B-166610, APRIL 28, 1969, 48 COMP. GEN. 709

B-166610: Apr 28, 1969

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IS NOT PROHIBITED. THE WELDING AND ASSEMBLY SERVICES PROPOSED ARE NOT CONSIDERED THE VESSEL CONSTRUCTION CONTEMPLATED BY THE APPROPRIATION ACT PROHIBITIONS AND. 1969: REFERENCE IS MADE TO LETTER DATED APRIL 4. ARE SET FORTH BELOW. WHICH WAS ENTERED INTO ON JUNE 25. THE PROPOSED SUBCONTRACT IS FOR WELDMENT AND ASSEMBLY SERVICES FOR FOUR ADDITIONAL HULL CYLINDERS FOR THE SSN) 680 (NINE SUCH CYLINDERS HAVING PREVIOUSLY BEEN SUBCONTRACTED TO VICKERS) AND NINE HULL CYLINDERS EACH FOR THE SSN) 682 AND 683. THE BASIC STEEL PLATES ARE FURNISHED TO INGALLS BY THE NAVY AS GOVERNMENT-FURNISHED MATERIAL UNDER THE PRIME CONTRACT AND ARE ROLLED BY INGALLS. THE FRAMING IS ALSO SUPPLIED AS GOVERNMENT-FURNISHED MATERIAL AND IS PREFORMED BY THE PORTSMOUTH NAVAL SHIPYARD UNDER A CONTRACT WITH INGALLS.

B-166610, APRIL 28, 1969, 48 COMP. GEN. 709

VESSELS--CONSTRUCTION--FOREIGN SHIPYARDS--PROHIBITION THE SUBCONTRACTING WITH A CANADIAN FIRM OF THE WELDING AND ASSEMBLY SERVICES FOR SUBMARINE HULL CYLINDERS UNDER A PRIME FIXED-PRICE INCENTIVE CONTRACT THAT CONTAINS A RESTRICTION ON THE CONSTRUCTION OF MAJOR VESSEL COMPONENTS IN A FOREIGN SHIPYARD PURSUANT TO THE TOLLEFSON AMENDMENT IN THE DEFENSE DEPARTMENT APPROPRIATION ACTS, AS WELL AS THE BYRNES AMENDMENT BARRING THE COMPLETE CONSTRUCTION OF NAVAL VESSELS IN FOREIGN SHIPYARDS, IS NOT PROHIBITED. THE HULL COMPONENTS CONSTITUTING LESS THAN 10 PERCENT OF THE TOTAL VALUE OF THE SUBMARINE, AND THE WORK TO BE PERFORMED IN THE FOREIGN SHIPYARD BUT 39 PERCENT OF THE VALUE OF THE HULL, THE WELDING AND ASSEMBLY SERVICES PROPOSED ARE NOT CONSIDERED THE VESSEL CONSTRUCTION CONTEMPLATED BY THE APPROPRIATION ACT PROHIBITIONS AND, THEREFORE, THE NAVY MAY CONSENT TO THE SUBCONTRACTING OF THE SERVICES TO THE CANADIAN FIRM.

TO THE SECRETARY OF THE NAVY, APRIL 28, 1969:

REFERENCE IS MADE TO LETTER DATED APRIL 4, 1969 (REFERENCE "OOJ: SP:GW N00024-68-C-0232 SER 32"), FROM THE VICE COMMANDER, NAVAL SHIP SYSTEMS COMMAND, CONCERNING THE PROPRIETY OF THE NAVY'S CONSENTING TO A PROPOSED SUBCONTRACT BY INGALLS SHIPBUILDING CORPORATION WITH CANADIAN VICKERS, LTD. (VICKERS), FOR WELDING AND ASSEMBLY SERVICES FOR SUBMARINE HULL CYLINDERS.

THE FACTS AND CIRCUMSTANCES CONCERNING THE MATTER, AS DISCLOSED BY THE LETTER, ARE SET FORTH BELOW.

INGALLS SHIPBUILDING CORPORATION HAS REQUESTED THE NAVY'S CONSENT TO PLACE THE SUBCONTRACT HEREAFTER DESCRIBED UNDER CONTRACT N00024-68 C-0232, WHICH WAS ENTERED INTO ON JUNE 25, 1968, WITH THE DEPARTMENT OF THE NAVY FOR THE CONSTRUCTION OF THREE SSN) 637 CLASS NUCLEAR SUBMARINES, SSN) 680, 682, AND 683.

THE PROPOSED SUBCONTRACT IS FOR WELDMENT AND ASSEMBLY SERVICES FOR FOUR ADDITIONAL HULL CYLINDERS FOR THE SSN) 680 (NINE SUCH CYLINDERS HAVING PREVIOUSLY BEEN SUBCONTRACTED TO VICKERS) AND NINE HULL CYLINDERS EACH FOR THE SSN) 682 AND 683. EACH HULL CYLINDER REQUIRES THE ASSEMBLY AND WELDING TOGETHER OF THREE PREROLLED HY 80-STEEL PLATES AND PREFORMED FRAMES. THE BASIC STEEL PLATES ARE FURNISHED TO INGALLS BY THE NAVY AS GOVERNMENT-FURNISHED MATERIAL UNDER THE PRIME CONTRACT AND ARE ROLLED BY INGALLS. THE FRAMING IS ALSO SUPPLIED AS GOVERNMENT-FURNISHED MATERIAL AND IS PREFORMED BY THE PORTSMOUTH NAVAL SHIPYARD UNDER A CONTRACT WITH INGALLS. THE PRESHAPED PLATES AND FRAMES ARE SHIPPED BY RAIL TO VICKERS FOR THE NECESSARY WELDING AND ASSEMBLY. AFTER THE COMPLETION OF THIS WORK, THE WELDED HULL CYLINDERS WILL BE SHIPPED BY FREIGHTER TO INGALLS WHERE THEY WILL BE JOINED TOGETHER BY INGALLS TO FORM A PRO TANTO PORTION OF THE PRESSURE HULL OF THE VESSEL, EXCLUSIVE OF DECKS, COMPARTMENTS, PIPING, ETC; WHICH, THEREAFTER, WILL BE INSTALLED BY INGALLS. EACH PRESSURE HULL IS COMPOSED OF TWENTY-NINE SUCH CYLINDERS.

THE PRIME CONTRACT IS A FIXED-PRICE INCENTIVE CONTRACT AND PROVIDES, AMONG OTHER THINGS, IN CLAUSE 67 (G) OF THE GENERAL PROVISIONS THAT "THE CONTRACTOR SHALL NOT ENTER INTO ANY SUBCONTRACTS IN EXCESS OF $100,000 OR EXPECTED TO EXCEED $100,000 WITHOUT THE PRIOR WRITTEN CONSENT OF THE CONTRACTING OFFICER." IT FURTHER PROVIDES IN CLAUSE 66 THAT: "IN FURTHERANCE OF THE SHIPBUILDING AND CONVERSION, NAVY APPROPRIATION REQUIREMENT OF THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, THE HULL, MIDBODY OR OTHER MAJOR FIXED STRUCTURAL COMPONENT OF THE VESSELS SHALL NOT BE CONSTRUCTED IN A FOREIGN SHIPYARD." QUESTIONS HAVE ARISEN AS TO (1) WHETHER THE PROPOSED SUBCONTRACTING TO VICKERS WOULD CONTRAVENE THIS CLAUSE OR THE STATUTE ON WHICH IT IS BASED, AND (2) IF IT IS OBJECTIONABLE TO CONSENT TO A SUBCONTRACT FOR MORE THAN NINE CYLINDERS ON ONE VESSEL, WHETHER AN EXCEPTION COULD BE MADE IN THE CASE OF THE SSN) 680 ON WHICH THE MATERIALS FOR FOUR ADDITIONAL CYLINDERS HAVE ALREADY BEEN SHIPPED TO VICKERS.

PURSUANT TO THE REQUIREMENT FOR SUBCONTRACT CONSENT, INGALLS HAS PREVIOUSLY REQUESTED AND RECEIVED THE NECESSARY CONSENT TO SUBCONTRACT WITH VICKERS FOR THE WELDING AND ASSEMBLY SERVICES FOR NINE HULL CYLINDERS OF THE SSN) 680, AND THEREAFTER ON JANUARY 6, 1969, ENTERED INTO THE IMPLEMENTING SUBCONTRACT. BEFORE DOING SO, IT SOLICITED BIDS FROM BATH IRON WORKS, GENERAL DYNAMICS CORPORATION/ELECTRIC BOAT DIVISION, AND NEWPORT NEWS SHIPBUILDING AND DRYDOCK COMPANY. ONLY BATH IRON WORKS RESPONDED TO THE SOLICITATION, BUT ITS BID WAS NOT FULLY RESPONSIVE AS IT LACKED THE CAPACITY TO PERFORM PART OF THE WORK. IN ADDITION, ITS ESTIMATE FOR PERFORMING A LESSER AMOUNT OF WORK WAS SUBSTANTIALLY HIGHER THAN VICKERS' FIRM FIXED-PRICE FOR ALL OF THE WORK COVERED BY THE SOLICITATION.

ON MARCH 12, 1969, INGALLS REQUESTED FURTHER CONSENT FROM THE NAVY TO SUBCONTRACT WITH VICKERS FOR SIMILAR WELDING SERVICES ON SIXTEEN ADDITIONAL HULL CYLINDERS OF THE SSN) 680 AND TWENTY-FIVE HULL CYLINDERS OF THE SSN) 682. IN VIEW OF ITS EARLIER EXPERIENCE, INGALLS DID NOT REQUEST BIDS FROM OTHER FIRMS. THE NAVY DID NOT CONSENT TO THIS PROPOSED SUBCONTRACT. THEREAFTER, ON MARCH 21, 1969, INGALLS SUBMITTED THE ALTERNATIVE PROPOSAL REFERRED TO ABOVE.

INGALLS ASSERTS THAT IF IT IS NOT PERMITTED TO SUBCONTRACT, IT WILL HAVE TO LAY OFF 500 SUBMARINE OUTFITTERS BECAUSE ITS IN-HOUSE WELDING CAPABILITY IS NOT ADEQUATE TO TURN OUT WELDED CYLINDERS AT A SUFFICIENT RATE TO PROVIDE PRODUCTIVE WORK FOR ALL THE OUTFITTERS CURRENTLY EMPLOYED. IN THAT EVENT, INGALLS HAS PREDICTED THAT THERE WILL BE AN INCREASE OF APPROXIMATELY $6 MILLION IN THE COST OF PERFORMING THE CONTRACT. TO THE EXTENT THAT ALL OR ANY PART OF THIS INCREASE WOULD BE AN ALLOWABLE COST OF PERFORMING THE CONTRACT, THE COST WOULD BE SHARED BY THE GOVERNMENT AND INGALLS IN THE COST SHARING RATIO PROVIDED IN THE INCENTIVE CONTRACT WHICH IS 80-20 FOR COSTS UNDER TARGET AND 60-40 FOR COSTS OVER TARGET. ANY ALLOWABLE COST THAT INGALLS MAY INCUR TO VICKERS BY NOT GOING AHEAD WITH THE CONTEMPLATED SUBCONTRACTING MAY BE SIMILARILY CHARGED TO THE CONTRACT IN THIS RATIO, SUBJECT TO ANY CLAIM INGALLS MAY ASSERT AGAINST THE GOVERNMENT FOR IMPROPERLY WITHHOLDING ITS CONSENT TO SUBCONTRACT.

WHEN THE NAVY ENTERED INTO THE PRIME CONTRACT WITH INGALLS, THE NAVY DID NOT CONTEMPLATE ANY SUBCONTRACTING OF THE WELDING AND ASSEMBLY OF HULL CYLINDERS. IT IS RECOGNIZED THAT VICKERS IS TECHNICALLY QUALIFIED TO PERFORM THE PROPOSED SUBCONTRACT, THAT ITS FACILITIES ARE ADEQUATE FOR THE PURPOSE, THAT ITS PRICE IS THE LOWEST OBTAINABLE, AND THAT THERE WOULD BE A SUBSTANTIAL ECONOMIC ADVANTAGE BOTH TO INGALLS AND THE GOVERNMENT IN HAVING THE WORK PERFORMED BY VICKERS.

THE LETTER STATES THAT INASMUCH AS THE PRIME CONTRACT OBLIGATES SHIPBUILDING AND CONVERSATION, NAVY (SCN) APPROPRIATION, CONSIDERATION MUST BE GIVEN TO THE APPLICATION OF CLAUSE 66 OF THE CONTRACT AND OF THE FOLLOWING PROVISOS IN THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1968. PROVIDED, THAT NONE OF THE FUNDS HEREIN PROVIDED FOR THE CONSTRUCTION AND CONVERSION OF ANY NAVAL VESSEL TO BE CONSTRUCTED IN SHIPYARDS IN THE UNITED STATES SHALL BE EXPENDED IN FOREIGN SHIPYARDS FOR THE CONSTRUCTION OF MAJOR COMPONENTS OF THE HULL OR SUPERSTRUCTURE OF SUCH VESSEL; PROVIDED FURTHER, THAT NONE OF THE FUNDS HEREIN PROVIDED SHALL BE USED FOR THE CONSTRUCTION OF ANY NAVAL VESSEL IN FOREIGN SHIPYARDS.

THE FORMER PROVISO WAS FIRST INCLUDED IN THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1965, AND IS KNOWN AS THE TOLLEFSON AMENDMENT; THE LATTER PROVISO WAS FIRST INCLUDED IN THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1968, AND IS KNOWN AS THE BYRNES AMENDMENT.

OUR OPINION IS REQUESTED AS TO WHETHER UNDER THE CIRCUMSTANCES OUTLINED ABOVE THE NAVY MAY PROPERLY CONSENT TO THE SUBCONTRACTING OF FOUR HULL CYLINDERS FOR SSN) 680 (IN ADDITION TO THE NINE ALREADY APPROVED FOR THAT VESSEL) AND NINE HULL CYLINDERS EACH FOR THE SSN) 682 AND 683.

INSOFAR AS THE TOLLEFSON AMENDMENT (FIRST OF THE ABOVE-QUOTED PROVISOS) IS CONCERNED, ITS LEGISLATIVE HISTORY DISCLOSES THAT THE AMENDMENT WAS AIMED SPECIFICALLY AT THE PRACTICE OF HAVING A SHIP MIDBODY CONSTRUCTED IN A FOREIGN SHIPYARD, THEN TOWED BY WATER TO A DOMESTIC SHIPYARD WHERE THE BOW AND STERN WOULD BE AFFIXED THERETO. IN OFFERING THE AMENDMENT ON THE FLOOR OF THE HOUSE, MR. TOLLEFSON MADE THE FOLLOWING PERTINENT STATEMENTS CONCERNING THE AMENDMENT AND ITS PURPOSE (110 CONG. REC. 8782, 8783, 8803 AND 8804):

MR. TOLLEFSON. * * *.

AS MOST OF YOU KNOW, IF AN AMERICAN VESSEL WANTS TO CARRY AN AMERICAN FLAG, IT MUST BE BUILT IN AN AMERICAN SHIPYARD; OTHERWISE IT CANNOT CARRY AN AMERICAN FLAG. SOMEBODY DISCOVERED A LOOPHOLE IN THE LAW AND FOUND THAT THERE COULD BE BUILT THE ENTIRE HULL OF THE VESSEL, LEAVING OFF ONLY THE BOW AND THE STERN, IN A FOREIGN SHIPYARD IN EUROPE. THIS WAS DONE ON A NUMBER OF OCCASIONS BEFORE IT WAS BROUGHT TO THE ATTENTION OF OUR COMMITTEE. THEY SOUGHT TO GET AROUND THE PROVISION OF THE LAW THAT SHIPS MUST BE BUILT IN AMERICAN SHIPYARDS IN ORDER TO FLY THE AMERICAN FLAG.

ON TWO OCCASIONS OUR COMMITTEE PROPOUNDED LEGISLATION WHICH FINALLY CLOSED THAT LOOPHOLE, BUT THAT LEGISLATION APPLIED ONLY TO COMMERCIAL SHIPS AND COULD NOT APPLY TO NAVAL VESSELS.

THESE SHIPYARD OPERATORS ARE INTELLIGENT. THEY FOUND A SIMILAR LOOPHOLE IN THE LAWS GOVERNING THE CONSTRUCTION AND CONVERSION OF NAVAL VESSELS, AND ONE OF THE SHIPYARDS BID ON TWO VESSELS ABOUT A YEAR AGO AND SUBMITTED A LOW BID BECAUSE THEY HAD IN MIND FOLLOWING THE PRACTICE OF SOME OF THE YARDS THAT HAD MIDSECTIONS OF COMMERCIAL VESSELS BUILT IN FOREIGN SHIPYARDS. SO TWO OF THESE MIDSECTIONS OF NAVAL VESSELS ACTUALLY WERE BUILT IN A JAPANESE SHIPYARD AND TOWED ACROSS THE PACIFIC OCEAN AND FINISHED IN A SHIPYARD ON THE WEST COAST.

IT WAS THIS SORT OF PRACTICE WHICH I SOUGHT TO PRESENT LAST YEAR BY MY AMENDMENT. AS I SAY, BECAUSE OF THE ASSURANCE GIVEN BY THE COMMITTEE AND THE DEPARTMENT OF THE NAVY THAT IT WOULD NOT HAPPEN AGAIN, I DID NOTHING.

ABOUT A MONTH AGO I HEARD A RUMOR TO THE EFFECT THE SAME THING WAS GOING TO TAKE PLACE WITH RESPECT TO AN INVITATION TO BID SUBMITTED BY THE NAVY BUREAU OF SHIPS. I CALLED THE NAVY BUREAU OF SHIPS AND ASKED THEM IF THEY KNEW ANYTHING ABOUT IT, AND THEY SAID, "NO," SO FAR AS THEY KNEW, THERE WAS NOTHING TO THE RUMOR. BUT THE NEXT MORNING I GOT A CALL FROM THE CHIEF OF THE BUREAU OF SHIPS, AND HE SAID, "CONGRESSMAN TOLLEFSON, THERE IS SOMETHING TO THIS. ONE OF THE YARDS, WE UNDERSTAND, IS NOW PREPARING TO SUBMIT A BID UNDER WHICH THE MIDBODY SECTIONS, AS WE CALL THEM, WILL BE BUILT IN A FOREIGN SHIPYARD."

SO THEY ARE READY TO TAKE ADVANTAGE OF THIS LOOPHOLE AGAIN.

I AM AWARE OF THE FACT THAT THE NAVY, ON SOME OCCASIONS, FOR GOOD REASONS, WISHES TO BUILD SHIPS IN FOREIGN YARDS. THIS THEY DID LAST YEAR IN A SCANDINAVIAN YARD. MY AMENDMENT WOULD NOT PREVENT THAT.

I AM AWARE OF THE FACT THAT EMERGENCY REPAIRS MUST BE MADE IN FOREIGN SHIPYARDS AT TIMES. MY AMENDMENT WOULD NOT PREVENT THAT.

THE ONLY THING MY AMENDMENT WOULD DO IS TO PREVENT THE CONSTRUCTION OF WHAT WE CALL THESE MIDBODY SECTIONS IN FOREIGN SHIPYARDS. THAT IS ALL IT WOULD DO.

I HOPE THAT THE CHAIRMAN OF THE SUBCOMMITTEE WILL NOT MAKE A POINT OF ORDER AGAINST THE AMENDMENT. I BELIEVE HE IS IN ACCORD WITH WHAT I AM TRYING TO DO. I AM TRYING TO PUT THE PROVISION INTO THE LAW SO THAT THE BUREAU OF SHIPS WILL NOT COMMIT THE SAME ERROR IT ALMOST COMMITTED A FEW WEEKS AGO. I MUST SAY THAT THE BUREAU OF SHIPS IS IN ACCORD WITH WHAT I AM TRYING TO DO. THEY HAVE TOLD ME SO. THEY ONLY NEGLECTED TO BEAR IN MIND THE ADMONITION OR THE ASSURANCE OF THE UNDER SECRETARY OF THE NAVY LAST YEAR THAT IT WOULD NOT HAPPEN AGAIN. WHEN THEY PUT OUT INVITATIONS TO BIDS, THEIR SPECIFICATIONS WERE SUCH THAT THE SHIPYARD OPERATOR SAW THE LOOPHOLE. THEY ARE PERFECTLY WILLING, SO THEY TELL ME, TO HAVE THIS KIND OF PROHIBITION IN THE LEGISLATION, SO THAT THE MIDBODY SECTIONS WILL NOT BE BUILT IN FOREIGN YARDS AT THE EXPENSE OF OUR PRIVATE YARDS THAT MIGHT WISH TO BID ON THE WORK.

MR. MAHON. THE GENTLEMAN FROM WASHINGTON (MR. TOLLEFSON), SHOWED ME A PROPOSED AMENDMENT YESTERDAY WHICH I BELIEVE READ AS FOLLOWS:

PROVIDED THAT NOT MORE THAN 10 PERCENT OF THE FUNDS EXPENDED IN THE CONSTRUCTION OR CONVERSION OF ANY NAVAL VESSEL SHALL BE EXPENDED IN FOREIGN COUNTRIES.

THIS PROPOSAL WAS SUBMITTED TO THE NAVY, AND THE IMPRESSION WE GOT FROM OFFICIALS OF THE DEPARTMENT OF THE NAVY WAS THAT THE PROVISION WOULD HAVE NO ADVERSE BUDGETARY EFFECT. IT WOULD HAVE PERMITTED A 10 PERCENT LEEWAY IN FOREIGN PORTS FOR THE CONSTRUCTION OR CONVERSION OF NAVAL VESSELS IN FOREIGN COUNTRIES. THIS NEW AMENDMENT HAS NO REFERENCE TO 10 PERCENT. JUST PROHIBITS THE CONSTRUCTION IN FOREIGN PORTS OF ANY MAJOR COMPONENT OR ANY PART THEREOF OR ANY PORTION OF THE SUPERSTRUCTURE, AS I UNDERSTAND IT. SO I AM NOT SURE WHAT IT MEANS. I CERTAINLY BELIEVE IN THE "BUY AMERICAN" ACT, AND I WANT TO SEE SHIP CONSTRUCTION AND CONVERSION TAKE PLACE IN OUR OWN YARDS RATHER THAN OVERSEAS.

I DO REALIZE THAT AT TIMES OVERSEA CONSTRUCTION IS MANDATORY, PARTICULARLY WHEN A SHIP GETS INTO SERIOUS DIFFICULTY IN FARAWAY WATERS.

MR. TOLLEFSON. MR. CHAIRMAN, WILL THE GENTLEMAN YIELD?

MR. MAHON. I YIELD TO THE GENTLEMAN FROM WASHINGTON.

MR. TOLLEFSON. AT THE TIME I WAS TRYING TO EXPLAIN THE AMENDMENT I NOTICED THE GENTLEMAN FROM TEXAS WAS ENGAGED IN CONVERSATION WITH SOMEBODY AND DID NOT HEAR MY FULL EXPLANATION. THIS AMENDMENT, AS I SAID A MOMENT AGO, WILL NOT PROHIBIT THE NAVY FROM BUILDING SHIPS IN FOREIGN YARDS IF FOR GOOD REASON IT THINKS IT OUGHT TO, AND I AGREE WITH THEM IN SOME CASES THEY SHOULD. THIS WILL NOT PRECLUDE THEM FROM REPAIRING SHIPS ABROAD. ORIGINALLY I LIMITED IT TO 10 PERCENT, BUT I UNDERSTAND IN CONVERSATION WITH PEOPLE ON THIS SIDE THAT THAT AMENDMENT WAS SUBJECT TO A POINT OF ORDER, AND IT WAS FOR THAT REASON I CHANGED THE WORDING. LET ME SAY AGAIN TO THE GENTLEMAN ALL IT DOES IS IT APPLIES ONLY TO THE MIDBODY SECTION. THAT IS ALL. IT HAS NOTHING TO DO WITH REPAIR OF SHIPS ABROAD OR CONSTRUCTION THERE. IT AFFECTS ONLY, AS DOES THE LANGUAGE OF THE MERCHANT MARINE ACT, THE CONSTRUCTION OF WHAT WE CALL MIDBODIES OR MIDSECTIONS IN FOREIGN LANDS AND TOWING THEM ACROSS THE OCEAN AND FINISHING THEM IN OUR YARDS.

* * * * * * * MR. TOLLEFSON. I HAD THOUGHT YESTERDAY THAT THAT AMENDMENT WOULD TAKE CARE OF THE PROBLEM, BUT UPON FURTHER CONSIDERATION, I AM CONVINCED IT WILL NOT, BECAUSE THE 10-PERCENT FIGURE I HAD MENTIONED IN THE ORIGINAL INTENDED AMENDMENT WOULD NOT COVER THE SHIP-BY-SHIP CONTRACTS OF CONSTRUCTION BUT WOULD ONLY APPLY TO THE OVERALL FIGURE. OTHER WORDS, IN MY ORIGINAL AMENDMENT I REFERRED TO 10 PERCENT OF THE TOTAL AMOUNT, OR 10 PERCENT OF $1.9 BILLION. THAT WOULD RESULT IN AN ITEM OF $190 MILLION-PLUS WHICH COULD BE USED ABROAD IN ANY WAY WHATSOEVER. THAT WOULD NOT PREVENT THE CONSTRUCTION OF THESE MIDBODY SECTIONS IN FOREIGN LANDS. ALL I AM TRYING TO GET AT IS THE MIDSECTION PRACTICE WHICH HAS BEEN FOLLOWED IN THE LAST SEVERAL YEARS.

MR. FORD. MR. CHAIRMAN, I MOVE TO STRIKE OUT THE REQUISITE NUMBER OF WORDS.

MR. CHAIRMAN, LET ME ASK THE GENTLEMEN FROM WASHINGTON IF HE WOULD AGREE TO AN AMENDMENT TO THE AMENDMENT TO PROVIDE THE 10-PERCENT LIMITATION THAT HE ORIGINALLY PROPOSED ON YESTERDAY.

MR. TOLLEFSON. IF IT COULD BE PROPERLY WORDED SO THAT THE 10-PERCENT LIMITATION WOULD BE APPLIED SHIP BY SHIP, THAT WOULD BE ACCEPTABLE. BUT IN A SHORT TIME I WOULD NOT BE ABLE TO DRAFT LANGUAGE ACCORDINGLY AND THAT IS WHY I OFFERED THE AMENDMENT THAT I DID OFFER.

MR. MAHON. MR. CHAIRMAN, THIS MATTER WAS DISCUSSED EARLIER IN THE AFTERNOON. WE HAVE HAD AN OPPORTUNITY TO CONFER BRIEFLY WITH OFFICIALS OF THE NAVY ABOUT IT. WE ARE CONVINCED THAT THE AMENDMENT IS APPROPRIATE. HAVE NO OBJECTION TO IT, AND I DO NOT BELIEVE ANYONE ON THIS SIDE HAS.

MR. TOLLEFSON. MAY I ASK THE GENTLEMAN FROM MICHIGAN IF THE AMENDMENT IS ACCEPTABLE TO THIS SIDE?

MR. FORD. MR. CHAIRMAN, I CONCUR IN THE OBSERVATIONS OF THE GENTLEMAN FROM TEXAS (MR. MAHON) ON THIS AMENDMENT.

ALSO, THE SENATE HEARINGS ON THE DEPARTMENT OF DEFENSE APPROPRIATION ACT, 1965, DISCLOSE THAT MR. CYRUS VANCE, THE THEN DEPUTY SECRETARY OF DEFENSE, TESTIFIED DURING THE HEARINGS AS FOLLOWS CONCERNING THE TOLLEFSON AMENDMENT (PAGES 779, 780, PART 2 OF SENATE HEARINGS):

MR. VANCE. ONE FINAL MATTER: A NEW PROVISION WAS ADDED TO THE "SHIPBUILDING AND CONVERSION, NAVY" APPROPRIATION BY AMENDMENT ON THE FLOOR OF THE HOUSE. THIS PROVISION READS AS FOLLOWS:

"THAT NONE OF THE FUNDS HEREIN PROVIDED FOR THE CONSTRUCTION OR CONVERSION OF ANY NAVAL VESSEL TO BE CONSTRUCTED IN SHIPYARDS IN THE UNITED STATES SHALL BE EXPENDED IN FOREIGN SHIPYARDS FOR THE CONSTRUCTION OF MAJOR COMPONENTS OF THE HULL OR SUPERSTRUCTURE OF SUCH VESSEL."

IT IS OUR UNDERSTANDING, FROM A READING OF THE HOUSE DEBATES ON THE DEFENSE APPROPRIATION BILL, THAT THE INTENTION OF THE HOUSE, WITH REGARD TO THIS PROVISION, IS SOLELY TO PRECLUDE THE SUBCONTRACTING TO A FOREIGN SHIPYARD OF AN ENTIRE "MIDBODY SECTION" OF A NAVAL VESSEL AWARDED ON A PRIME CONTRACT TO A U.S. SHIPYARD. CONGRESSMAN TOLLEFSON, THE AUTHOR OF THE AMENDMENT, STATED VERY CLEARLY---

"THE ONLY THING MY AMENDMENT WOULD DO IS PREVENT THE CONSTRUCTION OF WHAT WE CALL THESE MIDBODY SECTIONS IN FOREIGN SHIPYARDS. THAT IS ALL IT WOULD DO."

ON THE BASIS OF THIS UNDERSTANDING, CHAIRMAN MAHON AND CONGRESSMAN FORD AGREED TO THE AMENDMENT. AND, ON THE SAME BASIS, WE HAVE NO OBJECTION TO THE PROVISION.

IT IS CLEAR FROM THE ABOVE-QUOTED LEGISLATIVE HISTORY OF THE TOLLEFSON AMENDMENT THAT IT WAS INTENDED TO AFFECT ONLY THE CONSTRUCTION OF A SUBSTANTIAL PART OF A VESSEL IN A FOREIGN SHIPYARD AND TRANSPORTING SUCH PART TO THE UNITED STATES FOR INCORPORATION INTO A VESSEL BEING CONSTRUCTED IN A SHIPYARD HERE. NOTE FOR EXAMPLE MR. TOLLEFSON'S REPEATED REFERENCES TO "MIDBODY" AND "MIDSECTION," AS WELL AS HIS REFERENCE TO THE BUILDING OF "THE ENTIRE HULL OF THE VESSEL, LEAVING OFF ONLY THE BOW AND STERN, IN A FOREIGN SHIPYARD * * *." IT IS ALSO CLEAR FROM THE SAME LEGISLATIVE HISTORY THAT MR. TOLLEFSON WOULD HAVE ACCEPTED AN AMENDMENT WHICH WOULD HAVE PERMITTED SHIP CONSTRUCTION WORK IN FOREIGN SHIPYARDS IN AN AMOUNT NOT TO EXCEED 10 PERCENT OF THE CONSTRUCTION COST OF THE VESSEL INVOLVED; BUT THAT HE FELT HE DID NOT HAVE SUFFICIENT TIME TO DRAFT LANGUAGE SO PROVIDING.

IT IS DIFFICULT TO DRAW A CLEAR LINE AS TO WHAT DOES OR WHAT DOES NOT CONSTITUTE MAJOR COMPONENTS OF THE HULL OR SUPERSTRUCTURE OF A VESSEL, OR CONSTRUCTION THEREOF. WITHOUT ATTEMPTING TO DEFINE PRECISELY THE FULL EXTENT OF THE APPLICATION OF THE TOLLEFSON PROVISO, WE DO NOT BELIEVE IT REASONABLY CAN BE APPLIED IN THIS CASE WHERE THE WORK IS SUBSTANTIALLY LESS THAN 10 PERCENT OF THE OVERALL CONSTRUCTION COST OF EACH VESSEL AND WHERE THE WORK ITSELF IS SIGNIFICANTLY LESS THAN COMPLETE CONSTRUCTION OF THE COMPONENT INVOLVED.

IN THE INSTANT CASE, THE THREE STEEL PLATES FOR THE HULL CYLINDER WOULD BE PREROLLED AND THE FRAMES THEREFOR PREFORMED IN THE UNITED STATES BY THE PRIME CONTRACTOR (INGALLS) OR ONE OF HIS SUBCONTRACTORS AND SHIPPED TO VICKERS IN CANADA BY RAIL. VICKERS WOULD ASSEMBLE AND WELD TOGETHER THE THREE PRESHAPED STEEL PLATES AND FRAMES INTO A CYLINDER AFTER WHICH THE COMPLETED CYLINDER WOULD BE SHIPPED BACK TO INGALLS BY FREIGHTER, AND INGALLS WOULD JOIN THE CYLINDERS TOGETHER TO FORM A PORTION OF THE HULL. THUS VICKERS WOULD PERFORM ONLY THE WELDING AND ASSEMBLY OPERATIONS IN CONNECTION WITH THE CONSTRUCTION OF THE CYLINDERS.

WE ARE ADVISED THAT THE WORK TO BE DONE ON A CYLINDER BY VICKERS WOULD CONSTITUTE BUT 39 PERCENT OF THE TOTAL VALUE OF THE CYLINDER, BEFORE THE CYLINDER IS MADE PART OF THE HULL. ALSO, WE HAVE BEEN INFORMALLY ADVISED BY THE DEPARTMENT OF THE NAVY THAT THE WORK TO BE PERFORMED BY VICKERS ON EACH OF THE THREE SUBMARINES INVOLVED WOULD BE SUBSTANTIALLY LESS THAN 10 PERCENT OF THE TOTAL CONSTRUCTION COST OF THE PARTICULAR SUBMARINE. OTHER WORDS ON A SHIP-BY-SHIP BASIS THE COST OF THE WELDING AND ASSEMBLY WORK TO BE PERFORMED BY VICKERS WOULD BE LESS THAN 10 PERCENT OF THE TOTAL CONSTRUCTION COST OF THE SHIP INVOLVED.

INASMUCH AS THE ONLY WORK TO BE PERFORMED BY VICKERS ON THE CYLINDERS FOR THE SUBMARINE IS THE WELDING AND ASSEMBLY WORK, AND SINCE THE COST OF SUCH WORK UNDER THE PROPOSED SUBCONTRACT WOULD BE SUBSTANTIALLY LESS THAN 10 PERCENT OF THE TOTAL CONSTRUCTION COST OF EACH VESSEL, WE DO NOT BELIEVE THAT SUCH WORK WOULD CONSTITUTE "CONSTRUCTION OF MAJOR COMPONENTS OF THE HULL" OF THE VESSELS INVOLVED WITHIN THE INTENT OF THE TOLLEFSON AMENDMENT, AS DISCLOSED BY ITS LEGISLATIVE HISTORY.

IN REACHING THE ABOVE CONCLUSION, WE HAVE NOT OVERLOOKED SOMEWHAT SIMILAR LANGUAGE CONTAINED IN THE SECOND PROVISO OF SECTION 27 OF THE MERCHANT MARINE ACT OF 1920, AS AMENDED, 46 U.S.C. 883 (SEE ALSO 46 U.S.C. 883A). HOWEVER, WHATEVER CONSTRUCTION MAY BE PLACED ON THE LANGUAGE USED IN THE MERCHANT MARINE ACT PROVISO WOULD NOT NECESSARILY BE CONTROLLING IN CONSTRUING THE APPROPRIATION PROVISO INVOLVED HERE. FIRST, WHILE BOTH PROVISIONS OF LAW (I.E; THE SECTION 27 PROVISO AND THE APPROPRIATION PROVISO) REFER TO THE "CONSTRUCTION OF ANY MAJOR COMPONENTS OF THE HULL OR SUPERSTRUCTURE," SECTION 27 REFERS TO "THE ENTIRE REBUILDING, INCLUDING THE CONSTRUCTION OF ANY MAJOR COMPONENTS OF THE HULL OR SUPERSTRUCTURE." THE APPROPRIATION PROVISO MAKES NO REFERENCE TO THE "ENTIRE" CONSTRUCTION OR CONVERSION OF A VESSEL. SECOND, THE LEGISLATIVE HISTORY OF THE SECTION 27 PROVISO DISCLOSES AN INTENT TO EXPAND THE INTERPRETATION OF THE LANGUAGE "MAJOR COMPONENTS OF THE HULL OR SUPERSTRUCTURE" TO INCLUDE, IN ADDITION TO MIDBODIES, "ANY COMPONENT WHICH RELATES TO, OR CHANGES, THE CONFIGURATION OF A VESSEL," (SEE PAGE 3, S. REPT. NO. 1279, 86TH CONG; 2D SESS.), WHILE NO SUCH SPECIFIC INTENT IS DISCLOSED BY THE LEGISLATIVE HISTORY OF THE TOLLEFSON AMENDMENT. THIRD, AS INDICATED ABOVE, THE LEGISLATIVE HISTORY OF THE TOLLEFSON AMENDMENT SHOWS QUITE CLEARLY THAT THE AMENDMENT IS POINTED AT COMPLETE CONSTRUCTION OF MID-BODIES ABROAD BUT IT MAY ALSO BE REASONABLY IMPLIED FROM SUCH LEGISLATIVE HISTORY THAT THE AMENDMENT WAS NOT NECESSARILY INTENDED TO APPLY TO MINOR CONSTRUCTION ON HULL COMPONENTS WHERE THE COST OF SUCH MINOR CONSTRUCTION IS LESS THAN 10 PERCENT OF THE TOTAL CONSTRUCTION COST OF THE VESSEL INVOLVED.

INSOFAR AS THE BYRNES AMENDMENT IS CONCERNED (THE SECOND OF THE PROVISOS QUOTED ABOVE), IT PROHIBITS USING ANY OF THE FUNDS IN THE APPROPRIATION FOR "SHIPBUILDING AND CONVERSION, NAVY" FOR THE CONSTRUCTION OF ANY NAVAL VESSEL IN FOREIGN SHIPYARDS. IN OUR OPINION THE WELDING AND ASSEMBLY OF THE INDIVIDUAL HULL CYLINDERS ALONE IN THE MANNER DESCRIBED IN THE LETTER OF APRIL 4, 1969, WOULD NOT CONSTITUTE THE CONSTRUCTION OF A NAVAL VESSEL, SINCE THE CYLINDERS THEMSELVES ARE NOT VESSELS NOR CAN THE CYLINDERS ALONE BE USED AS SUCH. HENCE, THE BYRNES AMENDMENT WOULD NOT PROHIBIT THE PROPOSED SUBCONTRACT.

INSOFAR AS CLAUSE 66 OF THE PRIME CONTRACT IS CONCERNED, IT APPEARS FROM THE LANGUAGE OF THE CLAUSE THAT IT IS BASED PRIMARILY ON THE TOLLEFSON AMENDMENT AND THAT ITS INTENDED PURPOSE IS TO PROHIBIT WHATEVER THE AMENDMENT MAY BE CONSIDERED TO PROHIBIT. THEREFORE, IN OUR OPINION CLAUSE 66 WOULD NOT PROHIBIT THE PROPOSED SUBCONTRACT, IF THE PROPOSED SUBCONTRACT IS NOT IN CONTRAVENTION OF THE TOLLEFSON AMENDMENT. HENCE, IN VIEW OF WHAT IS STATED ABOVE CONCERNING THE TOLLEFSON AMENDMENT, THE PROPOSED SUBCONTRACT WOULD NOT BE IN CONTRAVENTION OF CLAUSE 66.

IN LIGHT OF THE FOREGOING, IT IS OUR VIEW THAT THE NAVY MAY PROPERLY CONSENT TO THE SUBCONTRACTING OF FOUR HULL CYLINDERS FOR SSN) 680 (IN ADDITION TO THE NINE ALREADY APPROVED FOR THAT VESSEL) AND NINE HULL CYLINDERS EACH FOR THE SSN) 682 AND THE SSN) 683.