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IV. MATERIAL SUBMITTED FOR THE RECORD BY MR. W. P.

CLEMENTS, DEPUTY SECRETARY OF DEFENSE:
A. Letter from Mr. W. P. Clements to Senator William Proxmire,

dated January 22, 1976, with attachments, concerning
those who received letter of admonition for attending the

Northrop hunting facility
B. Final report of the Task Force to Enhance the Audit of

Contractors, Department of Defense, January 5, 1976-----
C. Amended Department of Defense standards of conduct direc-

tive, 5500.7.
D. Representative copy of Deputy Secretary of Defense letter to

contractors, list of addresses..
E. Representative copy of Deputy Secretary of Defense letter to

DOD project managers (letter from W. P. Clements to
George E. Jessen, USN Naval Air Systems Headquarters,
dated December 8, 1976) list of addresses, and selected
replies from Mr. William Wyatt, Col. Frank Palermo, Jr.,
Col. George Murphy, Col. Garwin McCurdy, Maj. Gen.

Robert C. Mathis ...
F. Copy of Department of Defense public affairs letter to non-

Government associations and list of addresses, dated

December 18, 1975..
G. Letter from Mr. L. Niederlehner, Acting General Counsel,

Department of Defense to Senator William Proxmire,
dated December 10, 1975, with attachments, concerning
DOD procedures and regulations implementing section 410

of Public Law 91-121.
H. Letter from Senator William Proxmire to Hon. William

Clements dated February 18, 1976, requesting material for

the record..
I. Letter from Mr. William Clements to Senator William

Proxmire, dated May 20, 1976-
J. Statement of Secretary of Defense Donald Rumsfeld on im-

portance of standards of conduct, April 8, 1976.
K. Information requested for the record in the hearing-

L. Responses to additional questions for the record..
V. FURTHER CORRESPONDENCE BETWEEN SENATOR

WILLIAM PROXMIRE AND SECRETARY OF DEFENSE
DONALD RUMSFELD RELATED TO ENTERTAINMENT
OF DOD OFFICIALS:
A. Letter from Senator William Proxmire to Secretary Rumsfeld,

dated March 17, 1976.--
B. Letter from Senator William Proxmire to Secretary Rumsfeld,

dated March 17, 1976--
C. Letter from W. P. Clements to Senator William Proxmire,

dated May 27, 1976....
VI. CORRESPONDENCE REGARDING PARTICIPATION OF

MR. BOBBY DALE PATTERSON IN EXECUTIVE INTER-
CHANGE PROGRAM:
A. Letter from Senator William Proxmire to J. Stanford Smitli,

Chairman of President's Commission on Personnel Inter

change, dated March 19, 1976----
B: Letter from Mr. Allen E. Parmenter, Executive Director of

President's Commission on Personnel Interchange, dated
March 30 with attachments..

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DOD-INDUSTRY RELATIONS: STANDARDS OF CONDUCT

AND CONFLICT OF INTEREST

MONDAY, FEBRUARY 2, 1976

U.S. CONGRESS,
JOINT COMMITTEE ON DEFENSE PRODUCTION,

Washington, D.C. The Joint Committee met at 10:10 a.m., pursuant to call, in room 5302, Dirksen Senate Office Building, Hon. William Proxmire presiding.

Present: Chairman Wright Patman, Senator William Proxmire, Representative Leonor K. Sullivan, Representative Albert Johnson, Senator John Sparkman, Senator John G. Tower, and Representative Larry Coughlin.

Senator PROXMIRE. The committee will come to order.

Mr. Hampton and Mr. Goodman, will you please stand and raise your right hand ?

Do you swear to tell the truth, the whole truth, and nothing but the truth so help you God?

Mr. HAMPTON. Yes, sir.
Mr. GOODMAN. Yes, sir.
Senator PROXMIRE. The hearing will come to order.

This week's hearings by the Joint Committee on Defense Production have been called to inquire into Federal standards of conduct and conflict of interest regulations. They are the first in a series of hearings planned for the purpose of determining whether there are adequate safeguards against the waste of tax dollars and whether there is adequate enforcement of these safeguards.

Today's hearing is the direct result of the Joint Committee's ongoing investigation of hospitality and other corporate “freebies” provided to civilian and military officials of the Government. In this phase of the investigation, we are particularly interested in the efforts of Federal agencies and especially of the Department of Defense-to preserve the integrity of the procurement process through scrupulous observance and enforcement of applicable statutes and directives. The Joint Committee also wants to determine whether and in what ways current statutes might be improved, so that it can make recommendations to the appropriate legislative committees of the Congress.

We will be focusing in particular on the Department of Defense, not only because of the cost accounting standards provisions of the Defense Production Act, but also because the Department of Defense has by far the largest procurement budget of any Federal department or agency.

Today, however, we will hear from representatives of firms who do business with the Government. Our purpose is not to embarrass individuals. Nor is it to pillory civil servants who may have on one or two occasions shown poor judgment in accepting an attractive invitation or gratuity.

We do want to examine what appears from our inquiries to be widespread, systematic and regular efforts to influence the contracting process.

What we are talking about here is not a Christmas turkey or a couple of concert tickets. The committee's limited inquiry has uncovered numerous hunting, fishing, and skiing facilities where Federal employees may have been entertained: five in Maryland, at least three in Georgia, two more in the Bahamas, and one or more in Utah, Michigan, Colorado and Pennsylvania.

This covers only major entertainment facilities. It does not address hospitality suites at airshows and conventions, lift-off and splashdown parties, pregame brunches and a variety of other social events.

I think we are all aware that the exchange of hospitality and similar benefits is a regular part of the American business scene. No one, I believe, has suggested that this should be changed. Yet in the commercial sector there are strong disincentives, strong disciplines, to awarding contracts on the basis of good will alone.

Such may not be the case with Government contracts. Here the only protection results from clear-cut contracting regulations and statutes and hard-nosed enforcement of them.

It has been said that no one ever awarded a Federal contract on the basis of a free goose or free football tickets. That may be true. But it is not the issue.

Instead, the issue is whether good will developed through lavish and repeated hospitality can end by undermining the integrity of the Government contracting and procurement process.

There are countless ways that this can be done, and I'm sure it does happen. A contractor can obtain intelligence or advance information on Government requirements and specifications, possibly gaining an unfair advantage over his competitors.

A contractor may also use accumulated good will to get a relaxation of design specifications or of procurement regulations. These matters may seem small, but a minor change in design specifications can have a crucial impact on the outcome of a contract competition. And cumulatively, all this reservoir of good will can have major cost implications for the Government, directly and indirectly.

Unfortunately, the taxpayer never has a chance to entertain Federal officials or to take them to his favorite ski lodge, Caribbean resort, or hunting camp. Nor can he hire former contract officials to protect his interests. All he can do is pray that the Government has laws and law enforcement resources adequate to prevent undue influence in Government contracting and procurement.

The issue of corporate entertainment and influence is one where a little neglect goes a long way. Once people in and out of Government get the idea that standards of conduct regulations or conflict of interest statutes only apply to the other guy, then they become dead letters.

It is also an issue that has two sides. That is why we will hear today from witnesses both in Government and in business. Our first witness this morning will be the Honorable Robert Hampton, the Chairman of the Civil Service Commission. His Commission is required to review the adequacy of standards of conduct regulations.

Speaking for business today will be the presidents of two important aerospace contractorsMr. Robert Anderson of Rockwell International Corp. and Mr. Thomas V. Jones of the Northrop Corp. Both firms have contracts with the Defense Department and the National Aeronautics and Space Administration. Rockwell International is easily the largest NASA contractor and was last year the 10th largest defense contractor. Northrop stands 12th among defense contractors and 19th among NASA contractors.

I'm happy to recognize the Chairman of the Committee, Mr. Patman. Mr. PATMAN.

Mr. Chairman, I would have been here earlier but I had to go by Banking and Currency in the House and get matters tended to there. We had a very important hearing going on over there.

We have discussed this hearing for some time. We look with great disfavor on what's happening on the so-called "buddy-buddyarrangements between the contractors and the Government agencies and we don't like it and we want to look into it. Senator Proxmire has looked into this at my request. I have so many things going I can't do it for the next few months and I have to depend on you, Bill, and I'm going to do it. I have great confidence in you and I know you will do a good job. You have complete authority over the investigation process.

Senator PROXMIRE. Thank you very much, Mr. Chairman. I very much appreciate that and I can't tell you how grateful I am for your confidence and support.

Mr. PATMAN. Thank you.
Senator PROXMIRE. Mrs. Sullivan?
Mrs. SULLIVAN. No comments.

Senator PROXMIRE. All right. Then we will go right ahead with Mr. Hampton and then Mr. Goodman has a statement also, I think. Mr. Hampton, go right ahead, please.

STATEMENT OF ROBERT E. HAMPTON, CHAIRMAN, U.S. CIVIL

SERVICE COMMISSION

Mr. HAMPTON. I am appearing today before your Joint Committee on Defense Production in response to your invitation that I present testimony on the background of Executive Order 11222, on the procedure used by the Civil Service Commission for approving agencies' ethics regulations, on our efforts to monitor and evaluate the enforcement of such regulations and the role we have played in the recent decisions of the Department of Defense and the National Aeronautics and Space Administration to redraft their regulations regarding gratuities and entertainment.

Executive Order 11222 prescribes standards of ethical conduct for Government officers and employees. It supplanted Executive Order

10939 which was issued in May 1971 to provide a guide on ethical standards to government officials. This previous Executive Order applied only to heads and assistant heads of Government agencies, to full-time members of boards and commissions appointed by the President and to members of the White House staff. It required each agency head to issue internal directives to assure the maintenance of high ethical and moral standards in his agency.

In May of 1965 Executive Order 11222 was promulgated for the purpose of codifying, clarifying and strengthening the standards of ethical conduct for executive branch personnel. In addition, it required for the first time the submission of financial statements by certain Federal officers and employees.

Under Section 401 of the Executive Order, the heads of agencies, some Presidential appointees in the Executive Office of the President and full-time members of boards and commissions appointed by the President, must submit confidential statements of their employment and financial interests on an annual basis to the Chairman of the Civil Service Commission. As Chairman, I receive approximately 185 such statements each year, and they are reviewed for me by the Commission's Office of the General Counsel.

Again, the filing of such financial interest statements is made mandatory by the Executive Order, and we have assumed the responsibility of ensuring that all covered officials discharge their duty in this regard. If a covered official fails to file the required statement, our recourse is to call the matter to the attention of the President.

Furthermore, I am directed to report to the President any information contained in statements required by Section 401 of the Executive Order which may indicate a conflict of interest. As a practical matter, where potential conflicts are disclosed, my General Counsel will attempt to resolve the matter directly with the appointee involved. Sometimes I will be brought in to make the initial contact, to establish a kind of Presidential appointee to Presidential appointee relationship.

The Executive Order provides that regulations must be adopted by each agency coordinated and approved by the Civil Service Commission. The Commission has issued regulations under which agency heads must promulgate ethics regulations which meet certain minimum standards. Before any agency can promulgate or modify its ethics regulations, it must submit them for the approval of the Commission. This is to assure consistency among the Federal agencies. Prior to Executive Order 11222 there had been an expressed concern about inconsistency between agency regulations.

Further, the Commission has issued regulations dealing with the submission of financial statements by certain agency employees with their own agencies. Here, too, we monitor compliance with the filing requirements and, where necessary, issue appropriate instructions to ensure compliance.

From time to time we receive complaints from Government employees and private persons alleging that there has been a conflict of interest on the part of some Government employee. Neither the Executive Order nor regulations expressly give us authority to in

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