The General Services Administration has been entering into contracts to sell surplus minerals and chemicals to selected companies at less than half the going market prices, resulting in potential losses to taxpayers of more than $100 million, GSA auditors have found.
The auditors, in a draft report completed last month, said GSA planned to sell 80 million pounds of stockpiled lithium hydroxide, a chemical compound used in lubricants, at rates as low as a third of going market prices, to two companies.
Competitive bids were not obtained from other companies, said the auditors, and the loss to the taxpayers would amount to $45 million.
Last year, GSA auditors reported that GSA, which also provides office space and supplies to government workers, had signed contracts to sell bauxite, titanium sponge and metallurgical manganese ore at $105 million when the minerals and chemical compounds were worth $235 million.
The auditors said GSA largely ignored last year's report. Ron Royal, the GSA official in charge of the sales, said he is delaying signing the lithium hydroxide contracts until the auditor's objections have been studied.
Royal said that, using a GSA formula for determining costs, it may be cheaper to sell the lithium hydroxide at prices below market value now, rather than selling smaller quantities at market prices over a period of as many as 80 years. That way, he said, the government would have use of the money immediately, reducing charges on its borrowing.
The auditors reported that GSA, in arriving at that formula, failed to consider that the chemicals and minerals have recently increased in value each year. The auditors also said that the sales formula adopted by GSA was based on projections supplied by the two companies purchasing the lithium hydroxide.
The chemicals and minerals are considered surplus either because various government agencies have no more need for them and turn them over to GSA for disposal, or because GSA has decided they are no longer needed as part of the government's stockpile of strategic commodities to be used in time of war.
The findings on surplus sales represent the latest disclosure of difficulties at GSA, which spends about $4 billion a year to buy everything from office buildings to paper clips for government use.
Prosecutors in Washington and Baltimore have been finding that some GSA employes have been claiming that companies did maintenance work in federal buildings or provided office supplies to GSA when they did not. In return, sources familiar with the investigations say, GSA employes have received cash and other gifts from the companies involved.
Quoting a draft of a GSA audit report, a recent Washington Post story said that when GSA found last year that its budget for the fiscal year had not been spent, it instructed employes who maintain buildings to go on a "crash" program of spending money. The result, the auditors said, was that workers were paid at overtime rates to clean buildings, contracts that were awarded did not exactly specify what was to be done or at what price, and the agency violated the law by spending above congressional budget limitations.
GSA practices will be probed in two days of hearings beginning today by the Senate Governmental Affairs' federal spending subcommittee, headed by Sen. Lawton Chiles (D-Fla.)
GSA programs for buying stockpile commodities and disposing of surplus materials, currently under GSA's Federal Preparedness Agency, were the subject of a 1962 Senate investigation that charged the program, during the Elsenhower administration, was riddled with political favoritism, unreasonable profits and conflicts of interest. For instance, testimony and reports from the General Accounting Office revealed that chrome had been purchased at more than double the world market prices and that GSA sometimes sold materials that the government needed or bought and sold the same commodity at the same time.
Although the government began to acquire some stockpiles of strategic materials in the 1920s, the current program formally began in 1946 after World War II shortages of rubber and other essential commodities convinced Congress that the nation needed a store of materials that were not readily available in this country.
Over the years, the assumptions governing the types of materials and amounts that should be stockpiled have been changed by various administrations. In 1973, for example, President Nixon decided that only enough should be on land material to last during a one-year war.
Since the previous stockpile guideline had been three years, the decision required gradual selling of many commodities.President Ford reversed the decision in 1976, and the guideline returned to three years.
Because of the size of the stockpiles, decisions to buy or sell a particular commodity produce gyrations in market prices and affect many other interests. These include members of Congress representing states that produce particular minerals, companies that buy the commodities and foreign countries whose economies may depend on exports of certain materials.
Under pressure from the copper industry and western political leaders, for example, President Carter in March reversed himself and supported a plan to have the government purchase a quarter of a billion dollars worth of copper for the stockpile. The massive purchase is expected to partially reduce the world copper surplus, which has put copper prices in a downward slide since 1974 and cut into domestic producers' profits.
Currently, the entire stockpile is valued at $8.6 billion and consists of 93 materials ranging from industrial diamonds and silver to shellac and feathers. The materials are stored at 117 sites.
Over the past year, GSA sold $67.3 million in surplus materials, most of it from the stockpille. While many of the sales are conducted by obtaining competitive bids, the GSA had negotiated to sell the compound to two companies.
These firms were Foote Mineral Co. of Exton, Pa., a subsidiary of Newmont Mining Corp., and Lithium Corp. of America of Gastonia, N.C., a subsidiary of Gulf Resources & Chemical Corp.
GSA had acquired the surplus compound from the Atomic Energy Commission. The compound had been left as residue when the AEC processed lithium, a white metal, to obtain an isotope for use in hydrogren bombs.
The auditors said one of the firms suggested that GSA could could save money be substantially reducing the price of the compound, since market prices for the material would not rise substantially over the years. Accordingly, GSA was told, it could realize savings by investing the money it obtained after quickly selling the hydroxide.
In subsequent years, GSA several times offered price reductions using this rationale the auditors said. In addition, they said, GSA agreed to sell the material at reduced rates if the companies said they were going to use it for one purpose or another.
Contrary to the predictions GSA had accepted, the auditors said, the market price of lithium hydroxide later rose as much as 38 percent in one year. At the same time that GSA was negotiating to sell the compound to the producers last year at 35 cents to 46 cents per pound, the auditors said, GSA was selling the same material on the open market at $1.10 a pound.
Gerald J. Orazen, a vice president of Lithium Corp., said GSA's surplus lithium hydroxide should be sold at lower-than-market prices because it had formed clumps during storage and requires further treatment before it is used. He said the GSA auditors "refuse to talk to us."
E. Philip Comer, a vice president of the chemicals division of Foote, said he was the official who suggested to GSA that it could save money be reducing its prices.
When GSA appeared last year to have decided to sell the lithium hydroxide only on the open market with competitive bids, he said, he complained to Peter M. Mollica, a powerful aide to GSA's deputy administrator, Robert T. Griffin. He said Mollica promised he would look into the matter and allow Foote "its day in court."
Mollica said yesterday he issued instructions to delay an open sale of the material, but when he heard about the auditors' findings, he said the contracts with the two firms should be delayed.
Richard Q. Vawter, GSA's public information director,said Griffin ordered the contracts delayed until GSA could determine if government agencies might need lithium hydroxide in the future, another finding of the auditors.
Royal, the GSA official in charge of the lithium hydroxide sales, said he wanted to compare the auditors' figures on potential losses with those of his own staff. Because GSA does not want to disrupt markets for commodities, he said, it could not sell large amounts of lithium hydroxide in a short period of time without selling at a reduced rate.
Drawing an analogy with silver, a better-known commodity, Royal said, "I would say if it will take 100 years to sell silver (without disrupting the market), it might be that I should sell it at 50 cents an ounce and I'll get it off my hands rather than (at the market price of) $4.50 an ounce."