroller       General    of the        United        States
General     Accounting     Office
Washington,       DC 20548

Dear    Mr.    Staats:

Thank   you for the opportunity               to review             your draft        report       on the
management     of the strategic             and critical              stockpile.

In the chapters         covering     rotation      and storage     of materials,      the report
 sets forth      many pertinent        observations.         We must      suggest,    however,
that any study of these comments                    would be more      meaningful       if they gave
recognition        to the constant       attention     and planning     which    General      Services
Administration          (GSA) is now and has for many years,                   been devoting        to the
program        areas    therein   discussed         such as consolidation         of materials,
 elimination       of unneeded     depot      space,     as well   as to the deterrence          of
deterioration        of stockpile      materials.

The report     concludes    that       GSA could use its storage         space more           effectively
and economically.        In this       respect,       we are constantly    reviewing         the
utilization  of these facilities          and the cost of operating        them,       with the goal
of reducing    and consolidating           activities     so that maximum        efficiencies         and
economies    are realized.

In the last ten years,          four GSA depots         have been inactivated         and nine
storage    activities     at other     depots    have been reduced         or eliminated,
resulting    in annual      savings      of $1. 6 million.       Storage    functions     at two
additional     GSA depots        (Dayton     and Jeffersonville)        are planned     for inactiva-
tion for annual       savings      of $210,000.

Our emphasis        on economical       space utilization      has not concentrated          only on
GSA depots,       but on military      depots,  commercial          warehouses,        and leased
sites as well.       Overall,     going back over the 20 years            of stockpiling
mentioned     in the report,       we have reduced        the total number       of storage      sites
in use from      a high of 318 in 1953 to the present             number     of 134.     Annual
savings   resulting     from    these actions    are in the millions         of dollars.



                          Keep   Freedom    in Your Future          With    U.S. Savings   Bonds


                                                             42
                                                                                               APPENDIX           II

The selling         of excess     materials        stored     in warehouses            is the key to
these      economies.          Due to the prohibitive             transportation           and handling
expenses        which      must be incurred          in the relocation            of large      quantities,
of materials          from    one depot to another,             the vacating         and inactivation
of facilities        are predicated         on the prior        disposal       of maximum           quantities
of excess        materials,       particularly        rubber       and cordage         fibers.       As
these      and other materials            are sold,       not only will storage              functions
at the two GSA depots              mentioned        above be inactivated,                but stocks
 at other      depots     will also be reduced            to the point where             the expense         of
 relocating       remaining       stocks       can be justified        by resultant          savings      in
 storage      costs.

In discussing          unused        storage      space , it should        be pointed         out that many
GSA depots          have a substantial              amount    of open storage             area which      is
not utilized.          Most of our GSA depots                 were      at one time operated             by the
Department           of Defense,          and these open areas             were part of the depots
when acquired           by GSA.           A large     portion     of these areas            has never     been
utilized    in this program               and, as a matter           of fact,    utilization        was never
contemplated.             Statistics,         as set forth      in the draft       report,       showing     under-
utilization       of these areas            present      an unrealistic       picture.         No recurring
 storage     costs are incurred                in relation     to these unused            areas.      In many
instances,         property        lines have been redrawn                and unneeded           acreage
disposed       of.

In relation      to the utilization          of storage        space,     it should        also be pointed            out
that the disposal           of partial      quantities       of stockpile       materials            from     a depot
does not result         in specific        economies         unless     the entire       depot,          or an entire
 activity    at the depot,        i s completely         inactivated        through       relocation           of
remaining        commodities           to other      depots.       The total      cost to operate               a depot
remains       substantially         the same regardless               of the total tonnage                stored.
 The removal         of a portion        of the tonnage          would     not result        in savings           in
operating       costs as expenses             of protection,         maintenance,             utilities,        etc.,
would     continue      at substantially          the same level.

We believe         that maximum      effort      has been given to the consolidation               of
warehouse          space and disposal         of unneeded    facilities       and agree     with the
statement        made in the report         that the disposition         of the major      warehouse
materials        (rubber,    cordage    fibers,      and tannins)       would    enhance     our efforts
to reduce       the number      of depots       and the amount        of warehouse       storage      space.




                                                       43
    APPENDIX        II



As is quite     well    established,          most    of the organic          products      such as
 rubber    and fiber     will   undergo        change     with     the passage        of time.      When
we had unfilled        objectives       for these       materials       rotation       was practiced.
In recent     years,     however,         since    the objectives         have been reduced            to
quantities     which    were      considerably         below      the inventories         on hand,
emphasis      was placed        on the disposal          of the lower         grades      or qualities
of these    materials.

In addition,        we have been aware           for a long time            that many     so-called
inert     materials       such as tin,    ferromanganese               and magnesium          also undergo
alteration        of character     and some       limited       loss of value.         Over    the years,
we have had a number              of research        projects        in this phase      to try to
determine         such things    as (a) what        causes       the change,       (b) how can it be
avoided      when purchasing          new materials,           if possible,       (c) what     is the net
effect     on the consumer,          etc.    Our studies           on tin for example         began   as
early      as 1953 and even earlier            in trying      to determine        the relationship        of
the strength         of fiber  to its age.

While    pertinent    comment       is offered    concerning        the changes             on some of the
commodities        in the stockpile,       we do believe        that the report             as written
tends  to overstate      the amount       of material      affected     by time           as well     as the
degree    of change,




                           [See GAO note,             p.    51.1




                                                     44
                                                                                       APPENDIX II

Specific   comments       concerning       the report    now follow;    these   comments
are confined    to subjects     appropriate       to a GSA response.         We have been
advised   that OEP will      comment        on other   portions   of the draft.

Page 4.     “GSA           could use its storage       space more      effectively        and economi-
cally   by selling          the excess   and deteriorated      materials,          consolidating
several    depots          and disposing    of unneeded     depots...     ”

Comment.          l’his    statement      is in complete       accord     with GSA’s      policy:
“Government           depots     which    have become       uneconomical         to operate       will be
partially    or completely           evacuated,       and the tonnage       will be reduced          in
commercial          warehouses         to the maximum         extent   possible,      as revised
storage    criteria       permit      and as more       economical       space    becomes       available.       ”
(GSA Policy         Manual,       Chap.     8-8-b(2))

During     the past ten years           (1962   - 1971)      13 storage       operations      at GSA depots
have been reduced             or eliminated      by selling       excess      materials      and consoli-
dating    remaining        stocks    at other    depots,       resulting      in recurring       savings  of
$1. 6 million       annually.       During    the same period,              over ZOO, 000 tons of
materials      were     removed       from    commercial          warehouses          for an additional
recurring      savings       of $1. 8 million      annually.          Further     action   in this area   is
planned,

The selling     of excess     materials     is the key to these     economies.        By thus
reducing    stocks,    the point     is reached    where  the expense      of relocating
remaining     stocks    is justified    by the resulting    savings    in recurring      depot
costs.

Page 7.     ‘I- - the Administrator               of GSA review     the use of storage         areas     in
the depots     and,  where   possible            and economically      feasible,     increase      GSA’s
efforts  to consolidate    warehouse               space  and dispose      of unneeded      depots.   Ir

Comment.         As stated      above,     this is the policy        of GSA and aggressive              action
during     the past ten years         in carrying      out this policy      has resulted    in       recurring
savings      of $3.4  million     annually.       This    element      of our program    is
constantly      under  critical      review     and will    continue     to be so.

Pages     4,      6 and    7.     Mention   is made    that OEP and       GSA have not         rotated
certain        stockpile        materials   which   are deteriorating       in storage.

Comment.          Rotation       of the six mentioned     materials     was not pursued      because
the strategic,         technical       and marketing  considerations       did not warrant     the
initiating     of costly      rotation     programs,  and thus such rotation        programs
were       not considered        to be in the best interest      of the Government.




                                                        45
While     there       are undoubtedly             some situations            under       which      active
rotation      programs            should      be pursued,         to rotate        stockpile        materials
with the sole objective                 of improving           the quality        of the strategic
stockpile       inventory          is not necessarily             always       advantageous            to the
Government.               From       a strategic        point of view,           rotation        may not be
warranted          in some cases             if the material          is currently           usable      and
reasonably           satisfactory         to industry         in its present          form.         From      an
economic         view caution           should      also be exercised              in the undertaking              of
costly     rotation        programs          in situations        where       the stockpile           objectives
are likely        to be reduced            or eliminated.            Further,          there      is no
assurance          of an eventual           increase        in financial        return       to the Government
from     the sale of the replacement                     material        through         rotation      since
subsequent           technological          changes       and continuing            deterioration           of the
replacement            material        can nullify       the advantage            one might          expect     from    a
rotation      program.


                                         [See GAQnote, p. 514




                                                           46
                                                                                         APPENDIX          II




                                [See GAO note,               p.   51.1




Pages   12, 14 and 19. - Molybdenum,                        fibers,     tannin.   - The report   indicates
that several  million    dollars    in annual                 maintenance       costs  can be eliminated
if the above commodities         are removed                   from    the stockpile.

Comment.       As shown            on page 11 of the report,       the annual     storage    costs
of the three    materials           total $1.6 million.      These     costs would     not auto-
matically    be eliminated             by disposing   of the materials      for the following
reasons:

1. Substantial           quantities     of these materials        are stored    in military      depots.
Under       GSA’s cross-servicing              agreement      with the Department         of Defense,
we reimburse            DOD for use of the space only as long as the space is
occupied,          and space charges         terminate      when the space is vacated.
Although         the charge       to GSA for space use would          cease,    there    would    be
very    little,      if any, effect     on the total     cost of operating    the military
depots       involved.

2. Disposing         of these materials               from    GSA depots           would   not result        in any
 substantial     savings       until     such time        as it becomes          economically          feasible
to relocate      remaining           stocks     to other     depots        and inactivate       the depots
involved.       Costs      of operating          these depots         (fire    and guard      protection,
maintenance,        utilities,         management,           etc.)     would      continue    at substan-
tially    the same level         until      consolidation        action      could be completed.




                                                       47
APPENDIX         II


3. Also,      the claim        of considerable             savings      assumes        early      disposition
of the entire      inventory       which       could not be accomplished                    even with
immediate       disposal       authorization.             Marketing         consideratiorL5           in
connection      with disposal          program          clearance        with other        Gotiernment
agencies    would      undoubtedly          rule out the feasibility               of such !arge            scale
releases     of materials.           For example,              the excess        tannins      -LCW available
for sale,    plus the quantities              requested         in legislation        now before
Congress      provide       more     material         for disposal         than can be sold in the next
several    years      - without      major        objections        from     other    Government             agencies
and possible       disruption        of the market.               GSA currently          is selling        tannins
as fast as the market            will absorb           and under        programs         that the
State Department,            for foreign         policy      considerations,           can agree         to.




                                 [See GAO note,              p. 51.1




gages      24 and 25. - Rubber            - The subject         of the rubber       excess    should    be
clarified.        When the QEP lowers              the objective       of a stockpile       commodity,
our normal         procedure       is to review       the on-hand        inventory     and designate
the best material           for retention      under      the objective.         The balance      is then
considered        to be excess        to stockpile       requirements.           The 123,000       tons of
rubber      mentioned        in the report      is a portion       of the excess       rubber    in the
stockpile.

                                     [See GAO note,               p.    51.1

Referring        to the study conducted           by the National      Bureau    of Standards      and
three     major     rubber    companies,        it should    be pointed     out that the worst-
looking      bale,    as well as the best-looking            bale,   at five depots    were    the
basis     for the testing       and evaluation.        Quoting     the report    of GAO,     “The
study showed,          however,     that the rubber        could be used when blended            with




                                                      48
                                                                                    APPENDIX II


other  rubber.     ”   In this respect     we wish      to point   out that blending       is a
normal    procedure        in rubber   processing       with fresh    imported     rubber,      as
well as stockpile        rubber.

We note the comment          that the GAO representatives                “observed      at various
depots   that bales of rubber        were moldy,          stained,    distorted     [See     GAO note,
 p. 51.7 The fact that some bales of rubber                    may have shown         stains    does
not of itself     mean that the rubber          is not of good quality.          The bales would
have to be checked        to determine         whether     or not the stain had penetrated
the wrapper        sheet and caused       damage       to the rubber.        Some of the rubber
accepted      into the stockpile     originally       was stained     and allowances         were
obtained    by our inspectors        at that time.

Distortion     of a bale does not affect         the quality.          The greatest      percentage     of
distortion     would    have occurred      during      shipment        from    the source     country
and in the initial       stages of storage      while     the rubber         was soft.     The   weight
of bales piled       on one another    in this condition            would    cause   some distortion
on the lower      bales in the pile.       Further       distortion        ceased   when the rubber
became     frozen     in our warehouses.           Allowances         granted     by us for distorted
bales are for the extra handling            costs incurred            by the purchaser        and not for
loss in quality.




                                  [See GAO note,            p.   51.1




                                                   49
iU?PENBIX       II



 Pages 25 and 26.           - Cordage     fibers      - Again,      the opening        statement
 on cordage    fibers,        that substantial        portions      are deteriorating,           should
 be clarified.

 In our    fiscal    year 1970 budget          request,        we stated    that a substantial
 portion      of the fibers     held in the stockpile            to meet    objectives        has aged
 to such an extent         that it no longer          meets     required     standards        for use
 in an emergency.             The   standard       of  quality     referred     to  meant      the policy
 to retain      abaca for seven years             and sisal for nine years.               This policy
 was established         after    considerable         study and these periods              of time
 were    considered       to be the maximum              periods       we could safely         store
 these fibers        and have a wholly          useable      and dependable         material        in times
 of emergency.

 Our budget       request      also stated      that these materials           are of a quality
 which     can be used in industry            in the production         of many      commercial
 products.       Our sales experience              and absence       of quality     complaints
 support     this statement.          No inspections        of fibers      are made by respective
 purchasers        unless    we advise      the material       is damaged.           The fibers        are
 purchased       on the basis       of our records       with respect         to type,     grade      and
 quality,     and year of receipt         into the stockpile.           We have receivedno
 complaints       from     purchasers       on the quality       of any of the fiber          sold since
 July of 1965.         Since the purchasers           of the fiber      are repetitive         buyers
 it must be assumed            that they are receiving           satisfactory       deliveries.




                                   [See    GAO note,         p.    51. I




                                                     50
                                                                                        APPENDIX    II




                         [See GAO note.]




Page 26. - Other         Materials            - We believe    that the first      paragraph
should    begin with     the words           “A very limited      amount     offlo     As the
statement      is now    written,       it    would  infer  that all of these materials
are deteriorating        while     this      is far from   the case.


                        [See GAO note.]




Page 27. - Tin - The tin at the five locations                  which  is reported     to be
deteriorating       is a very limited         amount.     We believe    that the condition
implied       by the first    paragraph      would    be placed   on a more    factual   basis
if the following        statement      is added to this paragraph:

“However,       no sales discount    has ever been allowed       by GSA because        of
this condition,     and the quantity    of tin lost because    of granules     that formed
due to this condition     is surely   less than l/10     of 1 percent    of the original
quantity.   ‘I

Page 27.      We note the final   paragraph     states   that “GSA officials  told
us that tin, ferromanganese,         and antimony      has not deteriorated  to
the extent    that rotation  is needed    at the present     time. ” We wish to
reaffirm    this advice.

Page 30.   “About         16 million          of the 44 million square feet of storage
space at 30 GSA         depots     was       not used as of June 1, 1970. I’

Comment.        Including       both open and closed    space,             statistics       do not show
a true picture.         Most    depots  have large   quantities            of open       storage   space,

GAO note:         The deleted comments relate  to matters which were
                  discussed in the draft report but were omitted
                  from this final report.

                                                    51
APPENDIX          II



some of which       was never   used.    Whether      or not consolidations       are
feasible   depends,     for the most part,      on the utilization     of warehouses.
The following      table shows   current   statistics    on warehouse       space only:

                                Warehouse                               Not used                      Percent
GSA      Region                space (sq.              ft.)             (sq. ft. )                    not used

                                       737,700                                64,200                        9
                                    3,889,531                               939,674                        24
                                       896,301                              244,316                        27
                                       508,159                              210,549                        41
                                    5,594,676                            1,894,800                         34
                                       478,394                                37,394                        8
                                       987,686                              246,586                        25
                                       201,115                                61,115                       30
                                         65,000                                 2,000                       3

Totals                             13, 358,562                           3,700,634                         28

Page 31.   “About           44 percent     of the storage   space at nine GSA depots                                   in
Region  5 - - 7.7          million   square     feet - - was not being used as of
June 1, 1970. t’

Comment.      As stated    above,                this presents             a misleading  picture.     The
current  percentage     of unused                 warehouse             space at ea.ch Region     5 depot is
shown below:

                     Det2ot                                                   Unused      warehouse       soace
              Sharonville,          OH                                                       1%
              New Haven,           IN                                                      28%
              Dayton,        OH                                                            51%
              Hammond,           IN                                                        18%
              Jeffersonville,           IN                                                 34%
              Warren,         OH                                                           42%
              Marion,         OH                                                           27%
              Port    Clinton,        OH                                                   45%
              Terre      Haute,       IN                                                     8%

Page 33.  “If these materials                      are      sold,      this     depot      (Dayton)     could     be
closed by moving   the remaining                          materials           to other      depots.   ‘I

“If the rubber    and cordage                 fibers          were disposed              of and the remaining
materials    moved   to other                depots,          the Jeffersontille              depot could be
closed.   ”


                                                              52
                                                                                          APPENDIX II

Comment,         We agree.      We have long planned              that these two depots
will be closed      when stocks      of rubber        and fibers      are reduced       by
disposal    actions    to the point where          it is no longer       economical        to
operate   the depots.       Current      plans are to inactivate            both depots       by
the end of fiscal      year 1973,      but this may be earlier              or later,
depending     on disposal     program.         Plans     for the inactivation         of these
two depots      have been under        consideration        since     1967.

Page 34.    “If the rubber,    cordage   fibers    and tannins       (at Marion     and
Warren)   were    sold or consolidated     with similar       materials     at other
depots,  economies     could be achieved       by eliminating       unused    warehouse
storage  space. ”

 Comment.          The costs of consolidation                of materials         at these depots
prior     to the sale of rubber,          cordage        fiber,        and tannins     would     be
prohibitive.         We agree,       however,       that economies             can be achieved
by consolidating         remaining       materials          after      these three     materials       are
 sold.      As an example        of these high costs,               it would    cost an estimated
$441,000,        based on present         transportation              tariff rates,     to relocate
the 18, 658 tons of materials               stored     in warehouses            at Jeffersonville,
Indiana.        However,      if the entire       quantity        of rubber      and cordage        fiber
(13, 577 tons) were          sold and the remaining                  stocks   relocated       to other
depots,       expenses     of relocation       would       be reduced        by some 70 percent.

Page 35.       “If the tannins     (at Hammond}      were   sold or consolidated   with
similar     material     at other   depots,  further    economies   could be achieved
by eliminating       unused    warehouse    storage    space. ‘I

 Comment.         Due to the large          quantities       of materials        in open storage              at
Hammond,          operations       at the depot would           continue      at substantially            the
 same level       even if all the remaining              warehouse         materials         were     sold
or relocated.          As indicated        on page 34, consolidation                 actions      already
effected    have resulted          in substantial        savings,       and any further            reduction
in annual      operating      costs will depend           primarily        on the sale of metals,
reducing      the inventory         to a point where          the guard      force      can be reduced.
In respect      to the three        remaining        warehouses         at Hammond,             these are
 situated   in the central         part of the depot and disposal                  of these buildings,
even when vacant,            would     not be feasible         until   surrounding           areas     utilized
for metals       storage     are also vacated.




                                                      53
 APPENDIX II


   Page 35. "GSA officials
  ---                             agreed  that the disposition   of rubber,
  cordage    fibers,    and tannins would enhance their efforts to reduce
  the number       of depots  and the amount   of warehouse    storage     space.   ‘I

  Comment.      We wholeheartedly        agree!

  Sincerely,



  Enclosure       [See GAO note.]




GAO note:      The enclosure       relates        to matters  which were dis-
               cussed in the draft           report     but were omitted from
               this   final    report.




                                             54
                                                                      APPENDIX III


                             PRINCIPAL OFFICIALS RESPONSIBLE FOR

                             THE POLICIES AND THE CONDUCTOF THE

                             ACTIVITIES   DISCUSSED IN THIS REPORT


                                                           Tenure of office
                                                           From             To

                               OFFICE OF EMERGENCYPREPAREDNESS

 DIRECTOR, OFFICE OF EMERGENCY
   PREPAREDNESS:<
     George A. Lincoln                                Ji3ll.   1969     Present
     Price Daniel                                     Oct.     1967     Jan.    1969

                               GENERAL SERVICES ADMINISTRATION

 ADMINISTRATOR OF GENERAL
   SERVICES:
     Robert L. Kunzig                                 Mar.     1969     Present
     Lawson B. Knott, Jr.                             Nov.     1964     Feb. 1969




u.S   GAO,   Wash..   D.C.

                                               55
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