PAGENO="0001" ( SUBCOMMITTEE EIGJjp1 o~ T~i~j f the 74109 PAGENO="0002" Qmc~zQ NSON~ Georgia LESLIE C. 4itENDS~ fllinois ~TO1iN J ~OURPN~t, ~p~ci~Z Vó~n~ei WILLIAM H. SANDWEO, As8istant ,~pecia~ Cotøi8ei SUBCOMMITTEE FO~ ~PECTAL INVESTIGATIONS J~'. EDWARD HEBERT, Louisiana, ClwAriaan PORTER HARDT, 3L, Virginia LEON I~. 4~AVIl~, Pennsylvania £ PAUL KITCHIN, North Carolina WALTER NORBLAD, Oregon PAGENO="0003" OONTENT.S Statements (presented): Pag, Hébert, Hon. F. Edward, chairman BeLieu, Hon. Kenneth E., Assistant Secretary of the Navy (Installa- tions and Logistics) 4$ Bunker, Maj. Gen. William B., Commanding General, Transportation Materiel Command 18 Hill, Col. James E., Chief, Contract Services and Management Branch, t~irectorate of Manpower and Organization, Deputy Chief of Staff, Operations 234 Ignatius, Hon. Paul H., Assistant Secretary of the Army (Ir~stal1ation and Logistics) 2 Imirie, Hon. Joseph S., Assistant Secretary of the Air Force (Materiel) 231 Reimondy, Col. Augustus, Headquarters, AFLC, Chief, Plans and Production Division, Directorate of Maintenance Engineering - 149 Statements (submitted for the record): American Federation of Government Employees Appendix Consulting Engineers Council 324 National Education Association 340 National Society of Professional Engineers 323 Witnesses: Navy 47-148 Beardsley, Vice Adm. George F., Chief of Naval Material. BeLieu, Hon. Kenneth E., Assistant Secretary (Installations and Logistics). Harrington, Capt. Paul, Assistant Chief, P&QC, BuWeps. Lincoln, Lionel 0., ONR. Moore, Rear Adm. Robert, Deputy Assistant Chief, BuShips. Rigby, Dr. F. D., Director, MSD, ONR. Ruble, Capt. Harold E., ONR. Silverman, Dr. Shirley, Director of Research, ONR. Alexander, Robert G., Corps of Engineers. Beam, Maj. W. M., Signal Corps. Bigelow, Maj. Gen. H. F., OCO. Bunker, Maj. Gen. William B., Commanding General TMC. Covington, Robert E., Signal Corps. Dennison, Lt. Col. R. F., ODCSLOG. Dunne, Lieutenant Colonel, Office of Surgeon General. Ely, Maj. Gen. William J., OCRD. Goidwag, Herbert, Signal Corps. Holman, Lt. Col. Jefferson T., ODOSLOG. Ignatius, Hon. Paul R., Assistant Secretary of the I stallations and Logistics). Johnston, Col. Wilson, Signal Corps. Miller, Maj. George, ODCSO. Mullins, H. H., Corps of Engineers. New, William J., Corps of Engineers. Ponce, Col. Harvey, SC. Steiglitz, Signal Corps. Swofford, J., Signal Corps. Trudeau, Lt. Gen. Arthur G., Chief, R. ~ Vance, James, Signal Corps. Wilson, Stewart, OCO. PAGENO="0004" Iv CONTENTS PAGENO="0005" PAGENO="0006" CONTRACTING-OUT PROCEDURES .Mr.C atius, r BIOGRAPEY OF HON. I çraphical i of Mr. ARMY m comprehensive in connection with the Departme Mr. Ignatius ha~ lectured at the Army War (J the Armed Forces, and the Foreign Service I He has courses in defense industry procurement for the dty of California and Fordham University. From time to time he has ~ ~ articles on ~manage~ nient and logistics subjects. Mr. Ignatius was appointed Assistant Secretary of the Army (Installations ami Logistics) on May 22, 1961. In this capacity, his responsibilities include: pro- cnrernent and production including procurement policy; logistical single manager activities and material management including storage, distribution, maintenance, and disposition; communications, medical, transportation, and other service ac- tivities of the technical services; materiel and materials requirements and in- dustrial mobilization; military assistance program (exclusive of financial man- agement) ; industrial labor relations; military construction; command, industrial and civil real property; management and engineering at industrial facilities and logistical installations; physical security of industrial facilities; Alaska Com- munication System; and housing and public quarters. In 1947 Mr. Ignatius married Nancy Sharpless Weiser of Holyoke, Mass. They have four children: David, 11; Sarah, 9; Amy, 7; and Alan, 2. Mr. IGNATIUS. Thank you Mr. Courtney. ~, and members of the committee, we appreciate the ~ the committee the Army's policy for f considerable interest ~ered in many of avers an extremely 2 Secre- PAGENO="0007" CONTRACTING-OUT PROCEDURES 3 wide spectrum of activities, I will restrict my comments to major areas of interest. Basically we contract out for any of three general reasons either it is required by a directive, it results from an internal improvement plan or change of mission, or it arises from a lack of inhouse capac ity-due either to lack of a facility, or lack of people of appropriate skill. On the other side, some of what we do inhouse results from a lack of commercial capacity In 1953, the Office of the Secretary of Defense first published Di- rective 4100 15 which stated that the policy of the administration was to use Government-owned and operated commercial and industrial type facilities only where it could be clearly demonstrated that private enterprise could not perform the service or provide the product neces sary to meet current and mobilization requirements, or that operation by the Government was necessary in the execution of the military mission. Under the impetus of this directive, Department of Defense began the survey of certain specified categories of activities in 1954. In 1955, Bureau of the Budget published Bulletin 55-4 (revised in 1957 as BOB Bulletin 57-7), prescribing an administration policy similar to that already in effect in the Department of Defense. Under these directives, the Army surveyed 650 commercial indus trial-type activities and, as a result, closed and curtailed over 150 of them, An example of the categories surveyed in the initial survey and one rather clear-cut result of `this program concerns Army bread bakeries. Early in the program, the Office of the Secretary of Defense desig- nated military bread bakeries as a "commercial-industrial-type ac- tivity" subject to the policy requirements of the Bureau of the Budget bulletins. Extensive studies were made of the 31 Army bak the continental United States in 1955 The elements con the `4 military I essential r PAGENO="0008" 4 CONTRACTING-OUT PROCEDURES Only 13 bakeries now are operated at continental U.S. Army instal- lations, due to changed requirements. These bakeries meet the criteria for continued operation and are the minimum nurither neces- sary for training and the specialist rotation support program. More recently, in 1959, BOB Bulletin 60-2 was published as a i evision and expansion of the two preceding bulletins Under this expanded program, Department of the Army reviewed and evaluated an additional 1,284 activities. Of the activities evaluated, all were approved for continuance at the previous level except six approved for discontinuance and nine for curtailment. Even these decisions were not a direct result of the Bureau of the Budget bull~this,' but rather a result of separate Army actions in the management:of its operations. I think it might be well to point out that BOB Bulletin 6~3 ~ well as previous policy issues related to commercial-industrial activi- ties, did not require that decisions as to the discontinuance or curtail- ment of Army facilities be based on cost alone. Of far more importance and value to the Army were the provisions that decisions might be based on: (a) National defense requirements, such as the training of military personnel to insure combat readiness, and (b) Infeasibility of procurement from commercial sources be- cause of the clear relationship of the activities to the basic missions of the Army or the administrative impracticability of contracting out. Practically all of the decisions made by the Army in the latest survey of commercial-industrial activities were based on one or the of these twO criteria. 1960, the Office of the Secretary of Defense published DOD 4151.1 which applied the reasoning of the Bureau of the Letins to the r"~ 1 maintenance area. It, in fact, posed uiremei I 1 1 ~L1 than the PAGENO="0009" CONTRACTING-OUT PROCEDURES 5 and mobilization requirements, located where required to fulfill apparent missions, present or future. Though easy to state in simple terms, this is a tremendously com- plex problem. The result of the plan to date has been a phased pro- gram for deactivation, reduction or consolidation of depot activities throughout the continental United States. The plan is, of course, con- stantly under study and the results in each fiscal year are dependent upon the progress of the plan at that time. * It is apparent that such a plan as this, though not directed by any- one outside the Army, has an immediate, but not specifically deter- minable impact on personnel, yet it is mandatory if we are to apply our resources to the best possible advantage. In production-type military overhaul, we supplement our inbouse capability by contract facilities, and have since 1948. One factor considered in contracting out overhaul is the inability of the Army to perform the service because of a lack of facilities or a shortage of required skills. Weaponry changes are so rapid that often we find it uneconomical to invest the time and funds in training or facilities necessary for maintenance even though the weaponry is combat related. There are, in fact, decided advantages to contracting in some areas. As a general rule, contractors are used for overhaul when- (a) Workloads in ~ equipment ex- spot maintenance activities. ~t of nonmission-essential al equipment is introduced maintenance capability has ately 14 percent, or $22 mu- ~nce overhaul program. was year 1960. Of this amount ~e; the remainder was spent marine, and rail equipment, )unt of electronic equipment t in fiscal year 1961. I will rail equipment maintenance ~uipment in these categories .ing a source of contractual uipment have enhanced our ~ie past 13 years, contractual over 250 firms, any one of nder emergency conditions. ~ntractors are presently en- equipment, supplementing 1. ci by contract facilities with ~tained at Charleston, S.C. ~rily as a mobilization base ~essential equipment in the rkload. Since commercial iore economical to contract PAGENO="0010" 6 CONTRACTING-OTJP PE0C~IiDtJRES marine repairs in the general locale of operations rather than to es- tablish inhouse capabilities. Depot maintenance of rail equipment also is accomplished by both contract and inhouse facilities. The one maintenance facility re- tained inhouse is at Ogden, Utah. It, as a primary mission, performs depot maintenance on locomotives and locomotive cranes in the west- ern area, maintenance of this equipment in the East, where we have a reduced workload, is accomplished by contract. Commercial repair facilities for rolling stock-i.e., boxcars, tankers, etcetera-are readily available throughout the country and,. with minor exceptions, this. maintenance is accomplished by contract. As you can see, we do not compromise on our efforts to have an inhouse capability for depot maintenance of mission-essential equip- ment. Another example of this is in the field of aircraft maintenance which represented the majority of the contract maintenance' in fiscal year 1960. The Army started work at the aircraft depot maintenance facility at Corpus Christi, beginning July 1 of this year, picking up an inhouse capability which we have not had previously. We have prepared a separate presentation on aircraft maintenance which will be given, with your permission, Mr. Chairman, after my discussion. What is the result of contracting ~ In personnel, although there is no way of identifying what specifically is reflected in these statistics,. civilian employment in the Army decreased from 429,217 on June 30, 1957, to 390,046 on June 30, 1~60. A significant portion of this reduc- tion resulted from lower workloads and congressional and Presidential limitations on personnel spaces. To a much larger degree, the reduc~~ tion has resulted from work and management improvements made by the Army by continuation of its own policies. It is doubtful that contracting out per se had any very great effect on civilian personnel employment. In regard to comparative cost, we find it difficult to discuss compar- isons between inhouse and contracting out. A comparison of out-of- pocket cost with a contract price is clear cut. The difficulty arises when elements of depreciation, interest, and taxes on funds previously spent for capital assets have to be taken into consideration. On a case-by-case basis, valid comparisons can be made, but these cannot be gathered together into overall statistics which compare cost in broad areas. Contracting out is a closely reviewed area, but the Army's method of management does not provide comprehensive data at our level related to personnel, specific funds, or to a specific fiscal year. Under our system, which we believe gives the maximum management at the minimum cost, available resources are distributed to subordinate com- manders who also receive missions, priorities, and policies to insure that these resources are applied effectively toward meeting the overall Army requirement. A commander, under this system, often can and does make the decision to go to contract. Before he does, however, he must weigh the decision against his mission, attempt to adjust available personnel, or try to obtain relief from the workload. He must measure the adverse impact upon the existing work force, decide the advantage to the Government, and consider the policies and criteria from higher authority under which the decision must be made. PAGENO="0011" 7 CONTRACTING-OUT PROCEDURES Has contracting out affected our combat potential, not only now but in the future ~ I can find no specific instance of loss in our combat readiness position caused by contracting out. If we had unlimited resources, we would try to keep our inhouse capabilities at a higher level. This, I believe, would enhance our combat capability. However, within limited resources, we believe that we have the proper balance for our present situation. Our decisions to date as to what we will do inhouse and what must be done by contract, whether as a result of external directives or internal improvement, have rep- resented our very best judgment and experience. As the missions and resources change, we must constantly go through the process of deter- mining the best mix. This we will do. (The annexes attached to the statement are as follows:) fiontract$ for depot nu~intesuince, flsoaZ year 1960-Mi$siles Contractor Location Service contract for overhaul of components and assemblies for- Gross amount of contract Western Electric Co Airesoarch Manufacturing Co Firestone Tire & Rubber Co Gilfihlian Bros., Inc Raytheon Manufacturing Co Martin Co Greensboro, N.O Los Angeles, Calif do do Andover, Mass Orlando, Calif Nike-Ajax Nike-Hercules Corporal - do Hawk Lacrosse $267, 000 26,000 86,000 4, 000 63,000 49,000 Contraot$ for depot maintenance, flscai year 19a0-Enqineer construotion~ equipment Contractor ~ Location Service contracted for overhaul of- Amount of contract 3. C. George Service Corp Syracuse, N.Y Gibson Motor & Machine Service Lawrence, Mass Graves Equipment Rowe Bros 3 & P Implement Co Vincent S. lerry & Sons, Inc Northeast Motor Rebuilders, Inc II. 0. Penn Machine Co Portsmouth Truck & Tractor Co. Conneil Motor Truck Co Northampton, Mass - Center Brunswick, N.Y. Central Bridge, N.Y... Plattsburgh, N.Y Central Bridge, N.Y~. Newington, Conn Portsmouth, N.H Stockton, Calif Snowplows Snowplows,tractors,sweepers, and trucks. Graders Trailers, snowplows, and trucks. Engines and components, snowplows, and crailes. Tractors Engines - - - Tractors Trucks Generators, tractors, sweepers, and trucks. Tractors Compressors, generators, trac- tors, and sweepers. Shepherd Machine Co Border Machine Co.: Electrical Division Industrial Division East Los Angeles, Calif. El Paso, Texas General Machine Co Spokane, Wash Stratford, Coon Tractors, compressors, and cranes. Snowplows, tractors, graders, sweepers, and trucks. Main gear box $65, 020.46 143,444.37 5, 151.57 101, 621. 19 85,703.73 10, 197.39 36,563.47 40,912.02 13,042.49 99,481.36 43,372.12 204,319.24 236,250. 91 131, 196.55 184,980.82 427,673.78 33, 612. 78 4,382.42 10,065. 51 96,966.76 8,090. 21 16,949.00 209, 750.00 111,507.86 25,646.08 15,295.70 21,171.80 9,008.24 26,123.84 United Aircraft, Sikorsky Divis- sion. Delco Products Division, General Motors Corp. Central Air Repair Instrument Associates Acro Precision, Industries, Inc..~. Carson Machine & Supply Co~ United Aircraft Sikorsky Division. Vertol Aircraft Corp Nasco Service Corp Central Air Repair Aeronautical Instrument Labora- tories, Inc. Big State Industries, Inc - Damper assembly Burbank, Calif Great Neck, N.Y Oklahoma City, Okla Stratford, Conn ----- - Morton, Pa Miami, Fla Burbank, Calif Middletown, Pa Mineral Welli, Tex - - Pump fuel boost emergency.... Gage fuel indicator Blade assembly propeiler~....... Cooler assembly Clutch assembly Central transmission Starter assembly Generator, multiple Instruments Tail rotor blade..... Main rotor blades PAGENO="0012" 8 CONTRACTING-OUT PROCEDURES ~Jontraets for ~Zepot maintenance, fi$cal year 1960-Engineer construction equipment-Continued Contractor Location Service contracted for overhaul of- Amount of contract Central Air Repair Flight Enterprise, Inc Aeronautical Instrument Labora- tory, Inc. SMS Instruments Co Canadian Commercial Corp Burbank, Calif Hartford, Conn Middletown, Pa Jamaica, N.Y Montreal, Quebec, Canada. Pump assembly Scamp and crash damage H-21. Altimeter and indicator repair Indicators, multi-type Engine repair $31, 793.24 32, 000.~00 16, 9l0~00 62,053.00 284,540.00 Action Manufacturing Corp - Crown Lee Corp Airepair of Stockton, Inc Central Air Repair, Inc DeHavilland Aircraft of Canada- Bell Helicopter Corp Aerodex, Inc Canadian Pratt & Whitney Philadelphia, Pa San Bernardino, CaliL Stockton, Calif Burbank, Calif Ontario, Canada Fort Worth, Tex Miami, Fla Montreal, Quebec, Canada. Hydro boost cylinder Cooling fan Crash damage Shimmy damper Crash damage VIA Gear box tail Engine repair do 10,650.00 10,600.00 30,650.00 8,165.00 25,000.00 28,875.00 703.187. 00 180,245.00 Aeronautical Instrument Labo- ratory, Inc. Haag Tractor Co C. 0. Johnson Middletown, Pa El Paso, Tex Denver, Cob Transmitter Tractors Trucks, snowplows, graders, and cranes. 24,915.00 70,276. 76 121,218.85 Gregory Poole Equipment Co~ - - - Thompson Tractor Co Independent Engineering Co., laid. Raleigh, N. C Birmingham, Ala O'Falion, Ill Tractors, graders, and engines. Tractora and engines Generators 42,566.02 68, 495. 57 7, 158. 95 H. L. Musarave, Inc Robinson, Ill Trucks, snowplows, and con- crete mixers. 10,779.84 Seller Instrument & Manufactur- ing Co. Western Machinery Co Berry Bros. Machine Co Carson Machine & Supply Co~ Lewis Motor Co I. A. Riggs Tractor Co Tn State Equipment Co., Inc ~ Waukesha Sales & Service St. Louis, Mo do Dallas, Tex Oklahoma Cay, Okla Marshall, To~c ~ Little Rock, Ark Memphis, Tcnn San Antonio, Tex Precision instruments Trucks and tractor& Tractors, sweeçers, and trucks Generators, graders Tractors, trailers, trucks, corn- pressors, and cranes. Tractors, sweepers, and trucks Tractors, compressors, and graders. Trucks, tractors, generators, and rollers. 65,896. 99 5, 524. 80 33,400. 48 44 747.50 162, 457. 69 107, 143. 43 14, 866. 95 8,218. 53 Atlantic Tug & Equipment Co._... Detroit Supply Co., Inc Syracuse, NY Albany, N.Y Tractors Engines . 37,981.53 4, 179.76 AIRCRAFT AND COMPONENTS Curtiss-Wrigbt Corp Avco Manufacturing Corp Bell Helicopter Corp - Aerodex, Inc Avco Manufacturing Corp Hiller Aircraft Corp United Aircraft, Sikorsky Air- craft Division. Big State Industries, Isle Aero Corp Beiser Corp Continental Motors Airepair East Coast Aviation Hayes Aircraft Corp Aero Corp Northwestern Aero Parsons Corp Intercontinental Manufacturing Co., Inc. Erle L. Bacon United Aircraft, Sikorsky Divi- sion. Curtiss-Wright Corp Big State Industries Curtiss-Wright Corp Big State Industries Continental Motor Corp Wood-Ridge, NJ Williamsport, Pa - Fort Worth, Tex Miami, Fla Stratford, Conn Palo Alto, Calif Stratford, Conn Mineral Wells, Tex.. Atlanta, Ga Tucson, Ariz Muskegon, °Micb Stockton, Calif Lexington, Mass Dothan, Ala Atlanta, Ga St. Paul, Minn Stockton, Calif Brady, Tex Santa Monica, Calif~~~ Stratford, Conn Wood-Ridge, N.J Mineral Wells, Tex - - Wood-Ridge, N.L - Mineral Wells, Tex - - Muskegon, Mich Engine repair do Closed circuit repair Engine repair Closed circuit engines Components, closed circuit.... Scamp and retrofit H-34 Scamp H-13~ do -- Scamp H-19 Engine repair Scamp 11-21 Scamp 11-13 Scamp L-19 Scamp 11-21 Scamp 11-13 Scamp U-lA Main rotor blade repair Scamp L-20 Scamp L-19 Hydro mech. clutch repair 11-34. Hyciro mech, clutch repair 11-19. Main rotor blade repair Intergear box Main transmission Gear box repair Main transmission Engine repair $13, 709.23 1,061,684.86 42,612.76 169,341.00 171,887.80 4,176.37 489,600.00 119,612.45 29,700.00 123,462.53 635,034. 86 190,450.00 101,475. 00 162,334. 56 472, 597. 62 43,580. 00 3,817.62 119. 856. 19 153, 425. 04 83, 059. 16 118, 105.00 85,930. 00 168,000.00 11, 503. 00 263,473.04 19,292. 04 75, 094. 15 4, 385.22 PAGENO="0013" 9 CONTRACTING-OUT PROCEDURES Contracts for t~Lepot maintenance, ftscai year 1960-Engineer construction equipment-Continued Contractor Location Service contracted for overhaul of- Amount of contract United Aircraft, Sikorsky Divi- Stratford, Conn Main rotor assembly - sion. Long Island City, N.Y. Hillside, N.J Traverse City, Micli.. Long Island City, N.Y. Shreveport, La Wichita, Kans Stratford, Conn Dallas, Tex Burbank, Calif Mineral Wells, Tex... Miami, Fla do Arlington, Wash Fort Worth, Tex Long Island City, N.Y. Miami, Fla Stratford, Conn Mineral Wells, Tex. - - St. Paul Mimi Brady, ~ex Stratford, Con.n Tulsa, Okla Fort Worth, Tex Stockton, Calif Muskegon, Mich Tulsa, Okla Denver, Cob Dothan, Ala, - -~ Denver, Cob Oklahoma City, Okla, Dallas, Tex - Components 11-87 Main gear box Main transmission assembly,. Actuator repair Rotor blade assembly Tail rotor hub Propeller repair Scamp L-23-E Tail rotor blade Magneto assembly Component repair Shimmy damper assembly,.,~ Auxiliary servo unit assembly. Central transmission Transmission assembly, for. ward or aft. Main rotor blade Main rotor assembly Rotor hub forward and aft Cylinder and piston assembly, Repair crash damage.,.,,,..,. do Repair engine Repair crash damage Engine repair Scamp and crash damage...... Rotor blade, ~ Engine repair do Crash damage VIA Scamp L-19 Crash damage Carburetor Propeller assembly Lawrence Aviation Industries, Inc. Airborne Accessories Corp Parsons Corp Lawrence Aviation Industries, Inc. Southern Aviation Beach Aircraft Corp United Aircraft, Sikorsky Divi- sion. Cooper Accessories & Propeller Repair. Central Air Repair Big State, Industries, Inc American Armature Corp Aerodex, Inc Janrick Aircraft Co Bell Helicopter Corp Lawrence Aviation Industries, Inc. Aerodex, Inc American Armature United Aircraft, Sikorsky Divi. sion. Big State InduStries, Inc Northwestern Aeronautical Co -` - Intercontinental Manufacturing Co., Inc. Avco Corp Spartan Aircraft Corp Bell Helicopter Corp Parsons Corp Continental Motors Co Spartan Aircraft Corp. Universal Aircraft Industries Hayes Aircraft Corp Universal Aircraft Industries Accessories Unlimited Cooper Accessories & Propeller Repair. The Decker Corp Cooper Accessories & Propeller Repair. Spartan Aircraft Corp Curtiss-Wright Corp Central Air Repair - Central Aviation & Marine Corp.. Nasco Service Corp American Aeromotive Corp Central Air Repair Canadian Commercial Corp Action Manufacturing Co Air Overhaul, Inc Bell Helicopter Corp American Airmotive Corp Standard Aircraft Equipment.. A. Blederman, Inc Brady Industries, Inc Sperry Gyroscope Co~ .... Hayes Aircraft Corp Air Overhaul Inc Big State Ind~ustries, Inc Airepair of Stockton, Inc. Curtiss-Wright Corp.. I $999,498.29 1,308,874.00 435,997.47 125,047. 47 261,528. 61 65,263. 61 508, 114. 15 16, 724. 17 5,519.95 29, 560.44 3, 165.82 6,177.43 11,210.00, 717.83 92, 596.60 81,862.12 34,821.83 108, 667.68 237,247.53 196,000.00 65,016.00 56,991.95 5,000.00' 187,828.39 6,541.28 533,032.77 196,800.00 31,228.29 131,622.24 113,852. 70 569,698.85 15,702,00 .98,091.00 2,211.00 1,050.00 3,066.00 2,873.00' 32,822.00 7,234.00 712,150,00. 2,324.00 2,052.00 8,881.00 129,500.00 2,997.00 100.00 4,055.00 5,715.00 61,855.00 4,335.00 26,298.00 3,975.00 19,226.00 5,040.00 29,258.00 7,654.00. 25,925.00 94, 450. 00~ 52,550.00 Bala-Cynwyd, Pa Clocks Dallas, Tex Generators Tulsa, OkIa Wood-Ridge, N.J Burbank, Calif Miami, Fla do Burbank, Calif Washingtoti, D.C Philadelphia, Pa Torrance, Calif Fort Worth, Tex Miami, Plc. - - - Farmlngdale, Long Island, N.Y. Glendale, Calif Brady, Tax Birmingham, Ala~.~ Torrance, Calif Mineral Wells, Tax.... Stockton, Calif Wood-Ridge, N.J Pump, carburetOrs, and piston assemblies. Engine repair Fuel Accumulatbry assembly H-25. Voltage regulator Engine repbir Pump assembly Closed cyc1e~ Component repair Valves -. Crash damage Flight control servo unit Carburetors Componen~ repair Crash damage Ampliflers.L L-23 repair Strut and starter assethbly,... Main transmission Strut assembly,H-l9and 11-21. Engine repair PAGENO="0014" 10 CONTRACTr~O~OUT PROCEDURES Contracts for depot na/in.ten.anoe, fl~caZ year 1.960-En9ineer construction equipment-Continued MARINE, 1960 Vessel repair LOM 8027 BT 280 Vessel repair LOM 8811 ST 1995 BARO 2X BARO 4X LT 1940. - 13T 1793 ~13753 13T 1793 lIT 280 - Vessel repair T 89 Vessel repair (Jol. Basil 0. Lenoir Vessel repair LT 643 BG 6086 BC 6482 and 6483 Vessel repair LOU 1508 Vessel repair 1~'$79(L Vessel repair LOM 8079 and 8311 L0M8079 LOM 8311 - Vessel repair LOLl 8423 and 8424 Vessel repair MV Hickory Knoll Vessel repair LOM ~579 Vessel repair LOU 1573 Vessel repair LP 1956 Vessel repair LOU 1579 Vessel repair LOM 8039 Vessel repair LOU 1578 - Vessel repair Lt. S. S. Coursen_. Vessel repair. - BK 8476 lISP 1774 PB 814 DSP 1774 Maj. Gen. W. H. Hart Q 644 Vessel repair Ma]. Cm. W. H. Hart Vesiel repair Q 845 P24 DSP 1773.. T24 PB 814 Q 83& P24 Vessel repair FMS811 Vessel repair Q649. Q 647 LOU 1531 LOU 1579 - DO 198 ST 1987 LOU 1554 LOU 1584 LOU 1593 ST 1988 Contractor Location Service contracted for overhaul of- Amount of contract Canal Marine Repair, Inc New Orleans, La saucer Marine Service, Inc do ~acific Fisherman, Inc Seattle, Wash Lake Union Dry Dock Co *------- Gunderson Bros. Engineering Co. Portland, Oreg Gulf Marine Ways, Inc Pascagoula, Miss American Marine, Inc New Orleans, La ChampiOn Machine Works do do Colonna's Shipyard, Inc Norfolk, Va Western Brand Diesel, Inc West Norfolk, Va Barbour Boatwork, Inc New Bern, N.O Wllll~m 1. Detyens Co Charleston, S.O Old Dominion Marine Railway Norfolk, Va - Corp. Associated Naval Architects, Inc. West Norfolk, Va Wilmington Shipyard, Inc Wilmington, N.O..... Ardell Marine Oorp. Brooklyn, N.Y (Jaddell Dry Dock & Repair Co.. Staten Island, N.Y.... Ilodetlnond Industries Jersey City, N.J United Boat Service Corp New York, N.Y Martlno'lich Ship Eepalr~ Oakland, Calif Moon Shipyard & Repair Corp.. Norfolk, Va (1) $2, 934.00 290.00 (1) 215.00 2,585.00 3,698.08 1,491.00 1,725.00 188.00 2,664.25 5,973.00 250.00 (L) 6,707.80 (1) 26,788.54 9~?222.97 1,610.00 1,200.00 (1) 7,250.44 (1) 6,975.08 (1) 696.0$ 395, ~0 soO. 00 (5) 6,178.00 4~370. 66 p205. 7~ (1) 1,755.90 (1) 16,015.31 (5) 2,283.91 ~79l.23 (1) 16,015.31 (1) 1,500.00 (1) 1,498.88 2040.40 2,750,73 1, 479~ 76 6~ 651. 56 2,443.20 (5) 23,118.00 (1) 1,342.20 250.00 340.80 252.40 150.00 1,650.00 197.50 (1) 38,251.00 ~284. 78 178.51 1,559.16 110.00 3,697.00 867.52 2,064.75 694.42 475.47 6,197.65 Not available. PAGENO="0015" CONTRACTING-OUT PROCEDURES 11 Contract$ for depot main~tencrnee, fiscal year 1960-Engisteer construetirn equipment-?Jontinued Contractor Location Service contracted for overhaul of- Amount of colitract Norfolk Shipbuilding & Dry Norfolk, Vs. Vessel repair (1) Dock Corp. L0U1532 $3,937.29 Land ship No. 2 1,989.70 LOU 1515 2,604.34 LOU 158& 3,913.18 BT 6400 6,947. 79 LOU 1577 7,910.64 PS 318 23,855.42 BD 2587 35,314. 80 BG 6087 997.00 Moon Engineering Co do Vessel repair (1) Pvt. Carl V. ~heridan_...~ 2,641.00 Home Bros., Inc Newport News, Va -- Vessel repair (1) No. 2 gantry crane 4,340. 16 Gantry crane 3,974.82 John Swenson Dry Docks Jersey City, NJ Vessel repair (1) Q643 11,115.07 ilK 8478 1,485.00 BK 8479 1,485. 00 ESP 1773 2 243. 76 BK 8477 1,898.50 Marine Basin (30 Brooklyn, N.Y Veisel repair (1) BK 8426 1,314.50 13788 915.24 Q644 3,499.10 LISP 1774 9,803.31 ST 2030 2,904.80 Thames Shipyard, Inc New Loridon, Oonn~.. Vessel repair (1) 18672 854.70 Craig Bros. Marine Railway, Inc. Norfolk, Va Vessel repair (1) I 3769.. 991. 54 LOU 1579 115.00 sassafras Boat Co Gaorgetowti, Md Vessel repair (1) 3 7665 18. 50 1 3742 610.88 Q 637 437.00 Q 606 97.50 Quincy Shipbuilding & Repair Qtsincy, Mass Vessel repair (1) Corp. BO 201 4,847.46 T 506 974.50 T 508.. 5,019.40 T 506 75.00 John Trumpy & Sons Annapolis, Md Vessel repair (1) 1 3700 490.00 Davis Boat Works, Inc Newport News, Va...~.. Vessel repair (1) T 499 a, 305. 99 T 517 5,659.31 Land ship No.1 6,091.00 T 507 4,986.94 T 505 6,403.99 LOM 6232 4,630.89 LOIVI 6293 8,643,80 1 Not available. Secretary IGNATIUS. With your permission, sir, I will be follow&l by Major General Bunker, commanding general, U.S. Army Trans'- portation Materiel Command, in St. Louis who will discuss aircraft maintenance. Mr. HEBERT. All rigb,t, General Bunker. Does any member of the committee have any questions to ask the Secretary? Mr. Kitchin? Mr. KITCHIN. Not at this point. Mr. fl~13ERT. Mr. Norblad? Mr. NORELAD. This has to do undoubtedly with aircraft rep~1r. c~iadian Commercial Corp. has a contr~ict for khout $1 million, I notice, for engine repair both here and In Montreal. I was rather curious about that. Mr. H1~BERT. Well, we will go into that. General Bunker will gO into that. PAGENO="0016" 12 CONTRACTING-OUT PROCKDURES Mr. NORBLAD. Thank you. * Mr. COURTNEY. He is going to discuss aircraft maintenance. Mr. NORBLAD. Is that aircraft or automobile General BUNKER. That is an aircraft engine. Mr. Ii1~BERT. That will be discussed by General Bunker. Mr. Secretary, I have only one question to ask. I fail to find here a definitive answer or a positive answer as to whether or not the letting out of contracts is more economical or more costly than the inhouse work. You roam all over the field here, first in left and right and in center, and then behind the homeplate, but come up with no decision. What is your opinion? Secretary IGNATIUS. Well, I think that we have tried in the Army, and I think with good success, as the other witnesses will attempt to point out, to go out for services only when we do not have the capability inhouse sufficient to do it or only where we lack the tech- nical competence to do the work. The Army, I think, has done a very good job of balancing what it does iiihouse and what it does out of house. So that in order to answer your question in terms of a cost com- parison, if we have the capability we want to do it inhouse, and the reason we want to is in order to be ready to meet our mission, which is to close with and defeat the enemy in sustained combat. When we can't do it and yet need the services and have to go out, we have to pay the cost of these services which we either don't have at all or don't have in the requisite quantity. Now, in terms of the costs of these effort contracts, undoubtedly the salaries that we might pay for a civilian engaged in an operations research or a management consulting firm would be, generally speak- ing, higher than the civilian pay scales that we have in the Army on a direct salary basis. When we get into overhead loadings on these things, I think you get into fairly complicated questions. In comparison to military personnel, the salaries would also be higher, but there are other costs associated with military personnel that would have to be taken into account. I don't know that I have answered you. Mr. H~BERT. You have not. I am trying to find out here the figures-after the two directives came out, to make a survey. You refer to the bakeries, but I am sure there was another figure here as to how many operations were closed down and subsequently contracted out. Mr. KITcrnN. If I recall correctly, 7 were closed and 8 reduced, weren't they, out of that 1,280-some? Secretary IGNATrETs. Yes sir, in the second one. That was quite some time ago. I do not have any figures on that. Mr. HEBERT. Well, out of all this study, only seven were closed down? Secretary IGNATIUS. In this particular one-in this one of the 1,200 or so. Mr. H~BERT. Well, suppose you tell us, Mr. Secretary, in what fields, in what areas, was the contracting out policy adopted by the Army? Which previously had been done inhouse by the Army? Bakeries i~ No. 1. PAGENO="0017" CONTRACTING-OUT PROCEDURES Secretary IGNATItTS. That is one. Mr. H]~BERT. All right. No. 2. Secretary IGNATmS. That we mentioned. Mr. COURTNEY. Aircraft maintenance. Secretary IGNATIUS. Yes. In the field of aircraft maintenance, we have had a situation where as we began in recent times having larger numbers of aircraft in the Army, we did not have a capability to main- tain them. Mr. HEBERT. Then it was not a substitute? Secretary IGNATr[JS. No. Mr. H]~BERT. It was an overflow? Secretary IGNATIUS. Well, we just didn't have the capability. Now, I think what we have done-and General Bunker will go into this-represents what I think is basic Army policy in this whole area, to build some capability inhouse. We are building about 40 percent of our depot..maintenance requirement and the rest we will do outside. Mr. HJ~BERT. Now, we have bakeries and airplane maintenance. What else was changed? Secretary IGNATIUS. Well, sir, as the Army has always placed a lot of emphasis on its own arsenal system and the preservation of various skills there, we have found that as technology expands very rapidly it is difficult sometimes to keep up with all of these skills And occasionally it is necessary now to go out and hire consultants to do technical studies. Mr. HEBERT. Now, you are leaving the area of maintenance and hardware and going into the area of "think" factories. Secretary IGNATIUS. Yes, sir. Mr. HEBERT. No. Let's hold it straight down the line. Secretary IGNATIUS. Yes, sir. * Mr. H]~BERT. So then I am to understand, the committee is tounder- stand, there were only two areas in which there were changeovers. One was in bakeries and one was in airplane maintenance. Secretary IGNATrn5. No, there are more. Mr. COURTNEY. There is housing maintenance. Mr. H~BERT. Marine maintenance. Secretary IGNATIUS. Yes, sir. Mr. H1~BERT. Only those two areas. Secretary IGNATIUS. I think that a good deal was done also in the area of janitorial services-this kind of thing. More has been let out. Mr. H~BERT. That is leasing out janitorial. What else? There are three. Secretary IGNATIUS. Ihavea list here of, activities approved for dis- continuance during the period 1954 to 1959., This is a 5-year period. Ice cream manufacturing plants, 5. Bakeries, 17. Mr. KITCHIN. May I interrupt right here? Secretary IGNATIUS. Yes, sir. Mr. KITcrnN. All of these were supplemented by private contracts, contracting out, when they were discontinued ~s far as the Army~~~ was concerned? * * Secretary IGNATIU5. I believe so,. yes, sii~. This is well before my time. 74i09-61---2 PAGENO="0018" 14 CoNTRAcTING-OUT PROCEDURES Can you help me on that, Colonel Dennison? Mr. KITCHIN. The service still continued through contracting out when they were discontinued by military personnel? Colonel DENNI50N. The rules under which the decision was made, sir, under the BOB bulletins, only provided us with a decisionmaking process. And in some cases we just don't know whether it was replaced totally or in part, because all the bulletin required us to do was to make the decision. Then in the field and under other directives as to how you get out of business, how you get out of something like this, and how you contract for replacement if required, this was done as separate actions-not necessarily related to the decision to close. We have no way at this moment of pulling back in and saying: This much of this work went to contract. Mr. H~BERT. What happened after you closed them down? ~ou had to have the facilities. You had to have the production. Mr. CoURTNEY. You had to have the ice cream. Mr. H~BERT. You had to have the ice cream and you had to have the bread. What happened? Somebody just closed down the ice cream factory and he didn't know what would happen? Mr. KrrdHIN. Let me ask this question. On some of these closures, such as ice cream, did you have additional facilities that were not closed that were adequate to supply? Colonel DENNIs0N. Not in ice cream, sir. Mr. KITCmN. What about in your bakeries? You had, I believe, 17 left. One was used for training and the others were for bringing the boys back in, for inservice training, so to speak. And in addition to that, they were supplying th~ bread to the Army. (Secretary Ignatius nods.) Mr. KiTcrnN. Now, did that supply all of the total needed by the Army in continental United States, or were you contracting out other facilities for bread in addition to the 17 still maintained? Colonel DENNI50N. In relation to the ice cream, sir, it is safe to say that all of that went to contract. Mr. KITCHIN. Yes. Colonel DENNIS0N. In relation to the bread, probably all of the bread being produced by the bakeries which were closed because of a question of location went to contract. In some other areas, such as some tire retreading facilities-they were closed down, but ~ome were kept on. Again, here, part of the workload came back into those which were retained, because among the things which we could do under the bulle- tin was to compress what we had. Mr. KITCHIN. So the list that the Secretary is getting ready to read does not mean that any of the items mentioned in the closures have been contracted out in their entirety. Colonel DENNI50N. That is right, sir. (Secretary Ignatius nods.) Mr. KITCHIN. And there is no way to tell whether you maintain a partial production within the military and a partial contracting out all contracting out, or whether the facilities are just closed down and you don't use them? PAGENO="0019" CONTRAGTXNG-0up PROGEDIYEES 15 Secretary IGNATItJS. I would suspect it would be a combination of those things. But this is something maybe we could check. What I have is the number that were approved for discontinuance. Mr. HEBERT. You see, Mr. Secretary, what we are trying to find out is what is the most economical to operate and how can we get the best out of the tax dollar. Secretary IGNATIu5. Yes, sir. Mr. HEBERT. Now, again, in some other hearings-you are not re- sponsible. You weren't there. You are just coming into the picture now. Secretary IGNATIu5. Yes, sir. Mr. H~BERT. But the records ought to show-some records should have been kept to indicate whether this was a more economical or a less economical move. Now, the committee is put in this position. We conduct these hear- ings with the objective of economy. Secretary IGNATrcs. Yes, Sir. Mr. H~BERT. Of saving, of elimination of ~vaste. Secretary IGNATIu5. Yes, sir. Mr. H]~BERT. And then we have the witnesses of the Army testifying, "Well, we don't know." Secretary IGNATIuS. Well- Mr. HEBERT. What kind of decision can we come out with, if we are not given the facts? Secretary IGNATIuS. Well, do we* have the records-it seems to me the question is a fair one that is being raised here. Do we have in our system, or do you hare in your testimony data on this. I think it is a fair question. General BUNKER. I have some, yes. Mr HEBERT We should know, whether we should recommend a continuation of this system or whether W8 should recommend its elimination. This is a very important area. Secretary IGNATIu5. Yes, sir, it is. Mr. KITCHIN. If I understood the Secretary correctly, or if I recall the statement made in his prepared statement: that in the general ~category of overall policy and proceedings with reference to the closure ~or continuance, and so forth, that it was impossible to get a cost ~nalysis, as an overall proposition. And only you could, you contend, when you get to a specific item. Secretary IGNATIUS. Yes, sir. Mr. KITCHIN. When there were certain hidden costs, in the elements of overhead, income taxes- Secretary IGNATIUS. Yes, sir. Mr. KrrcmN (continuing). Depreciation, capital investment. Secretary IGNATrns. Yes, sir. Mr. KITCHIN. That you couldn't bring into play in figuring these cost elements, is that correct? Secretary IGNATIUS. Yes, sir; that is correct. Although on a case- by-case basis, I think you could. Mr. KITCHIN. I think-the only way in the world we would get it, then, Mr. Chairman, is by proceeding on an item-by-item basis-if we ~can't get it in the broad category of that, of then proceeding on a case-by-case basis, and have a sampling of at least what is the proce- ~dure. PAGENO="0020" CONTRACTING-OUT PROCEDURES Secretary IGNATIUS. At least I could do that category by category. Mr. HI~BERT. That is the reason I asked that. Secretary IGNATIUS. With regard to bakeries, my testimony did make reference to costs. And the cost of doing it in-house was roughly comparable to what it cost to buy it from commercial sources. I would think that in each of these several categories here we might be able to provide cost data. I think the question is a fair one. And I would hope we did this in 1954-59. Otherwise, there is no point to the exercise, as you point out. Mr. H1~BERT. That is right, absolutely nothing. Secretary IGNATIU5. This is what the industry calls a make-or-buy decision. And normally you shouldn't make yourself what you can buy more economically on the outside. Mr. HEBERT. Now, there must have been a reason, a philosophy or thinking behind the directives issued by the Bureau of the Budget, supplemented by the Department of Defense. Secretary IGNATIUS. Yes, sir. The basic reasoning as set forth in the directives is that this is an economy, a free private enterprise economy, and we should not go out of our way, so to speak, to be in competition, the Government to be in competition. Mr. H~BERT. That is correct. However-unless it is in the interest of the Government not to do so. Secretary IGNATIUS. Yes, sir. Mr. HEBERT. Now we come up 8 years later and we have no figures to show whether it was in the interest of the Government or not in the interest of the Government. Mr. KITCHIN. I think, Mr. Chairman, another thing. If I recall correctly- Secretary IGNATIUS. Yes, sir. Mr. KrroHIN. An answer to the chairman's statement, or an attempt to answer his question, was that price and cost alone was not the only prerogative granted under this BOB policy. Secretary IGNATIUS. Yes, sir. And I think that is an important distinction. And the chairman has touched on that also. There is such athing as maintaining a capability. Now, this has been very evident to me in the last few weeks, when we have been attempting to develop a good deal of figures for the Con- gress with regard to the so called Berlin supplemental We were interested in this, in the question of increased quantities of equipment, in order to support a larger Army. And it was perfectly evident as we began this work, under the time frame established in the planning, that one of the main sources for increased equipment within a short period of time was from rebuild of serviceables in our inventory. And I think that this is a very important point here, as to. why we need to have in the Army capacity to do this kind of thing, because you can't in the short run get equipment by starting new lines. You can add to lines already going. But you have to have a re~uiid capacity. You have to have the skills. And you hai~e tO have the equipment. PAGENO="0021" CONTRACTING-OUT PROCWI3URES 17 You always have to have cthain fac1li~ie~ tha~ you can't get easily on the outside. The ammunition field is a case in point. So that we feel very keenly about this, in the Army. And as I said in my prepared testimony, I believe, based after all only on the limited time that I have been here-but I believe that the Army does a very excellent job of striking an optimum balance be- tween what we need t~ do inhouse in order to have the skills for mobilization, and what we go outside for. I think we do a good job on that. Mr. H~BERT~ Now, Mr. Secretary. Secretary IGNATIUS. Yes, sir. Mr. I11~BERT. The committee will ask you to be prepared. Secretary IGNATrnS. Yes, sir. Mr. H1~BERT. At; the end of the presentation of the Army's testi- mony, to express an opinion as to whether or not this policy should continue or be discontinued. Secretary IGNATrn5. All right, sir. I will Mr. HI~BERT. We want to know your opinion. And you can only base that opinion on the facts at your hand. Secretary IGNATrns. Yes, sir. Mr. H1~BERT. But I want to give you warning ahead of time. Secretary IGNATIUS. Yes, sir. Mr. HEBERT. That that question will be asked you, now. Secretary IGNATrns. I appreciate that. I think it is a fair question. And I will do my best to give you a good answer. Mr. HEBERT. All right. General Bunker. Without objection, the biographical sketch of General Bunker will appear in the record at this point. (The biographical sketch of General Bunker is as follows:) BIoGRAPHICAL SKETCH OF MAJ. GuN. WILLIAM B. BuNKim General Bunker was born September 30, 1910, at Fort Slocum, N.Y. His mother is the daughter of Commodore William H. Beehier, U.S. Naval Academy, 1865, and his father was CoL Paul D. Bunker, U.S. Military Academy, 1903~ General Bunker entered the U.S. Military Academy and was graduated and commissioned in the Cavalry in 1934. In 1936, he transferred to the Engineers and attended Massachusetts Institute of Technology, where he was awarded a degree of master of science in Engineering in 1937. From 1939 to 1942, he was stationed in Nicaragua in charge of a large canal survey. During World War II, he was the Deputy in charge of the Transportation Corps' supply prograni. In early 1945, he made a 6-month trip to Paraguay for the State Department to conduct a transportation survey of that country. In 1948, with the beginning of the Berlin airlift, General Bunker was placed in charge of the terminal operations-gathering shipments and loading aircraft in the U.S. Zone and unloading and distributing cargo in Berlin. He organized a similar system between Korea and Japan with the outbreak of hostilities in 1950. In the latter part of 1950, the Chief of Transportation assigned General Bunker the responsibility of investigating the application of the helicopter to Army transportation. This investigation resulted in an immediate and large-scale expansion of this activity. In 1954, he was assigned as the commandant of the U.S. Army Transportation School, Fort Eustis, Va., and in September 1955 he was given hi~ present assign- ment as commander of the U.S. Army Transportation Materiel Command with headquarters in St. Louis, Mo. He was promoted to major general on ~une 1, 1961. General Bunker is active in many professional and technical societies includ- ing the American Helicopter Society, the National Defense Transportation PAGENO="0022" 18 CONTRACTING-OUT PROCEDURES Association, the Association of the United States Army, and Is. an associate fellow of the Institute of the Aeronautical Sciences In addition he is the author of many articles which have appeared in various technical magazines. Mrs. Bunker is the former Crystle Carr, the daughter of Lt. Col. William L. Oarr (retired), and has one son, Paul P. Bunker III. General Bunker s decorations include the Legion of Merit with two Oak Leaf Clusters, the Army Commendation Ribbon, the order of the British Empire (U.K.), and the Medalla de Distincion (Nicaragua). General BUNKER. Thank you, sir. Mr. COURTNEY. One question before we leave here. On these numbers-you took the ice cream plants and bakeries and: so on. Are you dealing with continental installations or are you talk- ing in that figure of worldwide? Colonel DENNISON. Continental and Alaska-continental United. States, sir, Alaska and Hawaii. Mr. COURTNEY. You are not considering in there any of the instal- lations abroad? Colonel DENNISON. No, sir. Mr. COURTNEY. And that is true of all the figures, is it? Colonel DENNISON. These figures which are related to the BOB bulletins. Mr. COURTNEY. Well, then, I would take it from that that the BOB bulletin in your opinion is not applicable abroad. Colonel DENNISON. It was specifically so stated. Mr. COURTNEY. Specifically so stated. Colonel DENNI50N. As not being. Mr. COURTNEY. That is right. That is all continental United States~ or Alaska or Hawaii. Colonel DENNIs0N. What is now the 50 States. Mr. COURTNEY. The 50 States. Colonel DENNISON. Yes, sir. Mr. COURTNEY. I just wanted to clear that up. General BUNKER. Mr. Chairman and members of the committee,, I am going to discuss the maintenance of Army aviation equipment and the use of commercial contractors in the performance of this function. First, I will discuss the depot level or major rebuild and overhaul program. Prior to July 195~T depot level'maintenance of Army air equipment was accomplished by the Department of the Air Force. In October 1955 the Office of the Secretary of Defense approved the transfer of depot support of Army aircraft frOm the Air Force to the Army. This transfer was predicated upon the use of contractor and existing maintenance facilities of the other services and prohibited the estab- lishment of any new Army facilities. In December 1959 the Office of the Secretary of Defense rescinded restrictions imposed in the original transfer and authorized the Army to perform limited inhouse depot level maintenance of aeronautical components. In addition, at this time the Department of the Army was requested to make plans to attain capabilities to overhaul end item aircraft and aircraft engines. To this end, the Army has recently reactivated the U.S. Army Transportation Aeronautical Depot Maintenance Center at Corpus Christi, Tex., of which I shall speak later. PAGENO="0023" CONThACTING-OTJT PROCEDURES 19 The major portion of Transportation Corps depot level mainte- nance has been and will continue to be performed on a contract basis with the remainder being accomplished inhouse or by cross-service agreements. A general feel for the magnitude of the program can be appreciated by the amount of the annual budget for overhaul which is about $25 million. I shall first discuss our experiences. II. AIRFRAME OVRRHAUL In 1957, when we assumed responsibility for depot overhaul of aviation equipment, the Army instituted the statidard configuration and modification program-SCAMP-for airframe overhaul. This program was designed to inspect the entire aircraft on a 3-year cyclic basis and to perform all maintenance which was due or shortly to become due; to incorporate all outstanding modifications and technical order complianees; and to bring the aircraft to the user in the maximum state of operational readiness economically practicable. The scheduled cost of SCAMP was consistently about four times the funds available for this program. Also, experience and research gave evidence that, with proper preventive maintenance and active techni- cal followup with field commanders, no great amount of airframe deterioration need be anticipated. Therefore, the Army adopted the inspect and repair only as necessary-IROAN-program. IROAN is predicated upon the Army field commander performing that preventive maintenance and installing those modifications which are authorized for his echelons of maintenance. With increasing maintenance capability in the field Army, this assumption has been found to be tenable. IROAN is not a cyclic principle. Aircraft are nominated for over- haul by commanders only as they show evidences of deterioration beyond his capability to curb `by preventive maintenance. Crash damage aircraft also are overhauled under the IROAN pro- gram. During the past year, the total cost of IROAN of Army aircraft, including crash `damage aircraft in the continental United States, has been only slightly over a million dollars. This may be compared with estimates of approximately $16 million which would have been required under the previous SCAMP principle. We cannot be certain at this time that this cost will not increase as weaknesses in preventive maintenance performance or requirements make themselves apparent. However, the principle does seem to be sound and we are now overhauling aircraft by contract under the IROAN principle which specified that the contractor will return the aircraft to a satisfactory used equipment status. Specifications have been devised which establish the standards of used equipment to which aircraft are to be overhauled. Up to date we have received very few nominations of aircraft for IROAN from field commanders, except for crash damage equipment. There are no recorded instances `of excessive deterioration when prescribed preventive maintenance has `been performed. We feel that the cost of this program has `been minimized to the maximum extent practicable within the framework of our present mode of operation. PAGENO="0024" 20 CONTRAc~TING-OUT PROCEDURES In order to verify ~ur engineering judgment of this program we have contracted for an analytical overhaul of one of our cargo helicopters and will continue such surveillance on a random basis. I would now like to discuss: III. AIRCRAFT COMPONENT OVERHAUL Pursuant to the memorandum of agreement relative to transfer of responsibilities from the Air Force to the Army, it was considered in thebest interests of the Qovernmeint to~estabiish overhauiconti~acts on .a contractor furnished parts concept. This basic policy was estab- lished in order to delay the introduction of an additional broad range of items and tools in the Army supply system which would not be required within the normal scope of the military mission. Our contractors were accustomed to the Government furnished equipment concept under Air Force contract procedures, therefore the transition to contractor furnished parts was not at once favorably received. Also, under the contractor furnished parts concept, the contractor had no way to predetermine the parts required until disassembly and inspection. This action resulted in a delay in the timely procurement of parts required for the overhaul. The contractor ordered his parts from other manufacturers and, as a result, took his place in the production line to get his parts pro- duced. In many instances he was competing with large Government and other civilian orders. Contractors also experienced financial difilculties because they had to increase their investment in shelf stock and their contractual deliveries were delayed. While the contractor furnished parts concept did offer many advan- tages and was improving, as the Transportation Materiel Command gained more experience during the period from 1957 to the present, we have gradually changed over to a policy of Government furnished parts. This will not only assure a better support of our oversea cus- tomers but will: (a) Reduce overhaul turnaround time from about 13 months to 6 months, and (b) Expand the production base to emphasize small business participation. Initially, component overhaul .contracts were awarded to cover a fixed quantity of items. As requirement information was not entirely dependable, modifications as to quantities were required. In order to obviate the necessity for revision of quantities, a more flexible type of contract was required. The indefinite quantity type, which provides for a minimum and a maximum quantity, enabled the Government to order and meet quanti- ties as are actually available for overhaul. The Transportation Ma- terial Command did, however, award a contract covering overhaul of a quantity of engines oii a fixed-price basis. This method of procuring contract maintenance proved to be unsuccessful for the reason that no contractor can. accurately predetermine the full scope of work that will be required. PAGENO="0025" CONTRACPING-OTJT PROCEDUREs 21 The present method for accomplishing component overhaul is to utilize indefinite quantity contracts, which are the result of the nego- tiation of competitive quotations submitted by bidders covering labor, certain mandatory work, and services. Parts and materials sup- plied by the contractor are reimbursed at actual net cost. In addition to the, normal component overhaul contracts~ we `have some "closed circuit" overhaul contracts which are usually with a prime manufacturer in support of the Army's test program on new items of equipment. The purpose of this type of contract is to- Provide for analytical overhaul with attendant investigations and determination of the cause of unsatisfactory conditions; Render engineering reports and recommendations for extend- ing the life of the component; Accomplish engineering evaluation for the development, manu- facture, and testing of prototype kits for the modification; To determine the time between overhaul of major time change components; and To determine the range and quantities of line items to be pro- cured and.stocked for repair and overhaul. A review of the award of contracts discloses that 25 percent of the total dollars or 44 percent of contracts awarded for contract main- tenance Wer~ placed witfr small-business concerns. I know that most of you are aware of our recent reactivation of the air repair facility at Corpus Christi which I would like to discuss: IV. ARMY AVIATION DEPOT MAINTENANCE FACILITY As stated, previously, in December 1959, the restrictive provisions on establishment of an Army aircraft depot maintenance facility and an inhouse capability were rescinded by the Secretary of Defense. Factors affecting this decision were steadily increasing inventory of more complex aircraft and the increased importance of Army aviation to the Army's mobility objectives. Based on a request of the Depart- ment of the~Army, the Secretary of Defense authorized the establish- ment of an aeronautical depot maintenance facility in order to permit the Army to gain and maintain technical competence essential to the successful management of its aeronautical maintenance program. The basic objectives of this program encompassed the establish- ment of a facility capable of the overhaul and repair of the full range but not the full quantity of mission-essential aeronautical materiel. The projections of this plan over the next 5 years have been based on an ultimate goal of approximately 40 percent of the total fifth-echelon maintenance program. Dut to the growth of the aeronautical program in terms of inventory ~uantities and in- creased equipment complexity, the establishment of the fifth-echelon capability within the Army should not have an appreciable effect on the dollar level of overhaul repair programs accomplished by contract. The Corpus Christi facility was designed and built by the Navy Department for the overhaul and repair of aircraft, engines, and all related components, and is valued at approximately $23 million for the complete facility. An estimated $700,000 for rehabilitation of this facility is considered to be a good investment for the activation of a complete depot maintenance activity. PAGENO="0026" 22 CONTRACTING-OUT PROCEDURES The total value of the materiel to be returned to service from this facility cannot at this time be reasonably projected; however, a sample portion (engine and aircraft overhaul) can be fairly accurately computed. For the first year, the estimated direct overhaul cost of $3.3 million will yield a return of $16.5 million value of material recovered. As mentioned by Secretary Ignati.us in his remarks, the primary functions to be accomplished at this depot are as follows (a) Maintain a base which will provide maintenance capability during a national emergency. (b) Effect prototype installations anddeveiop man-hour standards so that more definitized maintenance work specifications for com- petitive contracting can be developed. (c) Retain, within the military sphere, a source of skills for over- sea assignments and a home assignment for skilled personnel returning from overseas. (d) Fabricate aircraft parts for out-of-production aircraft and critically needed long leadtime items required on an emergency basis. (e) Perform overhaul and effect repairs to crash damaged aircraft having various degrees of damage and requiring job operation rather than production line maintenance.. To summarize, the activation of this depot will enable us in the Transportation Corps to advance side by side with industry in executing a difficult but essential maintenance prDgram and provide a source of information to industry to better enable them to assist us in performing, by contract, the functions of aeronautical maintenance. In addition, the Transportation Corps also operates four fourth- echelon maintenance shops located at the general depots where our supplies are stored. While their primary function is in support of aircraft stationed in the geographical area in which they are located and the care and preservation of depot stocks of aeronautical equip- ment, they have performed certain overhaul operations. This pro- gram has been based on skills and labor available not required to meet the fluctuating requirements received from the field activities. Although this discussion has been primarily on depot level of maintenance, I feel it would be desirable to mention briefly our: V. FIELD AND ORGANIZATWNAL MAINTENANCE S In the Army, filed and organizational maintenance are responsibili- ties of the commanders of the using units. As a matter of basic policy, we desire that these functions be performed by military units in~order that they may b~ deployed with the equipment in the evdnt of emergencies. Due to shortages of personnel in units and other special cons~dera- tions, however, there are a few significant instances in which~ their function is "contracted out." a. All of our school aircraft at both' Camp Wolters, Tex., and Fort Rucker, Ala., are supported by contractors for their full rai~ge of organizational and field maintenance. As a matter of interes~, this covers almost one-quarter ~f our U.S.-based aircraft. b. All of our test aircraft are supported by maintenance contif actors at Fort Rucker, Ala., and Fort Iluachuca, Ariz. PAGENO="0027" CONPRACTENG-QUP PROCEDURES 23 c. Most field maintenance at Fort Sill, Okia., is performed by ~contract. Approximately one-third of the Continental Army Command's maintenance dollar goes for contract maintenance. VI In oversea areas we have established .a reasonably effective aircraft- maintenance facility at Sandhofen, near Mannheim, in Germany, but have otherwise been forced to lean heavily on indigenous contractors. With the increasing emphasis on the unfavorable balance of pay- ments, however we are now bringing most of the expensive compo- ~nents back to CdNUS for overhaul. The major problem is "contracting out" overseas for aircraft main- tenance has been in supplying the required parts on a timely basis and accurate forecasting of requi~ements. VII All in au, the Transportation Corps has enjoyed a highly successful program of contract maintenance of Army aviation equipment. This has followed our similar experience in railway and marine equipme~nt for many years. We feel that, with the availability of our new facility at Corpus Christi and our long list of competent contractors, we can successfully perform our mission in any emergency. We feel that the costs that we have experienced have been reasonable ~and `that we have been particularly successful in keeping the Army's investment in tools and facilities to a bare minimum consistent with ~our military responsibilities. (The chart attached to the statement is as follows:) Depot ~naintenance (UONU~) aceompflshed and cost-Mr eq4i4pment Inhouse Contract Quantity Cost Quantity Cost Fiscal y&lr 1958: Aircraft Engines Components 10 15 2,952 $314, 2Q7 95,770 141,039 422 1492 7,481 $1, 868,221 2,380,550 1,442,896 5,691,667 TotaL - - -- FIscal year 1959: 551,016 0 7 7, 716 0 87, 940 611, 157 699,106 445 963 10,221 5, 150,243 2,909,692 4,333,595 393, 530 Aircraft Engines Components Total Fiscal year 1960: Aircraft. Engines Components 0 532 13,913 0 2,065,000 2,296,000 4,361,000 484 1,318 11,067 7,287,000 3, 859,000 3,355,000 16,501,000 Total Fiscal year 1961 (4th quarter estimate): Aircraft . 88 800 1,031 264,000 3,352,000 400,000 4,016,000 72 2,036 32,110 1, 133,000 9,276,000 10,324,000 20,738,000 Engines._..,~ Components Total PAGENO="0028" 24 cONTRACTING~O~Y~ 1~B~EDURKS Mr. HEBERT. Gen~ral, you~ have had persoiial contact with this situation? General BUNKER. Yes, sir. Mr. ETEBERT. For how many years, now? General BUNKER. Six years, sir. Mr. H~EERT. Six years. General BtNKER. Yes, sir. Mr. HEBERT. What is your opinion on the contracting-out features? General BUNKER. It is my opinion that the contracting for main- tenance operations and certain other things that we have done has not deteriorated our military capability, that in any area we do need the ability to perform a portion of all work-a sample, if you will, as a yardstick or standard of performances and costs, as a testing capa- bility for degree of recovery, and that sort of thing Fundamentally our contractors have been responsive to speedups to meet our require- ments, they have been generally quite conscientious in quality control, and their costs as we have experienced them, where you can directly relate them, have been in general quite comparable. The reason I can't answer that more accurately is that, as you are very well aware, sir, our methods of cost accounting make it rather difficult to clearly outline exactly what an operation on a large military establishment costs. Mr. HEBERT. It seems to me your cost-accounting system ought to be given a complete overhauling, if you can't tell how much you are getting out of your dollar. General BUNKER. It is a question of paying for the excess capacity needed for mobilization, and whether you can separately cost that to one side. Mr. H~BERT. I recognize that. But you can't come up with an answer. Geneal BUNKER. Yes, sir, we can. Mr. HEBERT. Well, what is the answer? Is it more economical to contract out than it is not to? General BUNKER. Generally the figures that we have worked up show in most instances a slightly higher cost by contract, on most things. On certain items there have been rather large variations. But usually the reason for it can be determined by investigation. But I have some samples here. For example, the R-4820 engine, which is about a 1,200-horsepower engine, our inhouse costs are $4,475, and our contract costs are $4,539, or, in other words- Mr. H1~BERT. Where is that, General? General BUNKER. These are just some figures that I have. Mr. HEBERT. Is it inhere? General BUNKER. No, sir. Mr. COURTNEY. It is not in the print. Mr. H~BERT. It is not here. General BUNKER. A smaller, opposed, six-cylinder engine, for fixed- ~ ing aircraft $2,205 inhouse against $2,214 done by contract On the other hand, I have some rather sigmfieaut differences, to give an example of my other statement On the werhaul of ax~ engine in an industrially funded facility, the price that was trans- PAGENO="0029" CONTRACTING-OUT PROCEDURES 25 * ferred to that facility was about $7,500 for the overhaul of an. engine, which when overhauled commercially would cost about $2,800. Some of that $7,500 went to pay the mobilization base of this industrially funded facility. That is why I say they are not directly relatable. There was no other work in the facility, and obviously the tothl account had to be paid. But in general we have found the k~osts roughly comparable. The slightly higher cost for contract, as Mr. Secretary said, represents the fact that the contractor pays taxes and has depreciation and other things not included in our costing structure. Mr. HEBERT. Yes, but under your costs there you entered the cost of mobilization. General BUNKER. Yes, sir. Well, that is the rule of the game under industrial funding of an installation of that type, sir. That is why I say those figures are not talking really about the same thing. Mr. HEBERT. I recognize that. Awl we come out with not th& same thing, too. General BUNKER. But those first figures I gave, which showed around a 5- or 10-percent difference, is a best estimate of trying to compare directly relatable things, sir-around a 5- or 10-percent difference. Mr. KITCrnN. And may I ask a question right there? Mr. HEBERT. Yes, sir. Mr. KIT0rnN. In those instances where you shaw a 5-percent dif- ferential or a 10-point differential of contracting out, do you take into cosideration, when you release the military personnel involved in the inhouse operation, the value of that personnel to the Army and other activities ~ Is that taken into consideration in getting the cost? General BUNKER. That is taken ,1i~ito consideration in making the decision as to whether it will be contracted out or not. Mr. KITCrnN. But you take it into consideration in your cost figures? General BUNKER. No, sir; they were not. Mr. KITCITIN. So if you take that into consideration in your cost figures, then you probably are a little bit ahead of the game in con- tracting out? General BUNKER. Yes, sir. Mr. KITCHIN. In those instances where the percentage differential is so small? General BUNKER. That is correct. And also in that one, where they were quite large. The reason that we paid $7,000 for overhauling an engine which could be commercially overhauled for $2,500; some or mast of that $5,000 difference went to pay the cost of having a mobilization base and having trained people that you had to have for other requirements Mr. HEBEET. It had nothing to do with the engines. General BUNKER Yes, sir, but was in this particular anstance di rectly charged to the engine. . . Mr. KITCrnN. Well, that is true. But the inverse is true, also, Mr. Chairman. When you release the personnel in an inhouse operation PAGENO="0030" 26 CONTRAcTING-OUT PROCEDURES and count the services, the value of the services in another sector of that particular operation, or in another piece of equipment or some~ thing of that nature, then you are still gaining. General BUNKER. That is right. Mr. KITCHIN. As against that cost~ the personnel to do ~n~~other function. General BtTNKER. That is correct. Mr. KITCHIN. And the value of that service is not added into the cost on a comparative basis, as against your commercial operation. General BUNKER. Well, an example of that came up, sire on- the question that has been included in one of these questions in the lists that were presented. I closed the Holabird rail rebuild shop about 2 years ago. Our workload for that shop was something less than 50 percent of its~ capacity, and therefore it enjoyed a very high overhead rate. In considering closing it, we recognized the fact that we have and could maintain an operation at Ogden, Utah, where the skills and knowledge of this profession, which is getting rather rare, of main- taining particularly steam railway equipment, could be maintained~ And under those circumstances the decision was primarily a cost one. If, however, we didn't have any facility, we undoubtedly would have kept it open without regard to how much more it cost us to perform the work there;* because of the low workload and the rather large facility they had to keep going. Mr. NOEBLAD. They were civilians doing this work at Ogden, I take it? General BVNKER. Yes, sir. There were civilians at both places. Mr. NORELAD. At both places? General BUNKER. Yes. And there were approximately 90 civilians released at Ogden, about half 6~whom found other jobs. About half of them were ex-retired railroaders. - Mr. N0RBLAD. I didn't mean to say civilians. I was trying -to dis-- tinguish Government employees as against contractor's employees.. General BUNKER. Yes, sir; these we-re Government employees. Mr. NORELAD. In both cases? - - General BUNKER. Yes, sir. - Mr. IIi~iuwr. Now, Mr. Secretary, you understand? Secretary IGNATIU5. Yes, sir. - Mr. H~BERP. You will supply for the record-I know you do- not have it now-the details, or t~ie categories of the items as far -as you are able to ascertain? - Secretary IGNATrnS. Yes, sir. (The information is as follows:) - With reference to the question of relative costs of inhouse operation as against- contracting for these services, a true comparison of overall costs is usually not possible due to the difficulty of computing elements of depreciation interest and taxes on funds previously spent for capital assets and of deleting Army costs related to the overall mission such as mobilization requirements Cost includ mg the above elements is not always a factor In determining whether a service or product will be produced inhouse or by a cOntractor. National defense re- quirements Including security and combat effectIveness or the lack of inbouse capabilities might determine the source of the supplies or services without specific consideration of relative cost estimates. PAGENO="0031" CONTRAcTING-OUT PROC~DTJEES 27 In those cases where costs were a determining factor In the evaluation of Government owned and operated facilities the following is a sample of cost comparisons: Activity Government cost Cornmsrclai cost Tire retreading activities (average within CON1JS). Ophthalmic goods (average) Ice plants (Fort Benning) Office equipment repair (lort Carson Cob) $17.40 to $22.58 per tire..... . $3.13 per lens... $4.99 per ton - $820 per typewriter $21.80 to $89.80 per tire. $3.45 per lens. $7 per ton. $12 86 to $16 80 per writer. type.- Bread bakeries: Fort Monmouth, NJ Fort McPbørson, Ga Fort Sill, Okla Fort Carson, Cob Drycleaning plants: Fort Benning, Ga Fort Sam Houston, Tax Coffee roasting plants $0.133$ per pound $01395 per pound $0.1012 per pound - $0.0953 per pound $0.3636 per piece - $0374 per pi6ce $0.776 per pound. $0.1027 per pound~ $01612 per pound. $0.1)33 per pound. $0.1078 per pound. $03630 per piece. $0.346 per piece. $0.821 per pound. These samples Indicate that some activities are more economical to perform inhouse while others are more economical to contract. No overall answer as to whether or not éontracting is more economical or more costly than the inhouse work is possible. Mr. NORBLAD. May I ask one question? Mr. JIEBERT. Yes. Mr. NORBLAD. What about in time of emergency, where you have one of these steam engines and an aircraft is 10,000 miles away and there is no contractor to do the work? Are you prepared with your own people under combat to get that done? General BUNKER. Yes, sir. This is one of the reasons we have re- duced our operations overseas, in addition to this program We have established at Corpus Christi a mission of training a unit ready to move overseas, and we have, established certain cellular teams of specialists in maintenance of various aircraft to move overseas. Mr. NOR1ILAD. It seems to me one of the functions of the military in a time of peace, or relative peace, is to be constantly training their people so they can go into combat areas. General BUNKER. That is correct. Mr. NORBLAD. And be a self-sufficient unit ready to make their own repair and maintenance. General BUNKER. We have.units capable of performing each level of maintenance in the Army. Mr. NOEBLAD. The fact that you are contracting out a great deal doesn't lessen the efficiency or the ability to do your own repair in a combat base, many miles away from a contractor in time of combat? General BUNKER. No, sir. The unit, for example, that we have stationed at Atlanta in the shop-and it is issued a certain amount of property to work on as their skills in any individual area reaches the point where they can qualify. They work side by side with the civilians, working in the shop to learn the trades. (Mr. Norblad nods.) General BUNEER. And by being jointly located, can be pulled out without the mission there collapsing if they did. Mr. NORBLAD. Yes. PAGENO="0032" 28 CONTRACTING-OUT PROC~iDURES In other words, you are satisfied that this contracting out system `does not impair the training ability or the ability of your own men in uniform to perform this repair work at a remote area in time of emergency? General BUNKER. Within the personnel authorizations that we have, I am satisfied. Mr. NORBLAD. That is what I am driving at. General BUNKER. Yes, sir. Secretary IGNATIUS. We try to contribute to that capability also through our Reserve program, where we try to maintain units that are trft~ned in these supporting activities of maintenance and overhaul. Mr. NORBLAD. Of course, I also assume some of these contractor per- sonnel would be available to go with your people in time of emergency, to act as experts or technicians to advise. General BUNKER. We have three Reserve maintenance- Mr. N0m3LAD. No. I mean civilian employees-not Army employees. SecretaryIGNATIU5. TechnicaFpeople? Mr. NORBLAD. Technical people from the contractor. General BUNKER. Yes, sir, we have about 50 technical representa- tive~. Mr. NORBLAD. I know in my own experience at an oversea base dur- ing World War TI-I was with the bombers, as an Army' personnel. There were a lot of contractor personnel, I believe, from Martin, going `around giving advice and technical aid to the men doing the repair work on the planes. General BUNKER. The contract in which you are interested, sir, is a modification contract. We secured the engines for our Dellavilland Caribou procedurement from Air Force excess. `Mr. NORELAD. I don't follow you, from the beginning. Secretary IGNATIUS. Canadian. General BUNKER. Canadian. Mr. NORBLAD. Yes, I asked about that. What is it? In Washington, D.C., and one in Montreal, I noticed. General BUNKER. That is because the contracts with the Dellavil- land Corp. are made through a contractor which is an arm of the Canadian Government, called the Canadian Commercial Corporation. And some of the contracts list the contractor as Dellavilland, which it is not. It is the Canadian Corporation. Mr. NORBLAD. These are some British planes, you mean, that the Army bought, or Canadian? General BUNKER. No, sir. They are Canadian aircraft. But the engine contract is for the modification of an excess, out-of-production engine to meet production of this new aircraft. Mr. NORBLAD. Well, `in other words, the basic question would be answered by this: The Canadian Commercial Corporation comes into the picture because you bought certain planes from a Canadian manu- facturer, is that it? General BUNKER.. That is correct, sir. Mr. H~nERT. May we have the contracts, Mr. Courtney? Mr. COURTNEY. Now, Mr. Chairman, we pass with that, and with the supplementary information which the Secretary will supply, to a consideration to what has been described as "effort" type. PAGENO="0033" CONTRACTING-OUT PROCEDURES 29 At the direction of the Chair we inquired of the Department of the Army the scope, and obtaine~I a listing of some of these contracts. And it is to them, and as to the subject matter, that the attention of the subcommittee is directed now. Mr. H]~BERT. These are these "effort" or "think" contracts? Mr. COURTNEY. These are-well, I don't want to get into semantics. If you want to get them, you have to ask for "effort" type contracts. So I better stick with that. Then I won't be lost in the woods. Secretary IGwATrns. Mr. Chairman and Mr. Courtney, we have with us General Ely, who is Director of Research for the Army, who can talk about some of these specific contracts in as much detail as we can provide at the moment. We just got the list recently. I would like to make a general state- ment with regard to these "effort" or "think" contracts. Many of them fall into two categories: One, management services, that is, management advisory services. And, secondly, what is some- times called operations research. The basic Army policy governing work of this kind is set forth in AR 1-110, which sets forth both the basic policies and procedures for contracting for this kind of work. You might be interested in just a quick summary of the controls that are established by this policy statement. With regard to the management consulting and advisory services, these must be approved contract by contract, or project, by the Comp- troller of the Army, and by the Assistant Secretary of the Army for Financial Management. There are three basic criteria that these gentlemen use in reviewing requests for contracting of this kind. The first one is that the work requires technical knowledge not available in the Arm.y. Secondly, that the project may require an outside, disinterested Opinion. As you know, often businesses contract with consultants for this kind of thing, because the people on the job sometimes are committed to a particular structure of organization, and it is some- times useful to have an outside, objective look. Mr. H~BERT. That is the blanket that covers everything. Secretary IGNATrn5. Well, we try not to do that. Mr. HEBERT. It is. As a matter of fact, isn't that a good escape clause? Secretary IGNATIUS. Well, if it is not policed properly, it certainly could be.' Mr. H]~BERT. It is the avenue that leaves it way open to the Army to say, "Well, we want an outside opinion," and you go outside and get an opinion on ice cream cones, or anything else that you desire. Secretary IGNATIU5. Yes, sir. Mr. H~BERT. I think that will be developed. Secretary IGNATIUS. It could be abused. And the third point or criterion is that the requirement is of suf- ficient urgency in terms of time that your available people who might have the technical competence are not able to do it within the time and still do the other work that they are responsible for. The other category of these "effort" type contracts is the operations research area, where you have these studies of various kincls-mathe- matical analyses, and so forth. And here the Chief of Research and 74iO9-6i---~ PAGENO="0034" 30 CONTRACTING-OUT PROCEDURES Development of the Army is the person responsible for approving these. And he applies some of the same criteria that would be applied to the management engineering. One other category is the field of logistics studies, concerned with the supply system and distribution system of the Army. And here the Army has designated its Army Logistics Management Center at Fort Lee, Va., as the agency responsible for knowing about and ap- proving contracts of this kind. The point of this is to have a repository of knowledge here, to know what is going on, and to try to prevent someone from reinvent- ing a wheel. Now with regard to these specific contracts-these are from my review in the R. & D. area. And General Ely, who is on my right, can respond to this. And we have other people here familiar with individual contracts and in greater detail. Mr. HERERT. All right, Mr. Courtney- Mr. SANDWEG. Could I interrupt, please? Mr. H1~RERT. Yes, Mr. Sandweg. Mr. SANDWEG. Mr. Secretary, is this review that you spoke of, of contract by contract, regardless of cost? Secretary IGNATIUS. Yes, sir. Mr. HEn~nRT. All right. Mr. Courtney. Mr. COURTNEY. We have these listings as to which the specific questions were suggested by the subcommittee. One is a contract with Opinion Researcth Corp. of Princeton, N.J., as follows: Awarded a contract in February 1961 to conduct a 6 months' study designed to enhance West Point's ability to attract highest quality candidates from throughout the United States. The contract-giving the number of it-is for$40,000. The stated purpose is that the- contractor will report results and recommend communication methods for motivating outstanding students to seek admission to West Point. Now this effort is said to be still in the "development stage." Now the subcommittee would be interested in knowing the military pur- pose to be accomplished by this contract, and also the timeliness of the contract. General ELY. This one happens to fall in an area that has never been referred to the Chief of R. & D., and I believe Major Miller is here who can speak to that. Mr. H~BERT. Getting more cadets wouldn't be in research and de- velopment, then, General? General ELY. Beg pardon? Mr. HJ~BERT. I said, getting more cadets for the Academy wouldn't fall within the category of research and development? General ELY. Not thus far. Mr. ET1~BERT. Not thus far. General ELY. Major Miller- Mr. COURTNEY. From what office? Major MILLER. I am from the Office of Deputy Chief of Staff for Operations. Mr. COURTNEY. What is your first name? PAGENO="0035" CONTRACTING-OUT PROCEDURES 31 Major MILLER. George Miller, sir. The purpose of this contract was to try to determine what factors influence career selection by outstanding young men in our secondary schools throughout the United States. Not only what factors interest them specifically, but also what fac- tOrs are deemed to be influential by their teachers, their guidance counselors, and their parents, so that, in fact, we can attract the highest quality, the finest young men in the United States to desire, seek out, and obtain appointment to the Military Academy. We have great confidence in our Academy to produce and train a fine young man, but the finer the young man who comes in, the better the product for the Army. And so we were trying to determine what factors are involved in career selection for the outstanding young man throughout our secondary schools. Mr. COURTNEY. Well, what communication recommendations-what method of communications have been recommended? Major MILLER. There have been no recommendations made as yet. The study involves determining what communications means might be used to communicate an image of the Military Academy and of the Army as a career, which would be desirable in the eyes of the outstanding young man and his counselors. Mr. KrrculN. This is a high-class advertising project? Isn't that essentially what it is? Not from the standpoint of pictures on bulle- tin boards. Major MILLER. No. Mr. KITCHEN. No, but I mean it is advertising with respect to the quality of education, the necessity for career personnel-something that will attract the young man to want to go and make a career of this. Major MILLER. Yes, sir. It is trying to find out what should be done in this field. Mr. KITCHIN. Now, when you find out~ the Congress would be absolutely interested and eager to know. [Laughter.] Because I know some of the situations arise almost weekly with reference to congressional appointments, whereby the Congressman has utilized every available piece of information at his hand with reference to the individual's school, background, personality, et cetera, and then uses the good judgment that he has with reference to his knowledge of the family and whether he in his opinion thinks that the boy is qualified and wants to make a career, and sometimes with all of that information we fall flat on our faces-having a boy either flunk out intentionally to get out of the Military Academy, or having him not turn out to be the type of guy we thought he was. So if that does result in any concrete information of any benefit, we would like to know about it. Major MILLER. Certainly, the intention is to communicate to Con- gress any information that is found out, sir. But more to the point, if we can have a result arise that we do stimulate more outstanding young men to request you to nominate them, then you have a greater selection and can thereby have a greater field from which to choose. Mr. HEBERT. You can't get any more than the number of appoint- ments you are allowed, no matter how much time you spend. And, for every 1 you appoint, you make 10 enemies. PAGENO="0036" 32 CONTRACTING-OUT PROCEDURES Mr. NORELAD. That has nothing to do with their ability to play a good game of football, by any chance, does it? Mr. COURTNEY. No, that is handled separately. Major MILLER. I think not. Mr. NORBLAD. Is that handled separately? Major MILLER. This particular thing is designed to try to find out how we can motivate what the secondary schools feel to be their most outstanding young men. Mr. H1~BERT. Admiral Rickover is in charge of that program. [Laughter.] Mr. COURTNEY. Now the second-are you through? Mr. HI~BERT. No. I want to find out too, on what we were dis- ~ussing prior: Now what stimulated this $40,000 expenditure with this-what is the name of this outfit? Major MILLER. The Opinion Research Corp. Mr. H1~BERT. Maybe Gallup would have done it a little cheaper. Mr. COURTNEY. He may be next door to Opinion. Research Corp. Mr. H~BERT. Who is Opinion Research Corp., of Princeton, N.J.? Major MILLER. This is an independent opinion research organiza- tion, sir, a civilian organization, deemed to be either the most outstand- ing or one of the most outstanding of the type of corporation in the field by Dun & Bradstreet, when the report was requested on the organization. And the organization was recommended to the Superintendent of the Military Academy by his civilian public relations advisory com- mittee, which consists of public relations executives from a number of leading corporations t~nd senior members of several public relations counseling firms. Mr. H1~BERT. We used to call them press agents. [Laughter.] Major MILLER. And these gentlemen who met voluntarily to give advice on public relations to the Superintendent, said if he wanted this kind of opinion information, that this particular corporation was the most reliable corporation. Mr. HEBERT. Who was the Superintendent? Major MILLER. Who is the Superintendent? Mr. HiBERT. I know who it is. Who was the Superintendent who recommended this, or wanted to get this study? Mr. KrrcrnN. On this particular contract it says "February 1961." So it would be the Superintendent now. Mr. COURTNEY. February 1961. Major MILLER. February, sir. Mr. H1~BERT. Then this is just a recent one. Major MILLER. Yes, sir. Mr. H~BERP. Well, now, is the Academy dissatisfied with its grad- uates, or dissatisfied with its undergraduates? Major MILLER. I don't believe either is the case, sir. I think we would like to get finer young men out of which to make better graduates. Mr. H1~BERT. Well, you aren't geting the finest in the country? Mr. COURTNEY. What happened to the flower of our youth? Major MILLER. I think we can always do better, sir. PAGENO="0037" CONTRACTING-OUT PROCEDURES 33 Mr. KrrornN. They lost some football games recently. [Laughter.] May I ask the major a question? And if this is an unfair question, just say so. What has been the reaction of your shop over there with reference to the action on the floor yesterday of making it a 5-year obligation after graduation, from either of the Military Academies? Major MILLER. I don't know a shop reaction, sir. My own reaction, particularly as regards the subject under debate, is that I trust this won't make it more difficult to get the most out-. standing young man. Mr. KITCrnN. Well, on the contrary,, wouldn't it-knowing that he had a 5-year obligation before he undertook this particular school- ing and go into one of the Academies, don't you think we would eliminate a lot of those that say: "I just want an education, and when I am through with it, the heck with the Army, I will get out"? Wouldn't the psychological effect be at least in favor of the long- term obligation that he has to fulfill, if he understood that is this schooling in an Academy? Frankly, I was for the 7 years. I think we ought to have a 7-year course. Mr. H1~BEnT. I think 7 years, too. Then the remarks concerning the football team, I move to make this observation. I think a little bit more consideration should be given to a good stout pair of legs and a good stout heart, and not all to the long hair. [Laughter.] We want the composite man. We want the man who can fight, as well as the man who can think. And I, for one, am very strong that West Point, and the Air Force Academy and the Navy, have not only the best football teams, but the best basketball teams and the best everything. I think these things are very important, because we certainly can't fight wars with boys who just have a pencil in their hands and can figure out that pi means so and so. Mr. GAVIN. Only those that know mathematics. Mr. H~BERT. Mathematics. We need a littJe brains out there, and physical ability. Mr. GAVIN. Has this Princeton research corporation taken into consideration whether or not the boy has the energy and resourceful- ness and courage, and all of those things, that may be essential when he got into combat? He may be a good mathematician, but if he gets into combat some- place he has to have those attributes, in addition to brains, too. I just wondered if you examined that angle of it. Major MILLER. When the survey was first considered, sir, the Opin- ion Research Corp. representatives visited the Military Academy, to find out what kind of a young man the Military Academy was inter- ested in, which is the young man who could be a leader in combat. I believe these factors are being considered. Mr. COURTNEY. That would be a good beginning for any perform- ance of this kind, I should think. Mr. HI~BERT. Major, is there any consideration behind-of course, perhaps it is unfair to say it, but I want to ask the question anyway. PAGENO="0038" 34 CONTRACTING-OUT PROCEDURES Was any thought given to the tendency, which is evident and obvious year after year, of the Academy officials to take away the power of appointment from congressional sources, and where they want it all unto themselves, to make their own selections without the wisdom of the Members of Congress who know people have votes someplace, maybe ~ I don't know. I just wanted to know what their thinking was. Major Mir~nm. I don't believe this survey was directed to that, sir. Mr. KrrornN. We will await the results. Maybe that is what the recommendation will be. Mr. HEBERT. That is what the recommendation is going to be: "Don't let the Members of Congress do it." [Laughter.] In the 2~1 years I have been here, I have been very much impressed with the fact that the graduates of all the academies think that politics is a horrible thing, and-"Don't even talk to them" about politics. Of course, they forgot how they got in there. [Laughter.] That is after they have been baptized and washed and everything. They don't want to be soiled by fooling around with a politician. He is a horrible individual. A Member of Congress: "My goodness alive, don't talk to that man." But his papa and mama, I talked enough to them when he wanted to get in, I will tell you that. Mr. Courtney. Mr. COURTNEY. We have next a series of contracts. General, I guess this would be yours. Now, we asked some questions, Mr. Chairman, to identify these con- tracts and the area covered. We asked the identity of the contractor, the cost of the contract, the subject matter, and the results. And if incomplete, the reason why the contract was incomplete. Now, here is a contract, called an "effort" type contract, to the At- lantic Research Corp., in Alexandria, for which $57,447 was paid. The subject was an analysis of the 81-millimeter mortars, the M-29, and the M-23A3, for the purpose of defining certain elements in the performance of the present mortar and collecting a new body of data to be used in the proposed design and development of an im- proved medium mortar. Now, the results of the undertaking to date: Recommendations- None. If incomplete, the reason. Now, the effort as of March 30, 1961. "Technology of instrumenta- tion may not be advanced sufficient to measure elements involved." Now, I think the subcommittee would like to know how this organi- zation was selected, what its inhouse capabilities are, and whether the function of determiniug the capability of a military weapon isn't a military function for military people. How does it happen that the question was asked for which there was no instrumentation available? Shouldn't this have been discovered earlier, before we got up to $57,000? Those are a few questions. General ELY. May I comment in general on this list, before we get into the specifics? Mr. COURTNEY. Yes, sir. Geiieral ELY. These-this list of contracts was obtained here some weeks ago and furnished to the committee. It consists- PAGENO="0039" CONTRACTING-OUT PROCEDURES 33 Mr. COURTNEY. Months ago. General Eia~. Months ago. It consists of the contracts that were let by our seven technical services. In many cases, as you can see, they are relatively small contracts in dollar value. Mr. COURTNEY. Cumulatively. General ELY. Cumulatively they add up to quite a sum of money; yes, sir. Mr. COURTNEY. Yes, sir. General ELY. I am not prepared, without going to each technical service and getting some of these answers. Mr. COURTNEY. Do you have any specifics, General Bigelow? General BIGELOW. I do have some specifics with respect to two of the contracts that we have been able to identify. The third has not yet been identified; that falls in my technical service area. Mr. COURTNEY. All right. Let me go over, then-I think the second one you have reference to is to the same contractor. General BIGELOW. The same contractor. Mr. COURTNEY. That is a contract for $62,811. The subject matter of the report- Now, this information, Mr. Chairman, is all from the Department of the Army. We express no opinion on its content. The language is that of the Department of the Army. Subject matter: Project for conducting concept studies and preparation of designs for a new 81-millimeter mortar and a new 4.2-inch heavy mortar. And this is reported as: No recommendations to date. But the effort as of March 30-and this March 30, Mr. Chairman, was the return date on the information which the committee received. That is, March 30 of 1961: Satisfactory progress in preparation of concepts study. Now, General, can you tell us why the military could not conceive of the type of weapon most suited to it-this would be one question- to its needs? And what capabilities this organization has to supplant the military mind and the military experience in the selection of a weapon? General BmELow. This contract was let by Watervliet Arsenal. Mr. KITCHIN. When? General BmELOw. The contract was entered into on the 18th of July of last year. Mr. NORBLAD. Where is that arsenal, please? General BmELow. Watervliet Arsenal is in the vicinity of Troy, N.Y. One of their major missions is the research and development of mortars. Early this year a study was underway, undertaken to revise and upgrade the military characteristics and the qualitative materiel requirements for medium and heavy mortars. The arsenal has a very fine capability in this general area. PAGENO="0040" 36 CONTRACTING-OUT PROCEDURES This was a broad study. It went back to the very basics in mortar fire and the development of mortars to deliver that fire. Two studies that appeared here were let in support of the Watervliet Arsenal effort. Mr. COURTNEY. Those are the two I read. General BIGELOW. Those are the two to which you referred. Mr. COURTNEY. Yes. General BmELow. Because the time frame was such that they wanted to come up with the answers, some answers to some rather basic questions, early enough to proceed with the design and development of a mortar. So we have a parallel approach, with differing ideas as to how to solve the mortar problem or how to improve the mortars. And there- fore the added opportunity to select the best elements of differing ideas, or differing approaches. The first contract to which you refer, let on the 18th of July, was completed this month. We do not at this moment have an evaluation of the output of that contract. That will be the function and responsibility of the commanding officer of Watervliet Arsenal and his technical staff. Mr. COURTNEY. Well, will that be reported to the committee, so we may have some understanding of what the service performed really was? General BIGEL0w. It may, indeed. That, upon its evaluation, will be submitted to the Office, Chief of Ordnance, the Research and Development Division. And it, I expect, in all probability will be a part of the report that will go forward to. the Office, Chief of Research and Development, Department of the Army. Mr. COURTNEY. Now, the question has to do with the competence of this contractor. It would be, at first blush, supposed that the military possessed the competence to make a judgment in a matter of this kind, based on their experience. What would be the competence of an organization of this kind ~ We know nothing about it. It recently bloomed on the stock market,. around here. But we know nothing about the competence of its personnel in this very selective field. General BmELow. Well, I think that the determination of the competence of Atlantic Research Co. rested with the commanding officer of Watervliet Arsenal. Mr. COURTNEY. Then, we would understand that these arsenal commanders have this authority, is that right? General Biam~ow. They have the authority. And they have the technical people on their staff to assist in assessing the capability of any of those research institutions. Mr. COURTNEY. Well, will you tell us, so the committee may know,, what influenced the decision to select this research corporation? Is it full of retired officers who have had competence in the field~ or are we dealing with mathematicians, and equations? What is the competence of this organization, versus the military itself? General BIGEL0w. I can't respond to that personally. PAGENO="0041" CONTRACTING-OUT PROCEDURES 37 As I say, it is the responsibility of the commanding officer of Watervliet to make that assessment, along with his technical staff, prior to the award of the contract. Mr. COURTNEY. Can you su~pply the information to us, General? General BIGELOW. We certainly can provide the evaluation. Mr. COURTNEY. As well as the results of the contract. General BIGELOW. Well, both. First, is the evaluation of the agency to do the work. And finally, at the completion of the contract, is the evaluation of the product. And I believe, if the committee so desires, we can submit both of those evaluations. (Submitted at end of day's testimony.) Mr. H1~BERT. You just said, General, that this ordnance place has *the capability. Now, why would they have to go outside? These are the experts. General BmELow. A matter of manpower availability to put on this problem at any one time. I don't know the number of man-hours that will be involved in completing such a basic study, starting with such a basic study and coming up with a new design or a great improvement on a current design in the mortar family, both for increased range- Mr. H1~BERT. I think it would be of interest, too, to know how many individuals of this company worked on this project-i, 2, 3, 4, 5, 6, or iO? General BmELow (addressing Mr. Wilson). Do you have the in- formation on that? Mr. H~BERT. Do you have that information? General BIGELOW. We do not have the information as to the number of people employed. I think we have the man-years, though-have we not-man-years of reffort, estimated to be required for the task (addressing an associate). `Mr. H~BERT. Well, this is to go for 9 years, this study? General BIGEL0w. No, sir. Mr. KUrCHIN. Man-years. Mr. SANDWEG. Man-years. For 1 year. General BIGELOw. The man-years. Mr. HI~iBERT. Well, within the great framework of the Army person- nel, individual competent officers couldn't be assigned to this task? They have more task forces over there in the Pentagon than they have officers. Every day we get ad hoc committees, and task forces. So why wouldn't it be just as simple and as easy and direct an approach to assign another task force to make this important study, ~of competent men in uniform? General ELY. May I respond to that? Mr. H~muiT. Yes. General ELY. Mr. Chairman, that problem, as brought out with these `two contracts, is the same problem we face in essentially every opera- tions research type contract that we undertake. We have within the Army, certainly in general, the capabilities tu do the job if we want to pull those men off the other work that they are doing and assemble them from wherever they might `be. For instance, to do this job, I am sure that General Bigelow could have brought a task force from Watervliet, and Watertown, and from his own staff, and probably from some of the field commands that are PAGENO="0042" 38 CONTRACTING-OUT PROCEDURES using the weapon, and have made a very good study of the relative capabilities. But every one of these involves an interview and a lot of time. In other words, to make these studies, I would assume that the Atlantic Research Corp. people are going to have to visit some of our field commands that are working with the weapon, that have had experience in comparable weapons. I would expect that they will have to go to Watervliet and-they will have to go to a number of places. I would expect that they are going to have to bring in scientists that know metallurgy and know ballistics. So for any given study, almost any study I could think of, there is within the Army the people who could be pulled together to make a very fine study. But you are going to take them away from something that we would in many cases feel is more important. And in the end we lose, by diverting them to this one mission for the time that it would take to carry it out. Mr. H~BERT. You couldn't utilize Reserve officers called to active duty for their tours instead of assigning them to come up and sit with congressional committees and report back what they hear ~? General ELY. If we could find the Reserve officers with the right capabilities, I am sure we would. Mr. HEBERT. Don't you know the capabilities of the Reserve officers ~ General Eix. I am sure we have a good reading on it. But I doubt that we have the knowledge and detail of Reserve officers and their training in mortars, their knowledge of metallurgy, and their knowledge of ballistics, that we could pull together, and say, "Give us a study on this." I would be surprised if we could. Mr. NORBLAD. Well, if it is a case of manpower shortage as far as Ordnance is concerned, wouldn't it be interesting if you had been here a few weeks ago when we were listening to the testimony about the closure of Benicia and Mount Ranier, where we have a surplus of some 2,000 or 3,000 technical men in the ordnance field who are being thrown on the open market and out of jobs. Mr. H~BERT. Raritan, also. Mr. NORBLAD. Raritan, also. General BmELow. I might respond further. The people that will be affected by the closeout of Benicia Arsenal, and the others that are in that same category- Mr. NORBLAD. There are two or three more. There is one at Lake Erie, I have forgotten the name of it, and one at Toledo, too. General BIGEL0w. Rossford. Mr. NORBLAD. Yes, that is what I mean. General BmELow. They are not the people that can do this en~i- neering type of job. They are supply people, storekeepers, main- tenance technicians, rebuild shopmen, and that sort of thing. They are not the engineers that we would expect to produce on some rather basic studies like this. Mr. KrrcrnN. May I ask this one question ~ I understand that nobody here is available to answer the question as to what this particular research corporation is, and that is how PAGENO="0043" CONTRACTING-OUT PROCEDURES 39 many personnel, what percentage of engineers, capacity, and so forth, that are within that group of personnel. Is this a professional interview group, or do they do the engineering studies themselves? General ELY. I don't know Atlantic Research Corp. But I would assume that they have a mixture of physicists and chemists and metal- lurgists inhouse, who can interpret what they can get from interviews and from analysis of papers and other information that they can geL In other words, they are not just interview people, no. And it is a good research corporation. Mr. KITcrnN. I am not doubting the reliability of the research or- ganization. I just wanted to find out what their particular function was in this case. General BIGELOW. Well, in one of these contracts-and I can't refer specifically to which one-they actually get out and do some labora- tory type work. They do some firing. They instrument the range. Mr. NORBLAD. Aren't you people doing that constantly in your Army Field Forces? General BmELow. I didn't hear you. Mr. NORBLAD. Aren't you people doing that constantly, in your Army Field Forces? General BIGELOW. We are ~ertain1y doing it at Aberdeen. We are doing it to the extent that, as I understand it, we do not have room for this project up there. Mr. KITCmN. Where are they doing their firing in their experimentation? General BIGELOW. I wasn't thinking of room in the sense of geo- graphy. I was thinking of room in terms of people to put on this particular job, because of other very high priority projects. Mr. KrrcrnN. But you do know where they are doing their actual firing or- General BloELow. They did some of their firing at A. P. Hill. And they may have done it all there. Mr. SANDWEG. Could I interrupt for a moment, please? General Bigelow, this apparently is one of the types of contracts that had to be approved by the Chief of the R. & D. Section of the Army? General BIGEI.ow. I will have to reserve answering that question, because I don't know. It is my understanding that the project was approved, the overall project, for the development of these mortars. But the individual contracts in support of them can be approved by the commanding officer of Watervliet Arsenal. Mr. SANDWEG. The Secretary testified, though, that these are re- viewed contract by contract. Perhaps that can be explained. General ELY. This depends on time. The Secretary was referring to our current policy. And we have been progressively, over the last 2 years, endeavoring to tighten up on the administration and control of this. At the present time, the laboratory chief at Watervliet could not do this without coming in through Ordnance, to the Chief of Research and Development. PAGENO="0044" 40 CONTRACTING-OUT PROCEDURES When this was let, I don't know, or when this contract was madö I don't know. Secretary IGNATIUS. There is another point that I think ought to be in the record. We have a position of Assistant Secretary of the Army for Re- search and Development. We do not now have that person sworn in in office. Contracts of this type are not in my area. They are in the area of the R. & D. Secretary. He has been nominated-the individual has been selected and he has been nominated. But this type of thing would come under his purview, from the standpoint of the Army secretariat. And in our assignment of responsibilities, the R. & D. Secretary has procurement authority for R. & D. work. I do not have responsibility for making determinations and findings and actually procuring research and development work. This is the purview of the II. & D. Secretary. Mr. SANDWEG. May I run that out, then, General Bigelow. When this is approved as a project in the Pentagon, at that time is there some notation made, or some justification made, or statement, that it can be accomplished inhouse or that it must be done partially outhouse and. partially inhouse? In other words, I think what we are looking for is some notification to higher authority that extra money, other than current operating expenses, are going to have to be put into this. General BIGEL0w. It does not as a rule require extra money. It is the choice, and it may be subject to approval at a higher level. I just can't respond to that at the moment. But it is a choice on the part of the commander of the installation charged with the mission, as to how he shall do it: whether he shall do it by contract, whether he shall do it inhouse, or whether he shall do it inhouse essentially with some supporting contracts. Mr. SANDWEG. Then, up until this latest revision in procedure, he is completely autonomous in that field? General BIGEL0w. Within certain dollar limitations. And what they are I can't answer you. Do you know? Mr. WILsoN. I am Stewart Wilson of the Office of the Chief of Ordnance. Under the negotiating authorities, exception 1 is used in the H. & D. area, up to $100,000. We are required on anything over that, of course, to come in and get a secretarial approval, or an authority to negotiate, under ex- ception 11, and all other areas. But under the first exception, we can go up to $100,000 on a contract, providing, of course, it has project, original project approval on it- where the contracting officer would not have to co~ne in after that to get further approval. Mr. SANDWEG. I don't understand this review, then, case by case. Is this some new directive that you have? General ELY. I think we are confusing contract authority with the authority to undertake such a study. PAGENO="0045" C0NTRA~TING~OUT PROCEDURES 41 When we review a request for authority to undertake an operations research study, we review it from the standpoint of should it or should it not be done. We don't review it from the standpoint that it is going to cost $100,000 or $50,000 or $1 million. Mr. SANDWEG. Then it is not contract by contract? It is more case by case? General Erx. It is case by case; yes, sir. Mr. COURTNEY. To pass very quickly to another subject-not an~. other subject, but this is one that is presumably completed. It is supposed to have been completed March 31, 1961-no, I beg your pardon, March 31, 1963. And the same question is with respect to this contract. It is called a feasibility study: C.E.I.R., Inc.-formerly General Analysis Corp.-Los Angeles Research Center, 11753 Wilshire Boulevard, Los Angeles, Calif. Now the contract date-the contract cost is $1,419,868, partially funded. Subject matter [reads]: Services to conduct a study for a period of 60 months beginning April 1, 1958, and ending March 31, 1963. The primary objective is the development of a war game specifically designed to aid the study, analysis, development, and synthesis of combat systems of particular interest to the Signal Corps. Such systems include communications systems, electronic warfare systems, battle area surveillance systems, and auto~ matic data processing systems. In addition to the general purpose war game there shall be developed a variety of modifications of the game especially suitable for particular applications of the game. The game shall be comprehensive in that it will take full account of the various interactions of signal systems with combat elements. It shall be capable of measuring the contribution of signal systems to combat effectiveness. The game shall be mechanized, using suitable computing and analog equipment so that It can be played rapidly. The rules shall use terms familiar to military personnel and shall be sufficiently clear and simple that the game can be played with little or no special training. The contract is approximately 60 percent complete. No recommen~ dations are submitted to date. Now, the subcommittee would be interested in knowing the comrn- petence of this organization in the highly specialized field of combat. Who are the personnel who are devising this very simple game to be played by-it is specified it is to be a "clear and simple game," by the terms of the contract. Who are they, and what is this all for? Colonel DENNISON. We have some gentlemen here from the Signal Corps who I believe can respond to this part. Mr. Wayne, or whoever, can respond. Colonel PENCE. I am Col. Harvey Pence, from the Signal Corps. I am not familiar with this particular type of contract because I didn't know it was in the group until this morning. I will find out and give you a full report on that. Mr. HEBERT. Well, the committee-I think the bells have rung. Now the committee will stand in recess until Thursday mornmg. We will have to have you gentlemen back here with competent people who can answer the questions, Mr. COURTNEY. Thursday morning? PAGENO="0046" 42 CONTRACTINO-OUP PROCEDURES Mr. H~BERT. Thursday morning, because we have a full committee meeting tomorrow. Mr. SANDWIiG. No. Mr. HI~BERT. We don't have a full committee meeting? Mr. SANDWEG. No full committee meeting this week. Mr. HEBEET. Tomorrow morning, then. We hate to inconvenience you, but you certainly inconvenienced us in your appearance without giving us answers to problems that were known, maybe not you individuals personally, but certainly to your Department for 3 months. Mr. COURTNEY. Mr. Chairman, for the interest of the committee- I don't want to place anyone under any embarrassment, but your letter of March 16, 1961, was directed to the Secretary of the Army-and I :would like to place it in the record now soit will be clear. Mr. H~BERT. Read it into the record. Mr. COURTNEY (reading): DEAR Ma. SECRETARY: In accordance with the provisions of hR. 78, 87th Con- gress, the subcommittee desires to be informed concerning those contracts let by the Department of the Army during the period Ianuary 1, 1957, to date, in the realm of basic research, management surveys, feasibility studies, and all other "effort type" contracts, wherein the ultimate objective was something other than a product or a piece of hardware. Your reply, which should be prepared in order to reach the subcommittee no later than April 7, 1961, will include the identity of the contract, the cost of the contract, the subject matter, results of the undertaking, and such other data as would be necessary for an understanding thereof. Your prompt attention to this request will be appreciated. Mr. GAVIN. What is the date of that letter? Mr. COURTNEY. March 16, 1961. Mr. HEBERT. The gentleman there? Colonel HOLMAN. I am Colonel Holman. Mr. Chairman, I can speak with authority on this subject. On the 23d of March we received in the Contracts Division, DCSLOG, a re- quest for certain information regarding certain types of contracts which this subcommittee desired to have by April 7. The Army responded immediately, in an effort to get this informa- tion worldwide, and we made some submissions to this committee, on two different dates. As I recall, we did not meet the deadline of April 7, but we did have the information here by April 10. This represented a great deal of work from all of our procuring agencies. I was the action officer in this case, and the case was coor- dinated throughout the Pentagon with the appropriate people. I also attended a meeting some weeks ago when this subject came up regarding the hearings now in hand, and at that time, in talking with Mr. Sandweg, it was our impression-or I should say it was my impression that they were concerned with the types of contracts which were not particularly related to these "think" or effort type contracts. At the time we were working on this paper, two types of terms were used: "think" and then "effort" type contracts. In any event, we are referring to the submissions we made back in April. My point is, sir, that during the discussions with Mr. Sandweg later, it did not occur to me that this was related to this particular PAGENO="0047" CONTRACTING-OUT PROCEDURES 43 document. I was advised oniy yesterday morning that certain con- tracts were specifically specified to be discussed. As far as I know, `that was tlie first time that there was a relationship drawn between the two cases. Mr. GAVIN. Who advised you? Mr. HEBERT. Mr. Sandweg. Mr. SANDWEG. I think an explanation is due here, too. We had two separate approaches to this problem, that actually was coordinated. One was on contracting out, and the other was "efforts" type contracts. At the time of the original request, the indications were that there would be hearings on both. It was on Friday that we decided to combine them, and on Friday we notified the Army of the specific items that we would inquire into, that were brought up this morning. There had been an understanding, I thought, that all of the "effort" type contracts that had been supplied to us in answer to our request would be subject to inquiry, if necessary. Mr. HEBERT. Well, naturally, if we asked for answers on a contract, it was to be presumed that they are going to be subject to inquiry. We just don't want to read the text, and then get confused by this conglomeration of words we hear. We want to reduce it-like the man that is getting paid $1 million for the war games-where you put it in simple words that Congress- men can understand. Mr. KITCIIIN. Mr. Chairman, may I ask a question here? I will ask it of the colonel. Is there any way possible that someone can be prepared to answer the type questions that have been asked thus far on these particular contracts by tomorrow morning'? Colonel HOLMAN. I would like to answer that question this way- if I may, sir? There were some 1,000 to 1,500 contracts reported, worldwide, by our procuring agencies. We recognized at that time that questions might be raised, or could be raised about any one of this total. `It is my opinion, sir, that tomorrow morning is too early a date for the Army to respond in authoritative fashion on any one particular contract. Mr. NOBBLAD. Your commanding officer at this arsenal, up in New York State, would certainly let you know right from a telephone call. Colonel H0LMAN.' Sir, on any given contract the Army would, if the committee desires, I am sure, attempt to obtain the individual. responsible, by the fastest transportation possible-to get the respon- sible individual here. I am simply saying, sir, that on any given contract, given a reason- able period of time, the Army would attempt to respond. Mr. KITCrnN. How many of these are in this particular group that you are asking now? Colonel DENNISON. Twenty-three. Mr. KrrcmN. So by tomorrow, it will not be possible to have wit- nesses here who can testify to all of the details with reference to these 23 contracts? Colonel HOLMAN. Sir-if I might make this suggestion, sir? PAGENO="0048" 44 CONTRACTING-OUT PROCEDURES On the contracts that you are interested in knowing about, an effort could be made, within a matter of hours, to make an evaluation as to how soon they could respond to them. I am referring, for example, to a case which might be involved in the Chief, Signal Corps Office, for example. There may well be some individual there who is fully cognizant of what occurred and the rea- sons for the action taken at that time. In that event, it is entirely possible tomorrow morning a man could be here. Mr. }I~BERT. Well, we will excuse the Army tomorrow and continue with the Navy, in view of what the colonel has said. Mr. Secretary, we want to give you enough time. Because we know you will probably need a little bit more time to find out what happened over in your shop. Secretary IcINATIUS. Yes, sir. Mr. H1~BERP. So you will receive from counsel the 23 that we have in mind. Mr. SANDWEG. They have them. Secretary IGNATIus. We do. Mr. H~BERT. And we will be in daily communication with you. We don't need a subcommittee, and we won't need a task force, or an out- side organization with a research and development contractor, to keep in touch with you daily. Secretary IGNATIUs. That is right. Mr. H1~RERT. So you can expect a call, every day, to find out if you are ready. (Secretary Ignatius nods.) Mr. H~BERT. And as soon as you are ready, we want you back here. The committee stands in recess until tomorrow morning at 10~ o'clock- Mr. KITCHIN. You will have the Navy tomorrow? Mr. H~iBERT. Navy tomorrow. And I hope there is unification enough to get word to the Navy what we want. (Further committee postadjournment remarks not reported.) (Whereupon, at 12:06 p.m., the subcommittee adjourned, to recon- vene at 10 a.m., Wednesday, August 9, 1961.) (The following data was submitted by the Army in explanation of its contracts with Atlantic Research Corp.:) The Ordnance Corps has a mission to develop mortars for the Army. In order to design and develop an Improved medium mortar, it was considered necessary to define certain elements in the performance of the present medium mortars and to collect previously unknown kinematic data to be used in a new proposed design which would represent a significant advance in this field of weaponry. The Watervliet Arsenal became aware that the current and predicted workload In the mortar unit of the arsenal was such that sufficient man-hours were not available to accomplish this work within a reasonable time frame. Technical competence was available, however, to supervise the work of a contractor. Invitations for proposals to do the work were issued to a number of qualified contractors and six proposals were received. The proposals were analyzed by Watervilet Arsenal and that of the Atlantic Research Corp. was considered most acceptable. Detailed study and review of the technical proposal was performed by the research and engineering division of Watervliet Arsenal. Final review of the proposal was performed by Watervliet Arsenal price analysis office. The findings and determinations of the technical and financial reviews were furnished as a package to the Watervliet Arsenal contract board of awards as a part of the proposed contract package. In this contract the Atlantic Research Corp. PAGENO="0049" CONTRACTING-OUT PROCEDURES 45 was the low bidder. Approximately 3,500 man-hours were used in this contract and this involved personnel with three Ph. D.'s, three master's degrees, two B.S.'s, all in the field of electronics and mechanical engineering. The final report on the contract has not yet been submitted; consequently, the final evaluation has not been made. However, interim evaluations indicate that the instrumentation was well conducted, good legible records have been obtained, and data has been secured which can be satisfactorily reduced. It Is already certain that the information which was sought, that is, a new body of data answering technical questions regarding the performance of these weapons under combat conditions, will be obtained. The second Atlantic Research contract was for the performance of concept studies in the preparation of designs for a new 81-mm. medium mortar and a new 4.2-inch heavy mortar. The work could not be done inhouse for the same reason, namely, that the workload in the mortar unit of the arsenal was such that the work could not be accomplished in a reasonable time. In this case, Atlantic Research Corp's bid was not the lowest, although it was an inter- mediate one; however, the overall evaluation indicated that the contractor's proposal was the most advantageous from the technical standpoint. Similar reviews were made of this contract and submitted as before to the Watervliet Arsenal contract board of awards. The contract is not yet completed; however, results to date have been as follows: Contractor made sound recommendations on basic design concepts; also, the contractor's efforts have played an important part in bringing about 2 new mortar designs, namely, the 81-mm. XM93 and the 107-mm., 4.2-inch SM95. Approximately 5,300 man-hours will be used in this contract involving the same personnel cited for the other contract. Copies of final reports on both contracts, together with Watervliet Arsenal evaluations, will be furnished shortly after completion of the contracts. STATEMENT or AssIsTANT SECRETARY ox THE ARMY PAUL R. IGNATIU5 IN RESPONSR TO SUBCOMMITTEE INQUIRY With respect to the committee's inquiry as to whether the Department of the Army's policy is satisfactory and should be continued, it is my belief that the present policy, as defined by Bureau of the Budget and Department of the Defense directives, permits the Army to discharge its responsibilities satis- factorily. The policy is to use Government owned and operated commercial and indus- trial type facilities only where it can be clearly demonstrated that private enter- prise cannot perform the service or provide the product necessary to meet cur- rent and mobilization requirements, or that operation by the Government Is necessary in the execution of the military mission. I feel that we have been able to comply with this policy without compromising our combat effectiveness position. In this connection, attention is invited to the instructions from the President to the Director of the Bureau of the Budget in July 1961 to explore the subject of contracting out with the Secretary of Defense, the Chairman of the Atomic Energy Commission, the Administrator of the National Aeronautics and Space Administration, and the Special Assistant to the President for Science and Technology. 74109-61-----4 PAGENO="0050" PAGENO="0051" CONTRACTING-OUT PROCEDURES WEDNESDAY, AUGUST 9, 1961 HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS, Washington, D.C. The subcommittee met at 10:07 a.m., Hon. F. Edward H~bert (chairman of the subcommittee) presiding. Mr. H~n~i~r. The comrniiteewill be in order. Members of the committee, when we adjourned yesterday we an- nounced the Navy would be here this morning. The Navy has appeared through the Assistant Secretary and his witnesses. Mr. Secretary, will you identify the people at the table with you? Secretary BELIEU. Yes, sir. On my right, Vice Admiral Beardsley, Chief of Naval Material. Next to him, Bob Moore, rear admiral, Deputy Assistant Chief, Bureau of Ships. Where is Captain Harrington? Captain HARRINOTON. Right here. Secretary BELIEU. Captain Harrington, Assistant Chief for Pro- duction and Quality Control, Bureau, of Naval Weapons. Captain Swain, special assistant to the Assistant Chief for Fleet Readiness, Bureau of Naval Weapons. Two witnesses, our principal witnesses: Dr. F. P. Rigby, Director, Mathematical Sciences Division, and Dr. Shirley Silverman, Director of Research, Office of Naval Research. These will be the principal gentlemen. We have other backup witnesses if needed, sir. Mr. H1~BERT. Now you are familiar with the discussion which we are going to have this morning, and these witnesses are prepared to answer? Secretary BELIEU. To the best of our ability; yes, sir. I have a prepared statement, as the chairman knows, plus the backup of more additional detail for the record, which the committee may pursue at its leisure, if it wishes. The Navy has been presented by committee counsel with some 15 contracts, which I would like to address myself to a little later on when I get through. These are in answer to the committee's specific questions. Mr. HEBERT. You are prepared to respond to the questions on the 15 contracts? Secretary BELIEU. Yes, sir; we believe we are. If there is some information we don't have, of course we will provide it. Mr. HiiBEwr. That is fine. Proceed, Mr. Secretary. Secretary BELIEU. Thank you, sir. 47 PAGENO="0052" 48 CONTRACTING-OUT PROCEDURES Mr. Chairman and members of the committee, I am very happy to return today to reassure you regarding the policy evolved in the Navy regarding what is known as contracting out. It is the Navy's policy, in consonance with its mission, to maintain a fleet in readiness for emergencies and to develop a capacity for repair and overhaul of an expanded fleet operating under war conditions. This policy requires a representative capability inhouse for nearly every type of maintenance necessary to keep in readiness its ships, aircraft, and their associated weapons. Such capability provides for an immediate response to the fleet, maintains a mobilization nucleus of trained personnel within naval plants, achieves a balanced utiliza- tion of facilities, achieves maximum utilization of personnel and material, and sustains an engineering capability organic to the Naval Establishment. In accomplishing the objectives of this policy, the Navy will develop or retain within its establishment, insofar a's practicable, an industrial capability for maintenance and repair of mission essential ships~ aircraft, weapons, and components. It will contract for: (1) Nonmission essential weapons and components when military control and performance of such work is not required for military effectiveness, personnel training, or the maintenance of a rotation base; (2) New weapons which are mission essential or nonmission essential where an inhouse capability has not yet been achieved; and (3) Selected items where an inhouse capability does not exist, and where costs with other factors concerned are prohibitive to creating such a capability. The policy I have just stated is not, in my opinion, in conflict with Bureau of the Budget Bulletin 60-2 and Department of Defense Directive 4151.1 and can be carried out within the framework provided by them. Every cent expended from maintenance funds must achieve the maximum in defense. Over the years the Navy Department has main- tamed a searching and aggressive policy to discontinue activities no longer needed in its mission and to curtail or dispose of those activities as promptly as possible. Enforcement of this policy in its final result does avoid competition with private industry in the furnishing of those services which can be obtained more cheaply from normal commercial sources without detri- ment to military capability. Bureau of the Budget Bulletin 60-2 does no more than formalize this policy. From my statement that I am submitting for the record, it is ap- parent that discontinuance or curtailment of the bulk of activities affected to date has resulted from this prior policy and that only a mere handful of actions can be attributed to the issuance of Bureau of the Budget Bulletin 60-2. The crux of the situation is that the Navy is discontinuing or cur- tailing certain activities no longer needed to support our mission and is contracting out for services when it can be demonstrated that better readiness of the fleet in support of its mission and a more sound mobilization base can be achieved thereby with the maintenance funds available. PAGENO="0053" CONPRACPING'-OUP PROCEDURES 49 Prior to World War II, the Navy, due to the uniqueness of its ships, its weapons,~ and its equipment, had developed both the capability and the capacity to accomplish practically all of its maintenance inhouse. This work consisted of the maintenance of ships, guns, aircraft, aircraft components, radio and electronic equipments. During the war, with the vast expansion of the fleet, it became necessary to place some of the increased ship repair workload in private shipyards. Following World War II, th~ Navy initiated a program to contract for depot maintenance of nonmilitary type aircraft, such as the R4D, R5C and JRF, in order to retain a mobilization potential within the rapidly declining aircraft construction industry. This action occurred quite naturally since our overhaul and repair depots were busily en- gaged in reworking combat aircraft for stowage as a mobilization reserve. Shortly after World War II the Navy contracting out program accounted for 20 percent of its ships overhaul, 65 percent of its new ship construction, and continued 100 percent of aircraft new production. As the post-World War II period progressed, many new technol- ogies, new weapons, and new equipments evolved rapidly, such as jet engines, rockets, missiles, and vastly more sophisticated electronics. The Navy lost many skilled technicians and found it most difficult to recruit, train, and then retain the skills required to maintain these new items. Concurrently, requirements for repair factilities and test equipment changed to a marked degree. Thus began a shift in the pattern of depot maintenance operation. Actually, rapid technological changes prohibited, because of costs, the Navy from developing an inhouse capability for each new weapon or equipment. In this manner, our present day practice of contracting out has evolved. Department of Defense Directive 4151.1 is truly a reflection of Navy policy concerning maintenance of its equipment. As stated above, technological changes have prevented the Navy from attaining inlaouse capability on certain mission essential items to the fullest extent. In these instances it is believed that the best overall interests of the Government are being served without detriment to Navy capability to perform its mission. In determining whether the maintenance of a weapon or equipment is to be contracted out, the Bureau of Naval Weapons considers several factors such as the following: (1) Capability: Presently, an inhouse capability does not exist for every weapon and/or equipment nor will it be developed imme- diately for each and every item due to complexity and changing tech- nology surrounding its maintenance. However, as eaich product stabilizes, providing the requirements warrant it, and the costs are permissive, an inhouse capability will be developed. It is possible that in some cases reliance on contractor maintenance may continue indefinitely. This would generally occur in cases where the contractor is the only source, possesses the necessary repair and test equipment and the cost to duplicate or move these facilities inhouse could not be justified. Contracting out will no doubt be employed to accomplish PAGENO="0054" 50 CONTRACTING-OUT PROCEDURES one-time major modification programs which, if done inhouse, would seriously disrupt the normal flow of work. (2) Logistic: In some cases contracting out would impose logistic problems upon the fleet by increasing the out-of-service time of major units. Inability to mesh such units with fleet deployments and other operational commitments would follow. (3) Cost: It is normally less expensive to the Navy overall if main- tenance and other weapons programs are accomplished inhouse. For example, additional pipeline (inventory) of repair parts would be required to keep a weapon system program attuned to the fleet deploy- ments and operations if contracted out. Examples of maintenance and repair programs continually per- formed by contracting out are: (1) Major component (modules): For the `t~epair of certain guided missiles. Here expensive test equipment is involved for rework test. Likewise, expensive production equipment is required for the rework, itself. The practice of contracting here is supporting the fleet today and there is no current need for a strict inhouse capability. (2) Aircraft: Certain commercial type aircraft such as the R7V, 116D, R5D, and WV. These have, as the committee knows, commercial counterparts (CONNIE, DC-6, DC-4) and there exists either with the airlines, the original manufacturer, or an aviation maintenance source, a capability which meets current needs. These aircraft are large and therefore require large work areas which would displace the Navy's capacity inhouse for maintenance of the smaller combat- type aircraft. Contracting out does impose certain administrative problems such as: (1) Interpretation of specifications' by contractor. This is not en- countered to the same degree inhouse. (2) Necessity for obtaining and reviewing price proposals. (3) Negotiations. (4) Diversion of material from the Navy supply system to the con- tractor's plant. (~) Risks: When new bidders ~re~ awarded contracts. () Engineering changes which occur during `the performance and therefore require adjustments in price and may modify other terms and conditions of the contract. (7) Cost overruns. (8) Labor strikes which could jeopardize fleet operations and mi- pair our ability to perform our mission. Comparable cost: It is difficult to directly compare the cost of work being performed inhouse versus the same being contracted out. Here it is pertinent to include a statement made by the surveys and investigation staff of House of Representatives Appropriations Sub- committee which may be found in part IV, Operations and Mainte- nance, page 421 of the fiscal year 1960 hearings: B. Relative costs: The staff found it was not feasible to make a valid com- parison of the cost of performing aircraft maintenance in depot and the cost of performing it by contract, due to inadequacies and variances in cost accounting systems and lack of comparability between work projects. PAGENO="0055" CONThACTING-OtT P1~0CEDURES 51 Contracting out to the extent practiced by the Bureau of Naval Weapons has had no effect upon the capability of the Bureau to per- form its missions. It has not displaced personnel at the industrial activities managed by that Bureau. Changes in personnel strength are usually brought about by re- visions to weapon systems programs and by the consolidatinnof efforts within the industrial structure to attain overall economy. There does exist, at the depot maintenance establishments managed by the Bureau of Naval Weapons, a capacity for more personnel based upon an 8-hour day, 5 days per workweek schedule. Submitted as appendix I in my written report is a summary of the Navy ordnance plants which indicates mission and gives a brief description of each. Appendix II thereto i~ ~a similar summary of the ammunition and missile depots. These ammunition depots possess a capability for assembling and modernizing noncurrent ammunitions if required, but all have a capability for handling current weapons and ammunitions. Next, I would like to talk about the Bureau of Ships. The Bureau of Ships managed industrial complex is comprised of 11 naval shipyards and the ilLS, naval repair facility, San Diego. Appendix VI In my `report outlines the missiOns of these activities and describes the principal function of each. The naval shipyards, under military command, provide the active fleet with a well-dispersed self-maintenance capability which is fully and immediately responsive to the ever-changing requirements of the fleet in this thermonuclear age. The larger portion of naval shipyard work is the repair and conversion of ~ombatant-type ships, which is especially suited for accomplishment in these yards. In addition, this is the type of work which the naval shipyards would be expected to accomplish in an emergency. Through this procedure the Navy has been able to retain and maintain the essential skills and facilities possessed by our naval shxpyards. There are certain shops in the naval shipyards which operate solely to furnish specialized supporting services or products. However, because of low workload these shops are operating uneconomically and their services or products could possibly be obtained from com- mercial sources on a more practical basis. Specific examples of such shops are foundries, forgeshops, and gas manufacturing plants. We have kept these shops going for various reasons such as mobiliza- tion potential, no local industry, immediate response, and the like. However, the Bureau of Ships policy is to curtail or effect dis- establishment of uneconomical supporting-type shops if satisfactory arrangements can be made to procure their products and services from commercial sources. The shops so affected will vary in all shipyards. In this instance we will be ridding ourselves of inefficient opera- tions, we will reduce our expenditures for maintenance of expensive facilities and equipment, and we can direct the personnel to more needed operations. PAGENO="0056" 52 CONTRACTING-OUT PROCEDURES With regard to naval shipyard performance, there are, of course, no infallible standards by which to measure shipyards, whether private or naval. Although it is possible to compare one shipyard with another, it is difficult to compare them with private yards. Naval shipyards work exclusively on highly complex naval ships, while private yards, of course, devote much of their effort to com- mercial ship construction and repair. Nevertheless, the naval ship- yards are generally acknowledged to have excellent capabilities. Their plants are renewed on a gradual, well-planned basis through the military construction programs. Now, here, Mr. Chairman, when this statement was written, and I reviewed it, I decided to modify this-these particular two sentences -because they needed further explanation. I do this for emphasis. We do have excellent facilities in our naval shipyards. But I do not want to give the impression that they are as modern as we would like to have them. Mr. HARDY. I think you might expand on that a little bit. Secretary BELIEU. Right, sir. Mr. HARDY. Based on the hearings we recently had. Secretary BELIRU. That is correct, sir. Now, they have excellent capabilities and some of them are peculiar to the naval shipyards-drydocks and many other things we could mention. And their plants are-we do attempt to renew them on an annual basis when the plant-I would say they are as good as you can get under the conditions that normally we are faced with. But the condition of the whole country's shipbuilding program, the facilities are such that they need to be brought. more up to date. They need to have better tools. Technology, toolwise, needs to be increased, which is typical, I guess, of any manufacturing entity, but especially is it true in the shipbuilding field. As we pointed out before another subcommittee of the Housed Armed Services Committee, this is a thing that the Nation needs to look at. Now, some time down the future we will find that our shipbuilding capability within this country is not as strong and as vigorous and as bright and shining as that obtaining overseas. So this is what I wanted to emphasize at this particular point. Now, these shipyards are run by unusually well-trained engineering duty naval officers. The best management analysts in Government and private industry have contributed to their organization. The unusual challenge to which they have been subjected by the varied demands of the fleets and by new construction and conversion programs have developed skills of a variety and depth not likely to be equaled. This is demonstrated continually as the naval shipyards overhaul and return complex modern warships to forward areas, with all of their equipments and machinery in excellent operating condi- tion, after only a minimum of time in the yard. The naval shipyards have maintained the fleet's combat readiness with exceptional success from the time the first naval shipyard was established around the year 1800 to the present. The United States has been in many wars in which seapower was crucial and in each has emerged victorious. As the naval shipyards in each conflict provided the chief logistic support, and as a fleet PAGENO="0057" CONTRACTING-OUT PROCEDURES 53 cannot be effective without such support, it follows, inescapably, that the naval shipyards have done a tremendous job over the years. Many factors must be considered before a decision may be reached as to whether to contract out for a task or have it performed at a field activity. Relative costs are, of course, very important. If highly specialized skills are required for the task, the availability of those skills in either private industry or a Government activity may be the determining factor. If there is sufficient time and a need to develop an inhouse capability, the task may be assigned to a field activity although the skills are currently available only in private industry; the Navy will contract with the firm having the specialized skills for training and other assistance required. The impact of the work upon the field activity must be considered; if the task is of short duration yet requires considerable manning, its assignment to private industry will avoid unnecessary hirings and firings. The urgency of the requirement may be the conclusive factor if either private industry or a field activity is able to complete the task within the required time. Normally, of course, several factors will be involved in any one decision and the Bureau must consider them all. The Navy does not consider the basic missions of the naval shipyards have changed nor that the capability of these yards to perform has been lessened by "contracting out." Private shipyards were and continue to be the primary source of Navy ship construction. Appendix VII of my written report shows the geographical distribution of new construction and conversion underway in private and TJ.S. Navy shipyards as of January 1, 1961. The Navy shipyards also have a capacity for additional personnel.. I would like to take up next the Bureau of Supplies and Accounts.. This is an area in which the Navy is involved in contracting out under the cognizance of the Bureau of Supplies and Accounts. Examples of services contracted out are stevedoring, packing and crating of household goods, office equipment repair, laundry and dry cleaning services, automotive equipment repair, rodent destruction and public works type maintenance functions. A sampling was taken of Bureau of Supplies and Accounts opera- tions. This sampling revealed that since fiscal year 1959, 240 per- sonnel were replaced due to,contracting out. For example, at the Naval Supply Depot, Guam, it costs $102,000 less per year for com- mercial stevedoring services and $21,000 less per year when packing and crating are contracted out. With the exception of contract stevedoring this sampling indicates that the "contracting out" activity at Bureau of Supplies and Ac-. counts managed supply centers and depots does not affect the readi- ness of the installations to perform their mission in the event of an emergency. Contract stevedoring, however, could reduce the capa- bilities of military marine terminal operations in emergencies. The trend in contracting out in this Bureau has not had any signfi- cant change in the past few years. Two exceptions exist, however. One is at the Naval Supply Depot, Clearfield, TJtah, where the volume of contracting out has been increased due to workload involved in disestablishing this activity by July 1, 1964. The other is at the PAGENO="0058" 54 CONTRACTING-OUT PROCEDURES Naval Supply Depot, Guantanarno Bay, Cuba, where the trend is toward the ultimate elimination of all contracting out. Mr. III~BERT. It is difficult down in Guantanarno now to contract out, isn't it? Secretary BELIEU. rfhat is why the trend is in the opposite direc- tion. [Laughter]. The Bureau of Yards and Docks. It is the policy of the Bureau of Yards and Docks to utilize private industry for the accomplishment of maintenance for the following purposes: (1) Meeting seasonal and other peak workioads. (2) Specialized work. (3) When it could be demonstrated that the use of commercia~I facilities would result in a savings to the Government. This Bureau maintains three construction battalion centers (at1 iDavisville, RI.; Gulfport, Miss., and Port Hueneme, Calif.) which accomplish depot type maintenance of facilities, automotive and con- struction equipment. The equipment is used by mobile construction battalions in the Atlantic and Pacific. The Marine Corps operates two depot maintenance type establish- ments. They are: The Marine Corps Supply Center, Albany, Ga., and the Marine Corps Supply Center, Barstow, Calif. These activ- ities are engaged in overhaul and repair of Marine Corps equipments such as tanks, automotive, components, weapons. I have some charts, which are on the back of this presentation, pre- pared for the committee whenever it wishes, which indicate trends in the amount of work contracted out versus amount accomplished in- house. Percentagewise, I do not believe there is any noticeable effect which can be attributed to these directives, Bureau of the Budget Bul- letin 60-2 and Department of Defense Directive 4151.1. You may note that the Bureau of Ships chart is not projected very 1~ far into the future. These assignments are delicately balanced with the award of newly authorized construction to private shipyards and a consequent determination of the best allocation of repair load to maintain efficient operation of the inhouse activities. Admiral James pointed out earlier this year in hearings before the Department of Defense Subcommittee of the Committee on Appro- priations that an intensive study is being made in this area. As I mentioned before, for brevity I have submitted for the record a more detailed review of the Bureau of the Budget Bulletin 60-2. (The material submitted for inclusion in the record is as follows:) STATEMENT SURMITTED FOR THE RECORD IN CONJUNCTION WITH A STATEMENT BY THE HoNoRABLE KENNETH E. BELn~U, ASSISTANT SEQRETAIIY OF THE NAVY (INSTALLATIONS ANI) LOGISTICS) BEFORE THE SUBCOMMITTEE FOR SPEOTAL IN- VESTIGATIONS OF THE COMMITTEE ON ARMED SERVICRS, Housn OF REPRESENTATIVES Mr. Chairman and members of the committee, I appreciate the opportunity to appear before your committee today to report on the "contracting out" policies and practices of the Department of the Navy. First, I have given you a history of contracting out as it has been practiced by the Navy, which for brevity omitted some of the detailed descriptions of the different types of establishments that are concerned in this presentation, as well as historical details of the relationship of Bureau of the Budget Bulletin 60-2 to Navy's past and present policy and performance. These additional background details are submitted for the record. PAGENO="0059" CONTRACTING-OUT PROCEDURES 55 Over a period of many years the Military Establishment has frequently found it efficient and desirable, and often essential to the operation of the military mission, to engage in activities of a purely commercial nature which today are considered as being in competition with private industry. Such activities were usually begun during an emergency when commercial facilities were inadequate or not available. By the time the periods of emergency had ended, these activities had often become such an integral part of the overall mission that the Government con- tinued their operation despite the fact that commercial sources bad by then become available. Recognizing this situation, In 1953, the President directed that the following policy be issued: "It is the general policy of the administration that the Federal Government will not start or carry on any commercial activity to provide a service or product for its own use if such product or service can be procured from pivate enteprise through ordinary business channels. Exceptions to this policy shall be made by the head of an agency only where it is clearly demonstrated in each case that it is not in the public interest to procure such product or service from private enterprise." Consonant with the above, the basic Department of Defense policy concerning the ownership and operation of commercial- and industrial-type facilities was defined in DOD Directive 4100.15 of November 24, 1953. This documeat refer- enced the "basic regulations for the military supply system" and set forth the policy, criteria, and authority under which commercial- and industrial-type facilities would be operated. This was followed by DOD Directive 4100.16 of March 8, 1954, which im- plemented the policy contained in the earlier directive, and provided tl~jtt the Secretary of each military department initiate a continuing review program. It also prescribed guidance for the continuance or establishment of commercial- and industrial-type facilities. The latter directive was implemented within the Department of the Navy on April 7, 1954. This implementation established the commercial- and industrial-type facilities review program, now referred to as the commercial-industrial activities survey program, and provided the first increment of facilities to be reviewed under this program. The objectives of this initial review program were: (1) To foster private enterprise by eliminating unjust Government com- petition; (2) To justify operations which warranted continuance; (3) To provide more effective utilization of Department of Defense owned and operated commercial- and industrial-type facilities through cross-servicing; and (4) To achieve maximum economy through minimum facility manpower ex- penditures for commercial and industrial operations without impairing military effectiveness. Formal guidelines were issued by the Bureau of the Budget in 1955 (Bulletin No. 55-4 dated January 14, 1955), 1957 (Bulletin No. 57-7, dated February 5, 1957), and 1959 (Bulletin No. 60-2 dated~ September 21, 1959). Bureau of the Budget Bulletin No. 60-2 of September 21, 1959, issued as a result of a Cabinet decision of April 24, 1959, represents the current policy with respect to the review of those commercial-industrial activities conducted by the Government, that provide services or products for its own use which could be procured from private enterprise through ordinary business channels. This bul- letin restated the general policy expressed in the two earlier bulletins, established reporting procedures, expanded the coverage of the program, provided for the evaluation of all commercial-type enterprises not previously reviewed, and pre- scribed those exemptions which would permit Government operations of com- mercial-industrial activities. Although BOB Bulletin 60-2 encourages the use of commercial procurement sources, it does not prevent the continued operation by the Government of corn- mercial-industrial activities In the following instances: (1) National security: This exception to the general policy recognizes that the protection of the national defense is paramount to any other consideration. The program does not intend that contract services shall be employed in the pro- curement of the Department's product or service requirements to the detriment of the effective accomplishment of its mission or the reduction of its combat efficiency or capability. This exception, therefore, covers those functions which PAGENO="0060" 56 CONTRACTING-OUT PROCEDURES must be performed by Government personnel in order to preserve the national security. (2) Costs: When it is determined that commercial procurement of products or services would facilitate the effectiveness of the Navy organization, such procurement must not result in costs that are substantially or disproportionately greater than the costs of Government production of the same items or furnishing of the same services. In such cases, however, the costs of both Government operation and private procurement must be impartially computed and complete. (3) Clear unfeasibility: The third exemption to procurement from commer- cial sources may be due to the fact that the product or service is (a) an integral function of the basic mission of the Department, (b) not available nor likely to become available commercially in the foreseeable future, or (e) it is adminis- tratively impractical to contract for commercially. Under the policy guidance set forth, the Navy maintains an effective inhouse capability to perform combat and combat-support functions. Justifiable amounts. of contract services, however, are used for combat-support functions. Within this policy environment the Navy maintains a level of contractual effort con- sistent with the need for maintaining an appropriate balance and relationship in the use of military, civilian, and contract service resources to achieve maxi- mum effectiveness and economy in performing workloads and missions. (a) Appendix I is a summary of the Navy ordnance plants which Indicates mission and gives a brief description of each. (b) Appendix II is a similar summary of the ammunition and missile depots. These ammunition depots possess a capability for assembling and modernizing noncurrent ammunitions if required, but all have a capability for handling current weapons and ammunitions. (o) Three charts, appendixes III, IV, and IT, deal with the Bureau of Mval Weapons depot maintenance activities: naval aeronautic overhaul and repair activities, naval ammunition plants, and ordnance plants, re- spectively, each shows personnel strength assigned the inhouse workload versus the amount contracted out. (d) Appendix VI outlines the missions of the Bureau of Ships managed industrial complex comprised of 11 naval shipyards and the U.S. naval re- pair facility, San Diego. (e) Appendix VII shows the geographical distribution of new construction and conversion underway in private and U.S. Navy shipyards as of Jan- uary 1, 1961. The Navy shipyards also have a capacity for additional personnel. (f) Appendix VIII shows, in personnel strength, the inhouse workload versus the amount contracted out. (g) Appendix IX shows personnel strength associated with the inhouse workload of three construction battalion centers (at Davisville, R.I., Gulf- port, Miss., and Port Hueneme, Calif.) which accomplish depot-type main- tenance of facilities, automotive and construction equipment used by mobile construction battalions in the Atlantic and Pacific. (h) Appendix X indicates the personnel employment at two activities engaged in overhaul and repair of Marine Corps equipment such as tanks, automotive components, weapons. There has been no contracting out for work that these activities do. The provisions of BOB Bulletin No. 60-2 were directed to the attention of the military departments by Secretary of Defense memorandum of November 30, 1959, and Assistant Secretary of Defense (Supply and Logistics) memorandum of November 30, 1959. The Secretary of the Navy provided implementation instructions by SECNAV notices 4860 of December 9, 1959, and January 4, 1960, subject: "Commercial- Industrial Activities Survey Program, Bureau of the Budget Bulletin 60-2." The bureaus and offices of the Navy Department implemented those instruc- tions to the field by individual bureau and office instructions. In accordance with these requirements a total of 1,115 activities within the Navy Department were resubmitted and reviewed or newly submitted and i-c- viewed. The final summary report showing the results of this review is sub- mitted as appendix XI. The reporting procedures established by BOB Bulletin 60-2 required that the reviews be submitted under two general categories: (1) 60-2A: Those commercial-industrial activities or services having an annual estimated cost or value of product or service of less than $250,000. PAGENO="0061" CONTRACTING-OUT PROCEDURES 57 (2) 60-2B: Those commercial-industrial actlvities having an annual esti- mated cost or value of product or service of $250,000 or over. In order to evaluate the results of BOB Bulletin 60-2, it was further required that the reporting procedures distinguish between those activities, in each of the two categories, that were newly submitted and reviewed and those that had previously been reviewed and acted upon. Accordingly, the listing in appendix XI of those activities less than $250,000 (60-A) is further broken down as follows: Activitie$ le&~ titan $250,000-60--2A Total eval- uated Discon~ tinued Cur- tailed Con- tinued Other Previously reviewed (pt. I) Reviewed sInce June 30, 1959 (pt. II) 014 236 237 - 2 28 2 349 220 0 12 Total 830 239 30 569 12 Of those activities less than $250,000 reviewed since June 30, 1959, two have been listed under discontinued and two under curtailed. The effect of these four actions on contracting out is discussed hereinafter (appendix XII). The listing of those activities, $250,000 or over (60-2B) is broken down as follows: Activitie$ of $250,000 or over-60-2B Total evalu- ated Discon- tinued Cur- tailed Contin- ued Other Previously reviewed (Pt. I) Reviewed since June 30, 1959 (pt. II) 101 164 18 2 8 79 149 Total 265 18 10 228 Of those activities of $250,000 or over, eight are listed for curtailment. The effect on contracting out of these eight actions to curtail since June 30, 1959, is discussed in appendix XII. Of the total 400 activities and services reviewed since June 30 1959 369 were continued by the Government and 10 were curtailed. Of the remaining 21 ac- tivities only two represent actual discontinuances and the remaining 19 adjust- ments reported to DOD involving consolidations, inventory deletions updating of evaluations within the meaning of the 60-2 program, et cetera. The Navy Department has over the years maintained a searching and aggres- sive policy to discontinue activities not needed in its mission, to curtail as promptly as possible those actirities and services whose full operation is not necessary when changing concepts of defense or offensive tactics so dictate, and to consolidate and maintain those facilities actually needed in the most efficient manner possible within the budgets provided. In pursuance of that policy, continuous inspections of naval activities are carried out and the curtaihnents and discontinuances noted in the final summary report are the result. It is true that the guidance provided by earlier bulletins and now BOB Bulletin 60-2 has strengthened the policy of the Navy Department and provided additional support for enforcement of a policy that in its final result does avoid competition with private industry in the furnishing of those services and in the operation of those activities thilt can be obtained from normal commercial sources without detriment to military capability. 2 7 9 PAGENO="0062" 58 CONTRACTING~-OUT PROCEDURES APPENDIX I BRIEF OF U.S. NAVAL ORDNANCE PLANT, LOUISVILLE, Ky. I. MISSION NOP Louisville mission is consistent with the standard board mission concept assigned to all naval ordnance plants by SECNAVINST 5450.4 of September 29, 1968, which reads as follows: Manufacture ordnance material and/or equipment or components, with specific responsibility in designated areas as promulgated by the Bureau of Naval Weapons. Il. DESCRIPTION The Naval Ordnance Plant, Louisville, comprising 388 acres is located in Jef- ferson County, Ky., and is in the southern section of the city of Louisville. There are 57 buildings and a total of 1,212,812 square feet of floor area. The plant is bounded on the north, south, and west by residential areas, and on the east by the main line and freight yards of the L. & H. Railroad. The Naval Ordnance Proving Ground, Knob Creek, is located in Bullitt County, approximately 18 miles south of Louisville. The east and south boundaries border on Fort Knox Military Reservation. III. WORKLOAD BY PROGRAMS Handling equipment. Tartar rocket motors. Missile containers. Miscellaneous. Overhaul (including Map). Warheads. Jato units and gas generators. Torpedo tubes MK 25, 32, and 37. Simulators. Manufacturing 5' `/54 mounts. Tabs trays. H. & D. BluEr or U.S. NAVAL ORDNANCE PLANT, YORK, PA. I. MISSION The mission of NOP York is consistent with the standard broad mission con- cept assigned to all naval ordnance plants by SEONAVINST 5450.4 of September 29, 1958, which reads as follows: Manufacture ordnance material and/or equip- ment or components, with specific responsibility in designated areas as promulgated by the Bureau of Naval Weapons. II. DESCRIPTION The plant, consisting of 232.26 acres of land, is located 1 mile north of the city of York, Pa., along the tracks of the Pennsylvania Railroad-Baltimore-Harris~ burg Division. There are 41 buildings containing a total of 777,500 square feet of floor area. The city of York is located in a rich farming area 25 miles south of Harrisburg, and approximately 90 miles northeast of Washington, D.C. III. WORKLOAD BY PROGRAMS Manufacturing ASROC launching systems Mark 16 and Mods miscellaneous mis- silo handling equipment (TALOS, TARTAR, guns (40 millimeter saluting 3 inch/70 material, etc.). Manufacturing practice bombs, Mk 106 (includes AF MIPR). Manufacturing missile components. Manufacturing underwater ordnance. Manufacturing fire control equipment. Research projects. Drawings and publications. PAGENO="0063" CONTRACTING-OUT PROCEDURES 59 BRIEF OF U.S. NAvAL ORDNANCR PLANT, MACON, GA. I. MISSION NOP, Macon mission, is consistent with the standard broad mission concept assigned to all naval ordnance plants by SEONAVINST .5450.4 of September 29, 1958, which reads as follows: "Manufacture ordnance material and/or equip- merit or components, with specific responsibility in designated areas as promulgated by the Bureau of Naval Weapons." II. DESCRIPTION The plant is located in the central part of the State of Georgia and is approxi- mately 4.5 miles from downtown Macon. It is bound on the east and west by the Southern Railway and the Central of Georgia Railway, respectively. It is bounded on the north by an excellent paved roadway. The south side of the plant is bounded by thickets and swampland. Principal production buildings include three converted warehouses of 20,000 square feet each used as inert man- ufacturing buildings and five explosive loading buildings. There are 27 small magazines used for storing bulk explosives and finished components prior to shipment. III. WORKLOAD BY PROGRAMS ASW components. Mark 37 torpedo components. BULLPUP components. Aircraft ejection seat catapult charges. Bomb ejector cartridges. SIDEWINDER components. Primers, mark 15-3. 5/54 ammunition comjxinents. SPARROW and TARTAR components. TERRIER components. TALOS components. R.D.T. & E. BRIEF OF U.S. NAVAL ORDNANCE PLANT, FOREST PARK, ILL. I. MISSION Naval Ordnance Plant, Forest Park, mission, is consistent with the standard broad mission concept assigned to all naval ordnance plants by SECNAVINST 5450.4 of September 29, 1958, which reads as follows: "Manufacture ordnance material and/or equipment or components, with specific responsibility in designated areas as promulgated by the Bureau of Naval Weapons." II. DESCRIPTION This plant is situated 10 miles directly west of downtown Chicago, on a 117-acre site containing 40 structures including administration, manufacturing, main- tenance, and living quarters. Additional facilities include trailer parking spaces, large parking lots, and a railroad spur. IlL WORKLOAD BY PROGRAMS Manufacture torpedoes, warheads, exercise heads, exploders, batteries, containers, and repair parts: Torpedo, mark 37. MIne, mark 57. Torpedo, mark 44. R. & D. Torpedo, mark 10. Gage laboratory and calibration. BRIEF OF U.S. NAVAL PROPELLANT PLANT, INDIAN HBAD, Mn. I. MISSION Manufacture, reprocess, rework, inspect, and test propellants and high explo- sives, together with Intermediate products used therein; conduct research and development in the field of propellants, propellant components, and explosives. PAGENO="0064" 60 CONTRACTING-OUT PROCEDURES IL DESCRIPTION The naval propellant plant is located on the east bank of the Potomac River approximately 25 miles south of Washington, D.C. The 3,257-acre site consists of rolling and hilly terrain that lies rather high above the waters of the Potomac. The "stump neck" area Is separated from the main area of the activity by a broad, shallow creek, which In effect, places the two areas 12 miles apart by land routes. Facilities of the plant, In addition to extensive manufacturing and proc- essing buildings and structures, Include research and development facilities, a modern powerplant (producing both electric power and process steam), and a large number of housing units. The majority of the improvements are of per- manent construction. III. WORKLOAD BY PROGRAMS TERRIER POLARIS SIDEWINDER JATO ZUNI ASROC TALOS R.D.T.&E. BTJLLPUP Quality control. Weapon A. BRIar OF U.S. NAvAD Avioxics FACILITY, INDIANAPOLIS, IND. I. GENERAL The U.S. Naval Avionics Facility, more generally recognized and referred to as "NAFI," was acquired and designated as a Bureau of Aeronautics estab- lishment via transfer of managerial responsibilties and custody from the Bureau of Ordnance on July 1, 1956. Construction of the plant was commenced In May 1941 and upon completion, was commissioned as a U.S. naval ordnance plant on May 22, 1942. Operation of the `activity was managed by the Lukas-Harold Oorp., a subsidiary of the Carl L. Norden Co. On September 24, 1945, the plant was transferred to `a full- time Navy operation under the management control of the Bureau of Ordnance and identified as Naval Ordnance Plant, Indianapolis, generally referred to as "NOPI." During World War II, the productive effort of the plant was directed toward building precision mechanical, electrical, and optical instruments, including the Norden bombsight, flight stabilizers, flight gyros, torpedo directors, and gunsights. Since World War II, it has built mechanical, optical, electrical, and electroniC equipment including bomb directors, gunsights, aircraft fire control systems, radar equipment, navigation instruments, `and communication equipment. The Bureau of Ordnance operated the plant until 156 when management control was transferred to the Bureau of Aeronautics. Upon transfer of respon- sibility the name of the plant was changed to the naval avionics facility. II. MISSION The general mission of the naval avionics facility, Indianapolis, as approved by the Secretary of the Navy is as foilows: "Conduct research, design, development, engineering, production, overhaul, repair, and modernization of avionics equipment." More specifically "NAFI" mission includes the ~following tasks: (a) Conduct product Improvement programs for functional performance, productibility and reliability of electronic electrical and mechanical equipment used In both the navigation and control of aircraft and their weapons and In missile guidance. (b) Provide contractual service assistance to the Bureau of Naval Weapons as required for research and development and production contracts for `avionics equipment; and provide direction and thonitoring, and advisory services and assistance to contractors, as directed `by the Bureau of Naval Weapons. (c) Serve as a Bureau of Naval Weapons facility for the support of avionics equipment in use by the operating forces and `the Shore Establishment. (ci) Serve as a Bureau of Naval Weapons establishment for advancing the state of the art of electronic, electrical, and mechanical equipment in the field PAGENO="0065" CONPRACPING-OVT PROCEDURES 61 of airborne electronic countermeasures, missile guidance, aircraft fire control, aircraft navigation and direction, and airborne aircraft detection, tracking, and mapping devices, (e) Serve as a secondary stock point in accordance with the manual of the Bureau of Supplies and Accounts. (1) Serve as a noncentralized buying activity. (g) Provide supply and disbursing services for assigned activities (li) Develop and maintain a program for the accomplishment of a specified mobilization plan. (i) Perform administrative, communications, eomptrollership (including f1s~ cal and disbursing), equipment repair fire protection, industrial relations berth* Ing, messing, medical, postal, security, station maintenance, supply, telephone, transportation, and utilities functions in support of the facility's mission. IlL DESORIPTION (a) The Naval Avionics Facility is located adjacent to the city limits, about 5 miles from downtown Indianapolis The plant comprises 164 acres of Gov ernment-owned land. There are 36 buildings other than quarters, containing a floor area of 787 485 square feet The principal design test manufacturing and assembly facilities are housed in one major building comprising over one- half million square feet of floorspace. This building has complete climatic con- trol and fluorescent lighting throughout. IV. WORELOAD BY PROGRAMS Aircraft armament, and support. Aircraft rework (0. & R.). Electronics, support, and modernization. Bomb director program. Research, development, test, and evaluation. Radar test sets and equipment. POLARIS and POLARIS systems. Avionics evaluation and support equipment. Airborne armament and support. Production projects. Testing, displays, contractor assistance, limited production, and related items. Classified projects. Component pilot line and manufacturing of components. Aerology. Industrial preparedness measures. Test checkout and telephone equipment for TERRIER TARTAR, and TALOS Manufacturing hydraulic checkout equipment. Couplers, controls, adapters and interlock. Spare parts. Armament modernization. Quality control and inspection. Miscellaneous manufacture, overhaul, etc. Work for other Navy: ASO (pilot and limited production, test evaluation, and quality control). Miscellaneous. Work for other agencies: Grumman Aircraft engineering. APPENDIX II BRIEF OF U.S. N~AVAL AMMTJNITION Dnpor, EARLE, N.J. I. MISSION The U.S. Naval Ammunition Depot, Earle's mission, as revised by SECNAVNATE 5450 of September 4 1959 is to receive renovate maintain, store and issue ammunition explosives expendable oi cinance Items and/or weapons and technical ordnance material and to perform additional tasks as directed by the Bureau of Naval Weapons. 741G9-61--5 PAGENO="0066" 62 CONTRACTING-OUT PROOE~DURES II. DESCRIPTION The Naval Ammunition Depot, Earle, is located in Monmouth County, N.J., approximately 48 miles south of New York City. Covering an area of about iT square miles, it is the largest naval ammunition depot on the Atlantic coast. The depot is divided into two main areas: the inland area, and the pier area. The inland area comprises more than 10,000 acres equidistantly located about 9 miles from Freehold, Red Bank, and Asbury Park, N.J. In this area are the magazines, the industrial facilities, and the administrative headquarters. The transhipment area, referred to as the pier area, is located near Leonardo, N.J., on the south shore of New York Harbor about 11/2 miles west of Atlantic Highlands, N.J., and comprises about 1,000 acres. Other than the piers, this area contains only those industrial and administrative facilities needed to sup- port loading and unloading operations. The primary reason for the existence of the depot is its three piers, connected with the shore by a trestle, over 2 miles long. The two outer piers can berth combatant ships with a limiting draft of 33 feet, or six Victory ships. The inner pier can berth combatant ships with a limiting draft of 15 feet, or seven barges. III. WORKLOAD BY PROGRAMS Segregation of ammunition. Maintenance and modification of ammunition. Receipt, stowage, and issue of ammunition. Other maintenance and overhaul. Ordnance handling studies. Material disposal. Aircraft and ship ammunition loading. Mifle assembly. Research. BRIEF OF U.S. NAVAL WEAPONS STATION, YORKTOWN, VA. I. MISSION The mission of the Naval Weapons Station, Yorktown, Va., is as follows: To receive, store, overhaul, test, modify, explosive load and accomplish such other related work as necessary to maintenance, production, and issue of mines, torpedoes, depth charges, other underwater weapons, bomb type munitions, rockets, guided missiles, and other expendable ordnance; conduct high explosive research and development applying to production, loading assembly, and test procedures; perform weapons engineering tasks as assigned by the Bureau of Naval Weapons. In accomplishing its mission, the Naval Weapons Station exercises manage- ment and military control over the Skiffes Creek Annex, the Guided Missile Service Unit No. 211, and the Naval Mine Engineering Facility. The Naval Mine Engineering Facility Includes a quality evaluation laboratory. The station serves as a reserve stock point for bureau controlled mines and depth charges, distribution point for bureau controlled torpedoes, and for Ordnance stock office controlled repair parts for guided missiles, and as a secondary stock point for other supply demand control points. It is charged with disposal of unserviceable and/or dangerous ammunition and explosives. II. DESCIUPTION The Naval Weapons Station, Yorktown, Is located on the York River 10 miles southeast of Williamsburg, Va. It comprises a total of 13,423 acres, about 20 square miles, fourth largest among the 10 ammunition activities in active status. The dock facility consists of 1,023 linear feet of dock with single track rail access. Of eight activities with dock facilities, Naval Weapons Station, York- town, ranks seventh statistically, and is considered the least modern facility. Carriers are serviced at an anchorage in Norfolk harbor by barge. Since NWS, Yorktown, has no gun-type ammunition, carriers are handled simultaneously with Naval Ammunition Depot, St. Jullens Creek. This operation takes ap~iroximately 31/2 days. The length of time required to service combatant ships at the dock varies greatly depending upon the cargo and other dock activity. The handling of advanced weapons is a major factor. There is a moderate amount of traffic with cargo-type vessels, including the AE (ammunition ship) category. PAGENO="0067" CONTRACTING-OUT PROCEDURES 63 Other physical characteristics are as follows: Number of permanent buildings, 298. Miles of road, 86. Number of magazines, 203. Miles of railroad track, 44. Covered storage, 1,252,000 square feet. IlL OTHER SERVICE SUPPORT ACTIVITIES (a) Gaided Missile $eriyk,e U'ivtt No. 211 U.S. Naval Guided Missile Service Unit No. 211 processing facilities are physically located adjacent to and northwest of the Naval Weapons Station, Yorktown, industrial area~ The activity, operationally speaking, is under an officer in charge, subject to the military and management control of the command- ing officer, U.S. naval weapons station, and the technical control of the Bureau of Naval Weapons. The service unit is organized along functional lines with each division being responsible for a particular missile or support service. The mission of GMSU No. 211 as established by the Secretary of the Navy Is to operate guided missile processing facilities performing assembly checkout maintenance, and alteration of assigned guided missile material in support of the related receipt storage and issue function of the naval ordnance establishments at which the unit is located. Only military personnel are assigned to the activity. The officers primarily serve in technical billets except for the officer In charge, assistant officer in charge and the administrative officer. The eplisted personnel assigned to the missile division are basically technical rated personnel including guided missileinan and aviation guided missileman ratings. The servee unit has under its cognizance eight buildings. Six of the buildings are utilized for explosive and/or inert component processing, one for a tram shipment shed for segregation of fleet return material and one serving as a magazine for storage purposes. Total plant area of all buildings covers ap- proximately 135,000 square feet. (b) ~kiffes Creek Annecv Skiffes Creek Annex Is a special weapons ordnance activity whose mission is to receive, inspect, monitor, assemble, alter, modify, and issue specialized explosive ordnance and associated equipment. It was established as a component activity of the Naval Weapons Station, Yorktown, on July 1, 1953, for two basic reasons; first, the fact the NWS, York- town, provided a convenient location for servicing the Atlantic Fleet, and second, it was teasible to provide general type Service and logistic support from an established organization thereby avoiding the cost of duplicating such ex- pensive facilities required by an activity of its category. The annex occupies approximately 800 acres on the north side of the naval weapons station. It is operated under an officer in charge with an appropriate complement of 380 military personnel. In addition, private contractor support have a permanent staff of approximately 25 civilians physically loented in the area. IV. WORKLOAD BY PBOORAMS Segregation. Aircraft ship ammunition loading. Maintenance and modification. Mine assembly. Receipt, stowage, and issue. Missile maintenance and rework. Other maintenance and overhaul. Polaris and Polaris systems. Material disposal. Buxzr or U.S. NAvAL AMMUNITION DEPOT, HAsTINGs, Nnmi. I. MISSION The U.S. Naval Ammunition Depot, Hastings, mission as established by EONAVNOTE 5450 of November 5, 1959, reads as folloWs: "To continue imple- nentation of planned program of disestablishment effective on or about June 30, 966." PAGENO="0068" 64 CONTRACTING-OUT PROCEDURES II, DESCRIPTION The depot Is located approximately in the geographical center of the United States equidistant by air from both the Atlantic and Pacific coasts, in Adams and Clay Counties, Nebr. (latitude 40°35'04" N., longitude 98°21'07" W.), ap- proximately 4 miles east of the city of Hastings, Nebr. (population 22,000) and 99 miles southwest of the city of Lincoln, Nebr. (population 100,200). It has as its northern boundary the transcontinental U.S. Highway No. 6. It is served by three major railroads, Union Pacific, Burlington, and Missouri Pacific, the first two of which has transcontinental connections. The land is fiat and well suited for economical construction. Elevation is 1,901 feet. The area of th~ site is 48,753 acres (approximately 76 square miles) and is entirely Government-owned, being purchased at a cost of approximately $2,800,- 000. Construction of depot facilities cost approximately $62,405,000. Of the 48,753 acres of land occupied by the depot, approximately 97 percent of the land is leased for agricultural use. The rent paid by lesses during fiscal year 1959 was $260,000, and the value of the services rendered by lessees, i.e., maintenance of roads, firebreaks, etc. was valued at $300,000. At the present time, Detachment 10, 10th Radar Bomb Scoring Group, U.S~ Air Force, occupies three buildings and a surrounding area of 40,000 squam feet. This area is leased to the Air Force until December 1, 1961.. The jurisdiction over the Naval Ammunition Depot, Hastings, Nebr., was assumed on March 17, 1943, and acknowledged by the government of Nebraska, March 20, 1943. Jurisdiction is exclusive with the exception of a reservation of concurrent jurisdiction in the State for civil and criminal process. However, this right to serve civil and criminal process, which is the sole exception to the exclusive jurisdiction of the United States conferred by the Nebraska statute, is itself limited by the words: "~ * * except so~ far fis such process may affect the real and personal property of the United States." Most of the buildings on the depot are of brick, tile, or reinforced concrete construction. The facilities of this station include approximately 1,800 buildings and magazines. The estimated total floor space is 6,700,000 square feet. III. WORK~LOAD BY PROGRAMS Segregation. Receipt, stowage, and issue. Maintenance and modification. Material disposal. Baim' or U.S. NAVAL AMMUNITION bnror, Sr. JuunNs Canan, Vi.. I. MISSION The mission of the station is to receive, renovate, maintain, store, and issue ammunition, explosives, expendable ordnance items and/or weapons and tech- nical ordnance material and to perform additional tasks as directed by the Bureau of Naval Weapons. In accomplishing its mission the station is concerned ahnost exclusively with gun type ammunition and pyrotechnics. It provides berthing and security for district craft assigned by commandant, Fifth Naval District for ammunition services A quality evaluation laboratory is established at the activity The station also Is charged with disposal of unserviceable and/or dangerous ammuni- tion and explosives. II. DESCRIPTION The Naval Ammunition Depot, St. Juliens Creek, is located In Norfolk County on the west bank of the Elizabeth River and borders on St. Juliens Creek on the south and southwest. It comprises 490 acres adjacent to the naval shipyard. The area immediately adjacent is moderately populated. From the standpoint of combined physical characteristics, it is the smallest of the 10 ammunition type activities now in active status. The station has a 1,520-foot pier capable of accepting and servicing modern LST's, Coast Guard ships, and various small vessels. It does not receive destroyers nor larger combatant ships. Servicing of these ships is accomplished by barges which are under the control of the Naval Operating Base, Norfolk. Ammunition is barged to and from an anchorage in the area harbor. A destroyer offload can normally be done within a single workday. A carrier, which is PAGENO="0069" CONTRACTING-OuT PROCEDURES 65 handled shnultaneonsiy by Naval Ammunition Depot, St. Juliens Creek, and Naval Weapons Station, Yorktown, normally takes about 33~ woi~kdays. III. WOIiICLOAD BY PROdiiAMs Segregation. Maintenance and modification. Receipt, stowage, and issue. Quality control. Material disposal. Aircraft and ship ammunition loading. BRIEF or U.S. NAVAL AMMUNITION Diiror, CHARLESTON, S.C. I. MISSION The mission of the activity is to receive, renovate, maintain, store, and issue ammunition, explosives, expendable ordnance items and/or weapons and technical ordnance material and to perform additional tasks as directed by the Bureau. The major tasks of the activity include the following: (a) Receive, store, issue, segregate, and renovate ammunition, Including mines and guided missiles. (b) Exercise management control of the Naval Weapons Annex and the Naval Guided Missile Service Unit No. 213, Naval Ammunition Depot, Charleston, S.C. (c) Receive and reissue ammunition allowances for vessels undergoing avail- ability at the Charleston Naval Shipyard and for operating forces in the Charles- ton area. (d) Maintain basic stocks. (e) Maintain mine assembly facilities in readiness. (f) Maintain under proper surveillance the ammunition and explosives In store. (g) Dispose of unserviceable and/or dangerous ammunition and explosives from whatever sources received, in accordance with current directives. II. DESCRIPTION The depot is located in the tidewater section of southeastern South Carolina on the banks of the Cooper River. The site lies approximately 28 mIles north of Charleston, S.C., and 17 miles north of the Charleston Naval Base. The depot includes land areas which range from 2 to 24 feet above mean sea level and tidal marshland and water areas. There are 3 public quarters and 30 Govern- ment housing apartments located within the confines of the depot. Under con~ struction are 40 Capehart housing units. III. U.S. NAVAL GUIDED MISSILE SERVICE UNIT NO. 213 This unit was established on July 1, 1056. Military and management control is exercised through the commanding officer of the depot The mission of this unit is to operate a guided missile processing facility performing assembly, checkout maintenance and alteration of assigned guided missile material In Support of related storage and issue functions of the depot Currently this unit is processing TERRIER, TARTAR, and HAWK missiles. (c) U.& Naval Mine Engineering Facility The primary mission of this facility Is to Improve and maintain operational readiness of in-service mine and depth charge weapons on a worldwide basis. The facility exercises design cognizance over in-service mine and depth charge weapons on a worldwide basis. The facility exercises design cognizance over In-service mine and depth charge weapons, and performs tests and evaluations of other weapons (i e special weapons and guided missiles) as directed It is functionally Organized to assimilate data on the operating Status of mine and depth charge weapon material; to conduct eningeering studies on this data and produce technical engineering data reports, and design disclosure docu mentation to maintain the operational readiness of weapons assigned The facility is staffed primarily with engineering personnel supported by specialists, technicians, staff, administrative and skilled labor personnel to ac- complish the mission assigned. PAGENO="0070" 66 CONTRACTING-OUT PROCEDURES ~The U.S. naval mine engineering facility has facilities for the accomplishment of physical science testing fabrication of specialized prototype hardware and the preparation Of design documentation. Field activities included an opera- tional test area in the York River. IV. WORKLOAD BY PROGRAMS Ammunition segregation. Ammunition maintenance and modification. Ammunition receipt, stowage, and issue. Missiles and missile maintenance and rework. Research. Torpedo maintenance and overhaul. Other underwater maintenance and overhaul. Other underwater proof and test. Other underwater technical material. Torpedo Mk 37. Torpedo. Mk 44. Torpedo loading. Aircraft and ship ammunition loading. Surveillance and quality control. Ordnance in-house inspection. Calibration services. Disposal. Mine assembly, loading, and overhaul. Special weapons maintenance and overhaul. SPARROW, TERRIER, TARTAR, TALOS, and BULLPUP. Special load orders. Standardization. Military assistance. POLARIS and POLARIS systems. BRIEF or U.S. NAVAL AMMUNITION DEPoT, MCALESTEB, OKLA. I. MISSION Receive, renovate, maintain, store, and issue ammunition, explosives and tech- nical ordnance material; perform additional tasks as directed by the Bureau of Naval Weapons. II. DESCRIPTION The 44,964-acre site of the naval ammunition depot lies 9 miles south of the city of McAlester, Okla. It is located approximately 115 miles south of Tulsa, and 130 miles southeast of Oklahoma City. The area is topographically characterized by broad, rolling hills covered with grass and scrub timber. The native soils are highly susceptible to erosion, which poses a real problem in maintaining an adequate earth cover on underground magazines. Facilities include over 300 buildings, 194 miles of railroad trackage, and ap- proximately 400 miles of roads, of which 80 miles are paved. The majority of buildings and structures are of permanent type construction. A unique feature of the depot is its 625-acre artificial lake, which serves a~ the activity's water supply. III. WORKLOAD BY PROGBAMS Segregation. Maintenance and modification. Receipt, stowage and issue. Material disposal. Aircraft and ship ammunition loading. Tooling and equipment to load and assemble SIDEWINDER rocket motors. Special weapons maintenance and overhaul. Research. Technical publications. ASW ammunition loading. Miscellaneous demolition material. PAGENO="0071" CONTRACTING-OUT PROCEDURES 67 BRIEF OF U.S. NAVAL AMMUNITION Drro!r, CRANE, INn. I. MISSION Receive, renovate, maintain, store, and issue ammunition, explosives and tech- nical ordnance material; perform additional tasks as directed by the Bureau of Naval Weapons. £~pocia1 tasks Special tasks assigned to the command include the following: (a) Administering the central ammunition supply and control office. (b) Operating the ammunition loading production engineering center (ALPEC). (c) Conducting research and development of pyrotechnics. (d) Storing and maintaining national stockpile critical materials. The central ammunition supply and control office, a department of the depot, was created in 1958 to procure, distribute, and perform associated tasks in con- nection with various designated items of conventional ammunition. Previously, these broad functions were discharged directly by the Bureau of Ordnance. The ammunition loading production engineering center (currently a depart- inent of the depot) provides, within the family of ordnance activities concerned ~with the loading, assembly, and renovation of ammunition, central direction for: (a) Development of improved production methods. (b) ~tandardizatlon and efficiency in production operations. (c) Prompt and broad dissemination of technical information. (d) Expeditious handling of technical problems. II. DESCRIPTION The depot is located in the south central section of Indiana, 85 miles southeast of Indianapolis and 95 miles northwest of Louisville, Ky. The area of the activity comprises 62,767 acres, 800 of which form an arti- ficial lake constructed by the Civil Conservation Corps. The rough, hilly, and woodOd terrain of the isolated site Is well suited to the location of high explo- sive magazines. Depot buildings and structures are, with minor exceptions, of modern design and permanent construction. Transportation facilities include 168 miles of railroad trackage and about 350 miles of roads. III. U.S. GUIDED MISSILE SERVICE UNIT This unit has an allowance of 3 officers and 19 enlisted personnel. The primary ~effort of the unit is currently being expended in the maintenance processing of surface-to-air guided missiles which serve as backup stocks for the east and west coast outloading activities. IV. WORKLOAD BY PROGRAMS ~Segregation. Maintenance and modification. Receipt, stowage, and issue. Material disposal. Aircraft and ship ammuition loading. Research. Polaris and Polaris systems. Marine markers and modification kits. Surveillance and quality control. Target flares. In-house inspection. Fire control maintenance and overhaul. Missile maintenance and rework. ASW ammunition loading. Central ammunition supply and control office (CASCO). Ammunition loading production engineering center (ALPEC). Service and submarine pyrotechnics. ¶~ALOS, TERRIER, BULLPUP, and SPARROW. Gun preservation. Synchros. PAGENO="0072" 68 CONTRACTING-OUT PROcEDURES Production Improvements. Ordnance supply office material. Standardization. Sub. Float and U/W sound signals. Calibration services. Special load orders. Maintenance industry reserve equipment. Military assistance program. Drill mine and demolition material. BRIEF O~ U.S. NAVAL AMMUNITION DEPoT, HAWTHORNE, Nzv. I. MISSION Receive, renovate, maintain, store, and issue ammunition, explosives, and technical ordnance material; perform additional tasks as directed by the Bureau of Naval Weapons. II. PHYSICAL CHARACTERISTICS WAD, Hawthorne, lies near the western boundary of the State, 72 miles southeast of Reno (130 by road) and about 40 miles east of the Sierra Nevada range. The depot reservation comprises 327 square miles of desert plateau, rugged mountains, and the south portion of Walker Lake. It almost covers the floor of a gently sloping desert valley formed by Walker Lake on the north, the Gillis and Excelsior ranges to the east and south and Wasauk range to the west. The latter range rises abruptly from the 4,300-foot plateau to a height of 11,300 feet above sea level, and forms the depot's watershed. Wholly enclosed within the depot area is the small city of Hawthorne, occupying 1 square mile. A main highway, U.S. 95, passes through the depot and Hawthorne. III. WORKLOAD BY PROGRAMS Segregation of ammunition. Maintenance and modification of ammunition. Receipt, stowage, and issue of ammunition. Material disposal. Warhead, rocket head, projectiles, and miscellaneous loading. Mine assembly and mine case loading. Aircraft and ship ammunition loading. Other technical material. Other maintenance and overhaul. BluEr or U.S. NAVAL AMMUNITION AND NET DEPOT, SEAL BEACH, CALIF. I. MISSION The mission of NAND, Seal Beach, as approved and revised by the Secretary of the Navy on September 4, 1959, is, "To receive, renovate, maintain, store, ai~d issue ammunition, explosives, expendable ordnance items, and/or weapons and technical ordnance material and to perform additional tasks as directed by the Bureau of Naval Weapons." II. PHYSICAL CHARACTERISTICS NAND, Seal Beach, including FallbroOk Annex, consists of approximately 14,206 acres of land. NAND Seal Beach proper encompasses approximately 5,069 acres of land of which an estimated 500 acres are marshland or tidal fiats that could be reclaimed by fill if ever required. Fallbrook Annex encompasses approximately 9,137 acres of land of which 7,760 acres are leased for farming ~urposes. Falibrook Annex has a total of 181 magazines that are utilized in support of demands placed upon WAND, Seal Beach. The total activity railroad trackage owned and utilized is approximatelY 80.26 miles long. There are 119.8 miles of paved road and 65 miles of unimproved road maintained by the activity in support of its mission requirements. PAGENO="0073" CONTRACTING-OUT PROCEDURES 69 NAND, Seal Beach, is located entirely In Orange County, Calif. The main gate of the depot is approximately 11/2 miles from the city of Seal Beach. Fall- brook Annex Is located in San Diego County, approximately oo miles from Seal Beach. III. WORKLOAIj DY PROGRAMS Segregation of ammunition Maintenance and modification of ammunition Receipt, stowage, and issue of ammunition Missile components and fuzes Material disposal Calibration Miscellaneous loading Surveillance and quality control Mine assembly and mine case loading Depth charge maintenance Aircraft and ship ammunition loading Harbor defense Other technical material Torpedo technical material Special weapons maintenance and overhaul Guided missile maintenance and overhaul Ordnance ln-h~use Inspection Buxar or U.S. NAVAL AMMUNITION DEPoT, CoNCoRD, CALIF. I. MISSION Receive, renovate, maintain, store, and Issue ammunition, explosives, and technical ordnance material; perform additional tasks as directed by the Bureau of Naval Weapons. II. PHYSICAL CHARACTERISTICS The Naval Ammunition Depot, Ooncord, is located on the Suisuni Bay, approxi- mately 35 miles northeast of San Francisco, Calif. The depot proper, covering 6,594 acres, consists of two separate areas linked together only by a Government- owned highway and railroad. The tidal area lies just to the north of Port Chicago, Calif., while the inland area is located approximately 3 miles to the south and in the vicinity of Concord, Calif. Facilities in the tidal area include several ship piers (32-foot water depth), barge piers, inert ordnance storage structures, and numerous barricaded rail sidings. The inland area which for the most part is gently rolling terrain, serves as the site for the command's administrative and support facilities. The primary function of this area however is the storage of ordnance items (high explosives, ammunition, inert material, projectiles, and related Items). Over 270 permanent type magazines are utilized for the storage of these items. Transportation facilities of the depot proper include 59 miles of paved roads and approximately 96 miles of railroad trackage. The Mare Island Annex, comprising 441 acres of Navy owned land, Is located on San Pablo Bay adjacent to the Mare Island Naval Shipyard and approximately 20 mIles distant by highway and ferry across the Sacramento River from NAD, Concord. Facilities Include magazines (ammunition, Inert, ordnance, and high explosives) dockside berths (30-foot water depth) for ships and barges, and approximately 23 miles of railroad trackage. III. GUIDED MISSILE SERVICE UNIT The Guided Missile Service Unit No. 212 under an officer in charge was estab- lished at NAD Concord on October 1 1959 The GMSU was activated January 1, 1960, and is under the military command of the commanding officer, U.S. Naval Ammunition Depot, Concord, Calif., unless otherwise direetiy by the Chief of Naval Operations and under the management control of the Chief, Bureau of Naval Weapons. It Is estimated the construction of this facility' will be completed during fiscal year 1961. PAGENO="0074" 70 CONTRACTING-OUT PROCEDURES IV. WORKLOAD BY PROGRAMS Segregation of ammunition. Maintenance and modification of ammunition. Receipt, stowage, and issue of ammunition. Material disposal. Polaris and Polaris systems. Aircraft and ship ammunition loading. Calibration. Other technical material. Other maintenance and overhaul. Missile maintenance and rework. Advanced weapons, maintenance, and overhaul. Surveillance and quality control. BRIEF OF U.S. NAVAL AMMUNm0N DEPOT, BANGOR, WASIL I. MISSION The mission of the Naval Ammunition Depot, Bangor, as approved and revised by the Secretary of the Navy on September 4, 1959, Is as follows: "To receive, renovate, maintain, store, and issue ammunition, explosives, expendable ordnance items and/or weapons and technical ordnance material, and to perform additional tasks as directed by the Bureau of Naval Weapons." II. DESCRIPTION The depot proper, which encompases 8,517 acres of land, is located on the east bank of the Hood Canal, about 13 miles north of the Naval Shipyard, Bremerton, Wash., and 15 miles west of Seattle. A marginal wharf, capable of berthing two major vessels, plus good railroad facilities, provide the depot with an excellent capability for the transshipment of ammunition. Over 265 magazines and inert storage buildings are available on the depot proper for the storage of ordnance material. Transportation facilities include 83 miles of roads and over 99 miles of railroad trackage. The marginal wharf and the majority of other structures and buildings are of permanent type construction. The Indian Island Annex is located across the Hood Canal and approximately 20 miles due north of the depot proper. The annex includes about 2,700 acres of land. III. OUTSTANDING ON AND OFF LOADING FEATURES All shiploading is accomplished by civil service employees at minimum cost because no portal-to-portal pay is involved (as with union stevedores). Ships are berthed alongside the marignal wharf that has a capability of accommo- dating the largest U.S. ships afloat as well as any planned for the future. With present personnel, one cruiser and one carrier can be worked at dockside simul- taneously, or four holds of a cargo ship can be worked. IV. WORKLOAD BY PROGRAMS Receipt, stowage, and issue of ammunition. Maintenance and modification of ammunition. Segregation of ammunition. Miscellaneous ammunition assembly. Cabling low-drag bombs. Depth charges and mine maintenance. Demilitarization. Army ammunition outloading. BRIEF OF U.S. NAVAL AMMUNITION REPOT, HINGHAM, MAss. I. MISSION The U.S. Naval Ammunition Depot, Hingham, mission as established by SECNAVNOTE 5450 of November 5, 1959, reads as follows: "To continue imple- mentation of planned program of disestablishment effective on or about June 30, 1962." PAGENO="0075" CONTRACTING-OUT PROCEDURES 71 II. DESOBIpT~o~ The Naval Ammunition Depot, Hingham, is located on the south shore of Bos- ton Harbor, eastward of the Weymouth Back River. It is approximately 10 miles by water from the Boston Naval Shipyard and 19 miles by highway. It adjoins the town of Hingham., Mass., on the northeast boundary. Land areas are ir- regular and heavily wooded with a maximum elevation of 120 feet Government property includes a considerable acreage on the west bank of the Weymouth Back River extending from Highway 3A to Fresh River. This land is for safety distance only and is completely undeveloped. There are good highway connec- tions to all routes, a direct rail spur to the New York, New Haven & Hartford Old Colony Branch and waterfront facilities for handling lighters. The Cohasset Annex has a very rough terrain, being largely composed of small, rocky hills between large, deep swamps. The swamps are at an elevation vary- ing from 40 feet to 140 feet. The annex area is approximately 3 miles southeast of the main depot with both rail and highway connections. There are 357 buildings and structures almost equally divided between the main depot and the annex. These buildings provide for explosive operations, magazines, storehouses, guided missile service, mainteance shops, administra- tion buildings, barracks, and public quarters. All of these facilities are served by electricity, steam, water, fire alarm and telephone distribution system. They are connected by extensive roads and railroad systems. III. woRKLoAD BY PR~GRAM5 Segregation. Maintenance and modification. Receipts, stowage, and issue. Other maintenance and overhaul. Material disposal. BRIEF OF U.S. NAVAL Tonpnno STAT~LON, KRYPORT, WASH. I. MISSION The mission of the Naval Torpedo Station, I~eyport, as approved and revised by the Secretary of the Navy on February 13, 1959, is as follows: "To proof, test, evaluate, manufacture, and issue underwater weapons and components. Pro- vide research and devleopment services to naval and commercial activities as directed by the Bureau of Naval Weapons. Exercise design cognizance of under- water acoustic ranges and of range equipment." II. DE5cRIppI~ The U.S. Naval Torpedo Station at Keyport is located on the western shore of Puget Sound, the largest natural deep water harbor in the world. Keyport is 12 miles north of Bremerton and approximately 15 miles by air west of Seattle. The property on which the activity is located is Navy owned. The original acquisition of 149.45 acres of hard land for $86,000 was accomplished by con- demnation proceedings. Keyport was selected as the site for a west coast torpedo station because of the availability of Port Orchard Inlet, an ideal shallow water torpedo range. This range varies in depth from 50 to 90 feet providing a relatively easy recovery operation. With the advent of acoustic weapons, deeper water was necessary to avoid acoustic interference. Water of 200 to 300 feet in depth was found in Hood Canal adjacent to the ammunition depot at Bangor, and another body of water in nearby Dabob Bay of 600 feet in depth. This combination of features is large enough to permit submarine and destroyer operations of variable degrees and is developing into one of the most important range facilities for testing underwater weapons in the country. The industrial facilities of the activity are concentrated in a relatively small area on a peninsula located on the eastern side of the station. In this area are the torpedo shops, a modern machine shop, a plating plant, a foundry, a sheet metal shop, electrical and electronic shops as well as several others which afford the station a comprehensive industrial capability In 1957 a new large quality evaluation laboratory was completed and placed into operation. The latest addition to the activity's industrial capability is the naval passivating building. In this plant, bulk navol (concentrated hydrogen peroxide) is stored and loaded into individual torpedo flasks for convenience and safety purposes. PAGENO="0076" 72 CONTRACTING-OUT PROCfl)URES Ily ~tar the most significant facilities in the proofing effort are the range theni~ ~selves. Th~ shallow water range (50 feet deep) In Port Orchard Inlet is instru- m~nted with a series of passive directional hydrophone arrays which are so located as to give time of tran~1t depth and deflection from the ran~e centerline for each array. At Bangor, on the shoreline of Hood Canal, the torpedo station maintains a firing pier for use on the medium depth range (300 feet) This pier i5 also the retriever boat center and the loading pier for all weapons to be ranged in Dabob Bay. Dabob Bay is a protected Inlet about 7 miles long with a bottom of almost uniform depth of 600 feet This area has been in use ~inee 1050 as a deepwater proofing range for all active acoustic homing torpedoes In 1957 the oniy~ accu rate 3 dimensional underwater tracking range in existence was installed in Dabob Bay This range was developed b~ the Applied Physics Laboratory of the University of Washington under contract to the Bureau of Ordnance and is capable of tracking underwater vehicles with far more continuity and precision than has ever been achieved before. III. WORKLOAD BY PROGRAMS Proof and test of torpedoes (MR's 37-0,44-0, and 16-6). Manufacture of torpedo workshop equipment. Manufacture torpedo exercise heads, containers, repair parts, mine test sets, etc. Maintenance and overhaul of torpedoes. Research projects. Surveillance, quality control, and calibration. Polaris and Polaris systems. BRIm' OF U.S. NAVAL AMiwNmoN DRPOT, SEIIMAKER, ARK. L MISSION The U.S. Naval Ammunition Depot, Shumaker, mission as established by SECNAVNOTE 5450 of November 5, 1959, reads as follows: "To continue implementation of planned program of disestablishment effective on or about June 30, 1962." Of recent date, the facilities for expediting the disposal of stocks on hand has accelerated the disestablishment date from June 30, 1964, to June 30, 1962. II. DESCRIPTION The depot is located 4 miles northeast of Camden, Ark., on the east side of U.S. Highway Route 79 and north of State Highway Route 4. The area is 08,640.2 acres of dry land and 250 acres of marshland, and is roughly 16 miles in length and 9 miles in width at the extremities. The area was strictly rural in character and sparsely populated, used for farming purposes. It has been declining for ~the past 30 years and return to forest use was underway. Consequently the Government was able to acquire the land for the nominal sum of $1,909,197. The area Is located in a region which is known as the Coastal Plain, and is commonly referred to as "Swampy." The depot covers land in two counties, Calhoun and Ouachita. A rocket motor loading area, located approximately 1'y~ miles east of the administration area, has facilities for assembling and packaging minor, medium, and large caliber rocket motors. This area consists of five building groups, each independent of the other, and each group housing two assembly lines. This area is designed to be capable of assembling all typos of air to air, air to ground, and surface rocket motors currently being used by the Navy and Air Force. These assembly lines in addition have facilities for processing the propellant and other component parts prior to assembly. Each line is conveyerlzed and equipped to assemble rocket motors in mass production, and a conversion to meet loading requirements of numerous type rockets can easily be accomplished. A high explosive rocket head loading area is located approximatly 4 miles northeast of the administrative area. This area is laid out on a general north and south line with two rocket head loading and assembly lines, both originating at a central building and each line extending in opposite directions. Each line has facilities for melting, pouring, and fusing rocket heads of all calibers. In addition each line has associated bmlthugs for the stowage processing and PAGENO="0077" CONTRACTING-OUT PROCEDURES 73 delivery of the high explosive to the Rasembly line. All buildings of this area are designed for maximum safety to personnel and heavily barricaded to reduce property damage in the event of explosion. ~acilities are also present for the Inert loading of rocket heads for use as target and test rounds. The flight testing to determine satisfactory performance of rockets Is con ducted in a cleared area approximately 8 miles long and 1 mile wide in the northern section of the depot. This flight test range is equipped with various types of test launchers and numerous observation towers are located along the sides of the range to permit visual spotting of fired rounds and transmission of data to main control tower for plotting. Temperature control equipment installed at the flight test range permits rocket motors to be fired at tempera- tures equal to the most rigorous service conditions encountered under combat. Photographic coverage through the use of synchronized high speed motion picture cameras is used to determine and assist in analysis of any malfunctions. A fuse test range is located adjacent to the flight test range. This test facility is employed to determine the acceptability of rocket fuses. Rockets equipped with test fuses are fired through vertical plate targets to determine their fune- tioning characteristics. Spotting from control towers and photographic coverage is used to determine serviceability of fuses. The naval ordnance plant is serviced transportationwise by the Chicago Rock Island & Pacific (freight), Missouri Pacific (freight and passenger), St. Louis- Southwestern (freight and passenger). In addition, the Southwestern Trans- portation Co., Arkansas Motor Freight, Herrin Transportation Co., Tn-State Warehouse & Distribution Co., Pexarkana-Nashville Motor Freight Lines, also provide plant transportation facilities. III. WORKLOAD liT PROGRAMS Maintenance and modification. Receipts, stowage, and issue. Material disposal. Aircraft rockets. Aircraft ammunition loading. BRIEF OF U.S. NAVAL AMMUNITION Dnpou, OAHU, HAWAII I. MISSION The mission of the depot, as approved by SECNAVNOTE 5450 of September 4, 1959, is as follows: "To receive, renovate, maintain, store, and issue ammunition, explosives, ex- pendable ordnance items and/or weapons and technical ordnance material and to perform additional tasks as directed by the Bureau of Naval Weapons." IL SESORIPTION The naval ammunition depot headquarters at Lualualei is located approxi- mately 35 miles from the city of Honolulu in a valley that is ringed by the Waianae flange except toward the southwest where the valley Opens to the Pacific Ocean. It occupies 8,184 acres of land. West Loch branch consists of 1,088 acres of land bounded on the north and northeast by waters of the West Loch of Pearl Harbor on the south and south west by Pearl Harbor Reservation and on the west by fields on the Ewa Pianta~ tion Co. West Loch is 20 miles from Honolulu and about 18 miles from Lualualei. Waikele branch consists of 528 acres and Is in and borders on a juncture of three large gulches. Opening into the gulches are tunnel magazines originally constructed by the U.S. Army in 1942. This branch is 19 miles from Honolulu, 18 miles from headquarters and 10 miles from West Loch. There are 1 000 buildings on the three branches of the depot A total of 407 magazines are located at the Lualualei, West Loch, and Walkele. branches cap- able of storing approximately 100,000 tons of all types of ammunition and explosives. Provisions for storing approximately 40,000 tons of bomb type ammunition in open storage areas, should the need arise, are available within the areas of the three branches. PAGENO="0078" 74 CONTRACTING-OUT PROCEDURES The depot owns and operates the only railroad on the island Oahu. It serves the Lualualei and West Loch branches with 29 miles of interconnecting track between the two branches. Waterfront facilities at West Loch branch consist of two concrete wharves totaling 2,500 lineal feet. The berths are capable of Working five cargo vessels of AE's simultaneously. The depot is capable of handling 1,000 tons per day per ship on a 24-hour basis. The docks are serviced by rail and truck facilities. III. WORKLOAD BY PROGRAMS Segregation of ammunition. Maintenance and modification of ammunition. Receipt, stowage, and issue of ammunition. Material disposal. Surveillance and quality control. Rockets, projectiles, and miscellaneous loading. Calibration. Mine assembly and mine case loading. Torpedo maintenance and overhauL Aircraft and ship ammunition loading. Other technical material. Other maintenance and overhaul. Polaris and Polaris systems. MIssIoNs or NAvAL SHIPYARDS AND NAVAL RRPAIR FACILITY The Bureau of Ships manages the 11 U.S. naval shipyards and the naval re~ pair facility, San Diego. The 11 naval shipyards, which all have the same basic mission, are: (a) Portsmouth Naval Shipyard, Portsmouth, N.H. (b) Boston Naval Shipyard, Boston, Mass. (c) New York Naval Shipyard, Brooklyn, N.Y. (d) Philadelphia Naval Shipyard, Philadelphia, Pa. (e) Norfolk Naval Shipyard, Portsmouth, Va. (1) Charleston Naval Shipyard, Charleston, S.C. (g) Long Beach Naval Shipyard, Long Beach, Calif. (h) San Francisco Naval Shipyard, San Francisco, Calif. (i) Mare Island Naval Shipyard, Vallejo, Calif. (j) Puget Sound Naval Shipyard, Bremerton, Wash. (Ic) Pearl Harbor Naval Shipyard, Pearl Harbor, Hawaii MisSion.-TO provide logistic support for assigned ships and surface craft; to perform authorized work in connection with construction, conversion, overhaul, repair, alteration, drydocking and outfitting of ships and craft, as assigned; to perform manufacturing, research, development and test work, as assigned; and to provide services and material to other activities and units, as directed by competent authority. The U.S. naval repair facility, San Diego, Calif., has the following mission: To provide logistic support for ships and surface craft, including repair, altera- tion, and maintenance work, as assigned; to provide services to other activities and units, as directed by competent authority; and to provide facilities for the limited training of artificers, as requested. Actually, these 12 activities operate as a closely coordinated complex support- ing the full range of shipbuilding, conversion, modernization, repair, alteration and overhaul support required by the operating forces. While each of these activities is capable, because of its facilities and staff, of rendering a wide range PAGENO="0079" CONTRACTING-OUT PROCEDURES of industrial support services to naval facilities they are used in broadly spe- cialized areas and, thus, no one activity provides the full range of support serv- ices required. Certain of the activities, because of long experience and particular capability, specialize in submarine construction. Others operate almost purely as overhaul activities with the types of overhauls assigned being limited only by consideration involving facilities, skills or hydrography. The principal uses to which the naval shipyards and the naval repair facility are put are as follows: (a) Portsmouth Naval Shipyard-Construction of Polaris and other nuclear submarines; overhaul of all types of submarines. (b) Boston Naval Shipyard-Conversion, modernization and overhaul of sur- face vessels up to but not including Forre'sta~ carriers. (c) New York Naval Shipyard-Construction and modernization of all types of surface vessels. (ti) Philadelphia Naval Shipyard-Construction, conversion, modernization and overhaul of all types of surface vessels except aircraft carriers and overhaul of fleet submarines. (e) Norfolk Naval Shipyard-Modernization and overhaul of all types of surface vessels including nuclear and overhaul of nuclear and fleet submarines; serves as major fleet repair base. (1) Charleston Naval Shipyard-Conversion, modernization and overhaul of surface vessels up `to and including cruiser types and overhaul of fleet and nuclear submarines including Polaris submarines; serves as Polaris submarine operating base. (g) Long Beach Naval Shipyard-Overhaul, modernization, and repair of all surface vessels up to but not including Forrestal type carriers; serves as major fleet repair base. (h) San Francisco Naval Shipyard-Conversion, modernization anti overhaul of all types of surface vessels and overhaul of fleet submarines. (i) Mare Island Naval Shipyard-Construction of Polaris and other nuclear submarines; overhaul of all types of submarines. (j) Puget Sound Naval Shipyard-Conversion, construction, modernization overhaul of all types of surface vessels. (k) Pearl Harbor Naval Shipyard-Modernization and overhaul of all types of surface vessels and overhaul of fleet and nuclear submarines. (~) Naval repair facility, San Diego-Overhaul of surface vessels up to but not including cruisers and emergency repair of all types of surface vessels. From the above, it can be readily seen that there is little duplication, by coast, In the uses to which shipyards are put. On the east coast, Portsmouth is unique in that it builds Polaris submarines; Charleston in that it is being developed as a Polaris submarine base; Norfolk in that it Is a major center of fleet operations and must meet a much greater than normal number of unscheduled fleet demands. New York ban been, and may again be, unique because of its Forre8tal class carrier construction capability and experience. Philadelphia and Boston do have broad elements of similarity in their workload but both are well loaded because of the volume of work required under current appropriations. On the west coast, Mare Island is unique because of its `part in `the Polaris shipbuilding program; Long Beach and Pearl Harbor in that they are major centers of fleet operations and must meet a much greater than normal number of unscheduled fleet demands; Naval Repair Facility, San Diego also serves as a fleet repair base but on a smaller scale; San Francisco and Puget Sound do have broad elements of similarity in their workload, including aircraft carrier overhaul and major conversion work, but both are well loaded because of the volume of work required under current appropriations'. PAGENO="0080" CONTRACTING-OUT PROCEDURES fl P~NIfl.~ * ~ p sn in in * 0* Lt ~` 76 `I, 4 0 A. z 0 ~~1 `LI z 0 U a 4 U' U z :2' I. II 11111 Jih I 100 1*1*t ~uhI 1' I I PAGENO="0081" CONTRACTING-OUT PROCEDURES 77 APPENDIx III AIRCRAFT MAINTENANCE AND OVERHAUL ~N HOUSE va CONTRACTING OUT (IN MAN YEARS) 33,065 177 30 27, ~ CONTRACTING OUT 26,269 26,269 IN HOUSE ~-r~1u- ~59 `60 `61 `62 FISCAL YEAR 74109-61-----6 PAGENO="0082" 78 CONTRACTING-OUT PROCEDURES APPENDIX IV ORDNANCE MAINTENANCE AND OVERHAUL IN HOUSE vs CONTRACTING OUT (IN MAN YEARS) 8,902 TOTAL 8, 6'~~O34'~4.. CONTRACTING OUT 7,778 IN HOUSE I `59 `60 `61 `62 `63 FISCAL YEAR NAVAL AMMUNITION DEPOTS NAVAL WEAPON STATIONS NAVAL TORPEDO .:STATION PAGENO="0083" CONThACT~GOUT PRO~DURES A~i~j~i~ V MANUI!4CUJRE OF ORD?IANCE/PROPEL~NT AND FiRE CONTROL EQUIPMENT IN HOUSE va CONTRACTING OUT (IN MAN YEARS) 56,909 ~ CONTRACTING OUT 6,664 -~ 7,034 7,675 7,909 ~`r -~*1~°'~L `60 `61 `62 `63 FISCAL YEAR ?IAi'AL ORDNANCE PLANTS PAGENO="0084" 80 co~ni~crr~-ot'r PROC~iflii~tS APPENDXX VIII SHIPS.NEW CONSTRUCTION, REPAIR AND CONVERSION IN HOUSE a CONTRACTING OUT (IN MAN YEARS) 143,329 CONTRACTING OUT NEW CONSTRUCTION REPAIR 92,000 9i,~0 92,000 94,600 IN HOUSE NEW CONSTRUCTION ~ONV$RSION REPAIR NON SNIP WORK `59 `60 `61 `62 `63 FISCAL YEAR PAGENO="0085" APrEr~Dt~ IX MAINTENANCE OF FACILITIES, AUTOMOIIYE AND CONSTRUCTION EQUIPMENT AT CONSTRUCTION BATTALION CENTERS IN HOUSE vs CONTRACTING OUT (IN MAN YEARS) `89 `60 ~`"~T `61 FISCAL~ TEAR `62' - `63 CONTRA~CTJNG-OVT rI~ocEmn~Es 81 OUT 1438 1422 912 903 IN HOUSE PAGENO="0086" 82 coWrEACT1NG~0tT ~~QEDUR~S ~&PPE~DX~ .X USMC REPAIR, REWORK, RENOVATION AND PRESERVATION OF MATERIEL (IN MAN YEARS) 1, ~ø ~ 1, IN UOUSE PISCAL YEAR PAGENO="0087" CONTRACPI~G-OVT PROCEDtYR~S 83; Total inventory Total evaluated Discontinued Curtailed Continued Other 1,115 1,115 257 40 1797 ~27 LESS THAN $250,000 850 Pt. I Pt. II 850 239 30 1 560 `12 614 236 237 2 28 2 349 1 220 0 `lZ $250,000 AND OVER 265 Pt. I Pt. II 265 18 10 1 228 1 9 101 164 18 0 2 8 1 149 `7 I Activities awaiting clearance for sale or other disposition included in this column 2 Adjustments reported to DOD involving consolidations, inventory deletions, updating of evaluations within the meaning of the 60-2 program, etc. New starts (not included above) Total 9 Approved Disapproved Of the activities indicated under "Curtailed" and "Cox~tinued" in the above columns, the indicated reasons given are: Less than $250,000 $250,000 and over A. National security 13. Costs C. Clear unfeasibility 1 (1) Basic mission1 (2) Unavailable commercially 1 (3) Administratively impractical 1 Total 88 11 500 147 1 fiG S 29 2 599 238 I Detailed breakdown in those categories undergoing review and check. 2 cases where more than one reason was given, the first stated has been recorded in the summary. Discontinuances and curtailments reported for 60-2A (pt. II) comnu3rciat- industrial activities Naval Station, Newport, R.I. U.S. Naval Shipyard, Long Beach, Oalif. U.S. Naval Shipyard, Philadelphia, Pa. U.S. Naval Shipyard, New York, N.Y. Pina~ ~u;mmary report, consmeroial..indtestrial activities progranv, Bureau; of the Budget Bulletin 6O-~, U.& Navy Item Bureau SIC code Description 2 3 4 ONO BUSHIPS - - EUSHIPS - - BUSHIPS - - Location 2051 4953 3861 7380 Action Bread and bakery prod- ucts. Refuse collection system... Photographic equipmenU. Duplicating, blueprint- ing, addressing, etc. Discontinued. Do. Curtailed. Do. PAGENO="0088" 84 CONTRACTING-OUT PROc~1DURE~ The effect of the above dlscontinuances and curtailments on contracting out is noted as follows: Item 1: This activity has been reported discontinued by the facility and these products obtained from commercial sources. The value of the contracts let and the number Of persons, civilian and military, decreased as a result has not been required to be furnished in the reporting under this program for activities under $250,000 and time available has not permitted a report to be obtained from the activity. Item 2: Discontinued by the activity. Contract awarded to G. B. Ottonello, 5258 Marlborough Drive, San Diego, for collection and disposal of refuse in the shipyard and the Naval Station, Long Beach. Contract price: $114,000. Person- nel action: Eight civilian employees of the shipyard were released. Costs before and after action: A total annual savings of about $51,000 will be realized by the shipyard and the naval station. Item 3: Contract awarded: On January 24, 1961, Charles P. Mills & son, Photography, Inc., 708 South Washington Square, Philadelphia, Pa., was awarded a $10,312.49 contract for photographic work. This contract expires on June 30, 1961, at which time new bids will be solicited from photographic firms in the Philadelphia area. Personnel action: One shipyard photographer was released as a result of the contracting out. Costs before and after: This infor- mation Is not available in `the time permitted as it must be obtained from the activity. Item 4: This service has been curtailed. Contract awarded: (1) In February 1961 Keuffel & Esser Co, 12'? ~`ulton Street New York, was awarded an annual contract for blueprinting operations. The contract form does not state an established amount, but is estimated to range from $20 to $700 per month and possibly higher during peak periods. (2) In February 1961, Columbia Blue & Photo Print Co., 27 Madison Avenue, New York, N.Y., was also awarded a blueprinting contract. No job orders have as yet been issued to this firm. Personnel action: No shipyard employees were released as a result of these contracts. Costs before and after: This information is not available, and time did not permit obtaining it from the activity. Curtailments reported for 60-2B (pt. II) commercial-industriai activities Item Bureau SIC code Description Location Value (in thousands) Action 2 3 4 USMO BuShips do do 1511 7330 8921 4225 General building contrac- tors. Duplicating, addressing, etc. Nonprofit educational and scientific research agen- cies. General warehousing and Marine Corps Supply For. warding Annex, San Fran. cisco, Calif. Mare Island Naval Shipyard, Vallejo, Calif. Naval Engineering Experi- ment Station, Annapolis, Md. New York Naval Shipyar& - $374 345 8,202 1,153 Cur. tail. Do. Do. Do. 5 6 do - -- do - -- 4454 7330 storage. Towing and tugboat serv- ice. Duplicating, addressing, etc. Philadelphis Naval Shipyard, Philadelphia, Pa. do 387 326 Do. Do. 7 dn. - -- 8921 Nonprofit educational and scientific research agen- cies. do 5.098 Do. 8 dn. - -- 7330 Duplicating, addressing, etc. Portsmouth Nav8l Shipyard, N.H. 372 Do. EFFEcT or OURTAILMENTS or 60-2B C0MMEROIAL-INnusTnIAL Ac'rivipucs Item 1: Marine Corps Supply Forwarding Annex (MCSFA), San Francisco, Calif.: The repair and maintenance operations were transferred to the Marine Corps Supply Center, Barstow, Calif., on June 30, 1960. As a result of this consolida- tion, maintenance operations were materially curtailed. Of the 57 civilian em- ployees (total annual salary of $334,000) and 3 military (total annual salary of $12,000), only 12 maintenance personnel remain. All civilian employees affected were given the opportunity to transfer to Barstow. I PAGENO="0089" CONTRACTING-OUT PROCEDURES 85 Item 2: Mare Island Naval Shipyard, Vallejo, Calif.: The blueprinting operations at this shipyard were reported as a curtailment. On March 10, 1961, the Pacific Coast Blue Print Co., of San Francisco, was awarded a blueprinting work contract not to exceed $9,775. No shipyard person- nel were released because of this contract. Commercial procurement represents 3 percent of annual blueprinting requirements. Item 3: Naval Engineering Experiment Station, Annapolis, Md.: Decreased emphasis in several fields of endeavor at the engineering experi- ment station dictated a realinement of personnel. Specifically, there was less work forecast in all four departments of the station. Employees in the follow- ing departments are affected: (a) Technical: chemical, mechanical engineer- ing, applied physics, and metallurgy; (b) nontechnical: primarily shop per- sonnel such as sheet metalworkers, machinists, welders, and electricians. Also, the Bureau determined that certain inspection functions were not relevant to the basic mission of the engineering experiment station. The Bureau con- sidered that these functions were inherent in the manufacturer's performance of work and should be accomplished within the provisions of the cognizant con- tract. Thus, the performance of inspections by the appropriate manufacturer would enable the station to direct its efforts to the accomplishment of its basic missions. It is estimated that approximately 20 technical and 80 non- technical employees (`30 on direct nontechnical work and 50 on overhead) will be released by July 1, 1961. This represents an 11-percent reduction in civilian billets at the station, from a civilian allowance of 880 to 780. The salaries of these 100 people approximate $600,000 annually. It is not known at this time what cost increases in contracts will result from the manufacturers' perform- ance of inspection functions. Item 4: General warehousing and storage, New York Naval Shipyard, Brook- lyn, N.Y.: The shipyard is constantly endeavoring to reduce its available storage capacity to the minimum requirements necessary to sustain satisfactory and economical performance of its supply mission. To this end, the following actions were undertaken: In October 1959, the Maspeth Annex was sold to private industry for over $6 million, and 122 civilians ($605,000 annual salary) were released from the shipyard's allowance. In February 1960, the Queens Annex was sold to private industry for $1,255,000 and eight civilians ($38,000 annual salary) were released from the shipyard's allowance. During 1960, the storage, pickling, and painting of structural steel was trans- ferred from the Naval Industrial Reserve Shipyard, Kearney, N.J., to the ship- yard proper. This resulted in the release of 35 civilians ($196,000 annual salary) from the shipyard's allowance. In March 1960, the NIRS was turned over to GSA for disposition. In May 1960, the Naval Industrial Reserve Shipyard, Port Newark, N.J., was turned over to GSA for disposition. This action resulted in the release of 20 civilians ($106,000 annual salary) from the shipyard allowance. Action is underway to vacate supply functions from the Jay Street Annex of the shipyard. Information on personnel reductions is not available at this time. Item 5: Towing and tugboat service, Philadelphia Naval Shipyard, Pa.: On January 13, 1961, Taylor & Anderson Towing & Lighterage Co., 15 Lombard Street, Philadelphia, Pa., was awarded a 1-year contract, not to exceed $14,719.50, for towing and tug operations. Similar contracts, approximating $15,000, will be issued annually, but not necessarily to the same commercial firm. As a result of this contracting, one civilian has retired and 19 military billets are being deleted from the shipyard's allowance. Amount contracted out to commercial sources, 6 percent annually. Item 6: Duplicating, addressing, and so forth, Philadelphia Naval Shipyard, Pa.: On March 22, 1961, a 1-year contract, totaling $1,400, was awarded to Campion Co., Inc., 34 South 16th Street, Philadelphia, Pa., for blueprinting work. No personnel were released because of this contract. Amount contracted out to commercial sources, one-half percent annually. Item 7: Nonprofit educational and scientific research agencies, Philadelphia Naval Shipyard, Pa.: R.D.T. & El. work on boilers, turbines, engines, and reduction gears was transferred to the Philadelphia Naval Shipyard when the U.S. Naval Boiler PAGENO="0090" 86 CONTRACTING-OUT PROCEDURES and Turbine Laboratory was disestablished as a separate naval activity on June 30, 1960. This work is now performed within, the boiler and turbine laboratory department of the shipyard The disestablishment of the activity and the deemphasis of various programs resulted in savings of 82 civilian and 5 military billets. The June 30, 1960, laboratory personnel on-board figure was 267 civilians and 5 military. The current on-board total (February 1, 1961) is 255 civilians and 5 military. Item 8: Duplicating, addressing, blueprinting, etc., Portsmouth Naval Ship- yard, N.H.: On February 1, 1961, the Oharles Bruning Co., Inc., Boston, Mass., was awarded a contract estimated at $28,200 for blueprinting, work. This contract expires on October 31, 1961. No shipyard personnel were released because of this contract. Amount contracted out to commercial sources, 12 percent for 8 months. Secretary BELIRU. I am happy to attempt to answer questions or to have the gentlemen who are with me answer questions. The committee kindly furnished us a list of specific contracts in the so-called effort-type area, 15 in number, to which it wished to direct questions and on which it wished to have specific answers, and wit- nesses who are acquainted with the contracts. There are eight coming under the cognizance, basically, I guess-at least, the witnesses representing these are from the Office of Naval Research. The next five are from BuShips. And the last two from the Bureau of Weapons. I have gone over most of these. I know the committee will want to hear directly from the individuals involved, and I will be happy to introduce them. I could not help but think last night when I was going over these, the foreword I read by Albert Einstein from the book entitled "The Universe and Dr. Einstein," by Lincoln Barnett. Einstein in his foreword said: Anyone who has ever tried to present a rather abstract scientific subject in a popular manner knows the great difficulties of such an attempt. Either he succeeds in being intelligible by concealing the core of the problem and by offering to the reader only superficial aspects or vague allusions, thus deceiving the reader by arousing in him the deceptive illusion of comprehension; or else he gives an expert account of the problem, but In such a fashion that the un- trained reader is unable to follow the exposition and becomes discouraged from reading any further. Mr. HARDY. It would take me a half hour to absorb that. [Laughter.] Secretary BELIRU. I am not sure I have the answer. Mr. H~BERT. That was the idea. [Laughter.] Mr. KITCHIN. Exactly what he is saying. Mr. Hi~BERT. Exactly what he said. Mr. COURTNEY. That is as clear an exposition on the subject as we have heard. Secretary BELIEU. Out of Einstein's mathematical theories came his theory of relativity and a few other things. Mr. H~BERT. Which I am sure you understand as well as we do. [Laughter.] Secretary BELIRU. Just about as much as this paragraph, Mr. Chairman. [Laughter.] So I am not going to say that I understand al the contracts here, although there is a reason for them, as I under- stand. PAGENO="0091" CONTRACTING-OUT PROCEDURES 87 If the Chairman wishes-with his permission, I would like to intro- duce Dr. F. D. Rigby now, who will speak to the first eight on the list. Mr. H~BERT. Now, before we get into that, Mr. Secretary, I think the committee members may like to question you on your general statement. Secretary BELIRU. All right, sir. Mr. HEBERT. And in that connection let me say that I congratulate you on the statement, even if it had no Einsteinian theory as of now. [Laughter.] I don't know what the future holds. I am not predicting. But certainly your statement has been responsive and I congratulate you on it. Don't puff up on that. I a~1ways warn everybody. [Laughter.] Mr. COURTNEY. No levitation. Mr. HEBERT. No. This is as of now. [Laughter.] Secretary BELrcu. Yes, sir. Mr. HEBERT. The doctor says-you know, you see the doctor and he says "You are in good health but you may drop dead the next minute." He always protects himself. And I am trying to protect myself in my statement. But seriously, your statement has been most responsive and I think most helpful for part of the questioning on the part of the committee now. I just want to ask one question now, or two questions. In your evaluation-and recognizing the fact that much of this has been left on your doorstep and you can take it to the orphanage if you want- but the time that you have spent in the Navy department as Assistant Secretary, and your grasp of the situation, and in the figures presented to you, what conclusion do you come to as to the desirability of con- tracting out in whole or in part, or not at all? Secretary BELIEU. I suppose each man brings to a job the back- ground of his own nature. I spent many years in military service. I am normally inclined to in my opinion make certain that our Military Establishment has as much in-house capability that it needs to judge the job that it must do. Basically this is the fundamental reason. Mr. H1~BERT. That is the paramount consideration. Secretary BELIEU. I think so, yes. Mr. H~BERT. Now has the contracting-out procedure injured in any way that in-house capability, in your opinion? Secretary BELIEU. I have not had a chance to visit the entire Navy and I can't answer that completely. Mr. H1~BERT. From the books- Secretary B~Lnw. From my questioning of the staff and the people that I have had the opportunity to rub elbows with, I don't think it has now. Although it could if we do not maintain the naval art alive within the Naval Establishment in this country. Mr. H~BERT. Then, what you are saying to the committee is that an expansion of contracting out must be approached with caution. Secretary BELIEU. Yes, sir; I think so. We have a two-horned dilemma in this country. We obviously sup- port private enterprise and must. It is a great percentage of our strength. It is 98 percent of our strength. PAGENO="0092" 88 CONTRACTING-OUT PROCEDURES The other 2 percent is the warmaking potential that exists in the active military forces. And we must maintain within those forces this know-how. Now I think perhaps, as a matter of philosophy, had the country decided to give the military forces larger budgets over the past years, it would have been possible of course to keep a greater in-house ca- pability. Obviously, sometimes the matter of costs should go out, because you want to ~et the weapon. This is the thing the man flights with. Mr. HEBERT. Now I don't know whether you can answer this. You should, from the books. Have you come to a definte conclusion as to the economical aspect, in an overall approach to the subject matter, as to whether or not contracting out is cheaper dollarwise than inhouse performance? Now you mentioned two places-in Guam, where contracting out was cheaper dollarwise. Does this reflect the entire picture, or are these exceptions? Secretary BELIBU. I have tried to answer this question, sir, and I don't think I know the answer to it. I don't think anybody really does, because it shifts from time to time. Now I mentioned Guantanamo awhile ago. I am certain there is no reason to expect that labor costs would be cheaper if we contracted out there. But from the military necessity, it is obvious now that we can't do this in the future, as much as perhaps we could under other conditions. Mr. H~BERP. What you are saying is that the local market, the local labor market would quite control the cost in a particular area. Secretary BELrs~u. It would have a certain impact on it. Also, there is no real economy in the military machine. It is an insurance policy. And sometimes we have to pay for the thing to make sure our strength remains constant. So there is a balance between cost and mobilization requirement and operational readiness. Mr. H~BERT. Now, what would be your recommendation now, Mr. Secretary? That you continue as we are proceeding, or cut back, or an expansion of contracting out as related to the Navy, and under directive 60-2? Secretary BriLIBu. Directive 60-2 has exceptions in it which are designed to cover military requirements in their generic sense. They include training, mobilization, and I guess most anything else that you can properly justify.. I think I would-there is no hesitancy-the difference between con- tracting out-house and in-house business is a matter of necessity based on the consideration you have to make perhaps at the time. Money, perhaps, bOing a consideration. But going back to the philosophy that I say was my personal philosophy, I would not give up any in-house capability until I was certain it would not do damage to our military posture. Now, if it doesn't do that, tha1~ is fine. Mr. H~BERT. Let's be specific. For `instance-in probably a minor area, but certainly an illustrative area-laundry now is contracted out at all Navy bases. I think that is correct, isn't it? Admiral BEARDSLEY. I don't know. PAGENO="0093" OONP&~CTI~O-OUT PEG~EDURES 89 Secretary BELIW. I am not too certain on that, sir. Mr. HEBERT. It affects the daily life of the individual. This is a morale factor. Admiral Beardsley (nods). Mr. HEBERT. Now, if you are in doubt, probably I shouldn't pursue it, because you can't answer that question. I just wondered in that paiticular area, has it shown that it is cheaper to contract out for laundry than to have it done in-house? You don't know the answer, so we can't pursue it. But there is an example. Now, these are some of the things that have an impact on the local community. How about bakeries? What does the Navy do about bakeries? Is that contracted out? Admiral BEARDSLEY. I think so-most of it. Mr. H~JIERT. It is or it isn't. Secretary BELIEr. I think most of it it, sir. But then, obviously, you need bakers aboard ship, too. Mr. H~BERT. That is right. You see, these are the areas that we discuss. Then we talk in gen- eralities and the overall picture as to the effect on the local economy, when in reality a close analysis, an intelligent analysis, would reveal that the cost in the ultimate is more to the Government in letting out because you don't have your trained personnel to keep up your own in-house capability. Now, I admit that these things are things that are rather difficult to define. And yet, on the other hand, it spreads the question all over- Secretary BELI~tr. Yes. Take laundries, for example. In the States, the costs being equal, I don't see any reason not to go out, because it doesn't in my mind impair our military effectiveness, as long as you get the service properly done. Overseas, I have been in positions where you had to take your clothes right down to the creek near you and beat them out yourself if you wanted to get them washed. And it would have been fine to have a laundry unit there, after a period of 10 or 12 days in combat. Aboard ship this is not necessarily the same problem, as it would be with the marines. (The following was supplied by the Navy in reply to subcommittee inquiry:) CoDis 7211: PowER LAUNDRIES AND PRYCLEANING PLANTS A total of 47 laundries and drycleaning activities were reported during the 60-2 survey program. While there are undoubtedly other activities of this nature this total represents those functions which were reported as separate functions, rather than a component unit within a larger activity. For example, the survey made of the Naval Supply Center, Oakland~ Calif., and the MAROOItPS Supply Oenter Barstow Calif included this type of activity as a component of the larger activity. Of the 47 laundries and drycleaning activities evaluated 82 were approved for continuance and 15 were discontinued Continued operation by the Navy was justified on the basis of clear unfeasibilit~. PAGENO="0094" 00 CONTRACTING-OUT PROcEDUREs * CODE 2051: BREAD AND BAuERY PRODUCTS As defined in DOD instruction 4100.16 dated March 8, 1954, a bakery is "a. centrally located bakeshop, not a part of the galley or kitchen of a genera! mess, which supplies bread and pastries to- "(a) Messes for consumption, or "(b) Commissaries for distribution to mess, or "(c) For resale to services personnel as individuals." A total of 16 bakery activities have been reported under the commercial- industrial activities survey program (BoB 60-2). Of this total eight were continued in operation by the Navy and eight were discontinued. One of the eight continuances was actually a bakeshop which was included as a function within the MARCORPS Supply Center, Barstow, Calif. Seven of the continuances were justified on the basis of national security and one on the basis of clear unfeasibility (adm. imp.). The justifications for continuance based on national security take into con sideration the necessity for providing essential training to bakers for eventual. duty in the field and with the fleet, and the need for providing refresher train- ing in advanced techniques to bakers who are rotated from sea duty and over- sea shore billets. Baking is a trade which requires constant attention to changing methods and techniques. Sufficient billets must be maintained, there- fore, to adequately support the training and rotation needs of the Navy and to provide for the absolute minimum requirements of mobilization capacity. In addition to providing training and rotation billets, these bakers also supply troop mess bread requirements at the activities of which they are a part. It is the policy of the Department to restrict the baking of bread in general messes of the Continental Naval Shore Establishment to baker's schools, naval training centers, and to a minimum of the other continental shore activities where it will serve a necessary training purpose. The baking of cakes, pies, and other pastries are restricted to all general messes for immediate consump- tion of military personnel. With these exceptions the general messes of the Continental Naval Shore Establishment procure bread from available local commercial sources. Mr. H~BERT. Now, to bring it into definite and sharp focus. Tinder 60-2, the discretion is allowed the local commander of the area as t~ the application of the directive. Secretary BELIEU. I would have to look that up again, sir. I be- lieve you are correct. Mr. }I~BERT. That is important here. Secretary BnLrau. Yes. Mr. HEBERT. Because while in one community or one area the laun- dry or the bakery deal may be cheaper to the Government, in another area it would be prohibitive. Secretary BELIBu. This is the way it should be. Mr. H1~BERT. So as I say, it is up to the commander locally to apply the conditions. Secretary BELIRU. Again, going back-we discussed bakeries and' laundries. Mr. H~BERT. I am using,those examples. Secretary BELIEU. Well, they are good examples. If you have to go overseas and perform the mission and you can't take this contracting out facility with you, you better have it in house~ so you can go with `it, or it can go with you. Mr. II~BERT. Well, that is the thing I am trying to develop, Mr.. Secretary. , ` Secretary BELmu. Yes~ sir. . Mr. H~BERT. Is to show that while the general prindipie and the. expression of free enterprise on the local community, and all that sort of thing-it sounds pretty. It sounds well. It is put to music, PAGENO="0095" CONTRACTING-OUT PROCEDURES 91 and the melody is wonderful. But really when you get down to it, you find it is not so practical. Secretary BELIw. Not in all cases, no, sir. Mr. H~BERT. That is what I mean. So where is the line of discretion? Is it the local commander, under 60-2, or is it directed from a central headquarters? Secretary BrLn~u. I can't answer specifically as to laundries on the thing. It should be on the basis- Mr. H1~BERT. Well, the overall directive: Is it elastic enough? Secretary BELIEn. I believe it is now. I have not had any case come to my mind where it hasn't been, as I indicated. Mr. HARDY. If the chairman would permit. Mr. HEBERT. Yes. Mr. HARDY. This is an observation in connection with it. I have had a good bit of experience in times past on matters of this nature, and I never have been able to find out that any local commander had the authority to make any change unless he got the approval of the chief of the bureau. And I think they have generally had to get it from the Secretary's office. Secretary BELIRU. I am informed it is all the way, to the top, sir. I wasn't familiar with that particular. Admiral BEARDSLEY. All these reviews, Mr. Chairman-they all have to come up and be reviewed all the way up. So it isn't within the discretion of the local commander, you are correct. Mr. HI~BERT. We are not being critical. And we don't want you to respond beyond your knowledge. We merely want to find out what the facts are. It does have to go topside? Admiral BEARDSLJ~Y. Yes. Mr. HEBERT. Now, Mr. Hardy, any questions? Mr. HARDY. Yes. Mr. Secretary, I am interested in your general interpretation of 60-2. Tn times past I have encountered interpretations which seem to say that we will not maintain any in-house capability for the performance of a service which can be procured from outside. Now, that, it seems to me, is a little bit of the reverse of the position which you have taken. I hope I am properly interpreting your position. Secretary BELIBU. I think you are sir. I have also had people approach me with this interpretation of it, sir. Mr. HARDY. I have found that interpretation in some quarters in the Navy in times past. And I wanted to be sure that we have a general interpretation over there now, and just what it is. Mr. H1~BERT. That is very important, I think. Mr. HARDY. Just let us pin this right down a little bit. Secretary BELIRU. Right. Mr. HARDY. Even in your own poIièy statement, beginning at the bottom of page 1 and at the top of page 2, you list three categories there, which you say are not in conflict with Bureau of the Budget Bulletin 60-2. PAGENO="0096" 92 CONTRACTING-OUT PROCEDURES Your statement, however, does not treat with the converse of those situations and say that you will procure, or will not contract out for other items, or that you will maintain in-house capability for the other items. You say you will contract out for these, but you don't say that you are going to perform as an in-house capability all of the others, not by a jugfull. Now let's clarify that. Secretary BELIRU. Well, again my policy would be, unless I am directed otherwise that-as I have said here: "Nonmission essential weapons and components when military control and performance is not required." You could reverse this and just say the opposite. "That for all mission essential weapons we should have an in-house capability." We should have an in-house capability where it meets training requirements or mobilization requirements or other requirements for rotation overseas. Now in many instances in new weapons it would be desirable if we had an in-house capability~ because in-house capa- bility gives you the better ability to inspect and to review and to know what you are doing and to plan your program better. Unfortunately in this case technology expands so fast and the cost of building plants and of doing these things has prohibited all the inhouse capability that I think probably is essential to a military establishment in this country. Now, where these things do not affect the military mission or we do not have to take them overseas in a rapid expansion, do not have to take the art with us, and where the cost is cheaper, I see no reason not to contract out. Mr. HARDY. But now, can that be determined? Can determinations of that nature be made with respect to your installations generally, or do they have to be made on an individual installation basis as the chairman was discussing a moment ago? Secretary BELIEtT. I think the policy obviously has to come all the way to the top on the thing, pretty much. Mr. H~nERT. You didn't ask that question- Mr. HARDY. No. Secretary BELIRu. That is the way I understood it. Mr. HARDY. The policy with respect-if it is of general application. But what might apply in one area might be directly inapplicable in another area. Secretary BELIEU. That is completely correct, sir. Mr. Ki~crnx. On practically everything. Secretary BELIRu. This would happen certainly in the case of laundries and other facilities of that nature. I have not had enough experience with this to talk as precisely as I should for the committee's sake. I would assume-take two laun- dries, one in one part of the country and one in another, where the local commander says "I can do this cheaper here." He should come in and make his recommendation for it. I think there is no question that the 60-2 says "You will go out- house wherever you can." Mr. HARDY. It says "wherever you can." Secretary BELIRu. Yes. PAGENO="0097" CONTRACTING-OUT PROOEDURES 93 Mr. HARDY. Does it mean wherever you can and maintain military capability, or does it say you must contract out if there is anybody on the outside that can produce it? Admiral BEARDSLEY. No. Mr. KITCHIN. There is an escape clause in there. Secretary BELIRU. No, I don't think it goes that far. I don't inter- pret it that way. I interpret it so you should go out-house-you should contract out, where you do no damage to your military posture. Mr. HARDY. Well, let me get a little more specific. I can recall-now, for instance, in here you made reference to non- combat aircraft maintenance. (Secretary BeLieu nods.) Mr. HARDY. You also~-the Navy also got involved in proposals to contract out for the maintenance of combat aircraft. Now I don't know how far they got actually with putting that into effect, but I do know that a good many aspects of it were under consideration, and a lot of time and money was wasted in considering it. I know that certain capability related to combat aircraft maintenance were under scrutiny and under study, and a lot of money was spent on them, and I recall one little item-and this is the kind of thing that would involve overall top policy, I think. I recall one specific proposal to discontinue the operation of an electro~~ilating facility required in connection with the maintenance of naval aircraft, and to procure that service under contract. I know that in one locality it was determined that there was no local contractor capable of performing, so distant contractors were invited to bid on that proposition. I know that finally, after a long period of time, somebody topside was prevailed on to understand that the quality requirements could not be maintained by such a procurement at a far distant point. But the reason I am bringing this up is, here is something that- an awful lot of money was spent on something that was absolutely foolish from the beginning, when you couldn't maintain your quality requirements, and if you made a topside policy determination with respect to the contracting out for this service, generally you would be getting in one "gosh-awful" situation, plus an expensive one, plus the possibility that you would have a lot of aircraft going bad because of inadequate inspection. Now, I am trying to understand how your top policy decision up in the Bureau on a blanket basis can result in meeting the need for a proper determination on these specifics. Now haven't we got to handle each on its individual basis, instead of trying- Secretary BELIRU. That is correct, sir. Certainly you can make the overall statement that I did on page 1 and 2 there. Admiral BEARDSLEY. That is right. Secretary BELIEU. Then you have to apply this as a yardstick to most individuals and the particular example you speak of I don't know precisely. They may well have to take these aircraft overseas and maintain them, and you have to take this capability with you. If you lose it here, how are you going to take it with you when you go? Now in my mind, this is almost a direct clamp on keeping it in, of refusing to let it get out. 74~IO9L_ 6i~--~ PAGENO="0098" 94 CONTRACTING~OUT~ PROCEDURES Mr. HARDY. Well, let me give you one other little silly one that the Navy did. This was a real silly one. The Navy issued an order- and this hasn't been so very long ago-that they would maintain no ladders, fire ladders in a shipyard if there was a ladder company main- tained by the local governmental installation within a certain distance of it, of the shipyard. Now on the surface that might sound like it was fine thing to do, but it can result in an awful stupid situation, and it did in one with which I have a personal familiarity. But the decision was made at the top that we are going to abolish all these things, and it took an awful lot of head cracking, by golly, to keep from dissipating a capability in the shipyard of essential firefighting service which couldn't be met elsewhere. Now if you are going to-that is the thing the chairman was talking about. (Mr. Hóbert nods.) Mr. HARDY. Where is the decision made? And this was a complete overriding of the local commander. Secretary BELIEU. This is part of the difficult responsibility of lead- ership in this town, and all these decisions presuppose understanding of what you need to do and actual factual information of what the local situation requires. If you don't have these two conditions, de- cisions are going to be bad. Mr. HARDY. Let's talk about one other one, if I might, because I want to try to see if we can have an understanding that we are ap- proaching this thing on a commonsense basis, and that is the way I read your general statement. Secretary BELIEU. I hope so, sir. Mr. HARDY. But is hasn't always been done, and I hope to goodness that we are getting this policy squared away. Let's talk about another one. Now you mentioned the maintenance of automotive equipment. For a considerable period of time there was a program underway of trying to contract out for the mainte- nance of all the automotive equipment in the Norfolk Naval Shipyard. And to show you how silly it was, they found they couldn't con- tract for it on any reasonable basis without knowing exacty what was going to have to be done to the vehicles. So you had the shops in the shipyard tearing the vehicle down to find out what was wrong with it, putting it back together, and then sending it outside to be repaired. Secretary BELIEU. This is precisely what I meant a while ago when I said if you do not keep an in-house capability, you don't know what you are doing sometimes. How can I let a contract to buy something if I do not know what I want to buy? You just can't do it. Mr. HARDY. Now there is one other facet to this that I wonder about, and this has to do with your ancillary activities, and one which you mentioned, and this one has been talked about a good many times- gas manufacture. Now I don't know, but it seems to me there are some functions that have to be maintained as a matter of good business operations. I was talking to a private shipyard one time about the question of gas manu- facture. I said "Do you manufacture your own gas?" He said, "Yes." And I said, "Why?" PAGENO="0099" CONTRACTING-OUT PROCEDURES 95 He said, "Because I have to maintain my supply. I don't want to have to depend on somebody else to furnish me with gas when I need it." I said, "Do you consider that any shipyard ought to do that?" He said, "Well, I wouldn't operate one without making my own gas," he said, "because I can't be dependent on somebody else to do it." Now, the question that was involved here-and I think the same thing goes back to the automotive maintenance. There may be situ- ations under which it can be contracted out on a reasonable basis, but as a farm operator, I had to keep a shop that could maintain or per- form some maintenance on my farm tractor. And how in the world anybody can operate an industrial establishment like a shipyard and not perform any maintenance on its own equipment and not manu- facture its gas, is a question for prudent management, it seems to me, to determine. Secretary BELIEU. It certainly is, sir, because you must maintain- you must get these services from somewhere. You must have them available at the time you need them. Mr. HARDY. Now, Mr. Chairman, there was one other point that I wanted to explore, and then I will be through with this. I am glad to hear you make these observations. Mr. HEBERT. I think, Mr. Hardy-we can well say to you, Mr. Secretary-that this is an area, and which the colloquy has develop&I, is the key to the whole situation in which we are concerning ourselves at this time. Of course it will be incumbent upon the committee to make every effort to have the Defense Department issue a complete and distinctive and commonsense interpretation of what 60-2 means, so it can apply it to all services, and that is a responsibility of this committee in its report. Mr. COiJRTNEY. Yes. Mr. H1~BERT. This is the heart of the whole thing, as to its common- sense application. Mr. HARDY. Let me ask you this, Mr. Secretary: Are you aware of the extent to which the imposing of arbitrary personnel ceilings may be actually increasing your operating costs in Navy installations? Secretary BELIEr. I am probably not aware of the whole thing, sir. I could only give you a general answer. I have been in command of activities in the past. Obviously, the diminishing of your personnel resources beyond a certain point does either of two things. It inhibits your ability to do your job properly,. and by that adds costs, because if the job has to be done sometime, you have to pick up and catch up with it. I am not familiar-maybe I do not understand the question prop- erly, sir. Mr. HARDY. Well, the thing I was getting at is this Haven't there been times when the Navy has itself imposed personnel ceilings on its industrial-type activities or commercial-type activities which have resulted in a requirement that the performance of certain services be secured under contract and be done at a much increased cost? I will give you an illustration, one that I know of. I know an occasion under which you had a breakdown in a cold storage plant and because you didn't have the personnel ceiling to permit your own PAGENO="0100" 96 CONTRACTING-OUT PROCEDURES maintenance employees to go in and perform that maintenance, you had to do it under contract. And I know it was the kind of a job that nobody could put in a bid on, on a contract basis, because of expanding the thing out of all proportion in order to protect himself. And the thing cost the Navy in that particular instance two or three times what it should haYe cost. But you had a personnel ceiling- and I don't know who imposed the ceiling. Admiral BEARDSLEY. Pretty generally, Mr. Hardy-as I recall dur- ing the last 4 or 5 years our overall ceilings have been more than adequate. The tighter control has the money within the ceiling, that is the total money within the ceiling. There may be isolated cases where this did happen. Mr. HARDY. This was some little time ago. You had to have the money, because you had to maintain the cold storage plant. You had to repair a breakdown. Admiral BEARDSLB-Y. Well, in the overall we have had more ceiling than we have had the money to support people. So I don't think in the overall we have been hurt very much. Mr. H~&iur. This occurred some little while ago, and shortly there- after you had a situation under which the Public Works Department had a ceiling put on it, where it had to lay off people, and the Supply Department, located right on the same base, was employing the peo- ple that they laid off, because they had work that had to be done. Secretary BELIRu. This comes from two different reasons. One from the allocation of personnel trying to make a proper decision be- tween the whole list of priorities and the jobs to be done, and also as a result of budgetary limitations-the allocation of funds from one department to the other-I mean one entity to the other. Mr. HARDY. That would, in that particular situation. But when you increase your requirement for procuring a service under contract which is more economical to perform in-house because of a laqk of personnel ceiling, then it is not a budgetary matter, because it is cost- mo' you more money. ~ecretary BELIRu. It is not even an economical matter, sir. Mr. HARDY. That is it. Mr. II]~iBERT. Mr. Kitchin? Mr. KITOHIN. I have no questions of this general nature. I will re- serve mine until we get to the specification contracts. Mr. COURTNEY. I would like to ask a question at this point on this subject. Mr. H~BERT. Mr. Courtney. Mr. COURTNEY. On this subject, Mr. Secretary, would it be a fair interpretation of your conclusions as expressed here to summarize them about in this way: That your experience in the Navy to this date in the operations that it is required to perform has not so far as your examination shows been impeded or curtailed or interfered with by the conditions that are prescribed in 60-2 and 4151.1? Secretary BELIRu. That is correct, sir. Mr. COURTNEY. Now the second question. Do you interpret 4151.1 and 60-2 as directory of mandatory upon the Navy? This would be the heart of the matter, in the questions, or the hypothetical cases that have been put to you here by the subcommittee: If it were mandatory, would it be so restrictive that it should now PAGENO="0101" CONTRACTING-OUT PROCEDURES 97 be altered or made abundantly clear that it would not interfere with your operation on a daily basis, or can you live with it in its present form? Secretary BELn~u. Well, of course, any defensive directive that I receive through appropriate channels is a mandatory thing as far as I am concerned. Mr. COURTNEY. Well, of course, I would understand that, yes. So that you would feel that you would be completely obligated by 4151.1? Secretary BELIEU. Yes. But I believe there is freedom of action within this. Mr. COURTNEY. Well, this is the next question. Is there sufficient freedom of action so that you could accomplish the missions that you would be required to? Secretary BELIEU. I think so. As I indicated earlier, I have had no one breathing down my neck on this, saying, "You are doing something wrong." If this were said to me, I would assume that among reasonable people I would have the opportunity of coming back and saying, "This is the impact it will have on the Navy and on the country $ naval posture," and I would either concur with it or I don't concur with it. I have not run into a situation of this nature yet. Mr. COURTNEY. Well, that then would be the question; If the subcommittee accepts, as I gather from the questioning they do, your philosophy of the application of the principle contracting out- or in-house capability, the question then ultimately would be whether you can carry out your philosophy with the restrictions, if any, that are contained in 4151.1. Secretary BELIEU. I have reason to believe I can. I have no reason to believe otherwise. Mr. HARDY. You mean thus far it hasn't run into conflict with somebody a little higher? Secretary BELIRU. As the chairman mentioned earlier, as of now I am a whole man. [Laughter.] Mr. COURTNEY. Those were the only questions I had. Mr. HARDY. It was a very fine statement, Mr. Chairman. Mr. HEBERT. It was a very fine statement. "As of now," you said. [Laughter.] Mr. H~BERT. Now, I think, Mr. Secretary, we will proceed with the individual contracts, through Mr. Courtney. Secretary BELIRu. All right, sir. I have one suggestion, if I might-or whatever the committee wishes. The first batch-I have broken down into three different groupings, for presentation. The first eight, as I say, are from ONR. The next five, in other words items 9 through 18, inclusive, represent BuShips. And items 14 and 15, BuWeps. Inasmuch as item No. 1, of the first 8, has general application to most of the others following, I would suggest as a matter of clarity it might be appropriate for the first witness to pick up with No. 2 and go PAGENO="0102" 98 CONTRACTING-OUT PROCEDURES through No. 8 and then return to No. 1-if this meets the committee's approval? Mr. SANDWEG. I wonder, Mr. Secretary, if we have them in the same Corder that you have. Secretary BELIEU. I think they were taken from the list-they may not be. I can call them off. Mr. COURTNEY. We don't have them numbered, Mr. Secretary, in sequence. We have them bundled together, by the contract numbers. Mr. HARDY. I don't see any page numbers on these- Mr. SANDWEG. There is a contract number on top of each sheet. Secretary BELIEU. Yes. Mr. COURTNEY. I think they have been numbered out in the inter- val, Mr. Chairman. And the sequence is the same, although the num- bers are not on your documents. Mr. HEBERT. flow do you desire to proceed, Mr. Courtney? Mr. COURTNEY. Well, that puts the monkey right on my back, doesn't it? Mr. H~EERT. That is correct. Secretary BELIEU. If I may suggest, Mr. Courtney- Mr. COURTNEY. That is what I would like to have- Secretary BELIRU. [showing document]. You start right with this contract number, and go down to there, and come back and pick up this one and go right on through. Mr. COURTNEY. All right. Now, Mr. Chairman, we could have the titles of these contracts read in the record, so the committee could understand, as it has before in its briefings, the nature of the contracts that are being considered. No. 1 is a $296,000 to the Cowles Commission. Mr. H1~EERT. The who? Mr. COURTNEY. Cowles-C-o-w-l-e-s-Commission for Research and Economics, at Yale University. The purpose and scope of the contract: This contract is for research in the general area of decisioninaking under uncertainty. Mr. HJ~BERT. What is that again? [Laughter.] Mr. COURTNEY (reading): Decisionmaking under uncertainty. Secretary BELIEU. This was the one I suggested we defer until No. 8 had gone through. Mr. HEBERT. I congratulate you again, Mr. Secretary. I knew just what you had in mind. That is why I asked Mr. Courtney to proceed in the order that you wanted. [Laughter.] Secretary BELIEU. The chairman runs his own committee. Thank you, sir. Mr. HEBERT. It was a good try, a good college try. [Laughter.] Mr. COURTNEY (reading): Attention is to be directed primarily at decision situations characterized by the desire to optimize the value of some measure of accomplishment. Mr. HARDY. Is that the thing you read awhile ago, Mr. Secretary, and attributed to Einstein? PAGENO="0103" CONTRACTING-OUT PROCEDURES 99 Secretary BELIEU. No, sir. I think Einstein might have been talking about such activities as these. [Laughter.] (The contract data not read is as follows:) CONTRACT N0NR-358(O1) IDENTITY OF CONTRACTOR The Cowles Commission for Research in Economics, Box 2125, Yale Station, New Haven, Oonn. COST OF CONTRACT Estimated cost: $296,000. PURPOSE AND SCOPE OF CONTRACT This contract is for research in the general area of decisionmaking under Un- certainty. Attention is to be directed primarily at decision situations charac- terized by the desire to optimize the value of some measure of accomplishment, SUMMARY OF RESULTS OR FINDINGS The encolsed list and its supplement represent a summary by title of the work accomplished to date under Contract Nonr-358(01). In this list are a number of papers listed as "Discussion papers." These are papers which are distributed prior to their being formally published as reports or in some professional journal. They are circulated, e.g., to persons on the distribution list provided by this office, for comments which could be incorporated into the final version. In ad- dition to discussion papers, Cowles Foundation papers, and papers published in professional journals, those working either full or part time on the contract have given a number of talks at meetings of professional societies, symposia, and for special lecture series. The productivity and quality of the research on this contract has been very good, and upon this basis this branch has continued to renew the contract. Some of the outstanding people today in the area of decisionmaking in organizations have at one time been associated with this contract, e.g., Prof. J. Marschak and Prof. H. Radner. ACTION TAKEN BASED UPON RESULTS OR FINDINGS This contract is a contract to conduct basic research in normative decision- making theory appropriate to various circumstances. The primary contributiop of such a contract is to provide basic background results to those working in more applied areas. To implement this contribution, the contractor is provided with a distribution list to which all papers and reports are to be sent. This dis- tribution list includes other research people working in a similar area also hav- ing contracts with the Office of Naval Research, other research workers to whom the reports would be useful in their own research, various Government agencies cpnçerned with planning and evaluating decision procedures (e.g., the Navy ~4nnagement Ofil?~e), naval laboratories (e.g., Navi~tl Research Laboratory), Navy libraries, and directors of agencies which have members who might find the information useful (e.g., Director of National Security Agency), some indus- trial laboratories carrying on related research activities for the Department of Defense. As previously indicated, further dissemination is accomplished by presentation of six or seven papers a year at meetings of professional societies, symposia, and conferences. Mr. COURTNEY. This is the second one, the Planning Research Corp. of Los Angeles, $283,310, The scope of the contract is indicated as classified. But the principal objectives are: * * * to study, design, and develop data processing techniques. 1. Providing expeditious access to a wide variety of logistics data required by' operating staff; and 2. To assist staff logistic planners in rapidly determining logistic feasibility of war plans. PAGENO="0104" 100 CONTRACTING-OUT PROCEDURES (The contract data not read follow:) CoNT1t~cT NONR-3317(0O) (X) IDENTITY OF CONThA~TOR Planning Research Corp., 1333 Westwood Boulevard, Los Angeles, Calif. COST OF CONTRACT Total estimated cost and fixed fee: $238,310. PURPOSE AND SCOPE OF CONTRACT [Classified.] SUMMARY OF RESULTS OR FINDINGS This project was origlnally estimated as requiring a minmium of 30 man-years of effort over a minimum period of 3 years. Subject contract however, covers oaly the initial 10-month period from August 28, 1960, to June 30, 1961. Results and findings at this date are thus limited since only about 25 percent of the estimated total effort has been applied. The principal objective of the contract is to study, design, and develop data processing techniques f or- (1) Providing expeditious access to a wide variety of logistics data required by operating staff; and (2) To assist staff logistic planners in rapidly determining logistic feasi- bility of war plans. ACTION TAKEN BASED L7PON. RESULTS OR FINDINGS Because of the early status of the developmental work involved In th4s project, no action of an operational nature has yet been taken Testing of the feasibility of certain phases of the systems being developed will cothmence in June 161. Future actions will be based on evaluation of these tests and the result of future research and development. Mr. COURTNEY. No.3, $113,000. Liltewise classified. Summary of results or findings: This contract was supported to carry out a controlled experimental study of an operationally desirable submarine detection technique. The investigation gave some positive results but the percentage of success was small and the technique judged marginal with existing equipment. (The further contract data not read follows:) CONTRAYP NONR-2784(OO) IDENTITY OF CONTRACTOR U.S.I. Technical Center, Division of U.S. Industries, Inc., 8901 NE. 12th Avenue, Pompano Beach, Fla. COST OF CONTRACT Total estimated cost and fixed fee~ $113,338. PURPOSE AND SCOPE OF CONTRACT [Classified.] SUMMARY OF RESULTS OR FINDINGS This contractor was supported to carry out a controlled experimental study of an operationally desirable submarine detection technique. The investigation gave some positive results but the percentage of success was small and the technique judged marginal with existing equipment. PAGENO="0105" CONTRACTING-OUT PROCEDURES 101 ACTION TAKEN BASED UPON RESULTS OR TTNDINGS The Navy has undertaken a program of basic research in the technical area indicated in an effort to eventually make the technique operational. Mr. COURTNEY. Next one is the Systems Research Group, Inc., of Mineola, Long Island. Purpose and scope: This contract is for the purpose of making available to the Naval Analysis Group an organization capable of providing quick response, general analysis services in the investigation of military and scientific problems. All problem areas to which the application of general scientific methodology is relevant are to be considered admissible, and investigations may include such areas as: (1) Weapon systems evaluation, including the application of gaming proce- dures. (2) Simulation on high-speed computers. (3) Logistical analysis and costing. (4) FeasibilIty, effectiveness and optimization studies concerning studies con- cerning contemplated, proposed, and existent equipment, together with related systems. (5) Mathematical research in behalf of subsidiary developments-. and the rest is in the same general framework. There is quite a lot of discussion of this contract. (The contract data not read is as follows:) CONTRACT N0NR-2936(OO) IDENTITY OF CONTRACTOR Systems Research Group, Inc., 244 Mineola Boulevard, Mineola, Long Island, N.Y. COST OF CONTRACT Total estimated cost and fixed fee: $268,982. PURPOSE AND SCOPE OF CONTRACT This contract is for the purpose of making available to the Naval Analysis Group, an organization capable of providing quick response, general analysis services in the investigation of military and scientific prQblems. All problem areas to which the application of general scientific methodology is relevant are to be considered admissible, and investigations may include such areas as: (1) Weapon systems evaluation, including the application of gaming proce- dures. (2) Simulation on high-speed computers. (3) Logistical analysis and costing. (4) Feasibility, effectiveness, and optimization studies concerning contem- plated, proposed, and existent equipment, together with related systems. (5) Mathematical research in behalf of subsidiary developments necessitated by the above. (6) Develop and report Militran I to the extent of providing: (a) A complete reporting six copies of the background of the Militran concept. (b) A prototype version of the Militran preeodlng manual (six copies) pro- viding instructions for the preparation of data concerning the objective system (i.e., the system to be simulated) preliminary to coding and debugging. (c) A complete description (six copies) of coding and operating procedures. Included in the report will be instructions for the assembly of the machine program from the written code and examples of several military problems pro- vided on ONR which Militran I has compiled. As a standard reference machine the IBM 709 will be used. (d) A complete description (six copies) of all technical aspects of the Mill- tran compiler. PAGENO="0106" 102 CONTRACTING~OUT PROCEDURES (7) Develop and report Militran II to the extent of providing: (a) System requirements (12 copies) based on a comprehensive study of current and projected military needs for computer simulation of military opera- tions. This will include review of recent military literature and of current ~inilitary programs and extensive field trips to military and contractor groups working the area of military operations research. (b) Initiate a detailed design of the compiler which will be informally de- scribed at the completion date of this amendment to a designated ONR representative. (c) Study outlines and monthly progress reports (3 copies). SUMMARY OF RESULTS on FINDINGS The contract to date has established the feasibility of an automatic compiler system for rapidly constructing high-speed electronic computers programs to simulate a variety of military operations. It is expected that such a compiler system will reduce programing time, and consequent cost, to from one-fourth to one-eighth of that presently required by conventional means (including pres- ent compiler techniques) to solve complex military problems in the areas of systems analysis and operations research. In additon, this compiler concept can be applied to the rapid development and modification of operational simu~. lation programs for use in command post exercises, developing and testing opera- tional plans in operations control centers and In analytical intelligence studies. Time and cost of preparing computer programs has inhibited the use of simu- lation techniques. Shortening programing time and increasing the flexibility of such simulations will not only save time and money, but improve the out- put of studies involving the use of operational simulations. At this time a requirements survey phase to establish the scope and versatility needs of the compiler has been completed and the engineering design phase is nearing completion. This will be followed by a programing phase, a test phase, and implementation of the system by instruction manuals, forms, prepared card formats, etc. ACTION TAKEN BASED UPOK RESULTS OR ~(NDING5 On the basis of successful completion~ of the feasibility study, the concept has been given wide publicity in the military and in industry and has received a very favorable response. Ultimately, if the compiler system successfully lives up to anticipated expectatio~is, it will be made available to Department of De- fense Computational Centers, to other Government activities and to educational and industrial concerns in defense work. The concept, principles, and tech- niques will also be available to universities and industry for industrial appli- cations. Mr. COURTNEY. Now the next in order is to the Vitro Laboratories of West Orange, N.J., $522,000. This contract is for: * * * analytical studies in connection with the Naval Research Laboratory research and development program for the fleet ballistic missile which shall have as their objective the establishment of strategic and tactical modes of the fleet ballistic missile's employment which will maximize its effectiveness as a weapons system. This effort shall be made to the the extent of approximately 50,030 man-hours of technical, supervisory, and supporting personnel. (The contract data not read is as follows:) OONTRACT NoNR~-23S0(0O) (X) IDENTITY OP CONTRACTOR Vitro Laboratories, Division of Vitro Oorp. of America, 200 Pleasant Valley Way, West Orange, N.J. 005P OP CONTRACT Total estimated cost and fixed fee. $522,000. PAGENO="0107" CONTRACTING-OUT PROCEDUtIES lOa PURPOSR AND SC0'PE~ OF CONTRACT This contract is for analytical studies in connection with the Naval Research Laboratory research and development program for the fleet ballistic missile which shall have as their objective the establishment of strategic and tactical modes of the fleet ballistic missile's employment which will maximize its effec- tiveness as a weapons system. This effort shall be made to the extent of ap- proximately 50,030 man-hours of technical, supervisory and supporting per- sonnel. SUMMARY OF RESULTS OR FINDINGS The findings of this work are principally of the following types: (a) Analyses of VLF signal and noise data supplied from NRL listening and recording stations located in areas of Navy interest. (b) Determination of the probability of detection, identification and locali- zation of Polaris submarines in operational areas as a function of postulated and observed situations. (c) Extension of Polaris communictions effort to update and expand capa- bility to predict VLF signal strength in areas of interest, to further assess and physically define extremely low-frequency techniques and to establish and com- pare cost-risk relationships of specified closed-loop communications systems. (d) The generation and exercise of models directed toward definition and relative assessment of sea-based deterrent weapons systems of the 1965-1975 era. ACTION TAKEN BASED UPON RESULTS OR FINDINGS Actions resulting from findings of the Vitro effort include those affecting tacti- cal and communications operations of Polaris submarines; research and develop- ment for improved fleet communications speed; reliability, and security; and definition of post-Polaris' Navy deterrent weapons systems. Some action ex- amples are: (a) Vitro VLF signal and noise data analysis findings were used by NRL to generate geographic charts defining for Polaris submarines predicted VLF signal usability in patrol areas as a function of confidence level, submarine depth, etc. (b) The Vitro' cost versus effectiveness study findings for advanced communi- cations techniques such as the extremely low-frequency (ELF) system are ap- plied by the Navy in the assessment of and selection between, competing p'ro~ grams for further research and development. Vitro ELF findings have been in- corporated in a recent (May 1961) NRL technical study of ELF potential for submarine communications. As a result of this cooperative endeavor, serious consideration Is now being given by the Navy (Special Projects Office and the Bureau of Ships) to a development program in this area. (c) The findings of Vitro Polaris submarine risk studies have been incorpo~ rated into NRL reports to Polaris submarine operators. These affect decisions regarding submarine operations and tactics while on patrol. (a) The Vitro study of possible post-Polaris Navy deterrence systems is an integrated part of a larger Navy planning effort directed and funded through the Polaries ad hoc group on long-range research and development. Its findings are and will be incorporated into the total study program on a continuing basis. Mr. COURTNEY. The next in order is to Arthur D. Little, Inc., of Cambridge, Massachusetts. $181,279. To: Perform a study to determine a basis for decision- Mr. huBERT. Another decision- Mr. COURTNEY (continuing): as to the proper level of support of fundamental research by the Department of the Navy. Such study to be conducted through interviews, data collection, case histories, and other appropriate means. (2) Prepare a report describing in detail the results of said study, and also prepare a monograph setting forth as briefly and clearly as possible the principal conclusions and recommendations resulting from the study. PAGENO="0108" 104 `CONTRACTING-OUT PROCEDURES Now, then, summary of results: Phase I was completed and reported in a two-volume report entitled "Basic Research in the Navy, Report to Secretary of the Navy by the Naval Research Advisory Committee." The principal findings included the following- well, I will pass that. (The contract data not read is as follows:) CONTRACT NoNa-2~i16(00) IDENTITY or CONTRACTOR Arthur P. Little, Inc., 30 Memorial Drive, Cambridge 42, Mass. COST OF CONTRACT Estimated cost.: $181,279. PURPOSE AND SCOPE OF CONTRACT Phase I: On the recommendation of the Naval Research Advisory Committee, this task was established to: (1) "Perform a study to determine a basis for decision as to the proper lqvel of support of fundamental research by the Department of the Navy. Such study to be conducted through interviews, data collection, case histories, and other appropriate means." (2) "Prepare a report describing in detail the results of said study, and also prepare a monograph setting forth as briefly and clearly as possible the princi- pal conclusions and recommendations resulting from the study." Phase II: Pursuant to this work, the task was extended to encompass: (1) Extension of a preliminary mathematical model of relationships between segments of the research process. The present model, based on a modification of the simple kinetic model, will be developed into a more adequate Boolean model. (2) Development of measnges of effectiveness and of completion of projects, and the extent to which these two quantities are different. The measures pre- viously used, e.g., total number of man-hours and span of the project, are in- adequate, and a major effort is required for estimating the above measures in meaningful terms. (3) Gather meaningful data. The model developed Will be tested with mean- ingful data collected from existing research projects. SUMMARY OF RESULTS OR FINDINGS Phase I was completed and reported in a two-volume report entitled "Basic Research in the Navy, Report to Secretary of the Navy by the Naval Research Advisory Committee." The principal findings included the following: (1) "Careful study has shown that participation by the Navy in basic re- search in many fields of science is essential to the furtherance of its mis- sions * * ~`. The vital role of basic research in accelerating progress is clearly demonstrated by a study of actual case histories, presented herein in the form of schematic models, and by an analysis of the research practices of leading corporations similarly faced with the problem of survival in this age of tech- nology." (2) "A dominant requirement of the Navy today is that of leadership in the development of new weapons systems and techniques of warfare in this period when rapid technological advance and international competition combine to reder obsolete many weapons even before the production stage can be initiated. Such leadership can be maintained only by means of an aggressive, wisely con- ceived, properly balanced, and skillfully managed research and development program involving many fields of science." (3) "During the decade 1947 to 1957 leading corporations in high technologi- cal obsolescence rate industries have been far more aggressive in their par- ~icipation in basic research than has the Navy. * * * In 1947 the Navy allocated 10 percent of its research and development expenditures to basic research. This compared very favorably with the policies of many leadlhg industrial corpora- tions. However, a distinct divergence of policy occurred over the next 10 years. Data from two of the most successful corporations in each of five technically PAGENO="0109" CONTRACTING-OUT PROCEDURES 105 based industries (chemical, petroleum, communications-electronic, pharma- ceuticals, materials) showed these two corporations in 1957 devoted 10 to 20 percent of their own research and development expenditures to basic research. The average allocation of 16 percent is in marked contrast to the Navy which currently allocates only 6 to 8 percent of its research and development budget to basic research." (4) "A gro'up of industrial directors of research familiar with the problems of the Navy were unanimous in their judgment that the Navy should increase the percentage of its research and development budget devoted to basic research." (5) "In general, the greater the technological strength of the competition and the less immediate the probability of conflict, the greater should be the emphasis on basis research." (6) "At this moment it appears from a study of meritorius proposals turned down, or discouraged prior to submission, that sufficient manpower exists to expand the Department of Defense basic research effort in outside contracts by approximately 70 percent (omitting certain large capital equipment proposals). In addition, a rough approximation indicates an increase of about 10 percent is currently possible in the Navy in-house basic research effort." (7) "* * * serious manpower shortage may well develop in the near future as national research and development activities are currently expanding at the rate of 10 percent per year, whereas the number of scientists and engineers is increasing at the rate of 5 percent per year." (8) "Because of the length of time required to evolve results, Federal budgeting for basic research presents special, and as yet not completely resolved, problems." (9) "A program to develop a mathematical model of the relationship between the segments of the research process has shown enough promise to warrant con- ~ideration for further development. Results obtained by trying to fit a few actual case histories into the model as it now stands haTe been encouraging. However, more time is needed to substantiate the basic assumptions of the model, and the relation between what it predicts with respect to a proper level of basic research and what is observed in the real world." Phase II: Further development on a mathematical model for the support of basic research is still in progress. ACTION TAKEN BASED UPON RESULTS OR FINDINGS The report "Basic Research in the Navy" prepared by Arthur D. Little, Inc., was reviewed by the Naval Research Advisory O~mmittee. The following resulted: The Committee underlined certain of the findings and recommendations of the report. (1) "Basic research has played a tremendous role in the past, transfiguring the Navy by findings in such fields as radar, inertial guidance, missile propul- sion, and atomic propulsion, and the accelerated pace of scientific progress in the last decade emphasizes its importance." (2) "In conducting basic research * * * the investigators within the Navy Department must be constantly alert to recognize the impact of any findings on the needs of the Navy Department. These may not necessarily be related to the immediate objective of a given project but may well bear on the potential overall position of the Navy." (3) "The report sets forth the judgment of those engaged In the direction and application of basic research in industry with respect to the level of basic research appropriate to the total Navy effort. Essentially this judgment is to the effect that the basic research effort in the Navy be approximately doubled in order to restore the former relationship of basic research to the total research and development effort. This would also bring the proportionate Navy basic research effort closer to that now current in those progressive industries operating in the areas of science and engineering." The overall conclusion of the Committee was: "The Committee concurs with the findings Arthur D. Little Study Group. It believes that this study lays the basis for detailed consideration of the basic research program required to fulfill the Navy's needs." The Committee recommended a second step. "The next step comprises the detailing of the program proper. Study of such detailing can be done well only by those who have a close working relationship in the Navy and with the scientific community, namely, the Office of Naval Research. It is recommended PAGENO="0110" 106 CONTRACTING-OUT PROCEDURES that this group prepare detailed programs in each of the fields of science related to the missions of the Navy. * * *" To prevent recommendations beyond any plausible budgetary ceiling, the Committee recommended a third step. There must be another critical review still following the area distribution to bring the total cost within the augmented budget. If the budget augmentation is sufficient, i.e., double that of fiscal 1959, as herein recommended, the overall program should approach the fulfill- ment of the needs herein set forth. Experience with the augmented program will show the success of the proposed approach and additional steps may be taken in future years, as necessary." Finally, the Committee recommended the following: "It is the Committee's recommendation that ONR proceed immediately with the studies outlined above and that a program corresponding to a doubled budget be prepared by the Office of Naval Research and be endorsed by the Secretary of the Navy." The Secretary of the Navy (W. B. Franke) replied in a letter stating that: "This analysis will be an important management aid in the proper administra- tion of naval research programs" and furthermore that "The recommendations contained in the report will be very seriously considered and will be invaluable in our budgetary deliberations." The Committee later also agreed that ONR should sponsor the development of a mathematical model of the research process. The development of a mathe- matical model has been supported and this work is currently in progress. Mr. COURTNEY. Now what is the next one? United Research, Inc., Cambridge, Mass.,, $248,339. ~ * For research on new decisions and rules, integrate new decisions on the use of air transportation for material and decisions on inventory levels. (The contract data not read are as follows:) CONTRACT N0NR-2904(OO) IDENTITY OF CONTRACTOR United Research Inc., 808 Memorial Drive, Cambridge, Mass. COST OF CONTRACT Total estimated cost and fixed fee: $248,389. PURPOSE AND SCOPE 01? CONTRACT This contract is for research on new decisions and rules, integrate new deci- sions on the use of air transportation for material and decisions on inventory levels. SUMMARY OF RESULTS OR FINDINGS An analysis of aircraft engine logistics, in the first phase, produced a model for making inventory decisions given certain assumptions about demand distri- butions, fleet requirements, shipping and repair times, and mobilization or war readiness position calculations. The second phase produced the most compre- hensive analytical examination ever made of alternative ways of controlling inventory levels and use of air and routine transportation simultaneously and optimally. The problem is to determine just how much and for which items the inventory levels should be lowered, with equivalent fleet service achieved by air transpor- tation when situations of need occur. A wide variety of opinions and practices on this matter can be found in private business and military operations, because the right decision is a complex of interacting factors. Work is continuing on this line, emphasizing the demand distributions and the speed of adaption to chang- ing conditions which alternative policies may achieve. ACTION TAKEN BASED UPON RESULTS OR FINDINGS This research is one of a number of interrelated inventory-transportation mod- els. Although identification of specific actions resulting is therefore difficult and sometimes misleading, the extension of carrying-point concepts and the series PAGENO="0111" CONTRACTING-OUT PROCRDURES 107 of Bureau instructions and inventory control point programs to install mathe- matical decision rules are based upon these continuing research efforts. Mr. COURTNEY. Now is that nine? Mr. SANDWEG. One more is eight. Mr. COURTNEY. Dunlap & Associates, Inc., $154,000, Stamford, Conn. A study of the costs of receipt, storage, and issue at naval supply depots. The receipt, storage, and issue functions at selected Navy stock points will be analyzed to provide those costs required as input to the programing decision rules used by inventory managers to adjust activity inventory levels by redistribution or procurement. Cost models (functions) will be developed which will enable the prediction of both total and marginal costs. (The contract data not read are as follows:) SUMMARY OF RESULTS OR FINDINGS The first phase produced a complete analysis of the costs of shipping and re- ceiving material at three representative naval activities. These cost functions are bro~ken down into detailed elements, in a fashion suitable for determining fixed and variable cost inputs to mathematical rules governing the redistrthu- tion of material between depots. The second phase, to be completed in July 1961, has produced showing costs of ordering averaging $25 but with a spread from $20 to $100 for appropriately defined categories. ACTION TAKEN BASED UPON RESULTS OR FINDINGS These cost data, and the analytical methods used to obtain them, are being used in selecting input values for the parameters in the economic order quantity and variable safety level rules now widely used on the computers at major iuventory control points such as the Ships Parts Control Center, Meehanicsburg, Pa. Mr. COURTNEY. Now, these contracts all seem to fall within the realm-and I think they have properly been segregated-of decision- making. So, Dr. I~igby- Secretary BELrr~u. If I may, for just a second, sir, go off the record? Mr. HiBERT. Yes. (Secretary BeLieu confers with Mr. Courtney.) Mr. COURTNEY (aside to Secretary BeLieü). The second one is planning research. Admiral BEARDSLEY. O.K. Now we are all set. Mr. H~BERT. Are you all ready now? Secretary BELIEU. That is right. Mr. HEBERT. Now, get to that first one, Mr. Secretary : How to make a decision when there is no decision to be made, or what. [Laughter.] Secretary BELIEU. It sounds like that on the surface. When I interrogated it, I found that is not necessarily the case. These are designed to provide tools for management to make deci- sions. Even as though you buy a pair of calipers, or a calibrating machine and use that. It does not make the decision for you. But Dr. Rigby is the director of our Mathematical Sciences Divi- sion, and his superior, Dr. Shirleigh Silverman, Director of Research, is here. Dr. Rigby is prepared to discuss items 1 through 8, that Mr. court- ney just read off.' PAGENO="0112" 108 CONTRACTING-OUT PROCEDURES The reason I suggested the possibility of slipping out item 1 to the last: Because it is sort of a package, that can be applied to the rest of these, and might be more understandable. Maybe we could have said our point better if it were done that way. Whatever the committee wishes, of course. Mr. EI]~BERT. Well, don't you think we ought to establish the rules of the game when we start, instead of putting it at the bottom and then find out what the score is and find out how it should have been played. [Laughter.] Mr. HEBERT. Let's start with No. 1. I am going to insist on No. 1. Secretary BELIEU. All right, sir. Dr. RIGBY. If I may, I would, like to make some remarks which apply to at least five of these eight, together, and then come to No. 1 directly. Is this all right with the committee? Mr. H~BERT. Let's talk about No. 1. Dr. RIOBY. All right, sir. Mr. HEBERT. And so we won't be arguing about it. Dr. RIOBY. All right, sir. No. 1 is a contract for extremely basic abstract research, on the mathematical formulation of decision prob- lems. It is intended to provide theory from which applied research can poduce practical decision rules, aids to decision by managers. This is the fundamental nature of the contract. Mr. HEBERT. Now why was it necessary to go outside of the Depart- ment-how much is that contract going to cost, to find out how to make a decision? Mr. COURTNEY. $296,000. Mr. HEBERT. Why was it necessary to spend $296,000 with a private institute to direct the Navy how to make a decision? Dr. RIGBY. Sir, they are not going to direct the Navy how to make a decision. Mr. HEBERT. I know. They may direct. It will be impossible to carry it out. But at least it is to spend $296,000 to give a plan to the Navy from an outside source. Is is because the Navy did not have the capability within its inhouse capability? Dr. RIGEY. The Navy does not, in fact, have inhouse capability for this type of work. Mr. H~BERT. Why? Dr. IRIOBY. It requires research specialists, of rather a high degree of specialization. And the kind of people that do this sort of work will not work for `the Navy. Mr. HI~BERT. Will not work fOr the Navy? Dr. RIGBY. They will not work for the Navy. Mr. HEBERT. Why? Dr. RIGBY. The Navy does not provide a working environment com- parable to that of an academic institution, which is the place they~ like to work and the place where they do work. Mr. HARDY. The Navy doesn't have any thinkers? Dr. RIGBY. The Navy has has lots of thinkers, but not this kind. Mr. H~BERT. Not in that area. Mr. KITCHIN. Does the Navy have an in-house capability of un~ derstanding with the report would say when they got through with the investigation. PAGENO="0113" CONTRACTING-OUT PROCEDURES 109 Dr. RIOBY. Yes, sir, the Navy does have that capability. Dr. SILVERMAN. May I interrupt? Mr. Kitchin, I would like to say what Dr. Rigby can't say, that is without his being immodest. The Navy does have that capability. And I believe the person in the Government who is most capable of understanding what these peo- ple are doing is Dr. Rigby, himself. This is why he is here testifying today. Mr. KITCHIN. But has this decisionmaking apparatus that is going to come out of this study been directed to the sole benefit of Dr. Rigby? t~r. SILVERMAN. Not at all. And I don't think that was implied in Dr. Rigby's statement. I think what Dr. Rigby said was that these people are under con- tract to the Navy to develop the basic research which is required in a very important field of research. They are not giving us rules. They are not giving us plans. These are the people who are doing in their field the same sort of basic re- search which Albert Einstein did, for example, in his own field. Mr. KITcrnN. That is exactly what worries me. And I think Dr. Rigby, in your shop, could understand it thoroughly. But the dissemination of the results of this $296,000 worth of infor- mation to the decisionmaking echelons of the Navy is what worries me. Dr. SILVERMAN. Well, I believe that you will find out, as Dr. Rigby goes on, that the results of this contract, which has been in effect now for some years-that the results of this contract have been rather widely felt throughout the entire economy of our country. Mr. KITCHIN. Mr. Chairman, I think we have gotten the broad scientific sense of this thing. But I still don't know what the survey was to include and what they did. Dr. RIGBY. They developed theory. Mr. KITCHIN. I don't know that I would understand it if I was told. Mr. HEBERT. Perhaps the theory, Mr. Kitchin, would be the same as the Army contract which we had yesterday, for these war games, where they were to prepare-for how much? Mr. SANDWEG. 1 million, 4. Mr. HI~BBRT. 1 million, 4. In which the instructions were to "put it in the language so the soldiers will understand" what they are supposed to do. Mr. KITOrnN. I am not being facetious about this. I am concerned. Mr. KITOHIN. About the type of research and study that is being conducted, you say-over a period of several years I think that they have been in existence. Dr. RIOBY. Right. Mr. KITOHIN. And as the Secretary kicked it off, on the statement that there is an analogy to be drawn with a certain mathematical formula, or some other gadget upon which you can measure the de- cision making process-I don't think he meant that literally. Prob- ably he did. But what I would like to find out is what the study goes to, namely the practical aspects of it. 74109-61-------- S PAGENO="0114" 110 CONTRACTING-OUT PROCEDURES Tell me what they do. Dr. RIUBY, Let me give the background which sets the need for this kind of research, as well as some of the others here. Mr. KITOHIN. All right. Dr. RIGBY. It has to do with the use of electronic computers. An electric computer is a wonderful tool for management, for com- mand, for analytic purposes, if you know what you want it to do and know it so thoroughly that you can spell it out in terms of instructions that a completely literal minded, completely unintelligent machine can follow. Now, to use this tool you must have the necessary formulas and pro- cedures worked out in full detail, with all contingencies covered. And the way of getting this is through applied research. Applied research produces specific methods for problems-not the solutions to problems themselves, but specific methods applicable to, for example, logistics, management science, statistics, information retrieval, in this context. To do this, the applied researcher has to have available his tools. And his tools are in large part theories, principles, and general methods applicable to broad classes of abstracted problems. In this context the product of basic research in such fields as mathe- matics, econometrics, probability, takes the form of research papers produced to be published in the scientific literature of this country. In the case of work which we contract for, they also provide us copies a little bit quicker than the publication process permits. It is part of our responsibility to evaluate this product as to whether its standards are as good as our standards are, to determine where and in what way this might feed into naval application through the chan- nel of applied research done by others. There are various techniques for doing this. I have a sample of one of them. [Exhibiting booklet.] This is a journal in which we publish results of this kind-there are others- to draw the direct attention of the operators in the appropriate parts of the Navy to this work. So it is part of my function, as an expert, as Dr. Silverman has characterized me, not only to judge the product of the research con- tract but also where it can be put to use an4 to draw it to the attention of those who might put it to use. Mr. KITCHIN. Mr. Secretary, do you understand that? [Laughter.i Secretary BELIEU. That is not quite a fair question, sir. [Further laughter.] Secretary BELIEU. I think I do. I am not a mathematician. But when the committee first asked these questions-and they are very appropriate questions-I took a look at the list and asked the people to come in and talk to me about it. And I must draw from my own experience again, because I do not have the capability of dealing with these abstracts, or mathematical formulae. But not too long back I was put in charge of mobilization planning in the Army, when I was in it. And I was told to write a mobiliza- tion plan, and also to cut all the POL requirements that this country would need-and this was back before the Air Force, in the old War Department days- that the Air Corps and the Army would need in accordance with the war plans. PAGENO="0115" CONTRACTING-OUT PROCEDURES 111 They were highly classified things, and many thousands and millions of troops were involved. The only way I could do it-we had no machines-was to sit down with a pencil and paper, on a table about this big, and start working. It took me 3 months. And all during this time the Joint Chiefs of Staff and everybody else-the top people were yelling "when are you gomg to get the results up?" I had to take the planning factors that came as a result of World War II experience, that I knew and that I could get from books, and tabulate these and then try to figure out how many pounds of POL, related to how many men we would ship there, and there, and under what conditions. And if we lost so many people in combat type of an exercise, what impact did that have on us. I have since learned that the art of mathematics has expanded to the point where you can resolve some of these things down to formula and put them in machines. Now, since that time, I am told-I have not been in this business since then-that mobilization plans are now on machines. Logistics plans are, under given conditions. As the doctor pointed out, though, you must know what you are doing. The practical guy must take a look at this and somewhere along the line say "Well, this won't work in combat." "This will." But the result is: a collapse of time comes about. It is like a calculator. A calculator helps you make decisions. It does not make decisions for you. But inside that calculator are all the wheels and all the accumulated knowledge of many people, who went together and put it into a package. This is wht I think these types of contracts are designed to do. Now, I could not tell this committee that they do produce this. I asked the very same question you asked: "What practical results, what kind of a study do you get, what do you do with it, who gets it, how does he do something with it ?" I haven't found all these answers. I do think it is fundamental to this country that we do a certain amount of basic research. We must explore avenues that look silly to us at times. Now, if we did not, we would not now have the flying machine, and we would not have sputniks. And had we done this earlier in the space age business, we would have been orbiting the world, rather than the Russian the other day. Mr. KITCHIN. May I ask the good doctor: For the $296,000, do you think that from the practical aspects of this study that you have re- ~eived commensurable results? Dr. RIOBY. Yes, sir. Mr. KITCHIN. In what fields has this particular study been of assist- ance to you in the applied sciences that you didn't know already? Dr. Rioiiy. Well, I am not sure that I can answer the question di- rectly as you asked it. The output of this is theory-it is generally mathematical theory, but with a great deal of economic tinge to it because of the professions of the people that do the work. This theory from this contract, as well as other studies-some of them ours, some of them sponsored elsewhere, and some of them un- PAGENO="0116" 112 CONTRACTING-OUT PROCEDURES sponsored-the product of this sort of research comes to bear in terms of methods tailored to particular problems. For instance, a recent case of this brought the mathematical tech- nique called linear programing to bear on the problem of selecting sources for procurement of petroleum by the Armed services. It is a selection process carried out up to now by experts bringing their know-how to bear on it, as human individuals. A machine program has been produced which, when set to work in competition with the prevailing previous method, promises-it would have in one particular procurement period-jto have saved $5 million over the procurement period of a year. Mr. COURTNEY. Is that on purchasing or delivery, Doctor? Dr. RIOBY. That was the selection of the sources, including the procurement and delivery to the military storage spaces. Mr. COURTNEY. Well, scheduling and delivery, then, is what you are talking about. Dr. RIGBY. That is right, sir. It is a matter of receiving many bids of many kinds, and selecting them, taking into account the transportation costs as well as the pro- curement costs, and evaluating costs delivered to destination. Mr. SANDWEG. Doctor, the Cowles Commission doesn't do that work for you, does it? Dr. RIOBY. They do not. They provide basic theory on which that sort of work is based. Mr. SANDWEG. Isn't the product of the Cowles Commission under this contract a sort of bibliography, or source material for your studies? Dr. RIGBY. That is true. But let me modify the statement a little bit. It is not a bibliography in the sense that they go around surveying libraries, to find out what books bear on the problem. They create those books, and the papers. Mr. SANDWEG. Yes. Isn't this-couldn't you get these books, or this material from sources on your own, rather than pay the Cowles Commission to supply them to you? Dr. RIOBY. Those books and papers. must be written. In this particular instance it is the Cowles Foundation which did the thinking which is back of them and the writing of them. Mr. SANDWEG. What portion of the production of the Cowles Com- mission in this context is directly responsible or is a direct output of your contract, and what portion of it is their usual work that is pub- lished in many books and publications throughout the world? This is their regular job, isn't it? The Cowles Co. publishes ma- terial of this kind- Dr. Riony. They do research in economics, of whatever kind, much of which is not of interest to us in any direct sense. Mr. SANDWEG. Well, aren't you really paying them to ferret out these data for you? Dr. RIGBY. We are paying them to create these theories. The work they do is creative. It is not a search matter. It is a creation of new ideas-discovery. PAGENO="0117" CONTRACTING-OUT PROCEDURES 113 Mr. KITCHIN. Do they create a system upon which you can formu- late a formula that you operate on these machines, or do they prepare the formula for you under certain given situations? Dr. Rio~vr. They do not prepare the formula for us under any kind of situations. I can-I am capable of using their work in this way. In practice, it is not my job. Other persons employed by the Navy, and also through contract, do this sort of thing-making the formulas and spelling out the procedures based on theoretical background such as this, including this and others. Admiral BEARDSLEY. Mr. Kitchin, as I see it from a semitechnical point of view is that we have had a tremendous explosion in the techniques of computers during the last 10 years. The computers will only work on something that is given to them that they can handle. They can't program themselves. They can't think what problems should be attacked. Human beings have to do that. Now, mathematicians and other people of similar disciplines are also used in the programing aspects on particular problems. But in between, or in front of those programers-and I have some in my own family who are working on this-you need people who are advancing the state of the art in the pure theoretical, analytical, mathematical, and economic sense, too. There are new fields and new ways of using these machines for man's assistance. Now, they are out on these fringes. And studies like this are on these fringes. Exactly what they are doing. Now, if we don't do this, we are falling behind. Somebody has to do it. This is out on the fringe, where you come up with new methods of attacking new problems, because what we are doing with machines couldn't be done in a man's lifetime. If we are going to get ahead in scientific development on all fronts- not just in logistics, but in the mathematical fields and in the scien- tific fields, we have to find some way of creating a greater know-how and a greater use of these we have today. And we will have a continuing need for this type of research, no matter who does it, or who finances it. The country does need it. Dr. SILVERMAN. I think a perfectly good analogue, Mr. Kitchin, might be the relationship that exists, for example, between the theo- retical man who works on the electrical circuit theory and the elec- tronic engineer who builds new tubes to take advantage of the theories which have indicated to him new devices that could be made if one had those tubes available. This sort of symbiotic relationship I think exists throughout all of our scientific disciplines. And I think it is a thing that one can expect, and these people I believe play the role essentially of the circuit theory people. Now every so often, somehow development comes along and there is a whole burst of activity. You see the physicists were the people who, working 20 or 25 years ago on rather fancy problems which are of interest to very few people, came up with the fundamental facts which made the development of the transistor and other devices possible. PAGENO="0118" 114 CONTRACTING-OUT PROCEDURES Now the invention of the transistor in turn made the circuit people get back to work, because transistors don't behave the same as ordi- nary electronic tubes. And in turn, the developments rn circuit theory, you see, have led now to a whole. new variety of computers, and we now have a family of computers which are smaller and which take less power and which make modern aircraft possible, because the electronic systems can now be packaged into small enough space to get them aboard a crowded cockpit. So the whole relationship goes from theory right on through appli- cation. I think it was expressed very well by Mr. Hitch himself, in a book that he wrote not very long ago, in which he says that it is basic research which has to occur before invention is possible, and that the invention in turn has to precede applied research, with the end product somehow or other being that the applied research which has to get into the lifestream of the economy, arid of the country. Now I believe that-we are hoping that these people are in a sense doing for us the sort of research which will lead to an invention which' will make possible applications to military problems. Now it has been our judgment-I mean ours, accumulated now over 15 years of experience at the Office of Naval Research-that contracts of this sort do pay off. Now as a byproduct of this, I would like to mention, you see, that ide~as come from people. Now one of thefl principal products of research of this sort is people, and I believe that by now probably the first generation of matured scientists who have grown out of this particular contract are now participating in the~ scientific and technical life of our country. Now the question as to whether one should contract this out or do it in-house is always a very difficult problem to decide. I mean clearly we are very proud of the in-house capability of the Navy. We have many very competent people. I would like to think that within the Office of Naval Research we probably have the largest staff of competent. technical administrative people anywhere in the Government. We have within the Chief of Naval Research's own establishment the laboratory down at Ana- costia-the Naval Research Laboratory. So we face the decision:' When do you decide to do this out of our operation and when do you decide to do it within the operation? Well, the bulk of the research within the Navy, research and development, is done within-house. It is more than five times the amount that we contract out. We contract out in those cases where we feel that we will get the best complement and the best supplement to the inhouse effort. As Dr. Rigby pointed out, there are many people who perfer not to work in Government establishments. Many people prefer not to work in industry. Many people prefer to work for the Gov- ernment. But there are different types, and you can't mold them. I mean this is not a Soviet Russia, where people are assigned to jobs. Within his counry people have a great deal of freedom. Now I personally prefer working for the Government. I have worked for industry, and I have worked for universities. I like working for the Goverment. But there are lots of people who don't. And it is our job here in a sense to marshal the best brains of the country on problems of mutual interest-of interest to them intellectually PAGENO="0119" CONTRACTING-OUT PROCEDURES 115 and of interest to us, because we think that ultimately, practically, the Navy and the country depend on the products of their brains. And this happens to be one of those particular cases. Now incidentally, I understand very well how difficult it is for us who are specialists-even though I happen not to be a mathe- matician-it is extremely difficult for us to translate the technical language which is buried in here into terms that all of us want to and have to understand. But I would like to conclude by giving a military problem that I am faced with now, and from which I know the results of this sort will have to be brought to bear. And this is the problem of the detection of submarines. A submarine does not leave a clean signature behind it, such as a contrail of an airplane flying at high altitude. It leaves some- thing behind it, but there are many other objects in the water, such as fish, whales, and other objects-all sorts of noises and all sorts of effects. And in all of this, one has to disentangle the informa- tion: Has there or hasn't there been a submarine in the neighborhood? And clearly one now has the problem of this sort: How do you make a decision against uncertainty? The detecting system, whether it be an airplane or another submarine, has a limited armament. He has a certain number of things that he can fire at what he things is a submarine, is an enemy submarine. First of all he has to know-is it an enemy submarine? Now it is this sort of what you might call a cluttered background out of which one tries to derive meaningful information. It is a problem of this sort to which mathematics of this kind can be applied. Mr. KrrcrnN. Are you tolling me that this partioular type research that is being done by this particular contract will assist you in determining that particular problem that you are faced with? Dr. SILVERMAN. I am saying that the general classification of re- search which is done under this type of contracting does. Because it feeds into the data collecting system the sort of information which we have to have in order to make up our minds as to whether we are actually observing things in the real world, as to which things are real, whether or not they are real. But are *they meaningful or are they not? And what is the cost of these things, if they are meaningful? And can we afford to do this? Mr. KITCIXIN. Mr. Chairman, the quicker we get off this one the better off we will be. Mr. H~BERT. No, we are not getting off it. Pardon me right here, before you do. Mr. KITCHIN. Yes. Mr. HI~BERT. In keeping with Mr. Kitchin's question, and the testi- mony, I have a paper before me which I think is most important and should be in the record, which has just been handed up. Did you hand it up, Mr. Secretary? Secretary BELIEU. Yes, sir. Mr. H~BERT. I again congratulate you on your cooperation. Secretary BELIEu. You are welcome, sir. Mr. HEBERT. Because this is a very important letter. I think it should be read into the record. PAGENO="0120" 116 CONTRACTING-OUT PROCEDURES It was released as of Sunday, on the eve of the opening of these present investigations. It is a letter which was written by the Presi- dent, President Kennedy, to the Honorable David E. Bell, the Director of the Bureau of the Budget. "Dear Mr. Bell"-and I think this brings into sharp focus what we are discussing here now. It also brings into sharp focus the concern of the committee and the reason it has addressed itself to this subject. It also demonstrates quite clearly that the question is running through the mind of the committee and the background for the origination of these hearings can be found, I think, in these several paragraphs written by Mr. Kennedy, by the President, to Mr. Bell. And I will read to the committee at this time: DEAi~ Ma. BELL: Since the end of World War II, the Federal Government has been making extensive use of contracts with private institutions and enter- prises to provide for the operation and management of research and develop- ment facilities and programs, for analytical studies and advisory services, and for technical supervision of weapons systems and other programs administered on a systems basis. Through such contracts the Government has been able to accomplish scientific and technical work essential to urgent public purposes. In part, the use of such contracts has been made necessary by the Govern- ment's entry into new fields, such as atomic energy, missile development and space exploration, and the need for talents and services not previously em- ployed. In part, the use of contracts has also been induced by the recoin- mendations of the second Hoover Commission and other groups that the Government terminate activities which could better be performed for it by private enterprise. Present Federal policies with respect to contracting-out Government activities are outlined generally in Bureau of the Budget Circular No. A-49, "Use of Management and Operating Contracts," and Bureau of the Budget Bulletin No. 60-2, "Commercial-Industrial Activities of the Government Providing Products or Services for Governmental Use * * After a decade or more of experience with such contracts, I think it would be desirable to review the effectiveness of this means of accomplishing the Government's purposes. Those are the words of the President of the United States. Some of the questions that require review have been posed recently in stud- ies and reports by several committees of Congress. I would like to have you undertake, with the assistance and cooperation of the other Federal officials most concerned, a review of the experience with respect to the types of con- tracts mentioned above. I am requesting the following officials to participate in the study: the Secretary of Defense, the Chairman of the Atomic Energy Commission, the Chairman of the U.S. Civil Service Commission, the Adminis- trator of the National Aeronautics and Space Administration, and the Special Assistant to the President for Science and Technology. The product of the review should be recommendations to guide future execu- tive branch action. While there is a consensus that the use of contracts is essential and appropriate to carry on certain types of Federal operations, it also appears that use of the contract device has been made necessary in part by the limitations which exist with respect to direct Federal operations. I would like to have you explore the circumstances and conditions under which contractor operations provide the most effective means for a accomplish- ing the Government's objectives in the areas under review. I would also like to have full consideration given to the limitations which make direct Federal operations difficult, and to the development of proposals for adjustments and new concepts in direct Federal operations which would provide the Govern- ment with greater flexibility in determining whether the public interest would best be served by the use of contractor or direct Government operations. The review should focus on the following matters: (1) the effect of the use of contractors on direct Federal operations, the Federal personnel system, and the Government's own capabilities, includthg the capability to review con- tractor operations and carry on scientific and technical work in areas where PAGENO="0121" CONTRACTING-OUT PROCEDURES 117 the contract device has not been used, and policies and actions needed to in- crease the Government's capabilities in these respects; (2) the policies, if any, that the Government should follow in controlling the salaries and fringe bene- fits of personnel working under a contract, and the appointment, management, and dismissal of such personnel; (3) the criteria to be used in determining whether to perform a service or function through a contractor or through direct Federal operations, including any special considerations to be given to the nature of the contractor and his relationship to production contractors; (4) the policies which should apply in selecting contractors, including the organization of institutions for the sole purpose of entering into contracts with the Government; (5) the means for reviewing and supervising contractor operations, and for achieving maximum efficiency in such operations; and (6) the policies which should apply with respect to contractor fees and cost reim- bursement practices on items such as overhead, facilities and equipment, and advertising. The results of the review should be available not later than December 1. Sincerely, JOHN F. KENNEDY. I think the President has put his finger right on the Situation. And I hope that this committee will be in a position to be of some assistance to the gentlemen that he has named to make a study. This is exactly what we are studying. It shows the concern of the President. And it certainly does bring a renewed demand upon this committee to elicit as many facts as possible in these particular hearings. I am grateful to you, Mr. Secretary, for having brought this letter to my attention and to the attention of the committee. Now, the bells have rung. I think we can't proceed much longer now, because we have to be on the floor. So the committee will stand in recess until tomorrow morning at 10 o'clock. Thank you, gentlemen, very much. Secretary BELIEU. Thank you, sir. (Whereupon, at 11:47 a.m., the subcommittee adjourned, to recon- vene at 10 a.m. Thursday, August 10, 1961.) PAGENO="0122" PAGENO="0123" CONTRACTING-OUT PROCEDURES TH~JBSDAY, AUGUST 10, 1961 HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS, Washington, D.C. The subcommittee met at 10:12 a.m., the Hon. F. Edward Hébert (chairman of the subcommittee) presiding. Mr. H1~BERT. The committee will be in order. Members of the committee, we recessed yesterday while Secretary BeLieu and his staff from the Navy were testifying. Mr. Courtney, will you continue. Mr. COURTNEY. Now, Mr. Chairman, I had just a general question, since these eight contracts are in Dr. Rigby's sphere. Who negotiates these contracts and how are the prices fixed, Doctor? Dr. RIGBY. ONR has a contract negotiating staff, and these are the negotiators. The manner in which prices are fixed varies from one case to another. The vast majority of our contracts are based on proposals which are volunteered to us from the institutions involved. As such, they are then proprietary and in many cases properly sole-source instances. Others, however-and this is true especially when we go looking for ~t service-are done on the basis of invited proposals-bids, then, in competition. Mr. HARDY. Could I just inquire there? Then do I understand from that, that the purpose and scope of the contract, in this one we were talking about yesterday, this first one, was actually spelled out by the contractor and not by the Navy? Dr. RIGBY. That is right. Mr. HARDY. So that w~s not actually a Navy requirement. Some- body came in and said, "We are up in the clouds here now and we can give you all kinds of information and research on uncertainties." So it spelled this out, and the Navy bought it. Dr. RIGBY. That isn't quite correct, sir. We had a requirement for research of this character, and this fact was known in the scientific community. But the particular proposal which they made to us was their idea. We had others- Mr. HARDY. I think-I hope Mr. Courtney will explore this question of who negotiates these things, because I wonder whether you get the~ competence to negotiate this kind of a contract unless you accept it on faith from the proposers. Mr. COURTNEY. Well, the next question, then-I would be interested to know what standards you employ to fix the values. 119 PAGENO="0124" 120 CONTRACTING-OUT PROCEDURES Dr. RIOBY. Are you talking specifically about money values? Mr. CoURTNEY. Money vaiues. This is money. Dr. RIOBY. They propose to us research which they describe, and attach thereto a statement of the prospective costs as they estimate them. Mr. COURTNEY. Now, here, let's take the specific contract; $296,000. Is that a final fixed price? How was it set? Dr. RIGBY. That is the total amount obligated to date over the history of the contract. It runs something in the neighborhood of $35,000 a year. It started at that rate. It probably is a little larger now. Mr. COURTNEY. Then this is a cumulative total, $296,000? Dr. RIGBY. That is right. Mr. COURTNEY. Is that right? Dr. RIiBY. Yes, sir. Mr. COURTNEY. Well, are the prices-are these contracts determined on the basis of salaries paid, overhead, or what? Dr. RIGBY. On the basis of salaries paid and overhead, and allow- ance for such things as secretarial help, preparation of reports, and some travel. The major expense in it is the sa~Iaries of `the investiga- tors who work on the research. Mr. COURTNEY. Then would we understand that when you get a proposal from the Cowles Foundation-let's take one specifically. If the others differ, just indicate. But take this as typical of the eight. You will get a proposal which would contain a list of salaries pro- posed to be paid. Would that be right? Dr. RIGBY. Yes. Mr. COURTNEY. A suggested amount for travel, actual or prospec- tive. And secretarial. Dr. RIGBY. Yes. Mr. COURTNEY. And what else would there be in it? Probably no material of any consequence. Dr. RIOBY. In a case like this there would be no material, other than paper and pencils, you know, because it is that kind of work. There is no hardware involved in it. So that I really believe you have listed the things which are contained. Mr. COURTNEY. Well, now, let me get to the second part of that. In the proposal that you receive-you mentioned the salaries. Are the individuals who are to perform the service given consideration? Dr. RIGBY. The senior individuals are named. This is one of the main criteria we have for determining excellence. There is frequently an allowance for junior research people who may not be named, not being necessarily known in advance. They are apt to be graduate students or junior faculty members, of this type. Mr. KITCHIN. May I ask a question right there? Mr. HEBERT. Yes, Mr. Kitchin. Mr. KITOHIN. When you get this proposal based upon these cost items that you have enumerated, is your proposal submitted then on a man-hour basis, that they will utilize in this research, or a project basis, or how is it? Dr. RIGBY. In this type of research, like the Cowles Foundation, salaries are on an annual basis, and the proposal will suggest what PAGENO="0125" CONTRACTING-OUT PROCEDURES 121 fraction of this man's work for the year is to be carried out under the contract. Mr: KrrcrnN. So it is in essence a man-hour proposition, involving the individuals whose salary has been prorated. Dr. RIOBY. Right. Mr. KITCHIN. In order to arrive at this particular pay schedule. Dr. RIGBY. That is right. Mr. KrrCrnN. Then at the end of the year, is there a basis upon which they bill the Navy for the utilization of the services, or is it a flat contract per year? Dr. RIGBY. For precision on this one, I would like to refer to Mr. Lincoln behind me. Mr. LINCOLN. I am sorry, I wasn't- Secretary BELIBU. This is Captain Ruble. Captain RUBLE. These are all cost-type contracts, and at the end of the accounting period they submit their bill to the Navy on the basis of so many hours of scientific time in accordance with their proposal, and the Navy auditors review this and approve it for payment. Mr. KITCHIN. Well, that is for work already performed during the year? Captain RUBLE. Work already performed; yes, sir. Now in the proposal which comes in, they list their estimated cost- the number of hours the principal investigator will spend on it, and the number of hours supporting investigators will spend, and clerical help. And that is the basis on which we negotiate the funds to be made available to carry the work through any particular time period, usually 1 year. Mr. Kitchin. Is there any limitation on the proposal that is ac- cepted for that particular year's proposed work? Is there a limita- tion in dollars as to what they can do? Captain RUBLE. Yes, there is a limitation in dollars for that partic- ular year. Mr. KITCIuN. In that particular instance where you have negotiated and you have approved a contract for a certain number of man-hours, if we want to call them that, for the prospective workload, are there items of research delineated at that time as to what they will work on during that ensuing year? (Dr. Rigby nods.) Mr. KITCHIN. And who makes that determination? Mr. COURTNEY. You will have to answer the question. The reporter don't take down nods. Captain RUBLE. Yes. The annual objectives are laid out in the contract-the amount of work that they are predicting they will ac- complish. They will either submit a report on certain phases or-~ then this is the basis on which we negotiate the contract. Mr. KITCHIN. Now who delineates that? Do' they, or does Dr. Rigby's shop? Captain RUBLE. It is a combination. They come in with the pro- posal, and then Dr. Rigby's people work this over with them and come to agreements on what is reasonable to expect from this work during the time period. Mr. KITCHIN. Now with reference to the contract that we are now discussing, the Cowles Commission, do they perform this identical service to anyone outside of the Government? PAGENO="0126" 122 CONTRACTING~OUT PROCEDURES Captain RUBLE. Twill refer that to Dr. Rigby. He is more familiar with the specific contract. Dr. Rioiv~. No, sir; they do not. But they are a reasearch ~group and perform related work internally, because this is their business. and on some occasions, under contract arrangements with others, re- lated work. This particular work is for us only. Dr. SILVERMAN. I think-if I may interrupt here. I believe the implication of your question, Mr. Kitchin, is: Is the Government paying double for the same service which they may be performing for ONR? Mr. KITCHIN. We will say more- Dr. SILVERMAN. Right. Mr. KITCHIN. Doubled or more. Dr. SILVERMAN. Right. It is our job in dealing with these people to make certain that this sort of redundancy does not occur. I would like to go back and elaborate a little bit, if I may, the basis on which a proposal of this sort is evaluated by people such as; ourselves. Mr. KITCrnN. Let me interrupt right there. Dr. SILVERMAN. Yes. Mr. K1TCHIN. If we talk of an evaluation in dollars, fine. But don't get me lost on an evaluation scientifically. Dr. SILVERMAN. Well, I would get lost there sometimes myself.. I will keep it in terms of dollars, too. By now we have had a pretty fair amount of experience as to what it costs per scientific man-year in a given field of research. For instance, it costs less to keep an astronomer gainfully employed at an observatory than it does to keep a nuclear physicist gainfully employed at a large accelerator, which has a tremendous industrial complex built up around it. We also have accumulated a pretty good bit of experience. We know relatively what a university man costs in dollars per year to keep him gainfully employed, compared, let us say, to an industrial scientist. In fact, this is one of the criteria that we use in trying to judge some- times whether to do work at a university or at an industry. The things that one compares are the cost per man against the productivity per man. For example, a man in industry with a big industrial complex behind him must be expected to do more research than a man in a university who is at the same time carrying out teach- ing duties, working on university committees that keep the university going, and so forth. So when a proposal comes in from a place like Cowles, here is a statement. And we could submit one of these things as an exhibit for you if you so desire. This is a statement that such a fraction, a given fraction of a senior investigator's time will be devoted to this project, that there will be a certain amount of assistance time, and so forth. Now Dr. Rigby and his staff have two jobs to perform. One; Is the workload that they are proposing consistent with what he esti- mates the magnitude of the job is to be? PAGENO="0127" CONTRACTING-OUT PROCEDURES 123 ~tm not critical of if peo~ Now we have accumulated a lot of experience in this sort of thing, so we have a pretty good feeling for it. The next thing is: Are the salaries that these people are proposing to charge in the ball park, or are they exorbitant? Now here the marketplace plays a pretty important role. I mean Cowles knows that there are other people who are in this business, too. And it is our job to see to it that we feel that (a) these people are technically competent, and (b) the price they are charging is a fair price. Mr. KITOrnN. Now that brings up another question I would like to ask. You say there are other people-not literally-but concerned, such as organizations, et cetera? Dr. SILVERMAN. Yes. Mr. KIT0rnN. That are in the same business as Cowles. Is there a selection under some provision here to utilize this particu- lar negotiation on a sole source basis, or do you go to other engi- neering concerns and ask for the same type of information? Dr. SILVERMAN. You see, it is a combination of both. In this particular case experience has- indicated to us over a period of some years now with Cowies that they do have an exceptional capability in this field of research. This is why we have stayed with them. Mr. KITCHIN. So the situation of whether it is in the best interests of the United States is utilized to take a professional group that you had experience with previously. Now that gets back to the sole source proposition, and because you have had contracts with them previously and had the satisfactory experience with them previously, it automatically eliminates possibly the consideration of others in this same area of ~ - 9 Dr. SILVERMAN. No, it does not. These reputa ion- I l'i PAGENO="0128" 124 CONTRACTING-OUT PROCEDURES Dr. SILVERMAN. This is our feeling. Mr. KITcrnN. Well, now, should it be a little more than a feeling? In other words, is the Government paying for something that if it just would sit tight they would get anyway? Dr. SILVERMAN. Well, we can never guarantee-when you give money to a researcher, you can never guarantee that he will come up with the result that you want. All that you are doing is you are betting on people of competence whose record is good, and you are betting that these people will continue to be productive and that they will produce approximately what you want. But no scientist or administrator in his right mind would ever guarantee that a given man will give him a given result at a given time. Mr. KITOrnN. But I understood Dr. Rigby to say yesterday that he was satisfied that under this contract, that this Cowles Commission had been productive of information. Dr. SILVERMAN. Oh, yes. Mr. KITCHIN. Of commensurate value to the expense or moneys paid out on the contract. Dr. SILVERMAN. Oh, indeed. Dr. RIGBY. Yes. Mr. KITCrnN. And how he could evaluate that and on what he bases his opinion, I won't go into. But a satisfactory answer has been given here, that the Navy-at least Dr. Rigby and you- are satisfied that the expenditures over the period of years with the Cowles Commission has produced satisfac- tory results commensurate with the expense to the Navy? Dr. SILVERMAN. That is a very good statement. Mr. HARDY. Now, Mr. Chairman, let me explore just a little bit some of these same items. What was the beginning date of this contract? Dr. RIGEY. The 1st of July 1951. Mr. HARDY. 1951? Dr. RIGBY. That is right. Mr. HARDY. It has been going for just a little over 10 years now? Dr. RIGBY. In detailed fact, the original contract has terminated and has been succeeded by a replacement. Mr. KITCHIN. If I may interrupt? Mr. HARDY. Yes. Mr. KrrcrnN. Do you contract for a period of years in this pro- posal, or is it from year to year? Dr. RIGEY. This particular contract is carried on a 3-year basis. That is to say, between 1 and 2 years advance planning tune is per- mitted to them. It is renewed, however, on a yearly basis, for 2 years in advance. Mr. KITCHIN. So it is a perpetual continuation so long as you nego- tiate each year, with the extension of some 2 to 3 years planning time. Dr. RIGBY. That is right. Mr. HARDY. Now what is the significance of the phrase "estimated cost" as shown on this contract document? Dr. RIOBY. That is an estimate, because the cost figure given there is the total obligation to date, which includes some funding for future from today. It is partly actual expenditure, of course, for the past. PAGENO="0129" CONTRACTING-OUT PROCEDURES 125 Mr. HARDY. Well, I thought you said a while ago that it was a cumulative proposition. Dr. RIGBY. It is. Mr. HARDY. I don't understand why it was an estimate. You certainly must have known what it cost you to the end of this fiscal year. I don't know why we had an estimated cost on here, if it is a cumulative thing. Dr. RIGBY. The information is precise up until the end of this past fiscal year. It is not known absolutely what the costs will be during the remainder of this current fiscal year or the follow- ing one. Money hasn't been spent yet. It isn't always a certainty that the people- Mr. HARDY. The thing I am trying to understand is this: Now you got an open contract here that has been going on for over 10 years. What is the total amount that that contract is expected to cost? How much is the Navy committed for the future on the thing? Captain RUBLE. We are not committed beyond this total amount that is in here, sir. Mr. HARDY. Now wait a minute. You say you are not committed beyond this total of $296,000? Captain RUBLE. Right. Dr. SILVERMAN. Mr. Hardy, are you asking the question: How far in the future do we plan to contract with Cowles? Mr. HARDY. I didn't ask you that question. I am talking about this contract. Dr. SILVERMAN. We know the precise figures up until July 1, and if you would like to know how much money has been spent to date, we can give you this figure accurately. Mr. HARDY. Well, I wasn't trying to get it that exactly. But so far as I am concerned, this figure of an estimated cost of $296,000 on here is totally meaningless, wasted on the information that has thus far been given. I wanted to see what it meant. Dr SILVERMAN Well2 that includes the accumulated costs to date through fiscal 1961, which can be given to you accurately. Now in being there is the existing contract which carries forth for a period of 2 years. These costs can only be estimated at this time because the provision which allows for negotiation on over- head will throw a certain small uncertainty into the figure. Mr. HARDY. So the recent extension of the contract has 2 more years to run, is that right? Dr. RIGBY. I believe that is right. Dr. SILVERMAN. Yes. Mr. HARDY. And during that period of time you expect that the total costs will add up to this $296,000 estimate? Dr. RIGEY. That is right. Dr. SILVERMAN. Yes. Mr. KITOrnN. You actually made a decision under uncertainty when you negotiated the contract? Dr. RIGBY. We do. Mr HEBERT That is the purpose of the contract Mr KITCHIN You are presupposing the results ~ 74i09-61--9 PAGENO="0130" 126 CONTRACTING-OUT PROCEDURES Mr. HARDY. You had to have the results of this research before you could make this contract. How can you make a decision on such an uncertainty when you haven't gotten the results of this research ? It must have been a haphazard decision. Dr. RIGBY. Not haphazard. It is based on the demonstrated com- petence of the research people. Mr. HARDY. Then you didn't need the results then. You already had the competence to make a decision on uncertainty. Dr. RIGBY. No. What I had is confidence that these people can produce research results which will be valuable. But of course I didn't have those results in advance, sir. Mr. HI~BEUT. I think you proved your point, Doctor, that you made the decision on uncertainties. [Laughter.] Mr. HARDY. Now just one other question. You have indicated your conviction that the results of this con- tract have been worth the costs. Do you have any specific, tangible uses of the product which has come out of this contract that you can identify, or is it all up in the realm of the theory of thinking? Mr. KITOHIN. Now we are going to make a long record. Mr. HARDY. No, we are not, because I am going to cut if off before we do that. I want to know if you have anything specific. Mr. H]~BERT. To show for the $286,000. Mr. HARDY. Yes, to show for this thing, or whether this is in somebody's mind over there, whether you have a lot of formulas that very few people know how to use. Whether you can tie anything down to show any tangible return from this money? Dr. RIOBY. I have to hesitate over the term "tangible." There exists a quite large number of scientific papers which have been written by the staff of this contract, something like 16 in the last year. These papers have been made available very widely to applied research people in this field, some of whom have used these results in arriving at techniques which are actual practical aids to decision. Mr. HARDY. They are stimulating the thoughts of your own thinkers, then? Dr. RIGBY. That is right. Now research of this kind-let me put it in. one interpolated remark. It does happen that one of the sort of expected accidents of re- search took place in this case. A theory which was developed to deal with the communication within small organizations turned out to be applicable to the analysis of reliability of complex hardware systems. This is the kind of thing which you can't expect in detail, but which you are never surprised at having happened. Mr. HARDY. That is one tangible result that came out of this contract? Dr. RIOBY. That is right. Mr. HARDY. It wasn't what you intended, but you got it anyhow? Dr. RmBY. That is right. Mr. HARDY. Thank you. Mr. H~BERT. Mr. Courtney. PAGENO="0131" CONTRACTING-OUT PROCEDURES 127 Mr. COURTNEY. Now let me ask this question. I have prepared you for it, but it is a subject that is inquired about and is of interest: Whether any of the advisory groups to the Navy Department of which you are a member are composed or have on them the people who are employed under any of the contracts that we have been discussing this morning-in other words, whether they have jumped from one side of the fence to the other-advising the contract and then participating in its benefits? Dr. RIGBY. The answer is "No." None of the people who are in- volved in any of these contracts are in any of the advisory groups which we use. We use advisory groups to a rather limited extent in any case, and then we seek one composed of people who are not included in our contracts. Mr. COURTNEY. Are not identified with organizations with which you and the Navy are doing business? Dr. RIOBY. I can't make it that strong. Mr. COURTNEY. Well, make it as strong as you can. Dr. RIOBY. He may be employed by the same university as some- one who is on a contract. Mr. COURTNEY. Well, now-we don't have any universities in this group. Dr. RIGBY. The Cowles Foundation is so close to Yale University that they are part of the institution. Mr. COURTNEY. I know, because I got stuck on that in Princeton one time, and I find it is an address and not a university, at this point. Now I don't know whether this is identified with Yale University, is it, this foundation? Dr. RIOBY. Yale gives it its home and employs members of the Cowles Foundation as faculty members part time. Mr. H1~BERT. Well, two part-time jobs, then. Mr. COURTNEY. Is this moonlighting? Dr. RIOBY. Well, it is fully characteristic for people of this kind to have in their intended job both teaching and research. They are hired to do both teaching and research. Now we don't pay them to do teaching. Mr. Hi~BERT. I know. But Doctor, the thii~ that confuses ir'~ These very adequate are 1yand ~"~yareg heyh J~. HARDY. How do you know-ami .1 people aren't doing an awful lot of work in 1 PAGENO="0132" 128 CONTRACTING-OUT PROCEDURES But how do you know they aren't doing this research for a good many other folks at the same time? Maybe it is a good idea. Dr. RIOBY. A good many other folks will certainly benefit from it~ because the results are freely published. Mr. HARDY. How do you know Cowles doesn't have a contract with somebody else that involves this same basic research? Dr. RIOBY. May I call on the contract specialist? The administra~. tive machinery is set up to prevent this, but I don't know it in detail. Mr. LINCOLN. My name is Lincoln. Mr. Hardy, there is no assurance that they don't have contracts with commercial organizations. The fact can be verified that there are no other contracts with the Government for this same type of research. The time that the individuals that were previously men- tioned spent both at Yale and at the Cowles Commission can be veri- fied by our auditors. Mr. HARDY. Yes, but you don't know who they are using it for. I don't know, it may be entirely proper. But I am just trying to explore what happens in this kind of a contract. When you are dealing with so many intangibles, I just don't know how you can really negotiate such a contract and be sure you know what you are doing. As a matter of fact, you don't even know what you are doing in your researching anyway, do you? Mr. LINCOLN. Mr. Hardy, you can account for 100 percent of a man's time through the amount of money he is reimbursed from his employers. Mr. HARDY. Yes, but you don't pay the man directly. You pay the Cowles Foundation, isn't that right? Mr. LINCOLN. That is right, sir. Mr. HARDY. All right. And the Cowles Foundation then employs people, and you have certain specified people, as I understand it, as to whom it is indicating yOu are going to get a certain amount of their time, is that right? Mr. LINCOLN. That is correct. Mr. HARDY. Now it doesn't mean that the Cowles Foundation couldn't contract with sQmebody else for the same amount-for these people's time, does it? Mr. LINCOLN. Well, yes, the auditors have access to their cost records for the Cowles Commission. Mr. COURTNEY. How do the auditors know how to ldentif3T the end product of some of these contracts that are described here? What would an auditor know about a research undertaking that would pro- duce a decision? Mr. HARDY. An auditor in this field would sure be lost. Admiral BEARDSLEY. His job is not to validate the scientific find- ings. That is the job of the people in the Office of Naval Research. The auditors' job is to validate the invoices, the time spent, the costs, the travel, and the other costs involved. These are cost-type contracts here and are all audited, and the contractor only gets paid for audited costs. Mr. HARDY. He bills you for so many hours for so many people? Admiral BEARDSLEY. That doesn't necessarily mean he gets p~t id that. PAGENO="0133" CONTRACTING-OUT PROCEDURES 129 Mr. HARDY. Do you have any way to know whether those hours were spent specifically on this contract or not? It is certified by the company, and I am assuming they are going to send you a proper certification, but what I am trying. to say is that actually this is the kind of a thing that you can't actually audit, isn't it? Admiral BEARDSIJEY. Well, it is difficult to audit the scientist's mind and determine how many hours he is working on this or that. We know how he spends his time in general. It has been indicated here that-from the years of experience we have, we have a very good feeling for about the number of hours it takes to do a certain type of job. Mr. HARDY. You expressed it right. You said you got a "good feeling." Admiral BEARDSLEY. That is exactly right. I meant that, sir. Mr. HARDY. I understand. And that is about all you have got to go on. Admiral BEARDSLEY. Well, they have more than that. We have other similar studies, and other reports. We know about the scientific jump forward that it is going to take. We know how many hours it takes. We know if it takes special equipment and the costs involved in that. Mr. HARDY. Again you are working on a feeling. Admiral BEARDSLEY. The audit people do enter into very detailed analysis. I have been involved in several universities' discussion of this, involving overtime and overhead and things like that. So I know there is a very detailed audit of these costs. Mr. H1~BERT. Admiral, we are in this position in connection with these contracts-rather, not contracts, but the foundations as related to universities. Here we have the professors who are paid by the universities, who are allowed, and properly so, perhaps, to work for these foundations, which are supported in great measure by Government funds. (Admiral Beardsley nods.) Mr. Hi~EERT. So to have the professor at a university-this is a fringe benefit. This is an attraction for him to go to that university, to go on its teaching staff, on its faculty. And he has the fringe benefit of working for a foundation like the Cowles Foundation, whose in-V come is substantially supported by the Government. Isn't that correct? Admiral BEARDSLEY. I would like to have the experts talk to that. Mr. Hi~BERT. There is no expert needed to talk. I am not an ex- pert- Dr. SILVERMAN. Mr. H~bert- Admiral BEARDSLEY. Yes, I would like to have him proceed. Dr. SILVERMAN. I think the question you raise here is a very good question. But before I answer it, I would like to answer the point that Mr. Hardy has raised here. I think a certain amount of cheating can be done by an institution. Mr. HARDY. I don't know that there is any, but I think the op- portunity is bound to be there under the system. Dr. SILVERMAN. But the scieutific fraternity operates in such an open manner that I don't believe that any institution is able to get by with it for very long, because the scientific productivity versus the income of the institution very soon becomes apparent. PAGENO="0134" 130 CONTRACTING-OUT PROCEDURES It is very hard to sequester funds in a nonprofit institution. And I don't think in our experience we have ever had any occasion to doubt the integrity of a nonprofit institution. Mr. HI~BERT. We are not doubting the integrity. Mr. HARDY. That is not the question- *Mr. Hf~BERT. We are talking about what the facts are. And that is what I am trying to point out. Here you have people on the faculty, and properly so. And their attraction to that particular university would be the fringe benefits, which would be reflected in working for an organization like the Cowles organization, to which the Government contributes X number of dollars. The thing that runs through my mind now is that the people who are so inordinately in favor of Federal aid to education* could find this back-door financing profitable, because this is really back-door financing, Federal aid to education, where you are paying the salaries of teachers, which the Congress objects to vigorously. Dr. SILVERMAN. There is no question that the bulk of science in this country, in our universities and nonprofit institutions, is sup- ported by Government funds. Now the National Science Foundation has just issued a report, that has just come out within the last month or so, which spells this out in very great detail. The percentages are there. Mr. HARDY. That wouldn't help it any. Dr. SILVERMAN. No. But it tells you what the facts are. Now in the case of a foundation such as the Cowles Foundation, the subvention to the researcher really comes about in this way. He is able to draw his full salary at something less than normal teaching load. And in a university that has a certain number of students to teach, the teaching load has to be distributed among its faculty. And this in the case of a large university for a very competent man may amount to something like 6 or 8 hours a week. Actually, a 6-hour teaching load for a man in an active field is rather a heavy teaching load. Because from my own experience, each hour that is spent in a classroom requires about 4 hours of homework, because the questions which a good teacher gets from his classroom are as difficult to answer as the questions which you are giving me here this morning to answer. It takes a lot of homework. Mr. HARDY. And just as difficult to understand as the answer you are giving us. Dr. SILVERMAN, I am afraid so. Mr. HI~BERT. How has that man the time to devote to something else? Mind you, I don't object to the method now or the right of the individual to do it. I want to know how it is done. Dr. SILVERMAN. The Cowles Foundation may make it possible for a man to cut his teaching load in half. This would mean that he would teach one graduate course instead of two, and that he would correspondingly have a great deal more time to devote to research. Now undoubtedly the Government is supporting this. There is no question. There is no shadow of a doubt. And as a matter of fact, the contract system of research in this country is the one thing that permits university research to go forward at the level it ~ow goes forward at. PAGENO="0135" CONTRACTING-OUT PROCEDURES 131 N. We have contra SILVERMAN. YeS~ We have the one here with the A. D. Little Co., which is one on the list that you have, on our books here. Mr. HARDY. Well, some of the things we have been saying about the nonprofit organizations wouldn't necessarily apply to the profit organizations. But this is another subject. Mr. HEBERT. Yes. Mr. Courtney, suppose we proceed. We could discuss thiss contract- Mr. COURTNEY. Yes. Mr. H~BERT. This shows how difficult this problem is. Mr. HARDY. Mr. Chairman, let me just make this observation: It is very stimulating to a country boy to be sitting here and engaging in this kind of a conversation with these people. Mr. H1~BERT. Maybe the Congress likes these "think" contracts, too. I understand the Senate just employed the University of Michigan to make a study. On the House side, perhaps we are in better position to be critical, because we haven't employed the outsiders yet. All right, Mr. Courtney, continue. Mr. COURTNEY. What we are trying to ascertain here in some rea- sonable way, Doctor, is the standards by which these values are de- termined. That at least was the purpose of most of the questions. Now another question: Does the Navy have any grants which are made through your office or in your office to any of the organiza- tions or universities with whom you have contracts? Dr. RIUBY. The Office of Naval Research does have authority to give grants to educational institutions. Mr. COURTNEY. But let us take the organization now with which you have contracts, such as the ones-the eight ~ we ha qu on ~t submitted to the su~'bcommitt~e? Mr. LINCOLN. No, sir. Mr. COURTNEY. You are satisfied with that? Dr. RIOBY. The original list? Mr. COURTNEY. On the list submitted to the these eight are a r Mr. T that a Mr. PAGENO="0136" 132 CONTRACTING-OUT PROCEDURES Mr. LINCOLN. In addition to the contracts. Mr. COURTNEY. And could you supply for the record the total of those grants, or the amount of the grants? Mr. LINCOLN. Yes, sir. Mr. COURTNEY. So we would have some idea of the amount of money that is involved in this program. Mr. LINCOLN. Yes, sir. (The data to be furnished is as follows:) DEPARTMENT OF THE NAVY, OFFICE OF THE SECRETARY, Washington, D.C., August 11, 1961. Hon. F. EDWARD HfiBERT, Chairman, Subcomniittee on ~peciaZ Investigations, Committee on Arme4 ~erv- ices, House of Representatives, Washington, D.C. M~ Dnun MR. CHAIRMAN: The transcript of your subcommittee's hearings~ dated August 10, 1961, has been reviewed and corrected by the Navy witnessea concerned and is returned herewith. In addition, the enclosure Nonr-2380(0O) (X) pertaining to grants made by the Office of Naval Research, is forwarded as the supplemental information requested on page 333 of the transcript Please contact me if I can be of further assistance on this matter; Sincerely yours, E. C. OGLE, Captain, U.s. Navy, Acting Deputy Chief of Legislative Affairs. CONTRACT N0NR-2380(00) (X) The Office of Naval Research issued 53 grants during the fiscal years 196~ and 1961 with the educational institutions listed on the IBM listing of study contracts furnished to the subcommittee by the Department of the Navy. The 53 grants obligated a total of $2,523,512. Of the figure given in the preceding paragraph, $288,512 was obligated by the Office of Naval Research in support of its own basic research program; $2,235,000 was obligated by the Office of Naval Research in support of the re- search program of the Advanced Research Projects Agency of the Department of Defense. Mr. COURTNEY. Mr. Chairman, that is, I think, about all we can understand about- Mr. II~BERT. Put "understand" in quotes, will you? [Laughter.] Mr. COURTNEY. Well, the money is here, and I don't know how we are going to account for it. Now the other branch of the contracts deal with management surveys. They take up, first, with the Cresap, McCormick & Paget contract, which is No. 78708. Who is to speak to that? Admiral MoORE. I will speak to that colltract. Mr. COURTNEY. Now take the group. There are five in this group~ Admiral. How do you fix the values in these instances? (The contracts referred to are as follows:) NOB5 78708 A. IDENTITY OF THE CONTRACTOR Cresap, McCormick & Paget, 342 Madison Avenue, New York, N.Y. B. COST OF THE CONTRACT I One hundred and thirty-six thousand dollars estimated, approximate one hun- dred and thirty-four thousand dollars actual. PAGENO="0137" CONTEACTING-OUT PROCEDURES 133 C. PURPOSE AND SCOPE OF THE CONTRACT (1) Evaluate the progress being made by the Bureau and by the shipyards in developing in detail, and In Implementing the recommendations contained in the Cresap McCormick & Paget report of 1959 entitled Audit of Produc tion Planning and Control Program," hereinafter referred to as the OMP re- port (1959). (2) Identify and evaluate deviations from these recommendations. (3) Advise whether such deviations are in keeping with sound practices (4) Recommend actions based on these findings. D. SUMMAIIY OP ERStJLTS OR FINtINGS Cresap, McCormick & Paget found that considerable progress had been made In implementing the CMP retort (19~9) but that md-eased emphasis should be placed on: (a) Improving methods and standards and performance analysis (b) Material planning and control (o) Coordination of planning, scheduling, and work perfotmanee. E. ACTION TAI~1N EASED ON RESt~L'TS OR PINDIPOS An integrated effort to secttre full implementation is underway and meetings with all shipyard commanders and shipyard production officers have been held to obtain complete umiderstafiding, support, and participation by the shipyards. More specifically: S (a) A new production control system manual is in the final stages of preparation and will be issued shortly. (b) A coordinated eftort by all shipyards for developing improved meth ods and standards will be directed by tha Bureau of Ships. (c) Emphasis is being placed on improved coordination of planning, scheduling, and work performance. (d) Emphasis is being placed on improved matei-lal p1~nning and eontrol (e) Emphasis is being placed on the deye1~pment of an integ~r~t~d data proc~sslng syste~n incorporating the management reports required by the production control system. 1. CONTRACT NOES 4201 A. IDENTITY OF THE CONTRACTOR geed Eesearch., Inc., 1048 Potomac Street NW., Washington, D.C. B. COST OF CONTRACT Sixty-two thousand and twenty-four dollars. C. PURPOSE AND SCOPE Reclassification of weights for 10 ships into the current Navy system of weight classification. D. SUMMARY OF RESULTS Reclassified eight ships completely and two are in the process of being reclassified. E. ACTION TAKEN ON RESULTS These reclassified ship weights are used in the design of new ships and weight studies. CONTRACT NOBS-65961 A. IDENTITY OF THE CONTRACTOR Remsel Industries, Inc., 500 East 40th Street, Chicago, Ill. B. COST OF THE CONTRACTOR One hundred fifty thousand nine hundred and fifty three dollars and two cents. PAGENO="0138" 134 CONTRACTING-OUT PROCEDURES C. PURPOSE AND SCOPE OF CONTRACT Develop a collective protector system for an LVTP5 vehicle to protect oc- cupants against air contaminated with atomic, biological, or chemical agents. D. SUMMARY OF RESULTS OR FINDINGS Preliminary designs were cast up for components. Filters, blowers, pumps, etc. were constructed, components tested and assembled in vehicle mockup, Initial system tests were conducted. It was determined to be in the best Inter- est of the Government to bring the project to a close since additional funds would have been required. B. ACTION TAKEN BASED ON RESULTS OR FINDINGS The development resulted in sufficient information to permit the Government to define the parometers of a system required to protect a group of up to 34 marines in a closed vehicle such as the LVTP5. It also pointed up the bulkiness of such a system and the necessity for rather extensive changes to the LYTP5 to accommodate a collective protector kit for the vehicle. 1. CONTRACT NOBS 4371 A. IDENTITY OF CONTRACTOR Gibbs & Cox, Inc., 1 Broadway, New York, N.Y. B. COST OF CONTRACT Thirty-eight thousand two hundred and twenty dollars. C. PURPOSE AND SCOPE OF CONTRACT The contractor to provide at the Bureau of Ships, Washington, D.C., the design services of not fewer than 10 and not more than 14 contractor engineerS to assist in the preparation of selected contract plans and speciflc?ations for the DLG-29, project 172A. N0TE.-The designation of DLG-29 was changed to DLG-26 after contract was negotiated. D. SUMMARY OF RESULTS AND FINDINGS Contract plans and specifications were completed and signed on schedule due to the assistance received from the contractor. B. ACTION TAKEN BASED ON RESULTS OR FINDINGS Contract plans and specifications used to procure three DLG-26 class ships in the fiscal year 1961 shipbuilding program. CONTRACT NOI3S-4407 A. IDENTITY OF THE CONTRACTOR Gibbs & Cox Inc., One Broadway, New York, N.Y. B. COST OF THE CONTRACT $5,765,400. C. PURPOSE AND SCOPE OF CONTRACT To prepare and distribute working plans and related data for the con- struction of DLG-26 and to make available, at cost of reproduction, the plans and data for the construction of later ships in the DLG-26 class. D. SUMMARY OF RESULTS OR FINDINGS Design is proceeding particularly in the area of order sheets and equip- ment specifications for the long leadtime items. PAGENO="0139" CONTRACTING-OUT PROCEDtJRES 135 B. A~Y1~ION TAKEN BASED ON RESULTS OR FINDINGS Upon award of the shipbuilding contract th~ Bureau will endeavor to negotiate the essence of this contract into the shipbuilding contract and then cancel this contract. CONTRACT NOBS~-78082 A. IDENTITY OF THE CONTRACTOR Dr. II. M. Teager, 21 Middlesex Road, Watertown, Mass. $23,500. B. COAST OF THE CONTRACT C. PURPOSE AND SCOPE OF CONTRACT Conduct an extensive, 2-year feasibility study to develop a computer pro- gram for the optimization of scheduling of new construction shipwork at tT.S. naval shipyards. D. SUREMARY OF RESULTS OR FINDINGS This contract is not scheduled to complete until December 1961. Inter- mediate reports have proved a clear picture of the magnitude an complexity of scheduling new construction shipwork by computer. B. ACTION TAKEN BASED ON RESULTS OR FINDINGS * None will be taken until final report is received itt December 1961. Admiral MooRE. Well, of course the purpose of this contract initially-and we entered into the first contract with Cresap, Mc- Cormick & Paget back in 1949. They are a group of industriai engineers that are expert in management techniques in large estab~ lishments such as our shipyard. And these people were brought in to help us with our manage- ment problems within the shipyard complex, with a view to seeing bow we could do the work that we had to do more efficiently, more timely, and with better coordination all the way through. Particu- larly in light of the increased compexity of building of ships. And I might mention here that the putting together of a large combatant warship of the type that we have now is perhaps one of the most complex jobs of putting things together that we have in this country. It requires many skills, many l and as I told the Secretary once, it is almost like directin 1 of 100 football tr~-~ -~ at one time r [ybuv as the one we The in~ - PAGENO="0140" 136 CONTRACTING-OUT PROCEDURES Subsequently we let another coutract, in 1959, to see how we are doing in this area. It is my personal opinion, and those of many other people that are knowledgeable in this area, that we perhaps waited a little bit too long before we had them come take a look-see at our yards again. Mr. 1-TARDY. And that was the report that we had such a hard time gettiug a copy of. Admiral Mooiu~. I am not knowledgeable how difficult it was for you to get a copy of that report, sir. in any event, certain refinements were made in the procedures and practices that we had set up. And in similar fashion, after the 1959 survey, we brought them in being again in 1960, to take another look-see at our operations. We have just completed, within the last several months, the study- ing of the recommendations they have made, and have implemented these instructions so that; it suits our pui~pose. We hope that we are getting a system together where the shipyard commander in our ship- yards can in fact be the captain of these several hundred football teams that you have, to the end-and the overall end of this is that we bring together at the proper time and the proper place the man- power, the plans, the material, and the overall coordination that is necessary to build that ship properly and in an efficient manner. Mr. I-fERRET. Well, this is a goal to have a maximum efficiency in management. Admiral MOORE. That is correct, sir. Mr. H~BERT. T1ie same as you conduct in a business organization. Admiral MOORE. That is correct, sir. Mr. HEBERT. In any great company. Admiral MooRE. I might mention, Mr. Chairman, while I was the supervisor of shipbuilding at a private concern, at Groton-and I was a supervisor there diirin~ the time we were building the Nautilu8- the Electric Boat. Division also brought in a firm of management engineers-not this particular group, but they went through pre- cisely the same procedure. There were many new problems because of the explosive state of the art-and believe me, shipbuilding now is not like it was a few years go ba( k far enough to where you had a central fire control a guns-simple equipment. So that all that was was to have a man who knew his trade. 1-fe on the dockside and he could do his work without hip t.o the coordination that had to take place with )S and many other trades. u t.h- ~reat complexity and the interweaving in the fire control ~J to the complication of iding ~ on top of this all the time are going to meet schedules and if we are going to do it in a timely fashion. I would suggest that if we were using the same techniques that we had used 20 or 30 years ago, we would never be getting these ships out. Irrespective of costs, we wouki get them out., but-we would eventu- ally get them out, in probably two or three times the time that it took before, which necessarily means money also. PAGENO="0141" CONTRACTING-OUT PROCEDURES 137 Mr. H]~BERT. Now, these studies I presume lend themselves to a study of the individuals, that is, individuals in top management slots. Admiral MooRE. That is correct, sir. Mr. HEBEIiT. Now, what I am going to ask you-I laid the founda- tion to ask you this question. And I assure you, before I ask you that, I am not being facetious. I am very serious with what I am going to ask now. Do you have any contracts that employ psychiatrists or "head" doctors? [Laughter.] Admiral MooRE. Not in my business, as far as I know. Mr. HEBERT. I am serious about it. I know one great utility company had one of these management concerns that came in and the top executives had to lay on a couch and expose themselves to psychiatry and the head doctor, and it cost them a lot of money. And I am talking about a big, big utility company. Admiral MooRE. There might be some- Mr. HEBERT. You all don't have any head doctors? Admiral MooRE. There might be some profit that would come from that. [Laughter.] Mr. HEBERT. There is no doubt about that. Maybe we could use them, too. I just wanted to know if you all have gone out to employ such people, or in these contracts. Admiral MOORE. It is probably in the area of basic research. I can say, though, that we have had certain contracts running in the human engineering aspects, which- Mr. Hi~BERT. Then you have employed psychiatrists, then? Admiral MOoRE. No, no. This is mostly functional engineering, from the point of view of having people study how systems should be put together so that a man can man as many stations and do it as efficiently as possible. This has been mostly with a view of seeing how we can reduce the number of enlisted personnel, and officer personnel, that we have on ships to do certain functions. And you can do it by making studies on arrangements. Mr. COURTNEY. How many levers can a man puii. Admiral MooRE. Things of that kind, And colors. Particularly colors. We found out some time back that yellow is the most attractive to the eye. And we found out that a combination of black and white on gage faces-it is better to have it one way than it is the other. And many things of this kind. This is the only area that we get over into that is even second cousin to the couch boys. Mr. H~BERT. This was very interesting to me when I found this out. This great utility company employed expert management-maybe it is the same outfit that worked for you people, that you have a contract with. They really had to go and have their turn every week, to find out ex'ictly what they were thinking That is the most f'tntastic thing I ever heard in my life And I wouldn't have repeated it if I didn't know it to be a fact PAGENO="0142" 138 CONTRACTING-OUT PROCEDURES All right, Mr. Courtney. Mr. HARDY. Let me pursue, before you proceed. Recognizing the eventuality of management analysis and manage- meet engineering, and that sort of thing, I wondered about the success of the evaluations of these recommendations when they are submitted by these firms. I don't mind saying I have in mind actually one such program that was put into effect, and which stayed in for so long and was extremely expensive during that period of time and it didn't work. I just wondered what happened in our evaluation and analysis that permitted that thing to be put into effect and continued for so long a time without a recognition that what you had before you even started was better, and that you have gone back to it. Admiral MOORE. Mr. Hardy, this is an extremely complex problem, as I know you are well aware, and in getting into an area of this kind we do consider the results of CMP, or that Oresap, McCormick & Paget come in with. We do not accept those lock, stock, and barrel. We evaluate and try to tailor them to suit our particular cases. We have to recognize that we are applying these tedhniques gel- ~erally in 11 different yards and that the climate is quite different in one yard vis-a-vis another yard. A lot of times the evaluation that we are putting on it when we get into a new area-maybe we should have some of the information in this uncertain area, previously discussed, so we could see what is ~ probability of success if we applied it. We didn't have this infor- mation at that time, so our best guess at the time we got these reports, and after we had evaluated it, was that this was going to be something that would be a moneymaker for the Government. This is all we are concerned with in all of our management programs. Mr. HARDY. I don't know but that that was your determination. What is bothering me is, What happened to your evaluation processes? Admiral MOORE. Well, Mr. Hardy, there are many recommenda- tions. Some of them didn't work out in the manner in which we thought they would work out. We found out in many cases that per- haps we had generated too much paperwork. For example, what we had done among other things was saying that "Here are 2,500 plans for the building of a ship." And some of these plans may be 7 feet long, and they have work on that plan that would extend over a 3-year building period. So a man goes down on a job. He couldn't unroll one of these big plans and pick out, well, in this little corner, with a magnifying glass, and say "I am going to work on this." So we broke that plan down by our shop scheduling and analyses techniques into individual work packages, where you could put the work out-this big plan would be broken down into many workorders, and we would try to schedule it on a day-by-day basis, or a week-by- week basis, so all of it meshed together to get that product to come out on time as you wanted it. Now we found out among other things, in breaking this down, that in many cases we generated too much paperwork. We found out that we broke the jobs down smaller than we would like, and we lost the overall picture, because we had so many pieces of paper when we broke it down that you couldn't put the mosaic back together. PAGENO="0143" CONTRACTING-OUT PROCEDURES 139 Mr. HARDY. How long did it take you to get to that conclusion? You are now getting into the crux of what bothers me. Admiral MoORE. When you get into a system of this kind, you have to work on it, within that yard, perhaps for a period of a year or a year and a half before you can get the people conditioned to it, and you can get the system going, and then see if it is producing the results. In many cases it might take 2 years for you to decide whether it is good or whether it is bad and to what extent you have to make re- finements in it, and this is precisely the area that we are in. I happened to be the shipyard commander at the Portsmouth Naval Shipyard when~the CMP program came in. Mr. HARDY. Of course I hadn't mentioned that one, but that is the one we are talking about. Admiral Mooiu~. I am completely familiar with this program. Mr. HARDY. I was sure you were, because you put it in all over. Admiral MOORE. I am familiar with the work that went on in the Portsmouth Naval Shipyard over a long period of span, for the simple ships and the more complicated ones. In selling this kind of a pro- gram to the shipyard employees-and I was doing this constantly, trying to get this across-I indicated that if this wasn't the system, it was the best one that I knew of, and we had to bend our shoulders to this program to make it work. And you have to make it work as it is laid out before you can start taking exceptions. So it takes a long time in a big program of this kind before you can see where you have to walk the cat back; that is, where you have to make minor modifications, major modifications, and in some cases go completely back and start over. Mr. HARDY. Well, I don't want to rehash the past, but what I am trying to explore right at the moment is what do we have to assure the best evaluation you can make at the time you get these reports back in there? Admiral Mooim. Mr. Hardy, all- Mr. HARDY. Wait a minute! And assure not only that having initiated a radical change, which some of them do involve, that you don't get yourself out on a limb and continue it so doggone long that you virtually can't get back to where you were before. Admiral MOORE. Well, you can't guarantee this, Mr. Hardy. All I can say is that we have people who are looking these programs over and we have a management group in the Bureau. From time to time the Chief of the Bureau will call in all shipyard commanders who are skilled in shipbuilding and have worked at different levels on this problem, so they come in and we get our overall opinion. We will have a conference of this kind coming up in October with this sort of thing on our agenda, and we will make the best evaluation we can, with the best staff people that we have available to us, con- sulting with outsiders from time to time, to see what we think about it before we implement. . . And we have made some mistakes, there is no question about it, but we believe that once we have found the mistakes and once we are not achieving the results that we set out for, the best thing then to do is to face up to it, even though our faces may be red, reorient ourselves with a view- PAGENO="0144" 140 CONTRACTING-OUT PROCEDURES Mr. HARDY. That is the hardest thing anybody in BuShips could possibly have to do: to face up to it, and then go back and correct it, You do it, but it sure is grievous. Admiral MOORE. Well, in a large complex of this kind the changes don't come without a great deal of pain. Because it affects so many activities and so many people. Mr. HEBERT. Any questions, Mr. Kitchin? * Mr. KrrornN. Yes, I would like to ask two general questions of the Admiral. Does the Bureau of Ships have other management contracts with other sources than Cresap, McCormick & Paget? Admiral Mooiu. No, sir. I believe it is correct that we do not have any other contracts of this kind going, sir. Mr. KITCrnN. So I understand this one has been continuous since 1949. Admiral MOORE. No, sir. No, sir. These have been specific tests. We call them in for a particular project, for a particular scope of work, at a particular time, and when it is finished it is finished. Mr. KITCrnN. So, in substance, the recommendations that were made by this particular management group have been put into effect or at least implemented. Admiral MooRE. They have been implemented to the extent that we desire to implement them. We don't always agree with some of the things that they have recommended, and for the reasons that I just told the chairman, be- cause we, too, think that we have knowledge in this area. And some- times they are not able to gage the situations as well as we. Also they may be predicating their recommendations on the knowledge that they have, which may be in the industry rather than in the unique atmosphere that we have in the Government shipyards, sir. Mr. KITcrnN. But in 1959, and again in 1960, you contracted with the same group to reexamine the recommendation that they made under prior contracts, which were implemented. Admiral MOORE. Yes, sir. Mr. KITcrnN. Which turned out to be a mistake. So now they are contracting at least partially to correct their own mistakes. Admiral MOORE. I do not agree with the way you have put it, sir. To this extent: In each of the reports many of the things that we have implemented have produced good results. Some of the things that they recommended didn't work out to our purpose. But we particularly picked this company with malice aforethought. They have worked in this area with us. They know what had gone on before. And it only appears reasonable that to get the con- tinuity of effort and not have to reindoctrinate people all over again, that again, the maximum benefits would accrue to the Government by this technique. This is a management decision that I took part in. The Chief of the Bureau made this decision. I was wholeheartedly in support with it. And it was approved by the Secretary of the Navy. Mr. KrrornN. I am not being critical of the decision that was made. But I was wondering-and the reason for my question was as to whether or not there shouldn't have been a little different technique used, if there are other organizations in the same type management PAGENO="0145" CONTRACTING-OUT PROCEDURES 141 field, to get a divergence of opinion in those instances where the im- plementation has not worked. Rather than going back to the same guy that made the suggestions that didn't work in the first place. Admiral MOORE.. Well, many of them did work, sir. Your point is well taken. And it would appear to us that, as of the moment that our work is finished, for the time being. We can't say that we won't have to make more changes because-the very nature of life itself is change. But we think that we can rest easy on this program for a while, and assimilate the entire package that we have now, which we believe to be good. Now, if we make a subsequent survey, in perhaps 4 or 5 years, then I think we would give full consideration as whether we would now bring in the same organization again. Because as we see it, what we have been doing now is part and parcel of the same package that we set out initially to do. And that is why we have kept this in the con- text that we keep it, sir. Mr. KITCHIN. Well, my questions were not meant to be facetious. Admiral MOORE. I understand that, sir. Mr. KITCrnN. From a practical standpoint, we all know that those living closest to the forest only see the trees. Admiral Moorn~. Yes, sir. Mr. KITOHIN. And over a period since 1949 these people have been called upon to make these recommendations. An.d then again in 1959 they made a report. And apparently the Navy didn't take altogether the Suggestions in the 1959 report, but called for another investigation from the same outfit. Admiral MOORE. This isn't quite so, either. I mentioned earlier that the first report was made in 1949. We waited too long in connection with having them survey to see if we had implemented it in the manner in which they had thought we should. They had found many things that we had not read their language right and had not done precisely what they recommended. They said, "If you had followed this report through more care fully," and if we had checked, maybe we would have this show on the road a little better. So this time, to avoid that same mistake, we only waited about a year, which is the time I told the chairman it takes to get some of these things going and to discover the overall results. We thought it was timely after a period of a year to come in and take a look-see and see how we are coming. And in this last report they went into it in a great deal more detail than they had before. And the number of modifications that we had to make were consider- ably smaller than we had in the previous cases, sir. Mr. KITCHIN. Now, under the contracts that have been let with this particular outfit, is the $136,000, which is an estimated cost, and the $134,000, which you say is approximately actual cost, are they the funds that have already been expended, or are they the ones that will conclude the present contract that you have for the study? Admiral MOORE. This should be a total, and it should be an actual cost, because insofar as I know, all the work has been completed on it. 74109-cl---io PAGENO="0146" 142 CONTRACTING-OUT PROCEDURES Now, the difference here may be that all the return costs are not in now. But the specific tasks have been completed. This is not a continuing program. It is subject to audit. I couldn't say for a certainly whether the actual number is 134 or 136, but it is a conclud°d deal and subject to final audit; it is a closed-out program, sir. Mr. KITCrnN. Now, contrary to the position that the research con- tracts were placed in in our discussion of the previous items, you do have tangible results from which you can calculate whether or not this expenditure of $136,000 has been profitable to the Navy ~ Admiral MooRE. Yes, sir. Mr. ICITOrnN. What is your opinion ~ Admiral MOoRE. The results that we get from that are a number of publications, that would probably be- Mr. KITCITIN. I just asked for an opinion at this time- Admiral Mooiii~. The size of maybe two of these [indicating documents]. After they have made their study and analysis, they come up with specific recommendations as to what they think we should do from an organizational point of view, an operational point of view, and what have you, to get the kind of organization that we want in the shipyard to achieve the overall results that I mentioned before, sir. Mr. KITCHIN. But my question was: In your opinion has the Gov- ernment saved money through the exercise `of these contracts ~ Admiral Mooiu~i. Already-if you are getting down to the question of money-this gets to be an extremely difficult question to answer. And it is the same question that I had the shipyarders ask me when I was shipyard commander in trying to implement this program. It is hard for me to gage my performance today vis-a-vis what it was 10 years ago, because I am not building the same commodity. It is in an entirely different beast. If I could build that same ship 10 years running, I could then give you a yardstick and say "Yes, it costs so much that day, and it `costs so much this day." But I don't have that. It is a different breed of cat. I can give you some examples `of how we are geeting tangible re- sults, in my opinion. You could take- Mr. KITCHIN. May I interrupt at this point. I didn't want to go into the details, except to elicit your opinion as to whether or not this $136,000 has been spent profitably as far as the Bureau `of Ships is concerned. Admiral MOORE. I would say many, many, manyfold. I would suspect that the techniques that we have been employing because of these contracts have given rise to at least an increase in efficiency of 10 percent. I couldn't guarantee it, but this is my own opinion. And on the basis of the shipbuilding contracts that we have, this is real money. Mr. HARDY. Well, Admiral, isn't there one yardstick that you can use for some measurement in your overhead experience? Admiral MOoRE. You couldn't precisely do that, Mr. Hardy, for the reason that you can set up rules in connection with overhead so that you could make overhead anything that you wanted. Mr. HARDY. I know. I found that out. Admiral MOORE. I realize that. PAGENO="0147" o be a some deg~r~' ~ ~uracy, the results of putting these recommendations into effect. Admiral MooRE. You could from an overhead point of view. But the large moneysaver, Mr Hardy, in connection with this program, is the man-days, the number of man-days, or the man- hours, that go into the building of that ship itself, in the p~'~"~ tive area. And it is in tW 1 1 "~, I am ~iy and i prod~. ~u thought it was going to produce. And it took you 10 years to find that out. Now, you come along with a reevaluation by the same manage- inent concern and they find out some of the things were done wrong. Now, I don't know whether you didn't carry out their recoin- mendations fully, as you have indicated a moment ago-the extent to which that may have been responsible. But certainly, having gofle back and made these, or instituted new procedures which they have recommended, there should be in a particular yard a basis on which you could make an evaluation to determine with some reasonable accuracy the effect of it. I am surprised that you don't have some such evaluation. Admiral MooRE. Well, only to the extent, Mr. Hardy, that this has taken place since 1949, and the very nature of the work that you are working. Mr. HARDY. Let's talk about what happened since 1959, or since you put the changes back in. Admiral MooRE. Well, this stemmed, Mr. Hardy, mostly from the fact that we ourselves recognized that we were making our task somewhat more difficult by breaking our job pieces down too small. We were generating too much paper. We knew that whatever we had done had been an improvement, but we were also generating so much paper that it was getting burdensome. And we had to go back and take a look-see again. ~ Ia~~!i?1 .1 CONTRACTING-OUT PROCEDURES 143 tian PAGENO="0148" 144 CONTRACTING-OUT PROCEDURES 4 years, we completed Skate, which was a nuclear subma~ went over the North Pole, infinitely more complicated i~ many re spects, and is nuclear, also, and that was delivered to the Government for about $39 million. Now, this is an increase of about 5 to 1, which hardly keeps pace with what we are doing in the automobile industry, where you stili have a car that has four wheels, a little bit more horsepower, but is fuctionally the same thing. Here we have brought a nuclear submarine which has i more capability, and infinitely more basic man hours in its co tion It gives you a measure I am not prepared to give you specifics in the case of the OMP, to the savings that have come from our improving in managemen techniques. Mr. HARDY. I didn't ask you for specifics. But I was trying to find if actually you didn't have some measurement and hadn't made some determination as to whether or not there had been an actual dollar savings, or a time savings. I am surprised that you don't have it, because I thought sure you had. Every time I have been in this kind of argument before, Admiral- and I have been in them a good many times, as you probably recall. You and I have had a few. Admiral MooRE. Yes. Mr. HARDY. Every time I have been in it, somebody has said, "We can show what this is going to do." Admiral MooRE. Mr. Hardy, we are getting into the area of the various savino~s that we have done-not only from this devise but many other tIings that Admiral James has had, as a result of his ship cost analysis panel committee. Mr. HARDY. I think I discussed them all. Admiral MoORE. I think the savings that Admiral James had, and that he has attributed in these various areas, were discussed before the committee, of which you were a member, probably last week and the week before. Mr. HARDY. I don't recall getting into any specifics on that. Admiral MooRE. I am sure some of the savings were discussed at that time. Is that not right, Mr. Secretary? (Secretary BeLieu aside to Admiral Moore~) Mr. H~nERT. Admiral, could this have been an in-house exercise? Now, the Government has trained you people. You have been educated by the Government. You are experts in your line. But you must go outside to get other experts. Don't we have the capacity and competence within our own shop? Admiral MooRE. It requires some cross-fertilization. I think if one starts looking at the same picture day in and day out, he sees the same things. I think it takes another set of eyes. It takes another viewpoint a lot of times for us to see the manifest errors we are making over and over ourselves. We can indulge in self-criticism, but sometimes when we want to get closer to the truth we get somebody else to criticize us. So there is this technique. PAGENO="0149" C0NTRACTING~QUT PROCEDURES 145 Mr. HARDY. Of course you have your people that are employed for such a particular thing, to try to keep abreast of developments. Admiral Mooi~. Yes, sir. Mr. HATØY. Of course you do. And who generally speaking do perform a good job. I can understand, though, how it is desirable to bring in outside eyes, as you put it, to look over and to help them keep on their toes. But Mr Secretary, I hope that you will take a little look at this thing and find out whether or not these new innovations that aze being made are actually proving out Apparently, Admiral Moore hasn't got too clear a picture of it. Admiral MooRE Mr Hardy, 1 do know the answers And I don't want to beg this issue. I am not prepared to give them today. But Admiral James has brought them up on the Hill, to the vari~ ous appropriations hearings. We have an entire presentatidn on what has been the result of some of our dollar stretch programs. Mr HARDY I didn't ask you for the specifics of its I asked you if there had been such a measurement made Admiral MooRD Yes, sir Yes, sir, there has been, there has been Mr. Ith3ERT. Mr. Norblad, any questions? Mr. No~m~w. No. Mr. H~nERT. All right Mr. Courtney, proceed. Mr. COURTNEY. Mr. dhairman, I think that is all on this phase from the Navy so far as I can understand. There are a few little supplements to the record. (The two remaining contracts referred to are as follows ~) SUMMARY OF CONTRACT-NOun 18452 (SE~vrcs~S) flSCAL TEARS 1858-'GO 1. ARINO Research Oorp., 1700 K Street NW., Washington, D.Q. 2. Phase 1, $58,407 (escal year 19~8, $~5,O00) (fiscal year 1959, $28,407); phase II, $125,838 (fiscal year 1960) ; total, $184,245. 3 Task I (a) Perform the necessary research and development required to develop methods and procedures by which the reliability of a Naval Ordnance Weapon System can be predicted during the early stages of design. (b) Submit to the Bureau of Ordiiance 10 copies of a report which includes the methods and precedures, the reliability prediction tedmiques and the con trolled test program required for the application of the reliability prediction techniques to a Naval Weapon System. Task II. (a) Apply the prediction techniques developed under task I to equipments aboard the 1555 Forrestal as specified below: 1. MK 56, Mod 40 fire control equipments. 2. MK 7 computer. 3. SPG-48 radar. 4. APS-20E radar. (b) Develop the predicted reliabilities of the equipments mentioned above (c) Compare predicted reliabilities with measured reliabilities obtained un- der contract NObsr-64508 to ascertain accuracy of the procedure. (d) Revise prediction technique procedure based upon analysis of the pr& dicted versus the measured reliabilities. (c) Prepare Military Standard in accordance with 1)OD Instruction M.- 203-B which includes a reliability prediction procedure suitable for applica- tIon to any Naval Weapon System. (f) Prepare educational presentation of the above material to be presented at regional reliability conferences with BuWeps contractors. 4. Summary of results and findings: The predication procedure, phase I, has been developed. The final report submitted was accepted by the Bureau of PAGENO="0150" 146 CONTRACTI~G-OUT PROCEDURES Naval Weapons. This initiated action to fund phase IL Results obtained during the application phase indicated that the degree of accurancy of predict- ing reliability depends upon the availability of accurate parts failure data of all types. On electronic equipments, g9od correlation was obtainecL On equipments containing' many hydraulic, `mechanical, and pneumatic parts the accuracy was not very good due to lack of parts failure data in these areas. 5~ Action taken based upon results and findings: the Military Standard pro. sented `by contractor, after BuWeps review, has been questioned since it con- talus only procedure for predicting reliability of electronic equipments. This problem will be resolved shortly so that the final MilStd will contain procedures for predicting reliability of Naval Weapon Systems, A program has been established at NOLC to collect parts failure data of all types from manufacturers developing systems for BuWeps. This program will supply the data urgently required to impvov~ :tl~e accuracy of the predic- tion procedure in the mechanical, hydraulic,, and pneumatic areas. SUMMARY or CorccRAcTs-NOA5 60-6044c (SERVICES) FISCAL Y1~4R 1960 A. Identity of contractor: Applied Psychology Corp., Arlington, Va. B. Cost of contract: NOas 60~-6Q44c, $14,T23.62. , C. Purpose and scope of contract: For a period of. 12 months make availabe and employ its research and development facilitIes and personnel `to conduct a human engineering investigation to determine `those flash patterns that are absolutely identifiable by a representative group of military personnel. The study is directly applicable to lighting utilization in order to prevent mid-air collisions and to provide positive identification of airborne and/or ground objects. D. Summary of results or findings: Three types of flash patterus ~vOre in- vestigated: Morse code, continuous, and dots. Thirty-six signals were studies~ Subjects first learned a moaning associated with each signal. They were then tested for speed and accuracy of response to signals presented in random order. The following results were obtah~ed: (a) Continuous signals are hardest to learn. (b) Signals with a larger number of elements (dots or dashes) are not necessarily more difficult to learn than those with fewer elements. (c) In'general, Morse code signals are most, reliable for persons familiar with such signals; Dots are most reliable for persons inexperienced with flashing signals. (1) Respone times are fastest, on the average, for Morse code signals. (e) Correlation between signal length and response time ranged from slightly negative to moderately positive. Seventeen of the 36 signals are recommended as worthy of further considera- tion in the operational situation. These consist of the 11 Morse code letters and 6 dot signals which were easiest to learn and which yielded more accurate and faster response time's than the unselected signals. E. Action taken based upon results or findings: This study is part of a con- tinuing program of exterior lighting development for identification and other requirements for naval aircraft on combat and noncombat missions. Additional studies are required utilizing actual aircraft lamps and hardware before the results can be applied to aircraft in service. The Navy has pioneered in systematic study of various commercial anti- collision light applications. The results of the current as well as previous studies have been released to the Federal Aviation Agency since that activity has been assigned U.S. responsibility for investigation of the anti-mid-air col- lision problem. It is anticipated that flash coding may make an important contribution to the solution of the problem by providing altitude and/or sector information. Mr. COURTNEY. So I would say that this covers the area so far as the Navy is concerned. Mr. H~BERT. May I ask the Secretary one question, then ~ Secretary BELIRu. Sure. PAGENO="0151" CONTRACTING-OUT PROCEDURES 147 Mr. H~nia~r. In connection with the matter that was brought up when the Army was here: The Army testified, or presented here a contract spending $40,000 to find out how to attract finer young men to West Point. Uas the Navy found it necessary to spend $40,000, or template spendin any sum of money to find out how to ~Jary ~ ~, operation ~f the Naval Academy is a ~ bit beyond my bound of jurisdiction, although the graduates that I have observed from there, and the young men that I have met up there, I have felt highly confident of, and most proud. Mr. H1~BERT. I am putting the Air Force on notice that I am going to ask them the same question, too. I just wondered why one Academy has to go out and spend $40,000 to find out how to get more boys, and the other two Academies don't have to do it. Now it is just a question that was raised in my mind about this particular item, I know, for instanc&-now the Superintendent, the present Superintendent of West Point-went down. to Harvard to learn how to be Superintendent of the Academy. He took a course down there on how to be a superintendent-not a superintendent, but how to be a president of a university. These things are very strange, and after the years that these fine and honored institutions have existed, that we come into the situation where we find these matters. Secretar~y BELILU. I would have to address myself to the philosophy of this, and just what I think, because, as I indicated, I am not in the academy business per Se. But I think it is a matter of motivation- Mr. H~RFJRT. We want to know why. We think we are giving you some good people. Se~i'et.ary B1~LiErr. it. is a matter of motivation, Mr. Chairman. I view these academies as national instit~itions that must. be nurtured and protected and perpetuated, and if we can find for some reasonable cost a way of getting a higher quality of people, if this is posFlble, into our academies, the country will thereby benefit. I have no knowledge of the Army's contract. Mr. IIEBEImT. I am sure the services have an answer to that, Mr. Secretary, awl that is to let them do ~ll the. selecting and appointing a.n(l cut. omit Members of Congress, and they will ø~~j* the finest. people that they want. [Laughter.] Secretary BELIEtT. I wouldn't coimcnr with that, sir. Mr. J-iEi~i~u'r. I know you don't., but the trend is that way. Mr. i\.T'rcnIN. I would, almost. [Laughter.] Mv. iTEBEImT. You would, almost.. All we have left now in the way of appomtments is the Post. Office. [Laughter.] Mr. H~BERT. And some of us don't even have that. [Laughter.] PAGENO="0152" 148 CONTRACTING-OUT PROCEDURES Mr NOBBLAD That is right And very happily so, I might add, Mr Chairman [Laughter] Secretary BELIRU That also is outside my junsdictionai field, ~~ir Mr. HEBERT. Thank you very much, Mr. Secretary, for your cooperation. And again may I compliment you on bringing respcnswe witnesses here today. Secretary BELIRU. Thank you, sir. Mr. HEni~rn~. And yesterday, also. Secretary BELIIW It is a pnvilege to be here, sir Mr HEBERT While we are still confused, we are certainly confused on a high level [Laughter] But it is proved that confusion does exist [Lauo'hter] Thank you very much Secretary ~ELIEU If I may say-off the record (Further statement offtherec~rd.) Mr. COURTNEY. Mr. Chairman. Mr. H~BERT. The committee will be in order. Mr. OOURT~EY. In view of fact that we have- -- Mr. HEBERT. How much time remains? Mr KITCHIN Twenty-five minutes Mr. Hi~BEnT. Twenty-five minutes. Will that be enough time? Mr. OouwrNEv. I think so. Mr. HÉBERT. The committee will be in order. Mr. Courtney. Mr. COURTNEY. Mr. Chairman, taking the presentation a little bit out of order, but the subject is a whole and entire subject. The introduction of the committee into this contracting.~out study dealt with the depot maintenance of planes and engines; the blue- collar worker versus the white-collar or civilian worker; the military personnel versus the blue collar, and the like; the efforts and the practices and the policies of the Air Force, which has the largest interest in that particular subject. Now this morning we have these three colonels here, who will in- troduce themselves, and they have a visual demonstration, and the facts and figures implementing the policy which one of them will state. The policy in substance seems to be that the live inventory is pre- ferred as the way to have its work done, and attempt is made to have its depot maintenance conducted by inhouse personnal, either uni- formed or civilian, and that as the inventory changes and obsolescence sets in, the practice is then to contract out. Now, Colonel, if you will introduce yourself and your companions. Colonel RECTOR. Yes, sir. I am Col. E. F. Rector. I am Deputy Director of the Directorate of Manpower and Organization, Head- quarters TJSAF. Mr. Chairman, in order to make the best use of the time this morning, we arranged to put on a portion of the Air Force presenta- tion today-only a portion of it, with the remainder to be provided tomorrow. The portion that we would like to discuss today concerns our con- tracting and depot maintenance. PAGENO="0153" CONTRACTING-OUT PROCEDURES 149 Since Mr Imirie will be appearing before the committee today, you might want to hold your general questions until that time I would therefore like to introduce Colonel Riemondy from the Headquarters Air Force Logistics Command, who will give you this presentation on de~ot maintenance, and the logistics command. Mr. COURTNEY. Colonel, are you ready? Oh yes, there you are. I didn't see you. Colonel RECTOR. Colonel Riemondy. Colonel RIEM0NDY. Mr. Chairman and members of the committee, this part of the presentation will be aimed at a discussion of some of the basic policies, philosophies, atid concepts which have dictated the way we have been accomplishing our depot maintenance responsi- bilities within the Air Force. There are two basic underlying concepts which have caused a significant variation in the way we do our job. The first one had to deal with how we did our job under the mobilization concept, and second how we are attempting to do our job today under the concept of optimum combat readiness (C-2). Our basic logistic objective during the period of time has remained unchanged, however. We recognize that there are many different kinds of systems which come into the inventory and that these systems have different missions assigned to them. We recognized that whatever logistic system we establish, it must be tailored at insuring that we have the proper wherewithal in order to accomplish our military job. We generally base our decision as to how we do this work on mili- tary necessity. Of course we temper it with economic considerations (C-3). There are several basic constraints which are associated with our logistics job. I will attempt to summarize a few of these very briefly. The very nature of the forces to be supported within the inventory is dynamic. Recognizing, then, that there are changes which are introduced daily into this inventory, to give you a feel for the magm tude of the change, over the last 10 years, for example the Air Force has had some .4 different kinds of aircraft within the inventory. And it has increased up to about 149, notwithstanding the fact that we have retired to obsolescence many kinds of aircraft weapons systems. Another feel for the magnitude of this, or the dynamic nature of our business is: To look at the number of line items which the sup- ply part of our logistic system supports. Mr. NORDLAD. Before you get into that. You have the word "mis- siles" down there. Does that 149 include missiles? Colonel RIEMONDY. No, this number only applies to aircraft sys- tems. In addition to these aircraft systems now we have missiles. Mr. NORELAD. In addition to the 149 you also have missiles? Colonel RIEMONDY. In addition to the 149 aircraft systems. Looking at the line items, which our suppiy counterparts had to support within this logistics system, back in 1951 we had some 720,000 different line items. Within a 10-year period this increased to about NoTia-Letter and figure in parentheses refer to charts which will be found at end of this day's testimony. PAGENO="0154" 150 CONTRACTING-OUT PROCEDURES sixteen hundred thousand and we are introducing line items in the in- ventory at a rate approximating 500 a day, at the present time. Mr. COURTNEY. Does that include missiles ~ Colonel RIEMoNDY~ That includes missiles. This includes all kinds of line items which make up the entire ma- teriel that we have within the Air Force. I am sure all of you are aware of the increase in cost and complexity of the equipment as we * progress down the pike (C-4). The composition of the force structure and the size of the force structure, along with the attendant flying-hour program as far as manned systems are concerned, pretty well determined the magnitude of the job we have to do. Back in 1950 we had in the order of about 20,000 aircraft withrn our inventory. In 1960-rather, in 1950 we had about 12,000. In 1960 we had about 20,000. At the present time it is in the order of around 17,000-a little bit over 17,000. The size of this force, with its attendant flying-hour program, pretty well determines from a maintenance standpoint the man-years of effort which we have to expend in. order to support this inventory. Back in 1950 we were accomplishing about 76,000 mall-years of work. By 1960 it was up to 123,000, and as I will show you a little bit later on, in 1957 this workload peaked at some 163 man-years, a very sizable manpower effort in order to maintain this force. The mix of the work that has to be done results from the composi- tion, that is the various types of weapons within the inventory, and pretty well determines the kind of skills that we need to do the job (0-5). We recognize that we are just not good enough in this business to design material in the first instance which is completely free from defects, be they structural, electrical, or mechanical, We also recog- nize that material is subject to deterioration through use. It wears out, and in some instances it wears out just sitting on the shelf. In order to maintain this equipment, then, in a serviceable condition, somebody has to do some work on it. This is the job that is attribu- table to our maintenance engineering effort (0-7). The Air Force has seen fit to divide the responsibility for accomplishing our main- tenance job into three areas which we commonly refer to as organiza- tional, field, `and depot. The way we differentiate as to where we assign this responsibility: We take into consideration such factors as cost of facilities, degree of skills required, the amount of tools and test equipment you have to buy. and based upon the magnitude of these resources, we assign various jobs, then, to various levels. We assign the depot level maintenance, which I will address my remarks to from here on, to the Air Force Logistics Command. This job requires the greatest investment in tools, test equipment, and facilities, and the highest degree of skills (0-8). A little bit of historical data, then, I think would be in order. At the close of World War II we had within the Air Force this kind of a posture. He had 12 major depots in being, and we had some 216 subdepots. PAGENO="0155" .-,J~, -~----~ e concentrated our ~ at t~t point in time principally on aircraft engines and aircraft engine spare parts (C-9). We thought it was a real good management move. Since the introduction of specialization at the end of World War II, we have followed a concept of specialization, up until the present time. Following World War II, I am sure all of you are aware of the tremendous rollback that took place as far as our forces were con- cerned. By 1947 we had reduced the number of groups to be sup- ported within our inventory from 273 down to 48. Correspondingly the workload decreased and we decreased our in- ternal labor force from this 142,000 figure down to some 66,500. Again, I would like to reiterate at this point in time that all of our depot maintenance was still being accomplished within our own organic resources. *At the same time we accomplished this rollback and this decrease in personnel, we deactivated some of our major depots: The depots at Miami, at Spokane, at Rome, at San Bernar- dino, and the Fairfield Air Depot, which was located at Wright- Patterson Air Force Base. We closed all the subdepots and the majority of our oversea depots (C-b). We had accomplished this job, and then we were faced with our first real emergency situation with the advent of the Berlin airlift. This imposed upon the depot system a rather significant increase in our total workload. There was i: at ~ ~ -i" CONTRACTING-OUT PROCEDURES 151 ~Of con~tractors ~ were already engaged in maintaining counterparts to the aircraft that we were using on the Berlin airlift (C-Il). Mr. H~BERT. Was that your first time that you contracted out ~ Colonel RIEMONDY. That is correct, sir. So starting with the Berlin airlift, then, we introduced doing some of our ~` PAGENO="0156" 152 CONTRACTING-OUT PROCEDURES This was about a $4 million program Following the Berlin air- lift situation, the world situation was such, again, that it was decided that perhaps the forces which the Air Force had were not sufficient to cope with the military situation, and a decision was made to increase our force structure up to 143 wings. Mr. NORBLAD. You changed from groups to wings there ~ Colonel RIEDM0NDY. Yes, sir. They are synonymous, however, for this particular presentation, in order to get a measure of coir bihty. With the advent of this plan it was obvious to all of' would be a signific'int increase in workload again and take some action to put ourselves in position to accomi workload. Three courses of action were available to us. We could reactivate and, man some of the depots which we had formerly closed out. Taking a look at the concentration of these forces, we recognized that there was going to be a terrific concentration of air defense forces in the northeast area of the country, and we felt that we needed another depot in that particular area. There was available to us the course of action to construct a new depot, and the Congress actually appropriated $100 milton to do this job. The other course of action available to us was to make more extensive use of contract facilities. Actually, we decided to pursue all three courses of action at the same time. We got dollars to construct a new depot, we reactivated San Bernardino and Rome, and we started to make more extensive use of contractor facilities (C-12). This changing force structure during this period of time was characteristic of the era that we were in. We went to 143 wings. Then we went to some lesser amount. And so we were in a period of constantly changing the total forces to be supported. Actually here, as far as constructing a new depot, we reassessed the situation as we moved on in time and before we spent any money we made the decision not to go ahead with constructing a new depot. As we look back now, or hindsight, this was a very good move. So we did not spend the $100 million that was appropriated to us. We felt that the Rome depot and the Middletown depot were sufficient in the northeast area to take care of the concentration of forces which we were going to have. Throughout the late forties and in the early part of the 1950's, our maintenance concept dictated that we would have to create in peacetime the wherewithal in order to successfully pursue a war in the event we got into one. At this point in time we were talking to a mobilization concept. We said we would have to create the wherewithal in peacetime to give us a suitable base from which we could expand in the event we got into a national emergency situation. This was pretty well dictated by the weapons which we had available to us, and very frankly the weapons that our potential adversaries had. We felt that the kinds of weapons we had were such that if we got into another national emergency situation, that there would he ample time available to us to mobilize our forces that we needed to sucessfully pursue the war (C-13). PAGENO="0157" CONTRACTING-OUT PROCEDURES 153 With this concept then in mind, we laid down some basic ground rules for the, use of our depot facilities and also for the use of contractor facilities. We recognized that we had to create the where- withal to take care of the most important weapons-the ones we had put our blue chips on in the event we got into war As a consequence, then, we scheduled our so-called first line weap- ons into our depots in order to create and develop a high degree of personnel proficiency, in order to work on those kinds of weapons in the event we got into war. Recognizing we couldn't saturate our facilities or we would have no basis for expansion, we delib- erately limited the utilization of our facilities to a one shift, 8 hour a day, 40-hours a week operation. This gave us sufficient room for expansion in the event of war (C-14). We also recognized that with the changing force structure we were causing considerable concern as far as our manufacturers of our prime equipment. We turned on the production program and then we turned it off. We recognized we had to create there also ~ mobilization base, that is a base from which we could expand. So we laid down a ground rule that those workloads associated with our first line weapons, which we could not accomlish within our depots on this one-shift basis, would be contracted back to the prime manufacturers. These workloads were principally aircraft and engines. We also recognized that we had what we call second-line equip.. ment-cargo and liaison types-which had a commercial conterpart. These kinds of equipment we said we would contract with the so- called commercial maintenance industry. However, we threw an element of caution in this thing. We said we would continue this organic contractual relationship only to the extent that it did not endanger the Air Force's maintenance engi- neering capability to cope with national emergencies. We felt this must be our job (0-15). Based on an evaluation of this policy, the Air Force decided to limit its organic labor force to 66,000 people. It was felt that this number of people would provide the air force with a sound mobiliza- tion base, a reasonable utilization of our depot facilities, and a reason- able distribution of workload to industry (0-16). That policy then pretty well dictated the way we did our job up through a~ ~bout 1955 and 1956. When the Russians detonated their atomic bombs, we knew they had weapons which were capable of doing the same destruction as ours. We also knew that they had means of delivering them. The whole complex of peace and war changed. And we in the Air Force felt that the mobilization concept was no longer valid, that if we got into another hostility we would undoubtedly have to fight with the weapons we had at hand. So then there was born the necessity of creating a logistic system which would assure that the forces in being were maintained in a state of maximum opei `itional r mess (0-17) With this kind of a ~ sary to lay down some gr the total job We felt it was ment which would be responsiv I PAGENO="0158" 154 CONTRACTING-OUT PROCEDURES we would have to create an organic capability which was capable complete management of the total Air Force maintenance engineerin~ job. This responsibility we said we would not contract c With this in mind, then, we said we would base, ar- as to where we would do our job on military need, a: utilize our organic resources for the accomplishm~~ worL which were associated with those weapons which had to be main- tained in a state of combat readiness, and that we would attempt to insure a complete technical capability for new weapons as they were introduced into the inventory (C-49), This again, in order to give us the necessary know-how to properly manage our total engineering maintenance program. On the other hand we said those workloads which are associated with weapons which are not vital to assuring this combat readiness, we would contract out to industry. In some instances we recognize that there were weapons which were not assigned very high priority missions, and these we would contract out to industry (C-20). We also recognized with the rate of technology being what it was, that it was conceivable that we would have many weapons on the B. & D. drawing boards for which we may never make a decision to produce for the inventory. We would bring them up through the test stage, and depending upon the situation that existed at that time, we could conceivably not go into a big production program. For these kinds of weapons, we said we would proceed with caution and would not attempt to create an organic capability to support them, but would leave those in the hands of our contractors. We also recognized that there is inherent in a production capa- bility a capability of accomplishing certain maintenance functions. We felt in those eases wherein we had excess production capacity, and dependent upon the role that the weapon was supposed to accomplish, and dependent upon the numbers of weapons we were going to buy or the life that we expected to get out of these weapons, we said we will take a real good, hard look-see at these, and if these conditions are such to tell us that we should not duplicate these kinds of facilities because of the cost involved, we wouldn't do it (0-21). So we threw in here what we considered to be a very significant group of judgment factors. However, we felt again it was necessary to recognize that we had to exercise some caution in the distribution of this workload. And out that we would continue this organic contractor ext~ hat it did not endanger the Air Force's the forces in being are maintained at a readiness (C-22). nent cf this particular policy, we set about to c-see into how we were distributing this work, we were just evolving to a new concept. t3 the total workload through the 1960 time period. workload we are doing contractually, arid the blue is mically. ~ the 1948 time period, back here, we start&I o contract out our work. PAGENO="0159" CONTRACTING-OUT PROCEDURES 155 This chart shows that over a period of about 10 years we created a very sizable contractual maintenance industry. It also depicts that for all practical purposes, with a few minor peaks and valleys, we have pretty well maintained the size of our organic labor force, from the 1949 time period up until the present time. However, we said, "Well, let's go behind the scenes and see what kinds of workloads we are doing organically and what kinds of work- loads we are doing contractually" (C-23). Now, if you recall, we made the decision here that those workloads in support of vital systems-these are the kinds of workloads we should be doing organically, and the so-called nonvital workloads we should be doing contractually. Bear with me for a moment and accept at this point in time that these kind of weapons, to which I will speak, we designated to be vital. As we looked at the mix of this workload, we found that in the case of the B-52, which at that point (1959) and still at this point in time is one of our most vital weapons systems, we were contracting out about 58 percent of our workload. Conversely, we were doing about 42~ percent in-house. The B-47 we were contracting out about 70 percent. The KC-135, again in the order of 70 percent. The F-100, about 50 percent. At the same time as we were contracting out these vital workloads, ~ye were doing within our organic resources almost completely whole series of nonvital workloads, such as the F-84, the F-86. We recognized at the moment that as far as our aircraft workloads were concerned some realinement was in order. We went behind the scenes and took a look at some of the armament and bomb-nay systems which are in integral part of these aircraft weapons systems. And we found at that point in time that the bomb- nay system in support of the B-52 was being supported 100 percent contractually. The fire control system on the F-102 was being done about `TS per- cent out on contract. The fire control system on the F-101 was being done about 80 per- cent contractually. It became quite obvious to us that when we looked at this particular picture here, that we had to lay down some plans for realizing those workloads, because they were inconsistent with our own announced policy (0-25). We took a look-see at the resources which we had at that point in time. We had some 62,000 civilians. These folks had an average ex- perience of between 12 and 15 years of depot level maintenance. We had roughly 16 million square feet of shop area. And we had a dollar investment in tools, test equipment, and facilities approximat- ing $385 million. We had some 10 major installations still in being (0-24). 1 have already pointed out the tremendous growth in the con- tractural side of the house, So actually we created in that 10-year period what we refer to as about a billion dollar contract maintenance industry. We knew we had tremendous resources available to do the job. PAGENO="0160" 156 CONTRACTING-OUT PROCEDURES It became then a question of how do we redistribute this workload and how do we take realinement actions on a time-phased basis in order to line ourselves up so that we were a little bit more consistent with the policy that we laid down. Mr. II~BERT. Was any consideration given in this area here to the proposition that you could rebuild your in-house capability cheaper than your contracting out? Colonel RIEM0NDY. Yes, there were those kind of considerations. Mr. ]EIEBERT. And what conclusion did you come to? Colonel RIEMONDY. Well, we generally concluded, sir, that within those areas that we could make some decent cost comparisons, that dollar for dollar we were getting just about an equal return both ways. Because having created this industry-we had a tremendous invest- ment in there, too, because a lot of that industry was created at Gov- ernment expense. We provided the todls, the test equipment, and in lots of instances the brick and mortar. At this point in time it became necessary, in order to take these realinement actions, to first define those systems which we felt were vital. These, then were the systems which at that point in time we defined as being vital and the workload associated with them we should be doing organically (C-26). We then embarked upon a program of defining within the next 5 years the kinds of moves we wanted to make. Recognizing you just couldn't turn this thing overnight, because of the tremendous invest- ments both organically and contractually, we said "We have to proceed with doing this job on an orderly time-phased basis"-some of the past actions then that we took. During 1959, these are some of the weapons and some of the com- ponents associated with them which we phased out of our organic facilities in order to free manpower to work on these more vital systems over in this area. For example, we phased out the F-89 aircraft from Mobile, and also Ogden, and put this out on contract. In its place at Ogden, we started working on such things as the Bomarc and the F-1Ol aircraft. We phased out the F-86 aircraft from Sacramento. In its place we started doing more of the F-100's. And a little bit later on, the F-104's as they came into inventory. Also the F-84 aircraft was phased out of Mobile. In its place we started to put some F-1~O2's. And more recently, some F-lOS's. Some cargo-type airplanes: We phased out of Middletown, the C-123. Out of Oklahoma City we phased out the B-47. And we started differentiating between our C-124's because of the types of missions they had to perform. And we phased out C-124's in support of our military air transport service. We phased these out of San Bernardino and concentrated on work- ing our SAC C-124's, and also the 124's which are assigned to the Air Force Logistics Command. PAGENO="0161" CONTRACTING-OUT PROCEDURES 157 As far as engines were concerned, we phased out of Mobile the R-3350 eugine. In its place we started working on gas turbine eno~i nes. ~Ve phased the .J-73 engine out of Middletown, and in its place we started working on the J-79. These are some of the kinds of actions which we took then in 1959 (0-27). A little bit later on, as I go into some more of the details of our 5-year workload plan, I will show you some more of the other actions which we took (C-28, 29). In the summer of 1960, DOD published directive 4151.1, and I have been told that you gentlemen are familiar with this particular directive (0-30, 31, 32). I think it. would be well t.o go t.o a chart. which depicts our interpre- tation of the 4151.1 directive (C-32a). We recognized this directive as being permissive to the Air Force to accomplish certain kinds of workloads organically. We recognized within this directive really a statement and an affirmation of the policy which the Air Force. itself announced. We don't find any significant. variance with the 4151.1 directive amid `our announced policy which we had announced bac.k in 1958. Yes, granted some of time words are a little different. For example, we talk t.o "mission essential" things, within this directive. We say this is synonymous with the word "vital," which we use. We interpret t.his directive as giving us a license to have an organic capability to support military missions and those weapons associated with them which are declared essential or which are declared vital since they mean the same. thing t.o us. It recogii.izes t.ha.t contractor resources will be used for "nonvital" workioads and also "overflow of mission essential" workloads. And this "nonvit.al' workload business here is the same as "non- essential" workloads. That., ITSAF organic resources in support of vital workloads will be limited to time minimum capability necessary to insure technical competence and to meet. contingencies. And we say this gives us a license to do those jobs which we feel are necessary from a military st.afldlpomt. In cases where total vital workloads are being done on contract., some rea.linement.s of these. workloads will be made. In other words, our realinement actions that; we. started t.o take we feel are consistent with the DOT) directive. We also recognize within this directive that some weapon systems declared "mission essential" may never be brought into the depot. And this choice is ours to make. Now, with this, then, in mind, it might, be well to briefly talk to some of our long-range planning efforts which are. geared to con- t.imuing our realinement. which we say is consistent with I)OD 4151.1. Time direct.i ye does not preclude us from doing tIme job that we hadi start.~d to do back in 1958. `We recognize, however, that. as time goes on we must. constantly redefine those weapons which are "mission essential" or which we tend to call vital. 74109 o-oi--ai PAGENO="0162" 158 CONTRACTING-OUT PROCEDURES At the present time these are the weapon. systems for which we say we have a license to and should be accomplishing the workloads as the~y generate (C-35-36). This list will change as we go on from day to day. I have a few charts here to show you some of the actions which we are taking in our long-range effort. We realize that this workload plan, or our long-range workload and resources plan, is also dynamic. You just can't make it today and then forget about it and just proceed blindly as you go down the way. As a consequence, every quarter we publish and implement a new 5-year workload plan. The reason we do it every quarter is that this corresponds with the programing cycle within the Air Force and the publishing of new program documents. The thing again that determines the workloads we have to do is pretty well the forces to be supported and the flying hour program associated with them or the operational concept behind a particular weapon as in the case of missiles. Some of the things that we do in this workload planning effort is, first, to try to identify for the next 5 years the total workload. Once we have identified the total workload, then we go back to the individual items which make up this total workload. Then we assess the workload against our existing policies and determine how this workload should be distributed between organic and contract facilities. We take into consideration such things as the availability of skills, the need of acquiring new skills, the availability of facilities, the needs for modifying facilities or constructing new facilities, the total workload associated with a particular job, and many, many other factors. Our first breakout of the. total workload is broken out into five major areas, because of the compatibilty of the kind of skills which are associated with the various functional areas. We have broken it down to missiles, aircraft, engines, armament electronic system, and then related airborne and ground equipment. The workload as we see it from this particular chart1-if you keep in mind the other chart I showed you that came to the 1960 period- you will note that there is a continuing downward trend in total workload, principally occasioned by the fact that we are introducing into the system more missiles. But the workloads associated with these missiles are not comparable to the workloads which are associated with the aircraft which we are phasing out of the inventory (C-37). As we look down through 1965, we see that the missile workload is going to about double, but the total workload associated with these missile programs is less than 10,000 man-years. Not a very significant workload when viewed in the total (C-38). As far as aircraft are concerned, we see a rather sizable decrease in this total workload. And I would like to say something here off the record, if I may? Mr. TIEBERT. Off the record, Sam. (Further statement off the record.) Colonel RIEMONDY. I am back on the record now. Mr. H~BERT. Back on the record. PAGENO="0163" CONTRACTING-OUT PROCEDURES 159 Colonel RIEMONDY. As far as aircraft are concerned, we visualize a rather significant reduction of some 12,000 man-years over the next 5 years. And this will be principally absorbed within the contractual area because of tbe kind of weapons which are being phased out of the inventory, principally in the nonvital category (C-39). As far as engines are concerned, we expect a corresponding decrease here, again principally associated with the aircraft that are going out. The distribution of workload here as between contract and organic facilities, however, remains about the same (C-40). In the electronics area, we expect a slight increase of about 1,300 man-years. And again the distribution as between contract and organic remains about the same. However, the mix is going to have to change, as to what is being done down here and what is being done up there (C-41). In the case of our airborne and ground components, we expect a decrease of about 3,000 man-years between now and 1965 (C-42). Now, in addition to this kind of detail, we go behind the scenes. And I have listed on several of the charts her&-I see, I am running overtime. Mr. H]~BERT. No, we are going to continue until the bells ring. Colonel RIEMONDY. Until the bells ring, all right, sorry. I will just skip through `the charts. I will speed it up. I won't go through all of them, because this next series of charts is repetitive in nature. All it does is deal with different components. But `this kind of planning goes on. We started our realinement in 1959 on these time-phase charts, of which this is a percentage distribution. In each case again, the blue is what we do in inhouse and the brown is what we do con- tractually. This will give you a feel of the distribution of our work as between contract and organic facilities. You will note `that even in the cases of some of our most vital systems we do not contemplate accomplishing 100 percent of the workload. We do not feel it is necessary to do 100 percent of the workload in order to have at our resources sufficient technical com- petence and sufficient know-how to meet emergency situations as they come up (C-43, 44). These charts here pertain to the missiles. You will note in the case of the GAR-8, which is the Sidewinder-and this is a very important weapon. B'ut nevertheless we are cross-servicing this one with the Navy, because they have a capability to maintain it. We feel we have enough know-hOw from working on these GAR's that it isn't necessary for us to work on this one also. And we are using cross-sërvicin~ arrangements with the Navy (0-45). The aircra~t picture looks something like this. In the case of the B-52, it is never planned to do 100 percent of that workload. However, as we move down again through 1965, we intend to pick up a bigger share of it (C-46). . . The reason it decreases in 1963-this is tied into a special modifi cation program. This job is of such nature that' we `have assessed the only people that can do it at this point in time because of the nature of the modification is the prime manufacturer. PAGENO="0164" 160 CONTRACTING-OUT PROCEDURES However, in 1964, then, we will be doing a most sizable part of this particular job. The B-57, which we consider to be not a vital weapons system- we phased it out completely at the end of this year (1961) to contract. The B-58, as it comes in: We are going to do this one-in this particular case we are going to do 100 percent of this airframe workload because the total size of this job does not warrant having a split source. In other words, on the numbers of birds involved here, or the total workload, we don't feel we can afford to have two people in the business. So we are going to single-point this particular job. The KG-9'T: All out on contract. These charts, then, depict some of the phasein and phaseout actions. In the case of fighters, as I mentioned before, we phased out the F-84, the F-86 and the F-89. Doing more of the F-100, doing con- siderably more of the F-1O1, a good portion of the F-102 (C-48). However, as this mission changes, we will start phasing out more of it to contract. The F-104: Doing a portion of it inhouse and a portion out on con- tract. This is principally tied into the fact that we phased these aircraft out of the Air Force in inventory into the Air National Guard (C-49). In the case of the engines-just briefly on some of these engine charts. Again, these are the principal engines that we are doing organically. The J-57 of course which is the backbone of our fleet, we are doing these at Oklahoma City and San Bernardino. We started to phaseout some of our 2-4360's, principally at Warner Robbins, and we phased out those series of this engine which are in support of our nonvital aircraft. We will continue to keep San Antonio in business on this engine, and also Sacramento, for a period of time. Then we will phase Sacramento out of that engine. The J-71's is all being done at Middletown. The J-75 all at Oklahoma City. The J_#T9 also at Middletown. We have two turboprop engines, the T-34 and the T-56 (CX-50). These are being done at San An- tonio. The rest of the engines have been phase out to contract (C-51). However, as you note here, we are maintaining an organic capa- bility for accomplishing those engines which power those aircraft which are assigned our most important missions. We feel this gives us enough capability in the engine field. Now we have done the same thing in fire-control systems, and I won't go through all these charts, except for the this one. Recognizing that there was a realinement necessary, and recogniz- ing that perhaps we did not have in being the necessary skills to do the job, and recognizing that perhaps it would be too much of a jump in going from this relative position of limited know-how to a much higher position, we deliberately workloaded some of our nonvital systems into some of our facilities, to create the necessary training base. PAGENO="0165" CONTRACTING-OUT PROCEDURES 161 And once we had acquired this know-how we moved, for example, this E-4 fire-control system, which is part if the F-86, out to con- tract, and in its place we moved in the MG-b fire control system Note the buildup here, corresponding at the same time period. We had acquired the necessary how-how, learning to walk first, on the E-.4, and graduated into the MG-b, and this year we are doing all of the MG-b (C-52, 54). [Pointing to the charts showing the E-4 phaseout and the MG-b phasein.] Mr. H~BERT. Would it be fair to say, Colonel, then, that your gen- eral philosophy in future planning is directed that in the vital or essential area you pull them inhouse? Colonel RIEMONDY. Yes, sir. Mr. H~BERT. The less vital, or the less essential you will contract out? Colonel RIEMONDY. Yes, sir. Mr. H~BERT. Is that the general overall program? Colonel RIEMONDY. That is correct. And we do this on an orderly time phase basis, in order to make proper use of the resourc~s we have, to provide necessary leadtimes for training, and at the same time to provide the necessary leadtimes to either go contractually or organically, so that we don't degrade our combat support. This is the whole objective of this particular exercise. Now in addition to doing all of this planning we take a real good look-see at our organic resources and ask ourselves, How must we change the mix? What does the future look like? Ho:w will the workloads distribute between these five areas I talked about? For example, here is a chart on Ogden. It shows that over this time period we are going to have a rather substantial buildup in missiles. This is because the Minuteman is coming into the inventory, plus greater emphasis on the Bomarc, and a little bit later on the Skybolt (t~-58). So we are taking planning action, way back here, to acquire the necessary resources to effect the necessary training in order to put ourselves in a position to do this job at this point in time. Also it shows what we phase out-since we have to phase something out-of the organic establishment in order to provide the necessary manpower to do that job? This is blown up a little bit more on this chart and this depicts the rather significant increase in the missile workload, and manpower being made available from redistributing some of the other work- loads which these people were formerly doing (C-59). Mr. NORBLAD. What is your SM-80, and your IM-99 there? Colonel RIEM0NDY. The SM-80 is the Minuteman. The IM-99 is the Bomarc, and this is the Skybolt as it comes along. Mr. HEBERT. Now, how much more do you have to finish? Colonel RIEMONDY. I can finish right here, sir, because the rest of these charts are merely an indication of the same kind of rationale which is applied to all the rest of our air materiel areas (C-60-67). Mr. HEBERT. So that concludes your presentation? PAGENO="0166" 162 CONPRAcPING-OTJP PROCEDURES Colonel RIEMONDY. That concludes my presentation. Mr. HEBERT. Well, thank you-you want to ask a question? Mr. COURTNEY. Mr. Chairman. You have-the numbers of men.: This was the question that was raised. You have the actual numbers of men in one of your series of charts, civilian versus military, who are performing these tasks. Colonel RrEMQNDY. Principally, Mr. Courtney, these people are all civilians. I am talking to the depot level. Mr. COURTNEY. Yes. Colonel RIEM0NDY. Our depots are principally manned by civilians, and a handful of military personnel. Mr. H~BERT. Well, thank you very, very much, Colonel. You have given a very splendid and comprehensive presentation. The commit- tee appreciates it. Colonel RIEMONDY. Thank you, sir. Mr. HEBERT. Very comprehensive. Did you want to ask something, Mr. Norbiad? Mr. NORBLAD. No. I just want.ed to say he did a very nice job. Mr. HEBERT. He certainly did. The committee will stand in recess until 10 o'clock tomorrow morning. Very fine, Colonel. Colonel RIEMONDY. Thank you. Mr. H~BERT. Very fine. (Whereupon,. at 12:15 p.m., the subcommittee adjourned, to recon- vene at 10 a.m. Friday, August 11, 19~31.) PAGENO="0167" F ~H M41#TEiVANCE fpiieei 163 PAGENO="0168" 164 CONTRACTING-OUT PROCEDURES fo porLray +he MAINTENANCE EN1YNEER/N6~ STORY thru a discussion of the evolution of policies, concepts and philosophies which dictated the way we have accomplished the Maintenance Engineering Functions.... AfO5/L/ZAT/ON CONCEPT ~M4X/M~/A1 OPEi~'ATIONAL #4S44WES3 CONCFPY PAGENO="0169" CONTRACTING-OUT PROCEDURES 165 Mi1itar~j Necessity.. a~wasy PAGENO="0170" 166 CONTRACTING-OtT PROCEDURES J,###_1 ~f CONSTRAI NTS ~/4/ FORCE TO BE SUPPORTED Is . Ho. of A/C series to be supported increased from TI in 1950 to 149 at the end of 19G0 + Missiles Cost and complexity of equipment Line items in system increased from 720,000 in 1951 to l,GOQ000 by l%0 PAGENO="0171" CONTRACTJNO~OUT PROCEDURES 167 and S/ze of force structure and I~s aftendant flying hour Program determines magnitude of the LOGISTIC SYSTEM ~SIZE COMPOSITION 950 960 1950 1960 48W 90W 74 1149 MANYEARS1~~4~L MI~ILEs 76,000 ~ 123,000 SKILLS FH PROGRAM 950 960 3.5M I 76M PAGENO="0172" 168 ,CONTRACTING0~T PROCEDURES There is considera ble randomness in +he DEMANDS placed upon DATA U NA VAI LAB LE~ +he LOGISTIC SYST' WEAI~OUT DATA \ PAGENO="0173" CONTRACTING~OUT PROCEDURES 169 WHAT IS MAINTENANCE ~ ENGINEERING l.We are unable~o The tasks desiqn materiel associated which is free from defec+s. with keepinq ~ materiel man ~Mater,eI is subjecf to deterioration operable status ~ncI wear +hru use. is the fun cfion 3.If it is +o remain of serviceable,jf MAINTENANCE !~t5+ be main+ained ~ENGlNEEPiNG PAGENO="0174" 170 CONTRACTING-OUT PROCEDURES Y/i~ AIR FORCE has established 3 levels of MAINTENANCE The maqni+u+e,COmPleX i+y,and investment of facilities, special tools and +es~ equip~ men+, and +he degree of skills required to accomplish main+enance are the principal cri' teria which serve to d iffere nfia+e be+ween +he levels of maintenance PAGENO="0175" CONTRACTING-OUT PROCEDURES 171 MAI NTENANCE ENGINEERING during World Warfl PAGENO="0176" 172 CONTRACTING0UT PROCEDURES *Force s+ruc+ure had been reduced from World War II level of 273 groups +0 48 groups * Depo+ labor force Z I reduced from 142,600 +o 66,500 * Majori+y of overseas depo+s were deacfiva+ed PAGENO="0177" CONTRACTING-OUT PROCEDURES 173 Cycled reconditioning of C-47 and C~4 by TEMCO, A~MCo and LAS (~!=i/ize Contract facilities rather than expanding our depot systerri. BERLIN AIRLIFT 74109 O-G1----12 PAGENO="0178" 174 :CONTRACPINGOUT PROCEDURES 1949 becision to build Air Force structure to 143 WINGS Increased woakload. wil I require addi+ional facili+ies. * AcIiva{e San~ernardinoI I~ome * Consl'rucl new depo+s * Use con+racl'or facililies ~4. PAGENO="0179" CONTRACTING-OUT PROCEDURES 175 Maintenance following World War II thru the early 1950's dictated that an ~ ~ 8#$1 AVU//(h1~hIe established that I * Lenqth of War would be similar to World War 11. * Ample time for mobilization of our Resources. V had to be time to aid of National ("I,, maintained in Peace timely accomplishment Emergency Missions if,,v$ 4~f(IVI7!) PAGENO="0180" 176 CONTRACTING-OUT PROCEDURES iDevelop and maintain a high degreeof personnel proficiency 3. Schedule first line aircraft and engines to depots 2. Utilize depot facilities on a 1 shift 40 hr week operation PAGENO="0181" CONTRACTING-OUT PROCEDURES 177 Marnfem~rn~e Work/oads beqond one shiçt capabilitq will be contracted to industry. . Prime Manufacturers * Commercial Maintenance ~$P~ ~o~ifrnue Contractual Maintenance Programs but not the extent it would endanger the A/F M/E capabiIit~ during an emergency. PAGENO="0182" 178 CONTRACTING-OUT PROCEDURES P~ased on an evaluation of this policy, it was decided to limit the "/#-//~24~$(" hf8fI,V ffD~ftY to §6,000 people A sound mobilization base. ujould . A reasonable utilization of depot facilities. vi do * A reasonable distribution of workload to industry. PAGENO="0183" CONTRACTING~OUT PROCEDTJ~ES 179 TODAY'S CONCEPT O/~ptd4~v * Future all out conflicts will be fought with weapons at hand O Old mobiliz~tjon concept no longer valid * Todai~j's logistic sqstem must assure that forces inbeing are maintained in a maximum state of combat readiness PAGENO="0184" 180 cONTRA~TING0tT PROcEDUR1~S * IN ACCOMPLiSHING THE MAINTENANCE ENGI NEERI N& TASK, ~MC MUST: * Provide an Air Force depot; establishment responsive to mili- tary needs. * E~thbIish an orqanic capability for tdtal management of Air Force Maint. Engr programs to assure inviolate sup- port to corn bat fo rces. PAGENO="0185" CONTRACTING OUT PROCEDURES * Base decision for depot or contractor Support, on miIit~rq need O Utilize or~nic resourc. es for ~ccompIishment of work IO~d~ most vit~I to combat re~diness * Insure complete tech. nic~i competence for new weapons en~er,n~ the inventory 181 PAGENO="0186" 182 CONTRACTING-OUT PROCEDURES * INDUSTRY WILL ACCOMPLISH WORKLOADS: * Not vital to combat readiness * In support of weapon systems not assigned ffliSSiOflS requiring immediate response in national emergencies PAGENO="0187" CONPRACTING.OUT PEOCEDUEES 183 * in support of weapon systems for which a decision to produce for the inventory has not been made * On selected items where available production facilities possess sufficient maintenance capability and the cost to duplicate would be prohibitive PAGENO="0188" 184 c0NTRACTING0UT PROCEDURES continue the in.house industry petation5hiP only to the extent that it the Air Force cap a bi~ty of assuring that the forces in beinq are maintained a{ a constant state of operational readiness PAGENO="0189" 200 150 100 CONT CONTRACTING-OUT PROCRDIYRES 185 MANYIAR~ork load PAGENO="0190" 186 CONTRACTING-OUT PROCEDURES IN HOUSE Rtasow~n&4 Civ. Employees (conuS) ON SQ. Ft' area * 62.317 ~*l5.8 MILLI 3hop *~385 MILLION-' value of facilities test equip. Tool PAGENO="0191" CONTRACTINGOUT PROCEDURES 187 REALIGNMENT ACTION ~ : PHASE OUT ~I~II~ * PHASE OUT BIJILO UP ~ * PHASE OUT *BuILo up PAGENO="0192" 188 CONTRACTING-OUT PROCEDURES B 47 B52 B58 B66 B70 KC* KC' RC' ACz~W Alert 9? 135 121 124 130 13~ F~89J F' 100 F~ 101 F" 102 F104 F~ 105 F- 106 Associated System & All missiles network PAGENO="0193" CONTRACTING*OUT PROCEDURES PAST ACTION 189 PHASE OUT~ * Aircraft F~89,a6,a4 C-123 B~47 C~I24 (MATS) * Enqines R~335o J..73 J'65 R~436o * Associated Cornp ~ * Gnd Supp Eqp GAS TURBINE EQP PACKEIrE ENG. * Armament ASS 4/9 BNS MA~I ANCS MD*7/As~3*zz rcs ASQ42BNs MG~IO FC8 M613 FC8 *Ground C~E MDA 21 auILb up .. Missiles SM 65 GAM~77 IM99 Accessories ~27 74109 O-61--13 PAGENO="0194" 190 CONTRACTING-OUT PROCEDURES FY-Gi ACTION * Aircraft B-57 B 66 ~cC*97 F 102 * Engine R'4360 J71 J"47 * Missile SM -68 * Accessories B-5Z/B-58/ KC-135 REALiGNMENT ?t~ Pi-i ASEOUr (SA ,SB) (WR) * Arrnament~ E~ SERIES FCS MG 12 FCS A*5/MD 4 FCS * Armament Co,?t1'4'ue ~Ou,/de~o ~`f ASB-4/9 ASQ 38 MA-i MD -~7/ASG2i ASQ-42 MC 10 MG 13 * Ground C~E Continue Buildup of MDA. PAGENO="0195" CONTRACTING-OUT PROCEDURES 191 FUTURE ACTION PHASE OUT BUILD UP * Aircraft . Aircraft F-102 B-52G/H KC-135 * Enqines TF-33 * Engines * Missiles R-4360 (SM) SM-80 J-57 (SB) GAM-87 INERTIAL GUIDANCE * Instruments MD-IASTRO-C OMPASS 1(5-120/140 ASTRO-COM PASS * Missiles . Accessories SM-75 CONTINUC BUILD UP SM -78 B-52/B-58/KC-135 * Armament CONTINUE BUILDUP F-IOI /F-105/ F-106 8-52/8-58 * Ground C~E CONTINUE BUILD UP M DA PAGENO="0196" 192 `CONTRACTING-OUT PROCEDURES POLICY POD D1Rici/Vi 4151.1 (26 JULY 1960) It is a. general policy of the Department of Defense to utilize private industry for the accompUshment of maintenance of military materiel to the maximum extent practicable, recognizing that morntitio'nce i~ ~apport of ~i/// */ry missions ii .d r/?~W ~~rf of ~ii///tery £4p~4~è~4. *1/ iiot be (orn'in~ed PAGENO="0197" CONTRACTING-OUT PROCEDURES 193 Eacti~rrfflitary depa~~t~ent shall devel~p~and /ôr retain an Jm being military depot iev~j ~ for only that rriis.sion-essenti4i materiel which would require continuing depot level maintenance to sustain operations under emergency or wartime conditions or which would require such depot maintenance in peacetime to ______ redc//r,ws PAGENO="0198" 194 CONTRACTI~TG-OUT PROCEDURES This policy should not be construed as requiring a complete capacity when materiel is determined mission- essential. The extent should be only the minimum capacity necessary to insure ~ reaoy erni controlled soiree of teoñn/èd/ corii,~e/ence dna' resotirco's g~ meet rn//ltd ~L canti~~qenc/~s~ Contractual sources or interservice support may be used for the depot maintenance of mission- essential materiel to any extent beyond the established minimum capacity PAGENO="0199" CONTRACTING-OUT PROCEDURES 195 ~//i9~ INTERPRETATION ~?DOD4l5Ll * USAF will have an organic capability to support military missions declared essentiaT. * Contract resources will be used for non ~vi tal work loads and overflow of mission essential workloads. * USAI organic resources in support of vital workloads will be limited to the minimum capability necessary to insure technical competence and to meet contingencies. * In cases where total vital workload is done contract some realiqnment * of workloads will be made. * Some W/S declared mis5ion essential may never be brought into the depot. PAGENO="0200" 196 CONTRACTING-OUT PROCEDURES ASSUMPTION S I Manpower authorized commensurate with workload based on policies governing use of commercial and military resources for maintenance 2. Internal manpower realignments commensurate with workloads 3. Vital worKloads currently on contract realigned only to extent necessary to insure technical competence and minimum capacity for military contingencies PAGENO="0201" CONTRACTING-OUT PROCEDURES 197 4 As work loads become non vital, they may be phased to contract and personnel resources converted to vital workloads 5 Optimum utilization will be made of e x i sti rig resou rces 6 Certain workloads may be com- pletely phased out of the AMA `s 7 Single ~point repair utilized to the maximum extent practicable. PAGENO="0202" 198 CONTRACTING-OUT PROCEDURES ~ USAF -PG-62 SETS UP THE FOLLOWING PRIORITY SYSTEM / Offensive strategic forces z Continental air defense forces ~ Overseas I n-place a i r defense forces 4 Corn bat forces deployed to war-ti me bases 5 Other forces with a D-day mission This is defined to include the following vital weapon systems PAGENO="0203" CONThACTING-OUT PROCEDURES 199 IA! MISSION ESSENT1,~L jYti WEAPON SYSTEMS ,1~/4deL~ ~9~aflde~ SM65 ATLAS SMô8 TiTAN AC4W NETWORK SM80 MINUTEMAN ASSOCIATED ALERT GAM~72 SYSTEMS ONCL IM99 BOMARC _____________ ~7fkô4b B~47 F-1O1 KC17 B-52. F-102. KC135 B-88 F'104 RC*121 B-70 F-105 C124 Lo9.andStratSqsin. F-tOO F-106 C*130 C*133 PAGENO="0204" 200 CONTRACTING-OUT PROCEDURES PERSONNEL EQUIV. /20000 90000 60000 30000 0 61 6Z 63 64 PAGENO="0205" CONTRACTING-OUT PROCEDURES 201 MISSILES PERSONNEL EQUIV. PAGENO="0206" 202 CONTRACTING-OUT PROO~DURE.S AIRCRAFT 6I 62 63 64 65 PAGENO="0207" CONTRACTING-OUT PROcEDURES 203 ENGINES L~ 4ooo - ORGA~JIC I I 6Z 04 PAGENO="0208" 204 CONTRACTING-OUT PROCEDURES /2~ B a ELECTRONICS P~SONNEL E ~) IV /6DOD `I 62~ 63 64 65 PAGENO="0209" CONPRACPING-OUT PROCEDURES 205 A/B & GRD. COMI? 4800o 0 61 741O~ O-.61--14 PAGENO="0210" THOR CONTRACTING-OUT PROCEDURES 11 !~!~!~PLPLIJ 206 PE~RC ENT JUPITER I~ILI I Jo SM-6t IF~p~ H 596061 62 63 64 65 PAGENO="0211" CONTRACTING-OUT PROCEDUREs 207 I00 TM 6$ TM~76 .:i iii ii ~Ij 59 bO bi b2 63 64 65 Ui PAGENO="0212" 208 CONTRACTINGOUT PROCEDURES PERCENT PERCENT GAR~8 ___________ 59 60 61 62 63 64 loop ~J!~Ii~1L!~ ~1 65 PAGENO="0213" 8-47 8-52 i~L~ CONTRACTJNG~OUT PROCEDURES 209 PAGENO="0214" 210 CONTRACTING-OUT PROCEDURES PERCENT C/RCI2I ________________ ~ ø~4- 0/? 11111 C~I24 T1!!JiiJJ~ C~3O KC- 135 ;!~. ~1~~!~L' m ~/?c;~ . fc~4'~ ---~~ b39 C-131 13$ N-4~ L.Z7 ~-jq ~-it9 1-37 H-ta 1.-tO E-2b C-lIE 1-34 H1q a. q 5-26 0-34 1-53 4-IS 7 ~ ~ 0-47 1-24 U lb 0-45 1-28 ~q 60 61 62 a~ 64 65 PAGENO="0215" CONTRAcPING~OUT PROCEDURES 211 PC NT $00 ~jii-~l(I !iIIITL~ F ~iOo 1Ei~i,ITI1" PAGENO="0216" IE~II~ 212 coNTRACTING0~~T PROCEDURES PE RCENT 59 ~ 61 62 63 64 65 PAGENO="0217" CON~PRACPING-OTJT PROCEDURES PERCENT 213 ~(TT1JR~JL6jJJJ1jI~ TURBO* PROP (134, T~Sb) 59 60 GI 62 G3 64 6$ PAGENO="0218" 214 CONTRACTING-OUT PROCEDURES PERCENT `: b?~ I I I III 00 R-3350 ~JL!~lJiiiI~ -I "-47 o~iIiii J -65 4 J! II I °:ii~uiiii J-73 OPPOSED PECIP UP 70 R-3350 SMALL JET 59 6OGI G364 65 PAGENO="0219" CONTRACTING-OUT PROCEIiJRES 8 ~ BNS*8~58 ASQ~4l 0L ii H F~8q (Fcs) (5, 6, 9 -~------i `T 215 PAGENO="0220" &-4~1 FCS (ks/MD ~~4) B-52. FCS C C. - ~)R~ oj~ ~a~- `~ ~ ~ :~~i i MA~4 847 __ 216 CONTRACTING-OUT PROCEDURES F - lOb MA- I iQO 4- 59 60 GI 62 63 64 65 PAGENO="0221" *CONTRACVING-OTJT PROCEDULES 217 F-102 M~5-IO AS 14 F-105 MA -8 F-lOIS MG- 13 * _ - - . . - 0 t~ 1LL U *~ - b0:! 1W6~ ~O/?of ~ 41 ;: 59 60 61 GZ 63 64 65 PAGENO="0222" CONTEACTING-OUT PROCEDURES O( ALTERNATOR DRIVES F SC-IbSO EN C, IN E ACCESSORI ES Fs6-lq AJC I NSTRUMENTS FSC,- bb U U *U*U U U OI~- Id1~~ i1?~ - FSC 2835 GAS TURBINE COMPRESSORS [v:~p ! 4qdj oI~±Li FSC GEN ER ( buS) ATORS I1~A 1k_ik~ELt I I I ii or.. -r~r .j~. j~± 218 *~UU ~i?6- PACK ETTE EN ~. FSG- 2805 59 60 bI b2 63 b4 65 PAGENO="0223" CONTRACTING-OUT PROCEDURES 219 TRUE HEAD COMPUTER PERCENT MDI ASTRO iii ~ L~] COMPASS 1 loor__~1~ ( J-79COMP 0111!L ~ , IJ__ - -~ 59 60 61 02 63 64 65 PAGENO="0224" 220 GROUND RADAR GPA *M GROUND RADAR FPS 7 CONTRACTING-OUT PROCEDURES GROUND RADAR FPS-Z7 GROUND RADAR FPS ~35 P E 1~ C ~ t4 T MDA i~p~m L~f~/J L1~1J *i - GROUND RADAR FP5 14/18 GROUND RADAR FPS* 26 ~. I - , . IIOCI A I!" d,t~G- o.~L 4~ó- LI.: `:IL .;. ~ -I ~ ~ C - I - - cR~ - - - ~ .. - ~`Ro-1 L IH!!~!~ ~O/f6~H~4~ 59 60 GI 62 63 64' 65 PAGENO="0225" CONTRACTING-OUT PROCEDURES 221 OOAMA (TOTAL WORKLOAD) PE P~SONNEL EQUIV. /2000 90oü 6000 3000 iiva 61 62~ 65 74109 &-61---15 PAGENO="0226" 222 CONTRACTING-OUT PROCRDURES I000 500 0 0 0 AMA MISSILES PER SONNEt 2Oo0~"~ 1500 61 6Z 63 64 65 PAGENO="0227" CONTRACTING-OUT PROCEDURES 223 OCAMA (TOTAL WORKLOAD ) PERSONNEL liv. 62 6~3 64 PAGENO="0228" 224 CONTRACTING-OUT PROCEDURES PERSONNEL EQUIV. 2400 `Boo 1200 600 0 o CAMA ENGINES 61 Ga 64 PAGENO="0229" CONTRACTING-OUT PROCEDURES 225 S.AAMA (TOTAL WORKLOAD) PERSONNEL EQUIV. 9oao ELECTROIWCS 6000 3~0 A/RCRI~FT 0 4 6 PAGENO="0230" 226 CONTRACTING-OUT PROCEDURES S A AM A AIRCRAFT PERSONNEL EQUIV. 50O0- - ~NA~SOA~ 3750 - 2500 6~52 50 - £2 I 61 62 63 64 65 PAGENO="0231" CONTRACTING-OUT PROCEDURES 227 S MAMA (TOTAL WORKLOAD) PERSONNEL EOUIV~ /2~O6~ 9000 - 6O0I~ 1GRL~ COMP PAGENO="0232" 228 CONTRACTING-OUT PROCEDURES iZoo 800 400 0 S MAM A E LECTRONICS P F. P SONNE I £QUIV. iGoo 61 63 64 65 PAGENO="0233" PERSONNEL EQLjIV. /2000 - 9000 6ooo CONTRACTING-OUT PROCEDURES 229 MAAM A (TOTAL WORKLOAD) PAGENO="0234" 230 CONTRACTING-OUP PROCEDURES MAAMA AIRBORNE t~ GRD. COMP PERSONNEL EQ 0 IV. 2400 1800 ~~INtiME/N5TRUH~WTS ~Qt1TOP/LOT IvIECUiQA/ISMS 200 ~ ~ n,GMr/NsrRuMEA/~ - -- PAGENO="0235" CONTRACTING-OUT PROCEDURES FRIDAY, AUGUST 11, 1961 HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED Sr~avICEs, SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS~ Wa8hington, D.C. The subcommittee met at 10:15 a.m., the Hon. F. Edward Hébert (chairman of the subcommittee) presiding. Mr. H1~BERT. The committee will come to order. Members of the committee, this morning we will continue with the presentation of `the Air Force. And we have the pleasure of having the Assistant Secretary with us again today. Mr. Imirie, you have a prepared statement? Secretary IMIRIE. I do, sir. Mr. H~BERT. You may read your statement. The committee will not interrupt you until after you have finished. Secretary IMIRIE. Thank you, Mr. Chairman. I believe that the information presented today on Air Force policies and use of son- tract services will be of value to the committee in its consideration of the subject of "contracting out." In developing our testimony in response to your letter of May 3, it is our understanding that the area of concern to the committee at this lime is the use of all contract services in the past 3 years with the exception of research and development and housing maintenance. The discussion will be limited accordingly. It is also our understanding that the committee is interested in Air Force policy and practice within the framework of directives issued by higher echelons. In connection with this and the other data re- quested, it is pertinent to discuss this point in order to place our more detailed information in proper perspective. When the Air Force became a separate department, it did not have and has not since developed an inservice arsenal system to manufacture military products. The Air Force was also called upon in this early time period to rapidly expand its capabilities to meet the requirements of international conditions, particularly the Korean conflict. Under these circumstances, the Air Force found it desirable and necessary to make significant use of contracting to perform many support activi- ties. We have long operated on the concept that there is a positive role to be played by contract services in getting the Air Force job done. The committee's letter requesting this hearing mentioned two specific directives applicable to the Air Force. BOB Bulletin 60-2 deals with commercial- and industrial-type activities, and favors con- tracting for such activities except for reasons of national security, 231 PAGENO="0236" 232 CONTRACTING-OUT PROCEDURES disproportionate costs, or clear unfeasibility. Because of our his- torical use of contracting, this bulletin has had a negligible impact on the Air Force. DOD Directive 4151.1, dealing with maintenance, which we will discuss in more detail later-and as an aside I believe Colonel Rie- mondy addressed himself in part to that yesterday. Mr. H~BERT. That is right. Mr. COURTNEY. That is right. Secretary IMIRIE (continuing). Has similarly not brought about major changes in Air Force practice. We are in accord with the nrinciples set forth in this DOD directive, and no policy conflict exists. Neither of these directives apply to all areas of contract services which are of interest to the committee. In light of these facts, I will there- fore concentrate on Air Force policy and procedures, which have been developed to meet our particular needs and to serve the best interest of the Government. Air Force management and control of contract services require- ments can be divided into three general types of activities: policy, budgetary reviews, and procedures and controls. First, we exercise control over the use of contracting through policy directives issued by Headquarters IT.S. Air Force. These policy regu- lations include a general directive applying across the board plus a series of directives pertaining to particular functional areas such as feeding or custodial services Our basic policy is to perform combat and direct combat support functions with our own personnel to insure our combat capability. Specific regulations prescribe what may and may not be contracted and under what circumstances. Such policies provide responsible commanders throughout the Air Force with guidance on which to base proposals and actions for use of contract services. Second, we conduct a thorough review of proposed expenditures for contract services during the course of periodic budgetary reviews both at major air command and Headouarters, U.S. Air Force level. Representatives from all concerned staff agencies are involved. These reviews are designed to insure that proposed contracting is in ac- cordance with policy and that amounts are in proper relationship to to program requirements and priorities. Third, we have various management procedures and controls which apply to particular contract services programs. Since there are ob- vious differences involved in contracting the overhaul of aircraft engines and the feeding of troops, the Air Force must and has tailored its contract services procedures to the functional area involved. Procedures are established which~cover the manner and levels at which the specific contract servi~e requirements can be approved. Some contracting programs or individual proposals are processed to Headquarters~ U.S. Air Fo~'ce level for approval due to their size, nature, sensitivity, or statutory requirements. For example, require- ments for contract technical services are approved at Headquarters, U.S. Air Force level. Authority to act on other contract. services which are small in size and local in character is delegated to base level, subject to Head- quarters, U.S. Air Force policy guidance and periodic budgetary reviews. In an organization the size of the Air Force, such delega- PAGENO="0237" CONTRACTING-OUT PROCEDURES 233 tion to the low~est level where a proper decision can be made is neces- sary to take account of local conditions, maintain adequate flexibility, and avoid hopeless clogging of higher headquarters in paperwork. Illustrations of the types of contract services in this category include maintenance of office machines, motor vehicle maintenance done in local garages, and custodial services. The discussion of policy, budgetary review, and management pro- cedures applicable to the contract services resource leads to an im- portant point concerning the programing of resources to accomplish the Air Force workload-whether those sources are contract serv- ices, military personnel, or civil service employees. This point is particularly significant in light of your expressed interest in the question of replacement of military and civilian personnel with contract services. The relationship of military, civi1ian~ and contract service re- sources must be reviewed in terms of the Air Force as a whole, not just in terms of a particular activity. This view ~is necessary because of the manner in which resources are obtained. Based on Air Force requests and review by higher authority, the Air Force is given a total quantity of military manpower, civilian manpower, and dollar resources. Once established, there is little flexibility in the total amounts. We must then distribute these re- sources to subordinate levels in a fashion to insure maximum utiliza- tion of amounts available in each category and the accomplishment of the most important workloads first. This distribution process is not a one-time effort, but a continuous one. For while the total resource available in each category is rela- tively inflexible, workloads are changing continuously. We must adjust our resources within totals available to meet these changes. This is a never-ending process. For example, at one of our Air Force Logistic Command facilities, it was necessary to increase the in-service civilian capability for mis- sile managment. Not having additional civilian manpower avail- able, it was determined that the necessary authorizations could be obtained from the engine maintenance shop where the work being done was eligible for eontracting under policy and criteria. What appeared to be solely a replacement of civilians by contract from the standpoint of the engine shop was, in fact, a realinement of resources to meet a vital requiremelit without change in total civilians available to the Air Force. I believe this example illustrates why the relationship between in-service and contract resources and the question of replacement must be looked at in terms of the total Air Force rather than the individual case if it is to be meaningful. Since the committee has also expressed an interest in cost com- parisons, I would also like to touch briefly on this subject. This complicated matter is one with which the Air Force has wrestled for years. In areas such as depot maitenance where plant and equip- ment are involved, exact valid comparisons are, frankly, not feasible. Not only the Air Force, but other congressional investigations have found this to be the case. This situation is caused by several factors. First, it is normally impossible to find two work projects-one in- service and one on contract-that are exactly comparable. Both work PAGENO="0238" 234 CONTRACTING-OUT PROCEDURES content and amount normally change from one project to the next or from a past time to the present. Second, the cost-accounting sys- tems between industry and Government are sufficjently different to present problems. Third, there is a lack of comparability in the treat- ment of depreciation of facilities which industry accounts for and the Government normally does not, and in determining what overhead to attribute to a particular job. Finally, it is often not possible to segregate such costs as those associated with the support furnished a contractor by the Government. This is not to say that costs are not important, but only that exact comparisons between contract and inservice costs are often not possi- ble. In those areas where primarily labor is involved such as food service, cost comparisons are feasible and are, in fact, used, Mr. Chairman, this concludes my prepared statement to the com- mittee. I believe that we are making a concerted effort to manage the use of contract services effectively. With your permission, I would like to further demonstrate this view and provide the more detailed information of interest to the committee by proceeding with a presentation by Col. James E. Hill from the Air Staff on the general use of contract services. And as we previously noted, Colonel Riemondy presented the detail yesterday on depot level maintenance contracting. Having done this, sir, and at your pleasure, we will try to answer the questions you gentlemen of the committee may have. Mr. HEBERT. `Colonel Hill you say is present? Colonel HILL. Yes, sir. Secretary IMIRIE. Colonel Hill, to my far left. Colonel HILL. Mr. Chairman and members of the committee: CONTRACT SERVICES In this presentation I shall state the contents of our policy on the use of contract services, `how successful we have been in applying that policy, and the specific uses of contract services from fiscal year 1959 through fiscal year 1961 in the functional areas of interest to the committee. With the exception of one overall trend chart on the use of military, civilian, and contract services manpower, this presen- tation will be confined to contract services used by the active Air Force for work in areas other than research and development, real property maintenance and repair, and depot maintenance which was covered by Colonel Riemondy yesterday. DEFINITIONS CONTRACT SERVICES-INSERVICE PERSONNEL Since I will be using two terms frequently during the course of this presentation, let me commence by defining them. Contract services are those services obtained from non-Air Force sources to perform Air Force work. Contract services provide a work force supple- mentary to our military and civilian manpower resources. Contract services include contracts in such areas as maintenance, overhaul and modification of equipment and facilities, operation of facilities such as the distant early warning line, training, and housekeeping services. PAGENO="0239" CONTRACT~Q~OUT PROCEDURES 235 In contrast, contracts for the manufacture of "hardware," construc- tion of facilities, the purchase of supplies and utilities, rentals, lease of communication circuits, and the like, are excluded from contract services. Inservice personnel is defined as military personnel, U.S. citizen and foreign national direct hire personnel, and foreign nationals utilized by the Air Force under arrangements with the host governments. BASIC POLICY INSERvICE CAPABILITY TO PERFORM COMBAT AND DIRECT COMBAT SUPPORT FUNCTIONS-EXCEPTION: SKILL DEFICIENCY Our basic policy and objective for the use of contract services, and conversely, for the use of our inservice manpower resource are con- tained in Air Force Regulation 25-6. That policy is to maintain an inservice capability to perform combat and direct combat support functions. Our objective is to provide an appropriate balance~ and re- lationship in the use of military, civilian, and contract service man- power so as to achieve maximum effectiveness and economy in accom- plishing our workloads and missions. Combat and direct combat support functions comprise not only cockpit positions but all work which, if not accomplished, would result in an immediate impairment of combat capability. Specific examples of these functions are base level maintenance of combat and support equipment, operation and maintenance of the ballistic mis- sile early warning systeth, and other radar stations, the operation and maintenance of SAGE computers, and even the operation and main- tenance of the powerplants in support of those computers. The only exception recognized to this policy is the lack of inservice skills to perform the function and then only for the time required to develop an inservice capability. CONTRACT SERVIcES IN INDIRECT COMBAT SUPPORT EFFECTIVENESS_ECONOMYI~ACK OF SKILLS Contract services may be used in the indirect combat support functional areas when improved effectiveness or greater economy are achieved or, again, when we lack sufficient or adequate skills inservice to accomplish the work. Effectiveness is determined in terms of more work produced, better quality work resulting, or completion of work in less time than would be required by the use of inservice personnel. Contract services can often be employed effectively to perform one-time, peak, or seasonal workloads, or to perform work requiring special tools and equipment or a small quantity of special skills for which we do not have or cannot forsee a sizable continuing requirement. Economy considerations encompass both immediate and long-range costs and are determined on an individual basis where appplicable. ~Ph lack of skills criteria may be satisfied by the dem- onstrated absence of technical know-how, such as in the maintenance of new, complex equipment, or an absence of scientific knowledge in a research effort. PAGENO="0240" 236 CONTRACTING-OUT PROCEDURES LIMITATIONS MOBILITY AND OPERATIONAL READINGS, PERFORMANCE IN EMERGENCY, OVERSEA PERSONNEL BASE, SECURITY, MANAGEMENT RESPONSIBILITY, FLNAL REQUIREMENTS DETERMINATIONS, SUPERVISION OF AIR FORCE PERSONNEL, POLICE AND SECURITY POWERS There are additional limitations placed upon the use of contract services in areas where we consider the use of in-service personnel mandatory. Contract services will not be used when their use will impair mobility or operational readiness, or diminish our capability to perform essential activities under emergency conditions. The use of contract services must not be allowed to grow so large that an inadequate base of in-service personnel exists to support combat or oversea rotational personnel requirements. Nor will they be used in areas where security would be compromised. Tn-service personnel will be used to carry out the day-to-day management re- sponsibilities of the Air Force, although contractual advice and assist- ance in special studies is allowed. Similarly, the responsibilities for the final determination of Air Force policies and requirements must remain with the Air Force. Contractors will not be used to supervise Air Force personnel, except that supervision incidental to training, and will not exercise police and security powers for the Air Force, except facility protection services. APPLICATION OF POLICY COMBAT AND DIRECT COMBAT SUPPORT-INDIRECT COMBAT SUPPORT The application of this basic policy through more specific func- tional regulations and day-to-day practice has occurred in recent years in an environment of rapid change. Time compression in technologi- cal advances has generated tremendous pressure on the capacity of the manpower resources to adjust. increasing amounts of facilities associated with missiles, communications, and radars has brought new and different manpower requirements. The necessity and dif- ficulty associated with meeting this change have been coupled with the requirement to obtain increasingly better use from those dollar and manpower resources made available to the Air Force. Within this environment, the'Air Force policy is considered a sound basis of action. To the extent that we maintain an in-service capa- bility in the combat and direct combat support functions, readiness and combat capability can be assured. The Air Force has done a reasonably good job of maintaining in- service capability in such functions. We have, however, granted more exceptions due to skills problems than we would have preferred, particularly in the electronics area. We have converted, or are ii~ the process of converting, several areas from contractor to military manning, such as the operation and maintenance of SAGE power- plants, SAGE computers, and the Aleutian segment of the DEW line, but skills shortages in some fields still necessitate more than desirable levels of contracting. Air Force requirements for personnel possessing highly technical skills have grown rapidly with the exploding technology. Training PAGENO="0241" CONTRACTING-OUT PROCEDURES 237 leadtimes for such skills are long. In some of these skills, oversea requirements exceed those in the United States with the resultant heavy incidence of oversea duty for the personnel involved. The Air Force is continuing to experience difficulties in retaining airmen trained in highly technical skills. For example, we currently have only 66 percent of the total authorized senior aircraft control and warning radar maintenance airmen, and a reenlistment rate for A.C. & W. radar maintenance personnel of about 17 percent. The inter- relationship of expanding requirements, long training times, some adverse balances between oversea and U.S. requirements, and an unsatisfactory retention rate prevents the Air Force from meeting all highly technical requirements in-service, and necessitates contrac- tual assistance. In the indirect combat support function, the Air Force has developed a number of well-controlled and highly successful contracting pro- grams such as contractual feeding. We are periodically reviewing activities in the indirect combat support area to find improved uses of in-service and contract service resources, and, thereby completely realize our policy objective of effectiveness and economy. With this framework of general policy and its application, I would now like to turn to specific data on Air Force practices, starting with the relationship between military, civilian, and contract services resources. As Mr. Imirie indicated in his statement, this relation- ship must be considered in terms of the total Air Force. Air Force man-year data Fiscal year Military Civilian Contract Total 1957 . 1958 1959 . 1960 1961 1962 911,000 889,000 852,000 823,000 8i6,000 826,000 424,000 379,000 367,000 361,000 349.000 347,000 211,000 231,000 244,000 232,000 256,000 226,000 1,546,000 1,499,000 1,462,000 1,416,000 1,421,000 1,399,000 The general trend in our total manpower resource from fiscal year 1957 through fiscal year 1962 is portrayed here. Man-year data was selected as being the most meaningful. All functional areas of in-service and contract services use have been included. Since contractors are not normally required to provide us with an actual count of personnel, we have developed contract services man- years based on a conversion formula which we have used for several years and have found reasonably reliable. Over the period shown, military man-years have declined 9 percent. . The dip in fiscal year 1961 was due to unanticipated losses of officers and airmen which caused strength to fall below authorized levels. Civilian man-years, which includes all foreign nationals, have declined 18 percent, though the decline is less sharp in the more recent years. Most of the decline is in foreign nationals with U.S. civilians declining only 9 percent. Contract services man-years have increased 7 percent, al- though total man-years available to the Air Force have declined 10 percent. 74109 O-61--16 PAGENO="0242" 238 CONTRACTING-OUT PROCEDURES Percentage distribution of man-years Fiscal year Military Civilian Contract 1960. 58.2 25.5 16.3 iOOi - 57.4 24.6 18.0 1962 -- - 59.0 24.8 16.2 The change in the distribution of the work force brought about by the plusses and minuses in each category is portrayed on this chart. As you can see, the adjustment has been a matter of a few percentage points. With these overall trends in mind, I would now like to turn to the Air Force use of contract services from fiscal year 1959 through fiscal year 1961, in those areas of interest to the committee. Contract services by type of activity [Cost in thousands] Activity . Fiscal year 1959 Fiscal year 1960 Fiscal year 1961 Contractor operated facilities Field and organisational maintenance_-.... Contract technical services Eng-Installation-GND C-E equipment Airdefensesysteflis Food services Refueling Medical Training Printing Charting Laundry and drycleaning. Experts and consultants All other $202, 931 30, 816 54, 574 25,020 56,555 2,558 2,721 31,346 22,505 19,600 2,471 5, 200 1, 640 44, 001 $231, 622 32, 671 63, 912 23,045 64.117 2,452 2,634 23,883 19,713 22,900 3,214 6,000 1, 688 53, 498 $231, 785 30, 513 64,787 26,500 55,203 2,245 2,400 24,563 14,999 23,400 2,876 6,400 1, 352 78,036 We have divided the contract service dollars into categories by the type of activity involved and shown the total dollars for each category. Several of these categories will be portrayed in more detail in a moment. The first category "Contract operated facilities," involves all instal- lations or systems where virtually all functions are performed by the contractor. The purposes of these installations are many and varied, and because of the large size of this category, a more detailed break- down will be provided on the next chart. Since there is variety of purpose involved in this category, our management procedures must be flexible. All of the significant con- tracts in this category, however, were initially approved and are continuously reviewed at Headquarters USAF level. We have avail- able to leave with the committee, a complete list of individual contracts in this category. The second category "Field and organizational maintenance" in- cludes the maintenance of all types of equipment done by personnel at base level. It does not include depot level maintenance, which was covered yesterday. As might be expected from our basic policy, this category is relatively limited and stable. Most of the dollars involved in this category are concentrated on such support equipment as vehicles, ground power equipment, office machines, and other indirect support equipment. PAGENO="0243" CONTRP~CTING-OUT PROCEDURES 239 Our basic policy precludes contracting for base level maintenance on combat and combat related equipment; hence we have an inservice capability for the vast majority of the work in this category. For those equipments were contracting is permissible, the determination is made at the base level in accordance with regulatory criteria and subject to budgetary review. We have available a subbreakdown of this category to leave with the committee. Contract technical services are used by the Air Force for providing indoctrination, advice assistance, and training to Air Force personnel in the operation and maintenance of complex equipment. The size of this program is dependent upon the rate of introduction of new equipment and the skills situation. Air Force skill problems among enlisted personnel, particularly in the electronics field, basically account for the growth in this program. Program requirements are reviewed in detail at Headquarters TJSAF level, and we have a full list of individual contractors in fiscal year 1961 in this program to leave with the committee. The next category involves engineering and installation work for fixed ground communications-electronics equipment. This program has been stable over `the period shown, and we also have some detailed data on contractors to leave in this category. The Air defense systems category contains contract services on SAGE power and refrigeration equipment, computer and training programs and other technical services which we will discuss in more detail in a moment. Contract food service involves the operation of Air Force dining halls by contractors. Such contracting is permitted in the commands where economy can be shown and contracting is not precluded by one of the limitations previously discussed. Mr. HEBERT. Colonel, may I interrupt just to ask one question? Colonel HILL. Yes, sir. Mr. H1~RERT. Is this the area to which the Secretary referred, where actual figures are available? Secretary IMUnE, Cost. Mr. H1~BERT. Cost figures are available? Colonel HILL. Yes, sir. Mr. HI~BERT. Here you can compare whether `it is cheaper to run your own messhall or let it out? Colonel HILL. Yes, sir. Mr. COURTNEY. Well, Mr. Chairman; isn't it also true that in the case of the food contracts, the letting is on competitive bids? Colonel HILL. Yes, sir. Mr. HI~iBERT. It is? Colonel HILL. Yes, sir. Initial approval must be obtained from Headquarters USAF. The areas where we are using contractual feeding will be displayed on a chart in a moment. Aircraft refueling is contracted at 13 Air Force bases. We have obtained both effectiveness and economy in this project. Medical contracting- Mr. IIEBERT. May I interrupt there again? Colonel HILL. Yes, sir. Mr. H1~BERT. While we are going through it. PAGENO="0244" 240 CONTRACTING-OUT PROCEDURES Colonel HILL. Yes sir. Mr. HI~BERT. On your fuel contracting, I presume that is competi- tive also, among the various oil companies? Colonel HILr~. Yes, sir. And we also take a cost comparison on this. Mr. HEBERT. All right. Colonel HILL. Medical contracting is composed almost entirely of dependent medical care and a small amount for supplemental pro- fessional services. The decline in this category between fiscal year 1959 and 1960 was caused by the curtailment of free choice in the selection of medical facilities in favor of a system requiring the non- availability of military facilities and services prior to the use of civilian medical services. Since this money is paid through the Army for such services and a great number of individual transactions were involved, we do not have a detailed breakdown available. Mr. H~BERT. That is only in medicare? Colonel HILL. Only in medicare; yes, sir. The training category includes factory and foreign language train- ing. Factory training is conducted by manufacturers to indoctrinate Air Force personnel. on new weapon systems and equipment. The foreign language training is to meet specific requirement of attacht~s, missions, and MAAG's. The decline in this eategory is due to the development of inservice training capabilities in the ballistic missile area. We have detailed data on individual contractors in this area for fiscal year 1961. The next two categories-printing and charting-are reasonabl self-explanatory. Printing is a carefully controlled program wit much of the money involved going to the Government Printing Office. Charting work done on contract is for the Aeronautical Chart and Information Center. We have detailed information on both of these categories. Mr. H1~BERT. Colonel, you said most of the money is going to the Government Printing Office. Is the committee to understand that the appropriated funds-X dollars to the Air Force-in the cost of printing is in cash transferred to the Government Printing Office? Colonel HILL. Yes, sir. Secretary IMIRIE. A good share of it, sir. Mr. HEBERT. I mean there is actual transfer of funds? Secretary IMIRIE. Yes. Mr. H1~BERT. It is not a charge account, against an account? Secretary IMIRIE. No. Mr. H~BERT. It is an actual fee. Secretary IMnilE. Actual transfer of funds. Mr. HEBERT. Actual? Secretary IMIRIE. Yes. Mr. HEBERT. Ok. Fine. Colonel HILL. Laundry and dry cleaning is an indirect support function where effective and economical use of contracting can be' made, depending upon local circumstances and availability. Since the ad- visability of contracting must be determined at base level, central data on individual contracts is not maintained. We have, however, sam- pled the larger commands for fiscal year 1961 covering 64 percent of the total dollars, and have a list of more than 150 contractors for this portion. PAGENO="0245" CONTRACTING-OUT PROCEDUREs 241 Mr. HARDY. Could I just for clarification in connection with that: Now you are talking only about the laundry and dry cleaning that is in addition to such services provided by PX's? Colonel HILL. Yes, sir. Mr. HARDY. OK. Colonel HILL. Yes, sir. Mr. HARDY. Excuse me, the Post Air Exchanges. Colonel HILL. The expert and consultant category includes only the contract services, not those expert and consultants appointed pursuant to civil service procedures. This area requires approval by the Assist- ant Secretary of the Air Force, and we have available the full details in this category. All ot.her includes a great variety of miscellaneous, small contracts such as custodial services, insect and rodent control, boiler inspections, reimbursements to other agencies for services performed for the Air Force, and the like. We have cataloged a list of the types of services found in this category to leave with the committee. Contractor operated; facilities [cost in thousands] Contractor Facility Fiscal year 1959 Fiscal year 1960 Fiscal year 1961 Pan American ARO Coleman vitro Tumpane Co vinnen Corp Federal Electric RCA RCAF RCA Cape Canaveral, Fla Tullahoma, Tenn Muroc, Calif Eglin Air Force Base, Fla Other It. & I) Turkey (TUSLOG) Saudi Arabia DEW line White Alice Pine Tree Sites BMEWS Other overseas Plants, gas distribution, other Training bases $69, 720 21, 160 1,643 3, 230 2, 252 3,251 2, 280 43, 367 14,993 2,900 10,522 3, 120 24, 494 $85, 510 27, 543 l,8~5 6, 500 1, 346 3,725 1, 841 42, 388 14, 738 3, 262 12,000 15,806 4, 148 22,950 $88, 761 25, 315 1,673 7,922 3, 260 4,422 1, 397 41, 173 ii, 851 3,717 47,000 21,620 3, 391 17,283 This chart provides a more detailecl~ picture of the "Contract operated facilities" category. The first four items are the major fa- cilities in support of the research, development, test, and evaluation area, while the fifth item is a grouping of some of our smaller facilities in this area. All of these operations involve, in part, highly technical skills, many of which are unique to the particular activity. Since these activities do not fall in the direct combat support area and re- quire skills which are in short supply or nonexistent in-service, it has been to our best interest to use contract services. Further, contracting has produced effective operation at reasonable costs. The contracts in Turkey and Saudi Arabia are for various support services such as vehicle maintenance, feeding, supply and civil engineering. The next four items are associated with air defense; the operation and maintenance of the DEW line, the operation of the White Alice communication system in Alaska, reimbursement to the Canadian Government for the operation of five of the A.C. & W. sites in the Pine Tree line, and the operation of the new ballistic missile early warning system. DEW line and BMEWS being performed by contract relate directly to the skills shortages. With respect to BMEWS, we are also PAGENO="0246" 242 CONTRACTING-OuT PROCEDURES faced with unique facilities located entirely overseas and previously untried equipment which has required the use of contracting at least for an initial period. Moving down the list there are various support contracts in over- sea locations. We also have industrial reserve plants and aviation fuel distribution stations, and the training bases. In fiscal years 1959 and 1960, the money in the training bases category went for the opera- tion of primary pilot training schools. During fiscal year 1961, the Air Force has consolidated the primary aiid basic phase of pilot train- ing and closed out the primary schools. There is contracting of se- lected support functions on the new consolidated bases. Air iiefen$e 8ystems [Cost in thousands] Contractor Fiscal year Fiscal year Fiscal year 1959 1960 1961 vinnell Corp $1,438 $1, 362 $1, 076 vitro Co 2, 546 2,970 1,386 M. & T. Co 395 1,056 Am~ rican Hydro Therm Corp 923 678 610 RCA Service Co 692 1,418 1,219 System Development Corp 27,938 34,211 30,703 Western Electric Co 22,623 22, 422 19,450 __.__ ...___ -, __. _._. -- -,-- ,.._*_ ,_.____, _.__ _*__. ._ -,,,.- --- ..,__ .*___. ___._.___ __._ Colonel HILL. This chart portrays the details of the air defense systems category. The first. five contractors listed have been involved with -the operation and maintenance of SAGE power and ref rigera- tion equipment. The amounts here are being reduced. Initially, this work had to be contracted due to the lack of an in-service capability. Sinc~ this work is classified as direct combat support, we have de- veloped our own capability and are taking over the work. The Systems Development Corp. provides the- Air Force with SAGE computer programing and training services. This unique re- quirement also requires skills not readily available to the Air Force. Western Electric has been furnishing technical services for the engi- neering and construction of the SAGE system. This requirement was essentially one time in nature and is now phasing down rapidly. Mr. HARDY. Before you leave that-Mr. Chairman, if I might? Mr. HEBERT. Mr. Hardy. Mr. HAimY. In looking at these two listings that you had, I believe your ground rules eliminated from the beginning research and de- velopment contracting. Isn't that right? Colonel HILL. Yes, sir. - Mr. HARDY. I fail to observe any indication of any contract in these areas with Thompson Ramo Wooldridge or any of its affiliated com- panies. Don't they have anything except R. & P. contracts? Colonel HILL. No, sir. Mr. HARDY. They are not operating any Air Force facilities? Colonel HILL. No, sir. Mr. HARDY. Now, since we sold this proposition in California-did that take them out of this category? Colonel HILL. They have never been in this category that I know of, sir. Mr. HARDY. They have never been in this category? PAGENO="0247" CONTRACTING-OUT PROCEDURES 243 Colonel Hiu~. No, sir. Mr. HARDY. I thought that we. had had some indication that they have had some production contracts operating Air Force facilities. Isn't that correct? Secretary IMIRIE. I think production contracts. You might be right, sir, but I am not. personally aware that they had the facility type contract.. It is something that. I would have to doublecheck. Mr. HARDY. Well, the facilities that they have used and operated under contract, then, were on a lease basis, presumably, and not in this kind of a direct service performance? Secretary IMIRIE. I believe that is correct, sir. Mr. HARDY. Let's see-what is the name of that wholly owned sub- sidiary that handled the weapons systems? Mr. SANDWEO. Space Technology. Mr. HARDY. Space Technology. But that didn't fall in this kind of category, either, is that right? Colonel HILL. No, sir. Secretary IMniTE. No. sir. Mr. HARDY. All right. Contract food service [cost in thousands] Contractor Airbase Fiscal year 1959 Fiscal year 1960 Fiscal year 1961 United Food Service ilarlingen Do ABC Food Service Connally Mather $217 127 $232 87 $204 77 Associated Food Service Perrin 327 266 183 United Food Service Do Randolph Reese 196 267 161 205 131 186 Serv-Air, Inc ABC Food Service Pickett, Inc ABC Food Service Do Pickett, Inc ABC Food Service Ira Gelber, Inc Pickett, Inc Vance Moody Laredo Craig Vandenberg Neflis Bolling Warner-Robins.. Ilickam 114 100 172 128 85 268 289 127 100 148 109 97 129 96 59 326 254 217 83 151 137 20 97 81 49 322 260 278 114 106 Colonel HILL. The next chart portrays each of the food service contracts in the Air Force. The first 10 bases are in the Air Train- ing Command, while the following 5 are all in different commands. As indicated previously, contracting in this function i~ based pri- marily on economy. All of these contracts have averaged, about 27 cents per meal, while inservice performance of these functions pre- viously exceeded 30 cents per meal. F1JT1JRE TRENDS AND OBJECTIVES COMBAT AND DIRECT COMBAT SUPPORT-I~DI~~j~ COMBAT SUPPORT With respect to fiscal year 1962 and beyond, we expect to keep working on ~the development and maintenance of inservice capability in the combat and direct combat support functions. The increasing demand for highly technical skills on new systems will make this an extremely difficult effort. In the indirect combat support functions, we do not anticipate any radical change. There will be a continuing PAGENO="0248" 244 CONTRACTING-OUT PROCEDURES effort; to determine and implement an improved distribution between military, civilian, and contract services resources. This concludes my presentation, Mr. Chairman. Mr. HEBERT. Thank you very much, Colonel. I want you to share the thanks and the cooperation of the com- mittee which was extended yesterday to Colonel Riemondy. You have done a very, very fine job. Mr. Secretary, this is the type of presentation the committee desired. I am grateful for it. Secretary IMIRIE. Thank you, sir. Mr. HARDY. Mr. Chairman, could I just pursue one step further the question I raised with the colonel a minute ago, about the Thomp- son Ramo Wooldridge aspect. Now I want to be sure that I understand the ground rules of what eliminated them from this consideration, because one of the things that has bothered some of us in times past was the determination with respect t.o using Space Technology Laboratories to perform functions which generally had been considered were essentially inhouse type of functions. (Secretary Imirie nods.) Mr. HARDY. At least in times past they have been so regarded. But it is because .we are not dealing in this development area that they are not involved in this project. Secretary IMIRIE. That is correct, sir. If we understood the committee's wishes, the sequence would be- we would talk, this morning, in our appearance at this particular phase, of the more mundane types of contracting: maintenance. fod services, medical, and so on. Mr. HARDY. All right. Secretary IMnilE. Then at step 2, I think we are to be back to talk about the research contracts specifically: STL, Thompson- Ra.mo-Wooldrige and those things. Mr. HARD1Y~. Well, these were not always research contracts, Mr. Secretary, and that is why I raised this point. Some of these were actually production contracts. Secretary IMIRIE. That is right, as we discussed the last time we were up before you, in the fillister head screw production thing, which was a production contract. Mr. HARDY. That is correct. Secretary IMIRIE. Yes, sir, which are not included here. Mr. HARDY. All right. Mr. HEBERT. Mr. Secretary, of course, you are familiar with the President's letter to Mr. Bell, the Director of the Bureau of the Budget. Secretary IMIRIE. Yes, sir. Mr. HEBERT. In which the President, taking cognizance of this hearing which we are conducting, expanded the study in the execu- tive department to include many other a.gencies, of which Defense is one. Secretary IMIRIE. One, right. Mr. HI~BERT. You are familiar with that? Secretary IMIRIE. Yes, sir, I am. Mr. H~BERT. And the returnable date on that is December 1, as I understand it. PAGENO="0249" CONTRACTING-OUT PROCEDURES 245 Secretary IMnr[E. I believe that is correct, sir. Mr. HEBERT. Any other questions, Mr. Hardy? Mr. HARDY. I have one or two more, Mr. Chairman, If I may. Colonel; I think this falls in the same category as the thing we were just discussing or talking about. Back on page 2 of your statement, you say: The policy is to maintain an inservice capability to perform combat and direct combat support functions. New, a little further on you become a little more specific in con- nection with that. But that does not include functions in connection with missiles and missile systems? Colonel HILL. It would include functions in connection with mis- siles, yes, sir, if we were contracting there. By this I mean the operation and maintenance of the missile systems. It does not in- clude the construction of the facilities or the purchase of the hard- ware, procurement, or anything of this nature. What I am referring to is restricted to the operation and maintenance. Mr. HEBERT. Well-may I interrupt? Mr. HARDY. Go ahead. Mr. H]~BERT. Doesn't that fall in the category presented yesterday by Colonel Riemondy? Secretary IMIRIE. In-house? Mr. HEBERT. The in-house, and contracting out. Secretary IMIRIE. Yes, sir. It is our determination with respect to missiles-the Atlas, Titan, and the Minuteman, as they come in-that this is a military function. In the operation of the bird, the maintenance of the bird, and every- thing connected with it. There may be some aspect of maintenance, however, as the programs get older, that may go out to contract. But primarily our plan is to maintainthem in our air materiel areas. They will be maintained there. Mr. H~BERT. That is my appreciation of the presentation yesterday, and projected to the year 1965. Secretary IMIRIE. Yes, sir. Mr. HEBERT. It is going to be. for all comparable purposes-it is going to be about a 50-50 break in-house and contracting out. Secretary IMIRIE. Yes. Mr. HEBERT. In some areas completely contracting out and in some areas completely in-house, and with the price factor comparable both ways. That was my appreciation of Colonel IRiemondy's testimony. Secretary IMIRIE. Yes. Mr. HARDY. Well, you have your price considerations there. But even more important is the ability to control the combat readiness in- sofar as any outside contracting is concerned. Secretary IMIRIE. Yes, sir. I think the operation, the control, and operation of, say the Atlas, in an operational site as against a research site, is a blue suit operation irrespective of cost, in my opinion. Mr. H1~BERT. I think that was reflected, too, Mr. Hardy. Mr. HARDY. Yes. PAGENO="0250" 246 CONTRACTING-OUT PROCEDURES Mr. HI~BERT. In what they call the vital or essential items. Secretary IMIRIE. And certainly the Atlas is. Mr. HEBERT. That is concentrated more in-house.. Secretary IMIRIE. Yes, sir. Mr. }TTEBERT. Things that you have been on the alert on, to be ready to go. Secretary IMIRIE. Yes. Mr. HEBERT. And as they phase out, then, the graph goes more to the contracting out? Secretary IMIRIE. Contracting out. It in effect takes care more of the peaks and valleys in that way, too. Mr. HARDY. Pursuing one more item on page 6, where it says: The Air Force is experiencing difficulty to retain airmen trained in highly tech- nical skills. Then you go on and say: We currently have only 66 percent of the total authorized senior aircraft con- trol and warning radar maintenance airmen. Now in that particular area, in the A.C. & W. and the radar stuff, are you using any inhouse civilians, or is that confined strictly to Air Force personnel? Colonel HILL. No, sir. We do use inhouse civilians in this area. Mr. HARDY. You referred to airmen in this statement. Colonel HILL. Yes, sir. Mr. HARDY. That is why I raised the question. Colonel HILL. Yes, sir. Mr. HARDY. You don't depend exclusively on Air Force personnel? Colonel HILL. Here it gets into the area of the type of maintenance that we are speaking of. If you remember yesterday Colonel Riemondy showed there were three levels of maintenance in his presen- tation. He spoke to one level, which was depot maintenance. I am speaking here to the other levels, where they are actually on- site or in the unit, or the organization maintaining the equipment at field or organizational level. Mr. HARDY. Well, that is the thing I wanted to clear up. Now yesterday, in the very beginning of Colonel Riemondy's state- ment, as I recall it, he said that these decisions were based on military necessity tempered with economic considerations. And that was pur- sued to some extent. But the economic considerations that are involved: Do I take it that the Air Force really does try to make a determination as to the com- parability of. costs in determining, where no military necessity is involved, whether it will be contracted out or performed inhouse? Colonel HILL. Yes, sir. Mr. HARDY. Then you have not pursued a policy of just contracting out for everything that could be provided regardless of the cost? Colonel HILL. That is correct, sir. We have not pursued the policy of contracting out for anything and everything that may be provided simply because we could contract it out; no, sir. We compare costs in those areas. Mr. HARDY. Thank you, Mr. Chairman. Mr. HEBERT. Mr. Kitchin? Mr. KITCHIN. I would like to ask one question in connection with the question that Mr. Hardy asked a few minutes ago. You also PAGENO="0251" CONTRA~ING-OUT PROCEDURES 247 followed up on this highly teohnical phase, saying that there were approximately 17-percent reenlistments Colonel HILL. Yes, sir. Mr. KITCrnN. Now, is that just your enlisted personnel, or what is your attrition in your civilian group that are maintaining this service? Colonel HILL. What I have in the statement, sir, refers to enlisted personnel only. I am not. prepared to answer regarding the civiliaii personnel. Colonel RECTOR. We will provide that for the record. (The information is as follows:) We do not have a separate attrition rate for civilian personnel in the A.C. & W. maintenance field. There are approximately 1,200 civilIans and 24,000 military personnel In the aircraft control and warning and the tactical control squadrons in the Air F'orce. This includes operating as well as maintenance personnel. Mr. HARDY. Well, if Mr. Kitchin will permit- Mr. KITCIIIN. Yes. Mr. HARDY. Can you expand your civilian complement in those areas requiring skills in A.C. & W. work and that sort of thing, to compensate for a reduction in your enlisted personnel having those capabilities? Colonel HILL. I would say "No," sir. The civilian capability in this area is located and works primarily in the depot level area. The area that I am speaking of is the specific Air Force unit. Mr. KITCHEN. Well, I was mistaken in my premise then. I thought you said that in this particular `situation, where your highly techni- cal services were in field services, such as your DEW line and so forth. Colonel HILL. Yes, sir. Mr. KITCHIN. That you did utilize civilian personnel in the techni- cal phase. Colonel HILL We do in some cases, sir, contrict for that type of thing, in operation and maintenance. And as a matter of fact, DEW line is one of them. But when we do, we contract for the total operation and mainten- ance. We don't have any military units-- Mr. KITCHIN. I wasn't speaking about the contract service.. I was talking about the inhouse services- Secretary IMIRIE. Very few, sir. Mr. KITCHIN In the exclusive use of only military personnel in this particular types of technical service? Secretary IMIRIE. Yes. Colonel HILL. Yes. Mr. KITCHIN. I was wrong about this. Secretary IMIIIIE. We gave you an erroneous impression. Mr. HARDY. They are not anticipated to be irivioved in any actual combat, are they? Secretary IMIRIE. The people on such as DEW line? Mr. HARDY. That is right. Secretary IMIRIE. I believe not. Mr. HARDY. I would think not. PAGENO="0252" 248 CONTRACTING-OUT PROCEDURES And if there are civilians available-I am thinking now of in- house rather than contract-with the capabilities that are required, why shouldn't they be used? Secretary IMIRIE. Well, it is a complex question. Certainly you could argue that way, that they could he used. It relates also to the ability to hire inhouse the supervision neces- sary, with the electronic and similar competence necessary to run these outfits. These are inherent in the likes of RCA and General Electric and so on. Mr. HARDY. The thing that I was thinking of, Mr. Secretary, is that generally there has been a policy that we wouldn't use enlisted personnel to perform noncombat functions for which civilians were capable, so that the military personnel could be freed for more miii- taI7 duty. Secretary IMIRIE. Yes, sir. But in this case-and again repeating an Air Force premise not to create an arsenal system-which we didn't begin with. We have traditionally gone to contracting. When it is beyond the military necessity point, we have traditionally contracted for it. Mr. HARDY. I would doubt it would ever be feasible to contract for the operation of an A.C. & W. site, or the DEW line. Colonel HILL. Sir, if I might add something here- Mr. HARDY. Whereas it might be feasible to do it with civilians in-house. Colonel HILL. You are referring essentially, sir, to what our defini- tion of "combat" is. Now this is in a changing nature at the present time. We have de- fined "combat" and "direct combat support functions," if you remem- ber, as any work which if not accomplished would immediately impair our combat capability. Under these circumstances, the A.C. & W. sites, DEW line, and those things, do fall into combat functional areas. They are not- Mr. HARDY. If you are using that definition, they would. Colonel HILL. Yes, sir. That is our definition. Mr. HARDY. Maybe your definition is cockeyed. Colonel HILL. Well, that is possible. Mr. HARDY. I don't know. Secretary IMIRIE. The definition in this case is cockeyed to the ex- tent that it has proven beyond our canability to get the military in the skills area, that is the airmen with the skills required, to man these functions, and therefore we contract it.~ Mr. HARDY. That is what prompted me to rai~e these questions. Secretary IMIRIE. Yes, sir. Mr. HARDY. Now I don't know whether contract feasibility here is comparable to civil service employee feasibility. Now theoretically at least you have a better control over in-house civilian employees than you do over contracted. Secretary IMIRIE. Theoretically. But of course- Mr. HARDY. If you don't, then, Mr. Secretary, your administration is poor. PAGENO="0253" CONPRAj~TING-OUT PROCEDURES 249 Secretary IMIRIE. Well, we are in the business, for example, with Halaby over at FAA-Mr. Halaby-of turning over to air traffic control such elements as the military still control, which is heavy overseas, and one of our concerns, of course, is that in replacing mili- tary personnel with FAA civilians, do we get control and responsive- ness in wartime? To this very point-and we both, Halaby and the. Air Force, are fishing for the construction of some legislation to sub- mit to the Congress which will allow us to call up these people, or have military control of them in the event of hosilities. This is a problem that we recognize, particularly overseas. Mr. HARDY. Well, just one other sort of a related item in this line of thinking. To get back to the kind of services that you contract for: Do you, for instance, contract for the overhaul of aircraft engines2 Secretary IMIRLE. Yes, sir. Mr. HARDY. You do a lot of that, don't you? Secretary IMIRIE. Yes, sir. Mr. HARDY. Now in some areas you perform at least some of that work with military personnel, don't you? You have to for combat readiness. Secretary IMIRIE. Yes, at base level. Mr. HARDY. That is right. Secretary IMUaE. That is right. Mr. HARDY. And don't you also perform ~ome of that with civil service employees? Secretary IMnilE. Civil service at depot level. Mr. HARDY. So you perform that saffie function with all three categories? Secretary IMIRIE. Correct. Mr. HARDY. Now, that is a pretty important function, too, in case of a combat requirement, and if your engine overhaul program fell down you would be in awful bad shape. Secretary IMIRIE. That is absolutely right. We try to keep a level.of depot competence, and also where we have the money to do so, we try to keep a civilian industry competence But the J-4'T engine which we have just phased down: We kept our depot level competence, and reduced the contracting competence. So in this case we kept it fri-house. We kept in-house competence as opposed to contracting competence. Mr HARDY The thing that prompted this little exploration-you said you were considering the possibility of asking for legislation to provide for military control over civilians in the event of emergency. If you do that, you probably are going to have to extend it to all these other fields too. The only difference is you might have a degree of dependence, but that is all. Secretary IMIRIE. That is all, a degree of dependence; you are correct, sir. Mr. H~BERT. Mr. Norbiad? Mr. NOItELAD. I am just curious about this enlistment rate of 17 percent on A.C. & W. Is that basically because the work to be per- formed is in a remote location, like in upper Canada, Alaska and so on? Mr. MORRILL. Yes, essentially. In the A.C. & W. field, with these radar people, they are faced with one remote hilltop after another. PAGENO="0254" 250 CONTRACTING-OUT PROCEDURES Mr. NORELAD. What is the overall reenlistment rate in the Air Force at the present time, approximately, at this time? Mr. MORRELL. I don't know. I think Colonel McRae might be able to answer. Mr. NORBLAD. Just a general, overall figure, throughout the entire Air Force. Colonel MCRAR. Colonel McRae, Mr. Chairman. Mr. NORBLAD. I don't want an exact figure. Just approximately. Oolonel MCRAE. The enlistment rate for first-term airmen is approximately 25 percent. This figure increases to approximately 90 percent in the case of career airmen with 12 to 15 years' service. Mr. NORBLAD. Is that because of the location? Mr. MORRILL. Yes. Colonel RECTOR. Another factor here is the requirement for this skill in industry. These skills are readily picked up by industry. This is a highly technical skill. Mr. HARDY. Your R. & D. contractors try to get them, don't they? Colonel RECTOR. And the manufacturers. [Laughter.] And at five times the salary. Mr~ NORELAD. All we have to do is read the back end of the financial section of the New York Times on Sunday. For years, if you go through it you see there are at least 10 pages solid with ads asking for these people. Secretary IMIRIE. Personally, I would like to see the A.C. & W. a "blue suit" system. I think the theory is correct. It ought to be military. I think we are in a problem of feasibility, and the point is whether we can do it. We have almost given up the ghost. Our big challenge is to try to get some competitiveness in these things that we can do nothing about. Mr. HARDY. When the Army gets the Nike-Zeus, you won't need all of them. Secretary IMIRIE. Maybe. Mr. KITCIJIN. May I ask one question in connection with that? Mr. H]~B]~RT. Yes, Mr. Kitchin. Mr. KITCHIN. Getting back to the 17 percent reenlistment figure and the statement the colonel just made with reference to about four or five times the salary that industry could offer these boys, and probably being one of the reasons why you do not have a higher reenlistment rate: Are we getting down to where we are getting- and I say this not critically, but are we getting the dregs in the bottom of the barrel that industry won't hire., or what is the reason for the 17 percent reenlistments? Colonel RECTOR. No, sir. This is reflected in terms of added train- ing costs, to train new people to replace them. If we had the retention that we wanted, our training costs of new people coming on would be appreciably reduced. So the people we have are new and they are efficient, but not as capable as they would be if they had two or three or four tours; that is, enlistments. Mr HEBERT You are addressing yourself to service people ~ Colonel RECTOR. Yes, sir. Mr. KITCHIN. That is all. PAGENO="0255" CONPRACTING-0UT PROCEDtJRES 251 Mr. H~BERT. Well, have you given any consideration-this crops into my mind at the moment. Have you given any consideration to an extension of enlistments, initial enlistments? Your present enlistment is what? Three years, isn't it? Colonel RECTOR. Four. Mr. H~BERP. Four years? Colonel RECTOR. Four. Mr. H~BERT. Has any attention been given to a longer enlistment? Because, after all, you have to train these people, and you know they go in there to get trained to go out and get more. Colonel RECTOR. That. is true. And it has been considered, sir. I would like to refer this to Co]oi~el McRae. Colonel MCRAE. There is a current exercise that would involve the extension, sir, of the enlistments in a number of the more critical skills. But this is only a temporary measure. There is no intention at the moment to extend it beyond 4 years for all groups. Mr. H1~BERT. You see, ColoneL the other day the Congress, in pass- ing a bill relating to the academies, to fill out the vacancies, made it mandatory that anybody going to our academies have to serve 5 years. An effort was made on the floor to put it at 7 years, which found favor iii many places. \ Now I think the same lo~c should apply: that it costs us `X number of dollars to educate an officer, and that he must remain in the service for 5 years. Time sime should apply to the enlisted man, who is certainly re ceiving equal or comparable or relative training in hi~ fiMd, and which is costing the Government money to train him. And if he knows very well that he goes in to be trained. And which is right. And to capitalize on that training, economically, financially, after he leaves the service. So I think it is s se1 - in th th is some exploration should be given to an extension of tours in the technical services, where the Government is investing money to train technicians, as compared to training a man to carry a rifle. Colonel HILL. Mr. Chairman, we are approachir -. this you are speaking of in a slightly different r"~ We are now in the process of offering peop training only if they do reenlist. After they complete their first enlistment, they are r this training unless they reenlist. Mr. H1~BERT. Do I understand you to mean by not recruit from the lowest level the civilian into the uniform, on the basis of training? Colonel HILL. Yes, sir, we do, do just as you said. PAGENO="0256" h an individual becomes eli- and as you ~,, at four or I to pay him. So that money is lost That investment in that Mr. KITCHIN. But they may-we gave the President the emergency powers to extend the obligated service the other day. And at least I expect this emergency is going to continue for some time. Secretary hrIRIE. Yes, sir. And that is what the colonel addressed 1f to. 0. ~ecretary IMIRIE. Yes, sir. Mr. NORBLAD. What is your tour ( face in upper Canada and in Alaska and the Aleut~~ Mr. M0RRILL. Twelve months. Mr. H~EERT. We now get to the interesting part of the hearings, of the contracts. Do you have those contracts? Mr. COURTNEY. Mr. Sandweg is prepared to address himself to the research and development contracts, Mr. Chairman. Mr. H~BERT. Mr. Secretary, I presume your people are ready? Secretary IMIRIE. Yes, sir. Just call off the contracts you wish to discuss. I will name the will start off with Bryn Mawr. That is the Force Office of Scientific Research. I can thoroughly understand your interest in Bryn Mawr. I am afraid that anything that I say is likely to prove a disappoint- ment-anything that I am at least prepared to say. I have another apology to make. I am a psychologist And anything that an intelligent human being can say in simple English, a psychologist can say in jargon that is not understandable even to another psychologist Mr HEBERT We are accustomed to such jargon 252 CONPRACTING-OUT PROCEDURES tng specifically extending skills we need, and ~ PAGENO="0257" CONPL~O~ING-OUT PROCEDURES 253 Mr. COURTNEY. Feel right at home, Doctor. Mr. SANDWEO. So we can get it on the record, Doctor. Air Force type contracts that were supplied to the committee were reviewed and several were picked out for further explanation. One that is under discussion now I might read it was let by the Air Re- search and Development Command. The number is DDP61-4--607. It reflects two contracts with Bryn Mawr College at Bryn Mawr, Pa. Combined total amount in excess of of $22,000. And the title of the contract and all the data we have on it is "Psychological Ad- justment Factors in Self-Estimate of Body Space." (The contract data not read is as follows:) Am REsE~1icH AND DnvEL0PMENT COMMAND DDP-61--4--607-Bryn Mawr CoUege, Bryn Mawr, Pa. Psychological adjustment factors in self-estimate of body space $~, 020 Psychological adjustment factors in self-estimate of body space 13,840 Mr. SANpWEG. We are wondering, Doctor, just what does that mean Mr. COURTNEY. First of all, Bryn Mawr is a female college. Is that right~ Dr. HUTCHINSON. That is correct- Mr. COURTNEY. "Self-Estimate of Body Space"- Dr. HUTCHINSON. The graduate school is coeducational. They grant a Ph. P. in psychology, and in the graduate department. They do acoe~t male students. Also in this regard they have a cooperative arrangement with Haver~ ford College, which is all male, and Swarthmore, which is co-ed, to exchange courses and to exchange research facilities. Mr. HEBERT. Not exchange students. Dr. HUTCHINSON. They do. That is correct, they do exchange stu- dents where there is a particuarly strong course in one of the colleges. The subject, as you heard it, is one which is rather easy to mis- understand, I am sure. The kind of a judgment that I would reach. And I would like it understood that the kind of questions you have are the kind that we have, and that we don't pick these things out of the hat but that we have a rather extensive selection process. And I think-since I am the only one here talking about basic research, I thing this ought to be understood, that we are interested in those kinds of work which will develop new concepts, which will make discoveries and inventions, and develop materials or proce- dures which will be helpful to the Air Force 10, 15, and 25 years into the future. And therefore we don't pretend that we are coming up with a gadget or a piece of useful information that will be used next week, although at times this does occur, that someone has called the serendipitous results. Mr. HARDY. What kind of results? Dr. HUTCHINSON. Those unexpected results which have an~ im- mediate application which we didn't intend in the first place. Mr. HARDY. You know, Mr. Chairman, I wish we could get the doctor to take the title of this contract and break it down to see if we can understand it. 741O9-4~i~-----cI7 PAGENO="0258" 254 CONTRACTING-OUT PROCEDURES Now it has a good many elements in it. First you got body space. Now, I don't know what they mean by body space. You have self- estimate of body space. I don't know what self-estimate means as used in that. And then maybe we ought to find out what factors were developed, so that we can try to understand what this contract is ~nd who was actually performing the work under it. Dr. HUTCHINSON, The matter of subjective means the self, the indi- vidual operator of a weapons system or whatever piece of gadgetry that we might be interested in. The self is the appropriate thing to concern one's self with here, since the operator is the one who has to reach the pedals, read the dials, and fly by the seat of his pants. So our feeling is that we are dealing with the one entity in life with which each of us is most familiar. * This is one of the critical factors- Secretary IMIRIE. In layman's languag&-and I am certainly a layman- Mr. I-TARDY. That is what I am trying to get at- Secretary IMnrn~. The Air Force has a fond hope, with things like Dyna-Soar and follow-on projects, of going into space. And we are not real sure how a man will react when he goes into space, in terms of his cockpit. We know how he will work in an airplane, and we know how he can read the dials and gages, and so on. But under conditions of weightlessness and other phenomena which occur in space, we are simply ignorant of the facts. And this kind of studies, and expressly this one, are connected to that. Mr. Hardy. So we are talking about-this word "body" in this instance means the body of the astronaut. Secretary hfnuE. Yes, sir. Dr. HuTcrnNsoN. Of an operator, or an astronaut. Mr. HARDY. And the word "space" means the space which he is ing to occupy for that body up herc ~ Dr. HUTCITINSON. Yes, sir. Secretary IMIRIE. I had the same feeling about Bryn Mawr, too. I though this was one where you might have had us dead to rights as a matter of fact. But as a result of talking with Dr. Hutchinson here and understanding what this was all about I am not at all con- cerned. I think he has a paper which is direct and to the point. And it is refreshing to learn that this is a well-thought-out contract. It is necessary. It certainly will result in something useful to the Air Force. And it is done in a scientific community, where the kind of skills we need to do this way-out sort of thing are available to us. Mr. H~BERT. You don't have an inhouse operation of this nature? Dr. HUTCHINSON. No, sir. The nearest thing would be at the Aerospace Medical Laboratory at Wright Field, where they are equipped to do a great deal of applied research. Mr. H1~BERT. That is where I thought-I had Wright-Patterson in mind, at Dayton, because we saw these experiments going along there for the astronauts. PAGENO="0259" CONTRACTING-OUT PROCEDURES 255 Dr. HUPCHINSON. This is correct. And they were working on this year's problem., and fitting the man into the machine as best they may. In other words, they are running along close behind the established equipment. When we have a new weapons system, they are having to fit the people to do the job as best they may. To design better instruments and to make better use of human capa- bilities in the future, we need to do this basic research, which will be fed into places like Wright Field. Mr. H]~BERT. And you feel that this contracting out is a more eco- nomical and efficient way to do it than implementing your present capability. Dr. HUTCHINSON. It is the only possible way to get the kind of scientists that the Air Force requires, because the kind of scientists who will engage in basic research are not accessible to us. They will not move into Government service-either in uniform or as civil service scientists. We have many good scientists. I wouldn't want to cast any re- flection on their capabilities. But for the amount of basic research- ing that goes on, we simply can't get the people that we need into Government laboratories or into uniform. Mr. H]~BERT. Why can't we? This is very important what you are discussing. Very important, because the general consensus of opinion, or the general idea of the man on the street is-our radio commentators speak with such author- ity-that we should do something about getting scientists in, because Russia is getting so many in. And not one of them stopping to compare the system in Russia to the system in America, because in Russia the scientist is told where to go. Dr. HUTCrnNS0N. Right. Mr. H1~BERT. Here we have to persuade them. Now this type of study is for that persuasion. Dr. Hu'rcrnNsoN. This kind of study is to persuade the people who are able to do the work to work on those things where they have the competence. They will not accept the kind of direction that is essential in a Government-sponsored laboratory. They want to pick their own topics, and they want to follow them wherever they take them. Now it is true these are unsolicited research proposals that come in to us. It doesn't mean they are simply pulled out of the blue sky. They meet recognized Air Force requirements which are established on the basis of long-range plans. Mr. HARDY. You didn't develop this requirement, then? I mean you didn't seek somebody to conduct this particular type of research? In this case, the researcher presented a proposal to the Air Force, is that right? Dr. HuTornNsow. That is correct, that a person perhaps known to us but not specifically stimulated did present a proposal. But he knew of our program, because it has been thoroughly communicated through scientific journals, through conferences, symposiums, through our brochure, and through other means, that the Air Force has a program of this description. Mr. HARDY. This is not a title of a particular research project, then, which has an Air Force title. This is a title somebody else suggested, is that right? PAGENO="0260" 256 C0~TTRACTING-0UT PROCEDU1~ES Dr HtTCHINsoN This is a title sent in by Dr Davidon Dr Davidon suggested this. We have the right to play with it if we choose, and probably should have done it, but we didn't. Mr. HARDY. You would have gotten the same thing, even though you might have changed it? You might have changed his title, I mean. Dr. HUTCUINSON. That is correct. It wouldn't have changed the ~work statement which we took out of his proposal. Secretary Imirie (addressing Dr. Hutchinson). You might men- tioi~ h~w this proposal was checked [furt~ier aside]. Dr. UtrTcIIINsoN. Yes. We do certainly concern ourselves with the quality Qf the work proposed to us. Now in this case we sent the proposal out to five reviewers. I have appended to the proposal summary a review jy Dr. Harry Helson-H-e-l-s-o-n-head of the department of psychology at the t~niversity of Texas. (The backup document is as follows:) RORERT DAvID0N, Ba~x MAWR COLLEGE-GRANT NUMSER AJP-AFOSR 62-1 (Formerly contract AF 49(638)-726) Title: "Subjective Estimate of Body Space." Annual rate: $13,000. Doctor Davidon is studying the way in which a person (for example, ~ui operator In a weapon system) judges his position in space and the spatial re- látionships involved in relation to the dials, gages, levers, pedals, and controls that he utilizes In performing his job. His investigation will determine the way in which the operator of military equipment utilizes cues t~ maintain his sense of orientation. The kinds of cues normally used to maintain one's orien- tation it~ space are frequently disrupted in the working environment of modern military vehicles and weapon systems. For example, In a space vehicle, information to the central nervous system originating in the sense of balance (vestibular or middle ear), from feelings in the seat of the pant~ (or kinaestbetic sense), and from visual ~ens~tiop~ Involving both near and distant perception will be either canceled out or criti- cally 4istorted. While few persons will be called on to travel in space vehicles and satellites, the selection and 1~rainlug of these few is a matter of critical imuportanoc. This study has applicability to many military occupations ~I~icl~ lmpø~e re- strictious on the operator's ability to judge distance within his normal work area anl his orientation in external space In which he must operate or navi- gate. The kinds of military jobs that utilize space judgment Include pilots ~f high altitude and uitraperformance aircraft, monitors of radar scopes an4 other types of equipment, those performing vigilance anSI surveillance t~sk~, tho~~ working in subterranean, submerged, aretip, or shrouded environments, persons using visual displays in command posts, those in situations that involve sensory deprivation (Isolation), or sensory overloading (distracting environments), and, it might be added, those driving vehicles on public roads. DE5ORIPTION OF WORK This study investigates the individual's estimate of the space occupied and required by his body while at rest and engaged in physical activities. The self-perception of subject's body geometry is based on stimuli received by numerous sense modalities: tactile, kiñaesthetic, vestibular (sense of balance from middle ear), and visual, among others. The perception of body space under normal environmental conditions is the result of the integration of cues from a considerable number of sensory organs. This integration and coordination of information in regard to spatial relation- ships Is one of the complex and, so far, incompletely understood areas of humafl behavior. PAGENO="0261" CONTRACTING-OUT PROCEDURES 257 The ability of human beings to make judgments aJx~ut space is a combination of inherited, learned, and cultural factors and is directly related to human perfbrmance In the context of modern weapon systems. Au iiuder~baudlng of the role of various sense iaodal}tie~ under no~thal (tet.~ téstrial) conditions Is essential before It is possible to study spatial ~th1Uties under unusual environmental circumstances. Uiider the condition of weightlessness, as encountered In spacecraft, all in~ formatiOn from the vestibular system will be canCeled out. This Is a most Im- portant element in spatial .iuclgrnent. Kinaesthetl~ information under conditions Of *elghuessness will be distorted at least until the subject becomes acclimated to the condition of weightlessness, which may or may not Occur. Under the influence of certain military environments, the operator is exposed to environmental factors which can cause disorientation of visual cues in regard to spatial relationships. These environments include long vigilance, radar scope and instrument monitoring, artic and undersea environments, and Spaee environ- menits. It may be a matter Of concern why the self-image of body spa~ce was chOSen as the object for this research. This choice was made because body spacO is familiar to all persons from birth and it is the ohe Object of pèrcOption on which all ihe various sense modes cafi converge. T1IO research alSo concernS judgments regarding spatial relations of objectS within the subject's reach, or his work area. Another reason why it is appropriate to deal with the body-image is that one's self-conception is very closely affected by abnormal mental status. Mis- takes in judgment of external environment can be rechecked against new in- formation and corrections can be made. Changed conceptions of the self are more difficult to correct and can become the critical elements in creating a sense of psychological disorientation. it may be possible, in the long run, to develop perceptual tests that will be suitable for the selection of military personnel for space vehicles and for other more frequent but equally taxing military operating environments. The advantages of having valid and reliable test criteria for personnel s~lec~ tion arC obvious in the area of performance capability. It would also be of E~ltreñ1e impottitnce i± teSts were developed which could estinnitte tolerance ~ tilC physical and psychological stresses of unusual environments. There is a ~ossib1lity that research in this area may throw light on the subject's susceptibility to various trance states, disorientation due to s1eeplOS~- iie~S and to various perceptual aberrations related to hallucinatory experiences caused J~y extended vigilance and sensory deprivation. Dt. Robert Davidon is an able experimental psychologist. He received l~is A.B. in 1940 and his M.A. in 1946 from the University of Illinois, and his Ph. P. in 1951 from the tlriiversity of Pennsylvania. He is well regarded by other psychologists in his field. lIe has become thoroughly identified with this field of investigation and has developed unique and imaginatively conceived instrumentation to measure the phenomena which he is studying. The investigator was given a grant by the Fund for the Advancement of Education (Ford ~`oundation) in 1958, a research grant from the American Philosophical Society in 1955, and a special research fellowship from the Na- tional Institute of Mental Health in 1960, which provided support for a 10- month visiting fellowship at the Applied Psychology Research Unit, Medical 1~esearCh Couhcll, Cambridge, England. During this fellowship, Dr. Davidbn was engaged continuously in studies and research related to his AFO~]1 grant. Bryn Mawr College has ~ graduate training ahd research program In p~- cliology and grants a Ph. P. degree in this field. Male students are admitted to the graduate departments. There are 12 members of the American Psychological Association listed at Bryn Mawr College (including the president, Dr. Katherine B. McBride). The school has good laboratory facilities and an instrument Shop. It Is accessible to Philadelphia and research subjects of any desired ty~le eatl be loCated within easy reach of the college. There are only four or five intellectual centers in the United states that wbtild rank with or above the Philadelphia area in the field of psychology. Bryn Mawr has eOopeit~ative teaching and research arrangements with two neighboring colleges, Swarthmore (coeducational) and Haverford (men~S college). PAGENO="0262" 258 CONTRACTING-OUT PROCEDURES WHY THIS WORK IS BEING PERFORMED BY A GRANTEE INSTEAD OF IN-HOUSE There is no in-house capability to perform this type of basic research within the Air Force. If Air Force facilities and personnel were diverted to this task, other research being performed to meet urgent requirements would have to be dropped. Basic research is the proper function for university scientists. It would cost millions of dollars to establish inservice facilities with laboratories and person~ nel to match the potentialities that already exist in universities. Also, university research is relatively inexpensive and fits Into the pattern of strong and mutually supporting inservice and external research programs. INFORMATION ON CON1~RACT NEGOTIATIONS Contract No. AF 49(638) -726, Bryn Mawr College, Pennsylvania. Basic contract negotiated by Lt. M. D. Martin for $9,020 for the period October 1, 159, through October 31, 1960. Support agreement No. 1, dated September 13, 1960, was negotiated by A. P. Smith at $13,340, extending the contract to October 81, 1961. Grant No. AF-AFOSR--62--1, executed July 26, 1961, was negotiated by A. P. Smith at $13,350, for the period October 1, 1961, through September 30, 1962. FUTURE PLANS The grant will be continued for 1 additional year. At that time an evaluation will be made to determine the directions that future basic research in this field should take. Am FORCE OFFICE OF SCIENTIFIC RESEARCH DIRECTORATE OF BIOSCIENCES-PROPOSAL REVIEW FORM This form has been prepared to assist the Directorate in getting opinions from a n3unber of reviewers in a comparable form. We hope that it conserves your time. It is not intended to stifle expression. It should be recognized that the statements which you make relating to the technical competence of the author of the proposal are significant for our record even though the proposal being reviewed has been received from a person of questioned distinction among his scientific associates. Your comments will not only help to screen out some less worthy proposals but, more importantly, they will serve to facilitate our efforts to support those proposals most deserving of completion. HARRY HELSON, Reviewer. Date: May 27, 1959. Am FORCE OFFICE OF SCIENTIFIC RESEARCH DIRECTORATE OF BIOSCIENCES-PROPOSAL REVIEW FORM Title of proposal: "Body Space-Tactile-Kinesthetic Schema," Robert S. Davidon 1. Is this problem important for the advancement of scientific knowledge? I believe this is a very important problem and should be done. It comple- ments nicely some work being done independently and by different methods by S. S. Stevens at Harvard: Stevens has determined cross-modality functions by scaling techniques. Stevens' functions are not concerned with space, however. 2. Will this effort contribute to the advancement of scientific methodology? It should contribute to scaling of different sense modalities and to better knowledge of the types of space which have phenomenal existence and their relations to physical space. 3. Is the basic concept or hypothesis adequately stated for purposes of evaluat- ing the proposal? Yes; the basic concepts and hypotheses are very clearly stated for purposes of evaluation. The chief investigator has thought this out very carefully, I would say. PAGENO="0263" CONTRACTING-OUT PROCEDURES 2~9 4. Is the research design adequate? I believe that it is, especially in view of the fact that it permits modification in the light of obtained results as they go along. 5. Are the research goals stated in the proposal possible of fulfillment? The research goals are concrete and should be capable of fulfillment. 6. Is this task appropriate for inclusion in a program of basic research? The proposal concerns basic modes of perceiving space and contains a design for evaluating their interrelations in a quantitative way. It is therefore basic research. 7. Are there other research efforts which relate to, complement, or duplicate the work here proposed? As stated in 1, above, it complements and carries much further cross-modality interrelations which others have investigated, the latest being Stevens and his coworkers. However, the concept and design proposed here are original and fruitful in quite new directions. 8. Are there other agencies which you consider to be more appropriate sources for support of this proposal? With its emphasis on space perception I believe the Air Force is .the best supporting agency that could be chosen for this research. I can see many practical as well as theoretical implications from this work. 9. What is the scientific reputation of the principal investigator? ` It is very good indeed. I have been impressed by the quality of Dr. Davidon's work from what I have read in the journals. He is a thorough scientist and has the necessary knowledge and skills to carry on a project of the type de- scribed here. 10. Do you consider the resources available to the principal investigator (laboratory, equipment, personnel, special services, etc.) adequate as augmented by additions included in this proposal? The Psychological Laboratory at Bryn Mawr College has excellent facilities, both material and personal, for carrying on this research. Professor Michels, chairman of the Physics Department of Bryn Mawr College, has done a con- siderable amount of research in psychophysics and there is an instrument maker and machine shop there. 11. What is your estimate of the importance of undertaking this work? A1X It is an essential effort necessary to develop knowledge in a scientific field of importance to biosciences. A2 It is important work in an area where no "breakthrough" but a - - advance can be anticipated. X (It might provide a breakthrough in space perception) A~ It is a useful effort which should be supported as far as resources permit. B1 This proposal is more appropriate for support by an than the Air Force B2 This proposal does not merit serious consideration. 12. Remarks: I am very much impressed by t~""~ - sound, and full of implications ~ - - - well conceived and should pay o~. ~ to the Air Force and should be supported. perimentalist and possesses the ability and t In addition the material resources at Bryn ~ other personnel are available there for consulta this proposal very high indeed. Dr. ITrTTCmN50N. Now, this review I favorable one. We had four other men review this from ~ came out almost identical. This happened to be the top review c.. seemed a very adequate sample of the recc this particular task. Mr. HAnDY. Dr. Helson then reviewed the proposal? Dr. HuTcrnNsoN. That is correct. Mr. HARnv. And then recommended that it be done. PAGENO="0264" 260 CONTRACTING-OUT PROCEDURRS Now who negotiated the contract? And who had the competence to negotiate the contract, un.1es~ Dr. Helson did it himself? Dr HUTOHINSON We had then a review by our own sta1~! We certainly wanted to evaluate what we got from the review panel. Determining then that this was a high-priority item, we wrote a purchase request. This purchase request and worksheet then went to the AFOSE, that is, our Air Force Office of Scientific Research, Technical Panel- Pechnical Council, which reviews every contract or grant which goes out. And they have the authority to reject any proposal at this stage before it ~s negotiated if it has any defect of any sort Mr. ~IAm~. Now who has the authority to accept or reject? Dr. HUTOHINSON. These are the directors of our technical areas in the Air Force Office of Scientific Research. Mr. }IAnPY. So then these decisions are actually made by people who are knowledgeable in the area, rather than just some contract negotiator? Thy. Ht~roui~soi. Well, this particular contract was initiated by Col. James H. Ritter, who is a full colonel in the Air Force, but also a Ph. D. in psychology from Ohio State University. So we don't have anybody on the staff of our division who isn't fully competent. We had three people, all at the Ph. D. level. Mr. HARDY. I notice that the document before me says that this grant was negotiated by A. T. Smith. WhoisA.P. Smith? Dr. HUTOHINSON. ~Ie is a contract-a purchasing officer in our contracting office. Mr. HARDY. What does he know about this kind of business? Is he a psychologist? Dr. HUrCmNSON. He has- Mr. HARDY. Then I take it, all he knows is figures? Dr. HtrrcrnsoN. That is correct; he is a specialist hi the purchase and negotiation of contracts and grants. Mr HARDY Yes, but you had a proposal here-this was not some- thing that was subject to negotiation, was it? This is just one individual- Dr HuPcHn~rsoN He had nothing to do with the technical aspects Mr. HARDY. All in the world he did was listen to what you folks said and he just signed his ~ameto it. Colonel RecTOR. No, sir. Secretary IMime. No, sir; it is mOre than that. There is the matter of establishing the technical detail of it, which is rightfully in the hands of our knowled.geable technical people. prom a straight procurement standpoint, you get into a phase 2, which has to do with how much can this fellow do the job for or how little should he do it for. Mr. HARDY. Well, certainly Smith didn't have any competence to make that determination, like that; did he? Secretary IMIRIE. I believe so. When you assess laboratories or laboratory competence, the cost of operating laboratories-Mr. Charles Meyer, who has been doing this kind of work for us is here this morning. I would like-if you would bear with me-for him to address himself to it. Mr HEBERT I would like to know the details PAGENO="0265" CONPRM~PING-~0UT PROCEDIJRES 261 Secretary IMIRn~. Will you, Mr. Meyer? Mr. ME~sR~ Yes, sir. Mr. Chairman, while I am not in the procurement directorate at the AFOSR, which is the Office of Scientific Research, I am with the Air Force Systems Command Procurement Staff, and have negotiaAed contracts like this. Now, Mr. Smith's normal process would be to analyze the estimated cost of the proposal made by the people from Bryn Mawr, to try to reach an agreement as to the reasonableness of the makeup of those estimated costs. Mr. HARDY. You have no competitive situation. Mr. MEYER. No, sir. Mr. HARDY. You just have a man's talents here. And in order to evaluate the reasonableness of this, you have to be able to know what kind of a performance that gentleman can make in the terms of science and re~earch. Mr. MEYER. That is correct. Mr. HARDY. How a contract negotiator who is engaged in analyzing figures can do that, is just a little bit beyond my understanding. Mr. ME~n~R. Well, he works hand in glove, sir, with Dr. Hutchinson. Mr. HARDY. In other words, he just OK's what Dr. Hutchinso~i says. Now, maybe that is what he should do. And I am not critical of it. But certainly you haven't a situation here where you can haggle over about the use of his mind. Secretary IMIRIE. Let me interrupt just a minute. Because I have negotiated technical contracts. Mr. HARDY. I want to know. Secretary IMutIE. And you can certainly-~as a matter of common- sense, even though you are a layman not possessed of all the scientific background, you can certainly know whether he needs two bunsen burners or one. You can certainly assess overhead rates in a technical community, just as you can in a business community. And you can, by and large, get a sense of what might be a reasonable cost. It is more difficult than a normal procurement. But there is a judgment, a commonsense business judgment that the contracting people can make, and I believe they do make. But I certainly for 1 minute don't say it is as simple as aeronautical spare parts. It isn't. It is a tough thing to get a handle on. Mr. HARDY. I just have a little trouble understanding how you can really do any honest negotiating in this kind of a situation. ~ am not suggesting that it does lend itself to the kind of negotiation that you do in other areas. But it might be just a little bit on the silly side to have a contracting officer who is normally a pro- curement officer of nuts and bolts to become involved in executing a contract of this kind, and call him a negotiator. Mr. MEYER. This is my point. These people are not trained* to buy nuts and bolts. They have grown up and have been trained in contracting for research. There is an entirely different approach taken to the negotiations. Mr. SANDWEO. May I ask a question here? Leaving out the Bunsen burners and things of that nature, where you have purely a theoretical study paper to be prepared, such as this might have been- PAGENO="0266" 262 CONTRACTING-OUT PROCEDURES Mr. HAItrY. You haven't any Bunsen burners involved in this. Mr. SANDWEG. How do you then assess a man's time? How does the negotiator do this? I would think it would be more Dr. Hutchinson's job to do that. Dr. HuTornNsoN. Yes. I am looking at the time here. And the time for Dr. Davidon is zero for the school year. He is paid by the university. He is paid summer salary. Because this is his free time. And the only thing that we pay for, in this salary, is for typists who do the typing on the reports and for research assistants, who are Ph. D. candidates and are male and female students at that level. But we are paying for research support for an investigator, who is presented to us by a reputable college. Mr. SANDWEG. I think we are getting down now to something that can be judged. In other words~ do you then pay, in speak- ing of the research assistant, a salary comparable to that which he normally gets in doing research work for Dr. Davidon for the work he is doing for the school? Is that the way the pay is judged? Dr HUTCIIINs0N. He wouldn't be there if he wasn't working on contracts. Mr. SANDWEG. Yes; but is that the basis you used? You say Dr. Davidon gets nothing on this contract? Dr. HUTOHINSON. Nothing except summer salary. Mr. SANDWEG. That is right. But his salary may be comparabh to the total salary he receives for the school year. Dr. HUTCHINSON. Yes, sir. Mr. SANDwEG. So there are some standards that came to you. Dr. HUTOrnNS0N. Yes, sir. Mr. HARDY. Which in this instance would be an evaluation of his capabilities, and then an application of the time which he was expected to apply. I don't think you have any Bunsen burners in- volved in this kind of contract. Mr. HJ~BERT. I think the question is clear. Mr. COURTNEY. Is this essentially a personal service contract, where you are engaging in the services-let's take now Dr. Davidon. Dr. HUTCHINSON. I am not familiar with what you can do under a personal service contract. Mr. COURTNEY. No; I am not saying that this is by name or denominated as a personal service contract. But isn't what you are doing here engaging the services of a particular scientist or a group of scientists whose salaries you pay and whose supporting personnel you sustain? Is that what is happening? Dr. HUTCHINSON. I think that is correct. I was a little hesitant because I understand there is a certain onus, stigma, on this area of personal services, particularly in our field. And I am not cer- tainly familiar with the definitions. * Mr. COURTNEY. Well, I don't want to overdefine it. Secretary IMIRIE. Essentially, Mr. Courtney, you are right. Mr. COURTNEY. You are taking Dr. Davidon, who has, I presume, some reputation in his field. Now I presume the contract would be meaningless unless he was the man who gave the final word to whatever information you get out of this contract. PAGENO="0267" CONTRACTING-OUT PROCEDURES 263 Dr. HUTCrnN5ON. Absolutely. Mr. COURTNEY. Isn't that right? Dr. HUTOIJINSON. Absolutely. We wouldn't be interested in this unless he stayed with it. I mean when he leaves, we cut off. Mr. HI~BERT. Now in connection with that, the suggestion that came yesterday to me: In other words, the Government is paying the salary of the professor in this instance, isn't that correct? Dr. HuTcmNsoN. They are subsidizing- Mr. lT1~BERT. Well, subsidizing, or paying. Dr. HuTcrnNsoN. Yes. Only the overhead. He gets his salary from the college in this case. Now, I don't want to make a general rule, because there are cases where research professors are paid out of project funds. This one happens to be one where he is not paid out of the fund. Mr. }I]~BERT. Well, the college is paid here. Dr. HuTcmNsoN. They get the overhead, which I can't name to you on this particular contract. Mr. H~BERT. No, we are not talking about the generalities. But I am talking about the principle involved. The principle involved is the Government is subsidizing the salary of the professor and his assistants. Secretary IMHtIE. Basically that is correct. Dr. }IUTCHINSON. Yes. Mr. }IIi~BERT. That is correct. It is the argument used in the Federal-aid to education bill, I mean the principle involved there. I suggested yesterday: this is a way of really subsidizing the sala. ries of professors and their assistants. Mr. KITCmN. May I ask a question right there? I understood the doctor to say that only the summer salary was paid in this particular instance. Dr. HtrTcrnNsON. That is correct. Mr. KITCHIN. In other words, he doesn't get any subsidy over and above his college salary, university salary, during the time he is actually teaching? Dr. HUTCHINSON. That is correct. Mr. KITCHIN. So the value of his services is based on zero dunn that period? And only during the summertime, when he is not pai by the university, is your Government funds going in to pay his salary; is that right? Mr. COURTNEY. Well, wouldn't it be true that during the summer he gets a rate comparable to what he would have earned during the academic year? Isn't that right? Dr. HUTCHINSON. That is right. Mr. COURTNEY. So this is in addition to his regular academic salary. Mr. KITOIIIN. It is an extension of his academic salary. Mr. COURTNEY. That is correct. Mr. H1~BERT. That is correct, It is soft money. Do you have the next one, Mr. Sandweg? Are we already clear on that? PAGENO="0268" 264 CONTRACTING-OUT PROCEDURES Mr SAND~EG Yes, I think we can go on to a couple of others There are two others I would specifically like to refer to right now: Contract AF-3~(601)'--5233, with Oklahoma University at Noz'man, Okia., in the amount of $1,500. The subject, matter was: Cost o~ living in Midwest City in comparison to Oklahoma City, Okia., and the national average. Secrntary `IMIRIE. Colonel Aimand is here to address himself to that contract. Mr. SANDWEG. Would he also have the one on the evaluation of the AFROTC curricuiums~? Secretary IlkrIRIE. No, sir. Can we handle them separately? Mr. SANDw.Eo. Yes. We will take that one now. (The contract data is as follows:) Contract No. contractor name and address . Dollar amount obligated Subject spatter Results AF-34(601)5233 AF-0l(600)2611 Oklahoma Ijnivcrsity American Institute for Research, Washington 9, D.C. $1, 500 37,150 Cost of living in Midwest city in compai7son to Oklahoma City, Okia., and national average. Data and analysis to system- atically evaluate affects of AFRQTC curriculpm. Report. Do. Mr. SANDWEG. The purpose of the inquiry here is to determine the basis for letting this contract, the authority to do so, and the extent `o~ review. And `also, of course, the question: Was not this type of data avail- a~ble through something like the Bureau of Labor Statistics, or some- thing of that nature? Could y~u speak to that, Colonel? Colonel ALMAND. Yes. Mr. Chairman, I `think it would be helpful in the beginning to clarify the phrase "a Midwest City." The contract referred to a cost of living survey that involved a comparison of the costs be- tween-the cost of living in the United States as a whole, and Okla- homa City, and Midwest City, Okla. Mr. NORBLAD. Which is just suburban Oklahoma City, as I recall. Colonel ALMAND. It is. Mr. NORELAD. About as far as from here to Arlington, I would say. Isn't it almost built up right through? I drove through it last year. Colonel ALMAND. It is adjacent to Tinker Air Force Base. It is a city of some 35,000 or 40,000 population. Mr. NORBLAD. It is right on the edge of Oklahoma City. Secretary IMIRIE. Yes, sir; I think that is a fair statement. Colonel ALMAND. Also, I think it would be helpful to state that Oklahoma City Air Materiel Area, where this contract was nego- tiated, is a large installation of some 20,000 civilian employees and some 4,000 military. PAGENO="0269" C0NTRM~TING-OUT PR0C~DURES 266 The mission of Oklahoma City Air Materiel Area is basically to support the Boeing aircraft in the Strategic Air Command. These are the B-52's the B-47's the KC-135, and the KC-97-the latter two being tankers. The work force of Oklahoma City is widely scattered in its living area, that is where you have people commuting 25, 50, and even 75 miles. Because of its relationship to SAC there are frequent callout of maiutenance directorate crews to visit ~AC installations day or night. The command was interested in having its work force nearby, so it wouldn't consume an hour or t~wo in reaching the base. There were indications that the cost of living nearby, in Midwest City, was high. It was reported that there were instances of landlords and merchants taking advantage of the work force, both military and civilian. The command was concerned about this, but had no basis to go to the city fathers and to try to take action to bring the facts before the right people. Certainly the command is aware of the Bureau of Labor Statistics and its figures on cost of living. But we were talking about this community adjacent to Tinker Air Force Base, which is relatively small, and so far as we know does not have any separate breakout. And this area was the area where it was charged that the merchants and landlords were taking advantage of the people. Mr. H~BERT. What could you do about it, if they were, with statistics? Colonel ALMAND. Well, it was felt that if we could get some figures that we could go to the mayor and the city officials and point these facts out, based upon a study that had been made by a recognized authority. Mr. HARDY. That is the most amazing situation, how that kind of a situation which goes on around in the proximity of every military installation in the United States. And it is the first time I ever heard of one that didn't have somebody that was riding herd on that kind of business all the time. You mean to tell me there is nobody there at Tinker that was keep- ing track of this kind of business- Colonel ALMAND. That is what we were trying to do- Mr. HARDY (continuing). And you had to go out and get a separate contractor to perform a job which somebody normally would be ex- pected to be doing on a contracting basis within the base? Colonel ALMAND. Sir, this is not something that military installa- ti~ns staff for. It is not a recurring type workload. I believe we would be criticized if we staffed to do this kind of thing. Mr. HARDY, I wouldn't think you would have to staff to do it., It is the kind of thing it would seem to me you would learn almost automatically. I live itt Norfolk, and I have naval installations, that are compara- ble to what you hare, on both sides of the river. Mid if the Navy ever unçlertook this kind of thing, .1 would think they are crazy. I don't understand, to save my life~ this crazy argument you have just presented here to justify this. PAGENO="0270" 266 CONTRACTING~OUT PROCEDURES Of course, it is a picayune thing. But the very idea that you have to go out and contract for $1,500-it is a very picayunish thing. Mr. KITCHIN. Let me ask a question right there. What was your result? Colonel ALMAND. The result showed that Oklahoma City was slightly lower than the national average, and that Midwest City was slightly lower than Oklahoma City. So it proved the reports that we were getting to be erroneous. And based upon that we had no basis to go to the mayor or the city fathers- Mr. HARDY. It still wouldn't have been a proper basis for letting the contract. Mr. KrrcrnN. Did that form any basis upon which you could draw into a closer proximity the personnel that was living at 50 and 75 miles from the base? Colonel ALMAND. What we were trying to do is to make it attractive to live close by. But in the face of these rumors and indications that it was more expensive to live close by, there was no reason for the people who want to live in close- Mr. KITOrnN. I know. But you say this report nullified those accusations. Did that, as a result, give you any authority or any lee- way to bring that personnel in closer, since you had not substantiated these accusations? Colonel ALMAND. It enabled us to tell our work force that there was no basis to these rumors. Mr. KITOrnN. Then what was the result of that? Did you get them in closer or didn't you? Colonel ALMAND. We certainly used this as an argument why they could live in closer and save the time that would be consumed in com- ing back to the base when they were called. We did do that. Mr. KrrcrnN. Maybe I don't make myself clear. As a result of this and using this as an argument, did you finally get any of those key personnel in closer to your facilities? Colonel ALMAND. We feel we did, sir. Mr. KITCHIN. In Midwest City or in Oklahoma City, or otherwise? Colonel ALMAND. We feel we did, yes, sir. Mr. KrrcrnN. Well, do you have anything to substantiate it? Colonel ALMAND. I don't have a rundown of that kind- Mr. HARDY. It would take another contract to get that. Mr. H1~BERT. You can get another contract to find out whether you did or not. Mr. KITCrnN. In these questions-I don't want to seem facetious about it, But it seems to me if you get a contract in an opposite state and then you get as a result of the operation of that contract a report, that we should show some compensable reason for having initiated the contract to start with. Secretary IMIRIE. Well, we are in a difficult area, when we get into these things. This happened in 1958, I believe. It is a judgment factor. And we talked to the commander concerned. And whereas I don't know the circumstances personally of the con- tract and what happened before and after, I know the commander, who incidentally has gone upward and forward. He is Tom Gerrity- General Gerrity. He is a very able man. PAGENO="0271" CONTRACTING-OUT PROCEDURES 267 a morale prob- commander of that installation, sensed a morale problem, which may have the effect of interfering with his mission. These are his words; the fact that he couldn't keep people nearby because the word was out they were being gouged by the civilian population. Mr. HEBERT. Did he keep them nearby after that? Secretary IMIRIE. So far as we can ascertain, from speaking with him and the current deputy commander down there, this is the ease. The practical effect of having this university study the problem demonstrated the point that the work force was not being gouged, allowed the military there to put the rumors to bed. Mr. HEBERT. It wasn't one of Bud Wilkinson's -- that made thisr~ 1 lem you domany things ~to get rid of it. Mr. HARDY. Yes, you do. But you usually do it with a little more practical thing. Colonel RECTOR. Mr. Chairman, lie did accomplish by this tech- nique-and I suspect this was the concern of General Gerrity-a disinterested look at the total problem. Mr. N0riBLAD. This couldn't have been done through the Labor Department or Commerce Department, who do this sort of thing all the time? C ~`~1 RECTOR. Not in terms of bias and rumor. r. COuRTNEY. ~ ~. Chairman? - r. H~iBERT. Mr. - j. - Chairman, a qu PAGENO="0272" CONTRACTING-OUT PROCEDUflES I can answer to you this morning, Mr. Courtney, is that as each base up the line through divisions, commands to the Air Force head- quarters participate in the annual- budget cycle, a certain amount of moneys are requested by them, and after they have been refined in the normal budget arguments and considerations that go on, and the budget is finally made available by the Congress, a certain amount of moneys is allocated for these several purposes. Now the amounts of money at each niche in our organization I haven't with me this morning. Mr. COURTNEY. Well, is there some way in which Congress could understand the total amount in this contract for which delegation is taken? Now let me ~o back a step. The original Armed Services Procure- ment Act provides that the limitation on authority to enter into these types of contracts is $25,000. Congress was told that this supposed- beyond that it required review by higher authority. I think by the Secretary as a matter of fact. Secretary IMIRIE. Yes. As a matter of fact all contracts which have to do with the so-called "think" contracts must come to the Assistant Secretary for Research, and the TJnder Secretary, Dr. Oharyk. Mr. COURTNEY. Without regard to the amount? Secretary hmuE. $100,000. Mr. COTTRTNEY. $100,000? Secretary IMI1UE. Yes. Mr. COURTNEY. Well, this is what we are getting at. Wow the contracts we have talked about here, yesterday and today, have been contracts which have been less than $100,000 and where the authority was exercised by a subordinate command without review. Now how much money is alloe1ated that can be handled by s had to be 268 I ~~or1~ just made, Mr. the tary PAGENO="0273" CONTRACTING-OUT PROCEDURES 269 Mr. COURTNEY. In the subordinate command. So unless the contract reaches in a single contract-and this is another question. Unless it reaches in a single contract the $100,000 limitation, then the Secretary never sees it. 1-ic doesn't know what is going on. Isn't that right? Secretary IMIRIE. Yes, sir. But this follows a pattern of the entire Air Force sequence of delegations. Mr. HARDY. Maybe the whole pattern is wrong. Secretary IMIRIE. It may be. But we do not believe in centralized procurement in the city of Washington. Mr. HARDY. I wouldn't suggest that we do that. Secretary IMnun. That is the practical effect of the Secretary seeing everything. Mr. COURTNEY. Well, I don't think we have gotten quite to the point of making that suggestion yet. But I do think we need to explore the amount of money that is involved in these total awards of contracts which are not subject to anybody's review. I am not at all sure we didn't make a rather serious mistake when we permitted the lifting of that $25,000 ceiling to $100,000, unless we can find some way to make a determination that the reasonableness is applied. Secretary IMIRIE. Well, as a matter of fact-and not this morning, but commencing about 3 months ago when I came here, which interest was heightened by the spare parts procurement matter of a couple of weeks ago, I, along with the Air Staff and the two major commands that are really involved in this thing, have been going over the exact matter of procurement delegations. Mr. COURTNEY. Well, what stimulated your activity in that field, Mr. Secretary? Secretary Ii~tnun. Four things. One, my ignorance of the field when I came here. And this- Mr. COURTNEY. How did you happen to find out you were ignorant about it? Secretary I3nRIE. It isn't hard. All you have to do is ~ - 1 day. [Laughter.] The second thing is a natural desire to audit, which is part ning a job. And the third thing, quite obviously, is congressional interest. And the fourth thing is GAO. And all of these formed incentive to see what was going on. And this, indeed, is what we are doing. Now, I can't suggest to you that we are going to change anything as a result of this. But we might. Mr. COURTNEY. I don't know that anything needs to be chauged. Secretary IMIIRIE. I don't, either. ; me is: I wonder how long it had situation as you are in took a look 74109-61-------18 PAGENO="0274" 270 CoNTRACT Q-OUT pROCEDURES ~cI -~ --~, Well, i: Ii PAGENO="0275" CONTRAJCT~G OUT PAGENO="0276" CONTRACTING-OUT PROCEDURES 272 PAGENO="0277" 273 PAGENO="0278" 274 PAGENO="0279" CONTRACTING-OUT PROCEDURES 275 Engineering analysis and reports for evaluation and analysis of natural gas rates relating to possible conversion from coal, fuel, and propane. The results are reflected as a final report with recommendations as prepared by the contractor. These recommendations are being considered by the Govern- ment. (The contract data not read is as follows:) Contractor: Franklin J. Leerburger. Value: $9,000. Description: Engineering analysis and reports for evaluation and analysis of natural gas rates relating to possible conversion from coal, fuel oil, and propane. Results: A final report with recommendations was prepared by the con- tractor. These recommendations are being considered by the Government. Mr. SANDWEG. Now who do we have to speak to that? Secretary IMUuE. Mr. Duncan, who is from the Directorate of Civil Engineering at the Air Force Systems Command Headquarters. Mr. SANDWIIG. Mr. Duncan, could we have an explanation of the purpose of that contract, the reviewing authority on it, and was this the type of information that was available through Government sources, or other readily available sources? Mr. DUNCAN. The gas company-the Elk River Public Utilities District submitted a proposal to the Arnold Engineering Develop- ment Center to supply gas for fuel. Mr. NORBLAD. Where is this located, geographically? Mr. DUNCAN. Tullahoma, Tenn. Prior to the ~ ~ ~e Arw survey ~st instanc Utilii PAGENO="0280" 276 CONTRACTING-OUT PROCEDURES So they finally settled on Frank L. Leerburger after they I explored the Air Training Command at Randolph Field, to get rate specialist to do this work. And the Air Force still wanted the third, disinterested party, and not Air Force people. So the result was Leerburger was employed at $9,000, instead of the $9,750, on authority from AFSC, reviewed by AFSC and approved. Mr. C0URTNEY Mr. Duncan, is this any more than a personal service contract? How does this come under the category of re- search and development? Secretary IMIRIE. It doesn't. Mr. COURTNEY. Doesn't it? Mr. DUNCAN. Not a research and development contract, as such, sir. Mr. COURTNEY. Well, what is it? It is a service contract, isn't it? Mr. DUNCAN. It is a consulting engineering-persomd service. Secretary h~tntIE. Personal service. Mr. Momnt~~. Yes. Mr. COURTNEY. And the authority to enter into this contract is dele- gated out to where? Mr. PUNC4N. It is delegated to the command. Mr. COURTNEY. To the command. Mr. DUNCAN. At AFSO. Mr. C0tmTNET. AFSO. Secretary IMIRIE. Systems Command. Mr. COURTNEY. And would this come within the $100,000 limitation? Secretary IMIRr~. This value was $9,000. Mr. COURTNEY. No. I understand. But does it come within the $100,000 ceilii~g ?~ Is this the goverizing- Secretary IbinnE. This follows the procurement rules. Mr. COURTNEY. That is right. Secretary IMIRIE. As against the research. Mr. COURTNEY. As against the research. Mr. H1~BERT. Do you have the next one, now, Mr. Sandweg? Mr. SANDWEG. Let's revert bacI~ to the contract with the American Institute for Research, of Washington, D.C. Air Force Contract 01(600)2611, in the amount of $37,150. Subject matter of the coutract wa~ "Data and analysis to systemat- ically evaluate efforts of AFROTO curriculum." And the results were a report, the nature of which we don't know? Secretary IMUUE. Dr. Kenneth Groves, who is Chief of the Evalua- tion Service of the Air University, is here to speak to that point. Dr. GROVES. This program is part of an overall evaluation program of our AFROTC 4-year curriculum. That, in turn, is part of an over- all evaluation program of the entire Air University, which is the officcr education center of the Air Force. This contract is part of what is left over after we have done every- thing that we can with our own resources. It produces recorr~meda- tions for changes in our instructional techniques~ recommendations for changes in our textbooks, recommendations that can be used in placement of appropriate staff members in the proper detachment throughout the country. PAGENO="0281" CONTRACPING-OUT PRO~E~URES 277 The program was conceived in 1954. We never got it off the ground until about 1956. At that point we did everything we could with our own resources for about 2 years. And other programs came in, such as our extei~ision course program, which raised the require- ments that were placed upon the command. Therefore, about 1959, we began to contract out certain portions of the entire evaluation program. This $37,100 was the amount that was spent in 1959. Mr. SANDWEG. Well, what particular capability does the American Institute for Research have that the Air Force itself didn't have to warrant this contract? Dr. GROVES. In quaiity they have a greater number of professional people than we do. Actually, the ~vhole ~evaIuation program of ROTC was conducted by one man and one sergeant, for about 4 years. And they did sur- prisingly well. My offiqe at the headquarters of the command helped them for a number of years, and our own data processing center helped us. But our equipment aild the number of professional personnel that we had te do this job was simply too limited. You can't do this kind of a job with one man. Mr. COUn~PNi~Y. Does this have anything to do with accreditation- those studies? Dr. GROVES. No, sir; not in this contract at all. All it does is tell us what the cadets learn, what kind of effect did we have on them over the 4-year period, are they going to stay with us for a career in the Air Force later on. We check them after they get out to see-did they learn what ~ve wanted them to learn, so that they are successful in the early years of their career. Mr. COURTNEY. Is this a questionnaire proposition? Dr. GRov]~. It is construction of comprehensive examinations. I think this particular contract called for the construction of 1,000 test questions covering a 4-year curriculum period. Mr. COtTRTNEY. Which was circulated among the Dr. GROVES. Yes. It was administered in 180 detachments in col- leges and universities throughout the country. Mr. SANDWEG. Was it decided to contract this out because of lack of capability within the Air Force, or lack of manpower? Dr. GROVES. Lack of equipment. Not enough professional man- power and programers at that particular time. We have been in the process of converting our electronic data proc- essing equipment sihce about 1958. We inherited a Univac I from the Air Force which helped our situation some This is being used primarily for Extension Course Institute, which has over 300,000 air men and officers enrolled throughout the Air Force. Mr. H1~B~RT. Does this h~ay~ anything to do with the curriculums of the Air Academy? Dr. GROVES. No, sir; nothing. Mr H}BERP This does not affect the Air Academy ~ Dr GROiES No, except as some of our findings might be applicable to the Air Academy Mi }IEBERT This only relates to the ROTC ~ Dr GROVES Yes, sir PAGENO="0282" 278 CONTRACTING-OUT PROCEDURES Mr. HEBERT. Mr. Secretary, the Air Force doesn't have a cc~~ like West Point does, to find out how to get finer talents into the Air Academy. Secretary IMIRIE. No, sir. Dr. GROVES. No, sir. Mr. H~BERT. You are satisfied with your talent? Secretary IMIRIE. Yes, sir. Mr. HEBERT. It seems like West Pointers are, the only ones not satisfied, that they are not getting the best. We spent $40,000 to find out we have to attract better young men to West Point. Dr. GROVES. No, sir. We are satisfied. Mr. COURTNEY. A better grade of men. Mr. HEBERT. A better grade of men, a finer grade-I forget what the expression was. Mr. HARDY. In connection with this contract, Doctor, couldn't you have employed people to conduct this survey with just as much com- petence as you are contracted for? It sort of surprises me that the Air University- Dr. GROVES. The man we lost-the man who developed and de- `signed the contract we lost only a year ago. We have been trying, shaking the bushes to find somebody ever since. Mr. H1~BERT. I think it is interesting here, and well to point out, that during the conflict-of-interest investigation, this committee ex- pended itself to the extent of two young lawyers to do that job, and I think they did a very fine job. And what did it cost us? Two months' salary for each one, I think, Mr. Courtney? Mr. COURTNEY. Well, summer salaries. Mr. H1~BERT. Summer salaries. It didn't cost us anything like $37,000 to find that out. I would like to have that kind of money to operate this committee. We would probably be in hearing afternoons, mornings, afternoons, mornings, and nights. Mr. NORBLAD. We are, Mr. Chairman. Mr. H]~BERT. That is what amazes us. Dr. GROVES. It is a very large program, sir. In the whole area of evaluation, it is about the only money that we spent outside. I guess our overall evaluation program involves close to half a million people, in courses that go from a few weeks to a year in fh T~ is a large operation. y personal opinion is we are operating it in this particu- ~e minimum level. r together, - e with the United Aircraft Corp., for a total valuation of $170,812, ~ contractor. The other with the PAGENO="0283" CONTR~CTING-0UT PR0CEDU1~ES 279 Martin Co., in the amount of $54,000. The description of the con- tract was Study to determine the feasibility of defending small hardened targets, such as ICBM launch sites, against an enemy missile threat. Both contractors apparently came out with the results identically *the same, which were as follows: Technically it is feasible to defend small hardened targets; economically, it may or may not be feasible, depending on the size of the target. (The contracts data not read is as follows:) Am Foucu Errours CONTRACTS CONTRACT NO. AT 30(602)-2109 Contractor: United Aircraft Corp., Missile and Space Systems Division. Value: $170,812 (cost shared).' Description: Study to determine feasibility of defending small hardened tar- gets such as 1OBM launch sites against an enemy missile threat. Results: Technically it is feasible to defend small hardened targets; eco- nomically, It may or may not be feasible depending on size of target. CONTRACT NO. AT 30(602)-2206 ~Contractor: The Martin Co. Value: $54,000. Description: Study to determine feasibility of defending small hardened targets such as ICBM launch sites against an enemy missile threat. Results: Technically it is feasible to defend small hardened targets; eco- nomically, it may or may not be feasible depending on size of target. consider above two together. Mr. SANDWEG. Could we speak to those, Mr. Secretary? Secretary IMnIn, Yes, Mr. Jack Segal, on my right, from the }[eadquarters of the Electronic Systems Division of our Systems ~Command is here, as well-from the technical part of the problem, Mr. Charles Meyer is again back on the procurement side. Now I have one word of caution on this one. I believe that Mr. *Segal can cover this with unclassified material-to give you a general idea of the thing. If it must be pursued, I would like to recommend we go into executive session, because of the classified parts of it. Mr. H~BERT. We won't touch on that, Mr. Sandweg. Mr. SANDWEG. All right. Let's refer to the results of both con- tracts, in which it gives what seems to be a very obvious answer. "Technically it is feasible. Economically it may or may not be." It seems rather obvious an answer. It seems like a lot of money to have been spent to get that kind of an answer. Mr. SEGAL. Yes, sir. Mr. Chairman and Committee members, industry was approached on this particular problem after a new concept for ballistic missile defense was generated with inhouse capability at the Rome Air De- velopment Center. Industry was approached to study the concept as we had presented it to them, to provide approaches to the achieve- ment of this particular system capability in a time period which we requested them to study, and to trade off the various system elements that were involved in this particular concept against the various costs involved. Namely, for varying degrees of technical `One-half this cost was paid by the contractor. PAGENO="0284" 280 CONTRACTING-OUT PROCEDURES effectiireness for each particular eletnent one could expand varying amounts of dollars and hopefully achieve an optimum situation: The reason that there was more than one contractor involved was siin~Ay because we felt we. would like to have as many approaches to the solution as possjble. ~Mr. COtIETNEY. Was the contractol' `evaluating his Own product for combat effectiveness? Mr. SEGAL. No~ sir. Secretary IMIRIE. You are referflr~ to Martin, II p±e~time? Mr. COURTNEY. Martin, or United. Mr. SEGAL. It turns out in the case of the Martin Co. that a piece of the system, the overall system, ~as a piece of hardware which they are themselves in production on, and a modification thereof. Thereby incurring a great cost savings, rather than. dev~loping a whole new item, As a result of the study, the Air Force was provided ~rith the neces- sary groundwork for launching a 1arge~scale development program on a. weaprnls syste~n busis. O~ie of the key outputs of the pf~oj~ct w~ a set of recommendations along the line of te~eà~'~h and de~relop~nent that would be required in specific gray areas, where feasibility might have been questionable, to achieve this capability for the time peri~d. Now, when the reports were received ftdth contractors, the Air Force organized a team of experts in-house, chaired by the Rome Air Development Center since they were prime on th~ job, to review these final reports and prepare a comprehensive set of conclusions, recom- mendations, and findings on the Air Force part, and submit this document back through channels, through the ~Iead4thlrter~, ~1èc- tronics Sy~stems Division, thence to the Systems C~thmand, MItt tl!~nce to Headquarters, U.S. Air ~`orce. Mr. H1~EERT. Why couldn't this group to whom you refer whhch reviewed these reports-why could it not have originated and cOn- ducted the study? Mr. SEGAL. The elements of the group were made up of people from all over the Research and Development Command, and it would have been very difficult to acquire the various disciplines that were re- quired on a full-time ba~i~, say for 9 months, which thest contractors were able to do. But on a 3-week evaluation temporary basis *e were able to obtain these various people and experts. Mr. SANDWm. Then this basically was a coSt differential? Mr. SEGAL. Cost effectiveness was a very interesting portion of the study, yes. Mr. SANDWEG. It was not lack of capability within the Air Force? Mr. SEGAL. I wouldn't necessarily say that, sir, no. The capability does exist in-house, but maybe one can't obtain it altogether at the same time on the same day it is needed for a long continued period of 9 months. Mr. SANDWEG. Is that considered at the time a contract like this is let out, when it is sent up for review? Mr. SEGAL. I am not quite sure. Maybe Mr. Meyer could possibly answer that question. Mr. MEYER. Well, it is not generally considered during thC coii- tractual handling of the requirement. But I am sure it was considered during the conceptual phase. PAGENO="0285" cONTEA~PING-OUT PROcEt~Uf~ES 281 Mr. SEOAL. Yes. When we initiate action for a procurement, this thought has gone through our mind, that the reason we are going out of house is because of this particular problem, sir. Mr. MEn~R. At Rome Air Development Center I know there is a special group of technical people that do get together before they ini- tiate a requirement to procurement. Mr. SEGAL. There is. Mr. Mi~r~. To consider the possibilities of doing it inhouse other ways. Mr. SEGAL. This is shared by the technical director of the Rome Air Development Center. Mr. HEBERT. The next one, Mr. Sandweg. Mr. COURTNEY. May I have one question for the record from Colonel Riemondy, on his presentation from yesterday? Whether or not the cyclic arrangement you have worked out, the 5-year cycle, can be accomplished within the limits of your ~nanpower resources? Colonel RIiw~ioNoy. The plan whic~h I showed the cQmmittee yester- day can be accomplished within the manpower which we expect to have on board. Mr. CQtT~TNEY. That i~ right. Colonel RIEWNDY. For the next 5 years. Mr. COURTNEY. So there is no question of manpower ceilings or additions or subtractions involved? Colonel RIEMONOY. That is correct. Mr. COURTNEY. That is all I have. Mr. SANDWEG. That is all. Mr. H~BERT. Well, thank you, Mr. Secretary, and gentlemen who have appeared. We appreciated your appearance. The copimittee will stand in recess until 2 o'clo~l~, at which time General Trudeau will be here representing the Army to close out the Army phase. Thank you, gentlemen, very much. Se~retavy I~uuE. Than1~ you, sir. (Whereupon, at 12:15 p.m., the subcommittee receesed, to recon- vene at 2 p.m. of the same day.) AFTERNOON SESSION (The subcoimpittee for Special Investigations reconvened at 2p.m.) Mr. Hi~BEwr. The committee will be in order. Mr. Courtney. Mr. COURTNEY. I~4r, Chairman, we have for discussion this after- noon the research and development contracts, or at least a selected few of them, as to which the committee had some questions. Mr. Sandweg has a list and so has the Department of the Army, and I would presume we would be ready to speak to them now. General Trudeau is the head of research and development now. Aren't you, General Trudeau? General TRUDEAU. That is correct. Mr. COURTNEY. You can parcel out the answer yourself, or parcel out the subject as the contracts ~w~nild indicate. I think you. have the same number in order that we have, General. PAGENO="0286" 282 CONTRACTING-OUT PROCEDURES General TRUDEAU. I believe so. Mr. H~BERT. General, for the record, let me on behalf of the com- mittee welcome you. General TRUDEAU. Thank you very much, Mr. Chairman. Mr. II]~BERT. This is your first opportunity to sit in the electric chair, whether we pull the current or not. We of course know you favorably and well in the full committee, and I have the pleasure of personal acquaintance with you. General TRUDEAU. It is a mutual pleasure, Mr. Chairman. Mr. E[~BERT. Particularly in New Orleans. General TRUDEAU. It is a mutual pleasure. Mr. SANDWEG. We will begin where we left off with the contract CEIR, to design and develop and build a war game. (The description of the contract is as follows:) Type of effort: Feasibility study Contractor: CEIR, Inc. (formerly General Analysis Oorp), Research Center, 11753 Wiltshire, Los Angeles 25, Calif. Contract No.: DA36-039-sc--80004. Date of award: March 31, 1958. Cost of contract: $1,419,868; partially funded in amount of $962,943. Completion date: March 31, 1963. Subject matter: Services to conduct a study for period of 60 months beginning April 1, 1958, and ending March 31, 1963. The primary objective is the development of a war game specifically designed to aid the study, analysis, development, and synthesis of combat systems o~ particular interest to the Signal Corps. Such systems include communications systems, electronic warfare systems, battle area surveillance systems, and auto- matic data processing systems. In addition to the general purpose war game there shall be developed a variety of modifications of the game especially suitable for particular applica- tions of the game. The game shall be comprehensive in that it will take full account of the various interactions of signal systems with combat elements. It shall be capable of measuring the contribution of signal systems to combat effectiveness. The game shall be mechanized, using suitable computing and analog equip- ment so that it can be played rapidly. The rules shall use terms familiar to military personnel and shall be suffi- ciently clear and simple that the game can be played with little or no special training. Recommendation or suggestion and to whom made: Contract approximately 60 percent completed. No recommendation or suggestions submitted to date. Acceptance or rejection of recommendation or suggestion and why: Not applicable. Mr. H]~BERT. Read the title to the general, Mr. Sandweg. Mr. SANDWEG. All right. This is a contract with C-E-I-R, Inc., formerly General Analysis Corp., of Los Angeles, Calif., contract DA36-039-sc-8004, awarded March 31, 1958, in the amount of $1,419,868. It has been partially funded in the amount of $962,943, with completion date on or about March 31, 1953. The subject matter of the contract was to provide services tc~ conduct a study for the period of 60 months, and the primary objective is the development of a war game specifically designed to aid the study, analysis, development, and synthesis of combat systems of particular interest to the Signal Corps. Could you take it from there, General, and tell us just what this contract is all about, why was it necessary that this be con- tracted out, the method by which it was contracted out, and the authority for this contract. PAGENO="0287" CONTRACTLNG-OUT PROCEDURES 283~ General TRUDEAU. I will call upon the repersentative of the Signal Corps to make a presentation. Mr. SANDWEG. Would each of the witnesses identify themselves for the reported by full name and title, please. Colonel JOHNSON. I am Col. J. W. Johnson, Chief, Research and Development Division, Office of the Chief Signal Officer. Major Bi~t. Maj. W. M. Beam, Office of the Chief Signal Officer~ Research and Development Division. Colonel JOHNSON. If I may, I wouold like to explain briefly that. this particular study is to set up a method by which we in the Signal Corps can apply to war games situations, communications systems and electronics systems that are necessary for the support of the tactical army in the field. This is a very complex problem in the sense that a communica~ tions network will react or operate with one organizational grouping in one environment in one way; if you change either the organization itself, or the enviornment in which it operates, it reacts in a totally different way. With the increase in the dependeiice of the Army upon electronic devices, we felt it essential that we have a method by which we could predetermine, if you will, what this reaction interoperation might be. I think the best way of summarizing this is to mention that at the end of World War II the Army in the field had approximately 30,000 to 35,000 radiating devices, either communications devices,, radars, but radiating devices using frequencies. At the present time in our organization of tables and equipment we are authorized 75,000 radiating devices so we feel this play and interplay of the systems is extremely critical to our capability to provide comma~id control and to insure the effective operation of our electronic systems. Major Beam is the project officer on this particular contract and can give the committee any specific information that it may desire. Mr. HEBERT. Well, the committee is interested in this: Why is it necessary to hire out to a civilian something that the military is trained to do? Major BEAM. Basically the reason that we have taken this action with regard to this specific contract is that the Army does not possess the technical capability to do this particular job. Mr. NORBLAD. Of war games? Major BEAM. No, sir; not of war games. The document which was read into the record specifies that this is a war game, but it is a different type of war game from that with which the military is usually concerned. Mr. COURTNEY. In what way? Major Bi~M. Normally a war game is a matter of opposing tactics, that is what we normally fight in a war game. In this particular war game, our objective is to compare communications systems or e1ec~ tronic warfare systems and other complex communications devices within the field army. Mr. COURTNEY. You had better elaborate, because it sounds like these people were selected to determine the posture of the troops- this just says to develop games, this involves troops, their deployment and movements. PAGENO="0288" 284 CONPRACTING-OUT PROG~DURES Mr. NOEBLAD. There is a million and a half dollars of the taxpayers' money involved, too. Major B~M. Let me elaborate how this works. Colonel Johnston says, our objective is to compare communications systems, one against the other, and, if I may use the example, we would propose to do it by using this system on this basis: we will take a specific military organization of division size and we will then estab- lish within that division size organization a specific communication system which we will call communications system No.1. Through the war-gaming process which we will use, we will fight that. division with that communications system against a specific enemy, and we will either take or not take our objective. We will then use that same organization in the ~iext phase, apply to it communications system No. 2, and then go throught the same process. Now we can control the environment when we do this on what we call OPX's, or map exercises and maneuvers; the human element is there, which, of course, changes our response and gives us a result which may or may not be true. It is true within certain parameters. Under the systems where we compare one system against the other, we have a controlled environment and there a~e many things which we can do. We can determine whether system No. 1, communications system No. 1-what effect it will have upon the outcome of the battle. Mr. COUETNEY. Are these mechanical systems or electronic systems or what? Major BEAM. This is a system using an electronic computer. Mr. H~BERT. You have bought the system~ Major BEAM. We rent it. Mr. Hf~nEzrr. You rent the system and pay somebody else to tell you how to use it? Major BEAM. The computer is a rented device. The model, and it is a mathematical model, is something we are developing in this particular problem. Mr. Ithi~wr. The thing, Major, that we are trying to get at is why is it necessary to spend over a million dollars to develop war games with any system or any weapon which is in the hands of the Army or any branch of the service. Aren't you people trained in this field ~ Major BEAM. The answer to your question, sir, is that none of our other war games are suitable for this particular purpose. Our purpose is to compare the effects of a particular war game on the communications system. We change the system and there are many advantages that we can see. For instance, we can design a system and we have done this for the 1962-65 Army, we have designed a system for this particular army. It may or may not be the best system that could be designed. It is, however, the system that we can live with. We have equipment in that system which has particular characteris- tics, that is, you may communicate between certain points by a certain number of con'~munications channels. Now we are faced continuously with the question: *is that an adequate number of channels of communications to give this organiza- tion the communications capability that it requires? PAGENO="0289" CONTRACTING-OUT PROCEDURES 2~5 If we say that 12 channels between these two points- Mr. HEBERT. I don't want to keep interrupting you, these details are interesting for information, but we want to apply ourselves to the overall principle. Now you are saying that you do not have the competence in the Army. Major BEAM. That was my original response to your question, sir, yes. Mr. HEBERT. Now if I may ask this question to pursue it, to get down to what we are interested in, why is it that you do not have the competence? Is it lack of manpower? Is it lack of brains? Why isn't a man in uniform which the Government has spent thousands and thousands of dollars to train at West Point and train at the universities of our country, why do we have to go outside of the uni- form to develop war games? Major BEAM. We must go back to 1956 to answer your question, sir. In 1956 the proposal was made that we might develop a system of this type. The Army decided that a feasibility test was necessary to find out whether it would continue the effort on this. It went right to its military people and determined it didn't have the capability in 1956. It then went to probably the recognized leader in the field, which was Rand Corp., and Rand Corp. said that they could not do this job for the Army. They suggested the ORO, Johns Hopkins, be contacted. Johns Hopkins said that they did not have the capability. Johns Hopkins suggested that the General Analysis Corp., which had broken off from Rand, might have the competent people to do it. Mr. COURTNEY. What are you determining precisely, the mathe- matical probabilities of communicating via A, B, C, or many different methods? Is that what you are determining? Major BEAM. To great extent this is true, sir. We hope to bring this down to the point that we can say we can rise a cheaper piece of gear than what we have designed, or that we can use one piece of gear instead of four pieces of gear to satisfy our communications requirements. Mr. COURTNEY. Well, are you testing the gear, or are you merely computithg on a machine-I don't know what the answer is, maybe I have it stated entirely wrong, but I am trying to think through to what you are getting at. Are you testing the equipment under certain conditions that are devised by this organization, which is a noncombatant outfit, I would suppose? Major BEAM. We are not testing the equipment. We are utilizing the characteristics of that equipment in our model. Mr. COURTNEY. Well, does this company devise the deployment of the troops in a given battle condition or combat condition, both friendly and adversary, and then does it figure out the different move- ments of the troops? Major BEAM. This is what this company is doing; yes, sir. Mr. COURTNEY. Well, why wouldn't that be within the competence of the military people t& determine the kind of game that you are having? General TRUDEAU. Let me take this over, Major. 74iO9-~6i----i9 PAGENO="0290" 286 CONTRACTING-OUT PROCEDURES Colonel Johnston has told you that the number of pieces of equip- ment, electronic equipment~ have doubled since World War II. As a matter of fact, the number of electronic emissions in the battle area have probably increased by a factor of 5, and will increase by a factor of 10. In other words, there will be 10 times as many electronic emissions going on in a given battle area in 1970 as there were in World War II. Now because we have learned a lot more about radio spectrum, we can break up the frequencies into much smaller frequencies than we could before. In the band that is allotted for our tactical radios, we used to think if we got 80 or 120 channels in there, so that different companies or battalions could use different frequencies, this was good. Our new radio sets have 900 channels in them. It doesn't mean every man has access to 900, but it means we have the selectivity to use 900 channels. Furthermore, modern science has found out that when we state electronic emissions we are talking not only about radio and we are talking not oniy about telephone; we are talking about radar, we are talking about infrared signals, we are talking about amazing things that are happening that interrelate the light spectrum with the elec- tronic spectrum. Consequently nobody knows, not only in the Army but in the United States, as to whether when all these electronic emissions are occurring in an area, whether it is going to function or whether through inten- tional jamming on the part of the enemy or unintentional jamming because of the complexity of this equipment, whether it is going to work or not. So there are two steps. Mr. COURTNEY. This is a t~st of equipment, then, isn't it ~ General TIWDEAU. There are two steps being taken. When this man brings up this program, this war game here, he will program in that there are so many emissions occurring at a certain rate ~nd for a certain length of time, let's say 020.2, if this is the channel, and there are so many more on 020.4 and 050.3, and then he is cranking in also the number of frequencies or emissions that are occurring, and for how long on the part of the enemy, into a data computer to find out whether this is feasible. We need the best brains in industry onthis, and if you think that this is expensive, let me tell you that in order to lay this out on the ground with the actual pieces of equipment which will be also ready before 1963, that the Army is now spending $30 million at Fort Huachuca, the environmental test ground, and this is proceeding. This is lil~e a paper exercise, and the next thing is to get your troops out fOr maneuver. This is expensive, and there isn't enough talent in the United States to tell you whether this is all going to work together until we test it. Mr. HEBERT. Well, General, what you are saying then, as I under- stand your testimony, it is this: In reality and as we understand it, you are testing the equipment under certain conditions. General TRUDEAU. This is correct. PAGENO="0291" CONTRACTING-OUT PI~OCEDURES 287 Mi~, HEBERT. And you have asked them to simulate a war condi- tion and that is the reason why you had to get the people who pre- pared this thing, or who are familiar with it, to simulate these two areas in order to test it. General TRUDEAU. That is correct. Mr. HEBERT. But actually as to the term "war games," we are not talking about that. General TRUDEAU. That is right. Mr. NORBLAD. What was the figure given between 1962 and 1965, Major? Major BEAM. I made the comment that we were developing a communications system for our 1962 to 1965 Army. Mr. Nom3I~AD. I See. Major BEAM. And that one of the uses of this system-we will ap- ply that system in this exercise and determine how it can be approved. We will validate that system, and we hope to achieve significant savings in equipment, personnel, and other areas. Mr. NORBLAD. CEIR is an electronics outfit, I take it. General TRUDEAU. Yes. Mr. NORI~LAD. Is that the place I go past on U.s. 1 every day here? General TRUDEAU. They have an operation here. Mr. NORBLAD. They are in Los Angeles, too? General TRUDEAU. They are worldwide, or tT.S.-wide. Mr. NOEBLAD. They have been ~½ years on this contract and you have had no results at all, is that correct? Major BEAM. No, sir; this was a 5-year effort. This wa~ what our feasibility study showed. Mr. NORELAD. The contract was entered into on the 1st of April 1958. No recommendations or suggestions s~ibmitted to date after 31/2 years for a modern war game4 Major BEAM. This was a 5-year effort. The division model has been delivered and its starting test is at Fort Huachuca the end of this year. Mr. COURTNEY. We set the format for the discussions and these are the responses that appear under the questions. Mr. NORBLAD. Three and a half years with no report to you is considered perfectly normal, I suppose? Major BEAM. No usable product, sir, but this was anticipated, and this was in accordance with our plan. Mr. 1{EBERT. What is the notation at the end, "Not applicable." That seemed to be the conclusion. General TRUDEAU. There was no recommendation or suggestion made, and consequently the question of acceptance or rejection is not applicable. Mr. H1~BERT. They have not reached the stage of decision? General TRUDEAU. No, sir. There are military people working with them, and if the Army could set several hundred electronics engineers on this study, if they had them above the normal con- duct of Army duties, we probably could get in and make a good study ourselves, although we are not the experts on data c~omputers that they are. PAGENO="0292" 288 CONTRACTING-OUT PROCEDURES It is the problem of a peak load. Everybody is busy or have people we don't need. Mr. HJ~BERT. All right, let's proceed to the next contract. Mr. SANDWEG. The next contract in line is with the Armour Re- search Foundation of Illinois. Contract DA-36-039-sc-66476, which is a study of ways and means to improve the Army combat development system. (The description of the contract is as follows:) Type of effort: Research. Contractor: Armour Reserach Foundation of Illinois, Institute of Technology, 10 West 35th Street, Chicago 16, Iii. Contract No.: DA-36--039-sc--66476. Date of award: June 30, 1958. Cost of contract: $50,703. Completion date: March 31, 1959. Subject matter: A study in ways and means to improve the Army combat development system. Recommendation or suggestion and to whom made: Recommendations of the contractor were furnished USCONARC. Acceptance or rejection of recommendation or suggestion and why: Recom- mendations and final report were accepted by USCONARO as being acceptable and as a result more effective means were developed for collecting, abstract- ing, distributing, storing, and recalling information used by 31 military agencies engaged in developing new doctrine, new organizations, and requirements for new material. Mr. SANDWEG. Would that contract be on the same order as this type of contract ~ General TRUDEAU. I doubt it. Whoever is knowledgeable on that should speak to the subject. It is a contraqt completed in 1959. I am not personally cognizant ofit. Mr. VANois. I am James Vance from the Signal Engineering Agency, in the Computer System Division. I served as the assistant project officer in that project, sir, and the project there is an engineering study of the combat development system of the U.S. Army, which is under the Continental Army Command, Fort Monroe. This study was an engineering study to approve, check the effi- ciency of, and recommend guidelines for better efficiency in the future operation of the combat development system. Now would you care for me to explain the combat development system because that is fundamental to an understanding of this contract. This is a term applied to a group of associated agencies whose activities are oriented toward the future of the entire Army in the broad areas of new doctrine, new organization, and new material. The system agencies are organic to the major elements of the Army charged with the development and evaluation of future concepts. Now this combat development system resulted as a byproduct of a study called Project Vista. Project Vista was concerned with a study of the ground and air tactical warfare with special reference to the defense of Western Europe. That final report was submitted in February 1952 and as an outgrowth of the study it was recom- mended that a combat development group be established for the purpose of carrying out experimental research on the problems of ground combat both in the laboratory and in the field. PAGENO="0293" CONTRACTING-OUT PROCEDURES 289 Following that there was establishment of the Combat Develop- ment Group and the Department of Army desired to determine the effectiveness of the group and how it could be improved and the Com- mittee known as the Hayworth Committee, after Mr. Leland J. Hay- worth, Chairman, was appointed to perform critical analysis of the functions and relationships of the combat development group. That report to the Secretary of the Army in October 1954 called the Hay- worth report, contained an overall evaluation of the system and rec- ommended changes which should be adopted to improve the overall operation. Now this was the combat development system and it relies on in- formation and data for its effectiveness. The information is obtained from a great variety of sources in a great many different ways and deals largely with very complex subjects and it is disseminated to widely divergent sources, civilian and military and in the process of this work the problems of data transmission processing, storage, and retrieval arise, so this study was initiated by the Continental Army Command, Commanding General Combat Developments, to determine several questions: The nature and extent of use of the body of knowl- edge at headquarters, terminals inside and outside Conarc, which is Continental Army Command, to determine the needs and possible areas of improvement which exist in the combat development system so as to obtain compatible and effective communications and data handling throughout the system. This was the most important of all, and following that there were a number of additional purposes of this study such as balancing the current combat development system and its ideals or the ideal system versus what is practical from an economic standpoint, and to develop a set of recommendations for steps to be taken to improve the system, particularly in the areas of transmittal, processing, storage, and rapid data retrieval. Mr. HARDY. How many people did it take to do all that? Mr. VANCE. This study was a five-man effort for 6 months time. Mr. Couirnii~~. Well, now what special competence does the Ar- mour Research Institute have on it? What you have said pretty much looks as through it would be the soldiers' job to define the doctrine of a competent group or group in combat. Now the part of it that deals with the information, the papers, whatever you want to call it, is somewhat associated with the library sciences where you would find out what is written on the subject and how it is distributed. This is understandable. Mr. VANCE. Where it is, what it contains, how consistent it is with your new doctrine and so on. Mr. COURTNEY. But when you are defining doctrine- Mr. VANCE. Procedures is another term that is often used. Mr. COURTNEY. Well, doctrine has a pretty well-understood mean- ing, in these precincts at least, but when you are defining doctrine, isn't this the business of the men in uniform? Mr. VANCE. Let me explain the difference between the combat de- velopment system and this study. This study was directed toward the efficient performance of this function. How efficiently it is being performed. Mr. HARDY. Couldn't the Army make a determination in that area without hiring somebody else to do it? PAGENO="0294" 290 CONTRACTING-OUT PROCEDURES Mr. VANCE. They [Armour Research Foundation] have a staff of about 1,300 personnel of a highly qualified nature, Mr. HARDY. Well, why do you need these five people to do it then? Mr. VANCE. There was an investigation and scrutiny of the re- sources of the Signal Corps and the other agencies under the jurisdu~- tion of the Deputy Chief of Staffs Lqgistics, and the Comptroller of the Army, which indicated that the Department of the Army did not have the personnel with the proper skills that could be made available to conduct this study at that time. Mr. HARDY. So this is the kind of thing that was going to develop doctrine which the men in uniform were not capable of doing. Mr. VANCE. Not to develop doctrine, sir. Mr. HARDY. Well, all right; what else? You said doctrine a while ago, I thought. Mr. VANCE. That is the function of the ~ombat development system itself, for the doctrine development and the doctrine presentation and testing and investigation. This contract was in order to ascer- tain better and more effective ways that the combat development people could do their job, better methods of data retrieval and data coordination, where you have libraries scattered throughout the geographic United States-a great deal of it classified-and the job of the project analyst is to scrutinize all of that and to draw his conclusions. Mr. HARDY. Well, now what are these people that work on this contract, what do they do normally? General TRIJTh~AU. They are management consultants. Mr. HARDY. Management consultants, all right; and so they are expert in the gathering of this dkta and evaluating this data which the Army itself wasn't able to do. Mr. VA~cR. The Army has not had nearly so much trouble in evaluating the data as in the communications, the information re- trieval and filing and the coordination of the data. Mr. HARDY. I thought that all of the folks over in the flefense Department were pa1st maste~s itt ooordin~ting, ai~d if this 4~ a matter of coordination-4hat is one of the f~ivoHte `words they `hate ~er there, "implementation" and "coordination," and "finalizing" is another one-but I am just having a little trouble understanding why the Army lacks competence in this particular area. Mr. VANCE. I would not say that the Army didn't have competent people who couldn't have done this job- Mr. HARDY. You don't want to say that as to any area, but I don't know. I am just trying to understand. Mr. VANCE. It was a matter, sir, that whether those people that the Army had which might have been `capable of doing it were available to do it in relation to their other work. Mr. HARDY. Did somebody make a determination as to whether the Army did have people who were capable? Mr. VANCE. Yes, sir. Mr. HARDY. And if they did, did somebody make a determination that they were so busy doing something more important that they couldn~t be spared for this job? Mr. VANCE. Well, sir, the determination was simply that the Army did not have the personnel with the proper skills that could be made available for this study. PAGENO="0295" C0NTRACTING~oUp PROCEDURES 291 Mr. HARDY. And that was a finding somebody made and you don't know whejther they actually made any determination or not, beyond just deciding we want to give this contract to these people and let them do the job, instead of our doing it ourselves? Mr. VANCE. Well, sir, I am satisfied that Major General Ward, who signed off on this certainly satisfied himself that he was correct. Mr. HARDY. Well, I don't doubt that, but sometimes these folks ~an satisfy themselves awfully easily on a staff recQmmendation. Mr. VANCE. Sir, this went through various groups of individuals within the Army. There was a Mr. Garcia from Deputy Chief of Staff, Logistics, and there was Colonel- Mr. HARDY. Any document that goes through any Government agency can get itself burdened down with initials on it, but the fact of initials on it doesn't always mean anything more than it went through their hands. Mr. H1~BERT. How many more men did it take to find five men? Mr. VANCE. There was a regular request for proposals sent out to around 32 different firms who were considered to be capable of doing this work. Mr. H~BERT. No; I mean in the Army. How many men did it take to find out they couldn't spare five men for 6 months. Mr. VANCE. This got out of my bailiwick and happened before my time. I will plead innocent on that. General TRUDEAU. I can't plead knowledgeable to this, but to put it in focus in perhaps a slightly different way, let me draw this dis- tinction: The Chief of Research and Development-I am not talking about the contracts themselves, but my function is to develop hard- ware. There is another side to this in the Army and that is how you take this hardware-first, what kind of hardware do you want that is Dew; secondly, if you are going to get some new hardware, such as Davey Crockett tomorrow, how do you use that, what is the doc- trine, what organization do you put it into, does it change the squad or the platoon organization. Now we have about 13 different-and I may be wrong as to the exact figure-branch schools, the Infantry, the Armored, the Engi- neers, the Signal, the Transportation-they all have some function that is involved on many of these items of equipment. Each one plans and writes the doctrine that they see as to how it should be used, and any changes they recommend on organization, on equipment, on the amount that should be in stock, how you would distribute it, the flow of supplies, et cetera, all of this stuff comes together in the combat development ~ectibn down at CONARC- and they have a terrific time balancing some Qf it out-so while I am not personally knowledgeable as to this particular contract, I would say almost with complete assurance that what they did was to get two or three management consultants and the firm that hkd access to a modern data computer to see how they could program this data with a view to simplification in bringing it into focus. Mr. HARDY~ That is a rationalization. General TRUDEAU. This last part, yes; the rest is fact. Mr. HARDY. That doesn't help very much when you get into trying to make an analysis, the kind of thing .we are trying to do here. Actually, I don't know whether we are competent to pursue this PAGENO="0296" 292 CONTRACTING-OUT PROCEDURES thing any further, but from m± standpoint I don't find that we have been provided very much basis ~for determining why the Army elected to pursue this particular course.j Now you can guess-and we ~o too much guessing, I think, when we get into this area. Mr. VANCE. I could give you this much personal knowledge, because of my visits at CONARC in working on this problem. They had a staff, I believe, of one management analyst and a very junior man who was being trained. So the CONARC capability for making such a management study was quite `limited. The management analyst omces in the departments are larger, but- Mr. HARDY. But you didn't p~rticipate in the decision. Mr. VANCE. I did not part;idipate in that part of the decision. Mr. HARDY. As a matter of ~act, we don't have anybody here that did, do we actually? Mr. VANCE. Not that I know of. Mr. HARDY. So what we are doing is running all around in the area of conjecture, Mr. Chairman. Mr. H~BERT. Yes; let's take the next contract. Mr. COURTNEY. Was this ~t contract; to find the papers on the subject? Mr. VANCE. Yes, sir; it gives the parameters for the contractor to work with. Mr. H~BERT. The next contract. Mr. SANDWEG. The next contract in order was with the Ark Engi- neering Co. of Philadelphia, contract DA36-039-sc--76469 awarded January 20, 1959, in the amount of $33,900. (The detail on the above-mentioned contract is as follows:) Type of effort: Research. Contractor: Ark Engineering Co., 431 West Tabor Road, Philadelphia 20, Pa. Contract No.: DA36-039--sc-76469. Date of award: January 20, 1959. Cost of contract: $33,900. Completion date: December 14, 1959. Subject matter: Report based on study and evaluation of interference present at or caused by the Department of Army Transmitter Station, Woodbridge, Va. Recommendation or suggestion and to whom made: Reports and recommenda- tion were furnished to the commanding officer, U.S. Army Signal Communica- tions Agency, Arlington Hall Station, ArlIngton 12, Va. Attention: SIGLP-5.22. Acceptance or rejection of recommendation or suggestion and why: The con- tractor recommended to CO, ASASEA, that there were two danger areas, one directly under the antennas, the other under the balen. Recommendations which were adopted were: (a) Set up a roadblock. (b) No employee work for a prolonged period under the antenna or balen. (c) Build a protective fence. (4) Post warning signs. Mr. SANDWEG. A report was to be made based on study and evalua- tion of interference present at or caused by Department of the Army Transmitter Station at Woodbridge, Va. The contractor recommended to the commanding officer, USASEA, that there were two danger areas, one under the antenna and one under the balen. Recommenda- tions were: (a) Set up a roadblock, (b) no employee~work for a pro- longed period under the antenna or balen, (c) build a protective fence, and (d) post warning signs. PAGENO="0297" CONTRACTING-OUT PROCEDURES 293 Mr. NORBLAD. $33,000. Mr. SANDWEG. General Trudeau, we are interested in this contract because of its size. It would appear to be a difficulty encountered by the military that is not unusual in industry using comparable trans- mitters, and we wondered why it was necessary to get an outside organization to come in and tell you about this. Colonel JOHNSToN. This was not a research and development con- tract. This contract was placed by our Research Division, the initials stand for U.S. Army Signal Corps Engineering. We have the proj- ect officer here. That is concerned with the long communications Service. Mr. SWOPFORD. I am Mr. Swofford of the USASEA. In coincidence with the testing of the high-powered transmitter, this contract was let to investigate the possibility of RF hazard to personnel. This was the prime cause. Mr. SANDWEG. RF? Mr. SwoFFour. Radio frequency. This is electromagnetic energy and X-ray action, that is the real reason. Mr. HEBERT. There is no other way to find it out except to let the contract. Hadn't you come upon this situation before? Mr. Swo1~oRD. Not to this degree. This was in excess of a half million watts. Mr. NORBLAD. You talk about evaluation of interference present. I couldn't connect that up with the recommendation to put up a fence and so on. Mr. Swor1~oRD. This was a side issue, sir. We did find out a great deal on interference. We had to learn the possibility of its compati- bility with lower powered transmitters and what it would do to broadcast, AM, FM, TV, and so on. Mr. NOEBLAD. That is what is indicated here, but certainly you don't prevent interference with a plain broadcast by putting up a warning sign in Woodbridge, Va. Mr. SWOFFORD. This was misleading on the synopsis. Mr. NORBLAD. Give me the synopsis. I read this this morning and I couldn't add the subject matter up to the recommendation at all. Mr. SWOFFORD. Report based on measurement survey of electro- magnetic energy and action X-rays and evaluation of possible biolo- ical hazards to personnel at the personnel at the Department of Army Transmitter Station, Woodbridge, Va. I think that would more ac- curately state it. Mr. NORBLAD. And the answer was, "Keep people away from the area." Mr. SworroiiD. Within reason, yes. Mr. NORBLAD. It didn't cost $33,000 to keep people away from the area. Mr. Swor~onn. You realize we have a tremendous operation down there and a tremendous number of transmitters. We couldn't evac- uate the whole area, of course, for the operation of this transmitter. Mr. NORBLAD. I realize that. Didn't you people know you just had to keep people out of the area instead of paying somebody from Philadelphia to come down and tell you that? PAGENO="0298" 294 CONTRACTING-OUT PROCEDURES Mr. SWOFPORD. I think it was necessary that we define what the particular areas were of prime concern. If there was a particular transmission line that went across the road we had to protect people who would go into that particular area. Mr. SANDWEG. Was this something unusual about this transmitter or haven't you had this problem with other transmitters? Mr. Swom'o~. This was the first of its kind to be installed in the country. Mr. NORBLAD. The Navy doesn't have one like this? Mr. SWOFFORD. They are presently installing one. Mr. NORBLAD. What about the big one in the State of Washington, that is a tremendous one. Mr.' SWOFFORD. Yes. Mr. NORBLAD. Wouldn't that be more high powered than yours? Mr. SWOFFORD. It is more high powered, but it is installed in a. different environment. Mr. NORELAD. I realize it is up in the Cascade Mountains, but you didn't discuss this with the Navy, I take it? Mr. SwoFroRD. Theirs was put in after ours. Mr. NORBLAD. I thought it was before. Mr. SW0FF0RD. No, theirs came in afterward. Mr. HARDY. Before you go on, actually your problem here w'as one of measuring a dangerous magnetic energy and X-ray. Colonel JOHNSTON. That is correct, sir.. Mr. HARDY. It takes a contract of this kind to make these measure- ments? I would have thought the Signal Corps' had ample com- petence to make a determination as to whether there was any radiation or radioaotwe effect from the energy in those lines to be dangerous to human beings. Did you have to go out and make a contract with somebody to do that?; Mr. SwoFFoim. We didn't at that time possess the instrumentation or the techniques to do this job. We have gained a great deal of information since then, now we do have equipment. Mr. HEBERT. You wouldn't have to let this' type of contract again? Mr. Swo~'oRD. I don't think so unless it was imposed on us. Mr. NORBI4AD. Your own report about the subject of interference doesn't have anything to do with it? Mr. SwOFF0RD. That was a side issue. Mr. NORBLAD. Who put that in? General `TRUDEAU. What they should do in a case like this was to incorporate this testing and they undoubtedly had to use many radio- active devices to determine the intensity. This should have been a part of the contract when the thing was constructed, but apparently it was not put in at that time. Mr. NORBLAD. Who drew this up? Mr. SWOFFORD. I think the term "radiation hazard" has an unfortu- nate connotation. Mr. HARDY. It looks to me like you might have gone to the Atomic Energy Commission and got them to find the ahswer. Mr. SANDWEG. I think Mr. Norblad is interested in knowing who prepared the documents from which we are reading. Mr. NOEBLAD. The subject matter is not the subject matter we are talking about at all. PAGENO="0299" CONTRACTING-OUT PROCEDURES 295 Mr. SANDW~G, Who prepared them? Mr. Sw0FF0JW. I don't know. Colonel JOHNSTON. I beiieve these were prepared by the procure- ment and distribution system of the Signal Corps. This is the con- tracting side of the house. I am not sure. This original presentation was nuder the auspices of the Deputy Chief of Staff ~for Logistics, and for that reason I believe that the information was prepared by the logistics people. I will check and find out. Mr. SA~TDWEG. i~s Mr, Norblad indicates, we certainly received a. difrerent impression from the material. we read. Perhaps there wouldn't have been any question about the contract itself had it not been improperly written. Mr. HARDY. Let me ask a couple more questions about this thing. How long did this contract run? Mr. SWOFFORD. It ran 9 months in the field and 3 month~ in prep- aration of the material. Mr. HARDY. And primarily it was a matter of meas~iring the eMrgy? Mr. SWOFFORD. Measurement of energy, but remembei~, sir, it was more than just this one transmitter. It turned out it was all of the transmitters in the whole complex and this is a tremendous job. These transmitters are changing frequency from hour to hour ~nd it does take a tremendous amount of time and skill. Mr. HARDY. Well, actually he comes up with a finding that you have got two danger areas, one is under the antenna and I don't know what this other thing is that you have got here. Mr. NORBLAD. A balen. Mr. SWOFFORD. That is a transformer device. Mr. HARDY. But it took them 9 months to complete the measure- ments on this thing and then 3 more months to ma1~e the evaluation; is that right? Mr. SWOJrFORD. Yes, sir. I think by the nature of this transmitter it was necessary that the fellows spend a little more time iii the field than they would normally do because we had to get clearances for every test, every frequency, and there were times when the transmitter was down for maintenance and there were delays, unavoidable delays. Mr. HARDY. How many men did they have worldng on it? Mr. Sw0FF0RD. A total of nine on the contract, six in the field, no less than two on the job at a time. Mr. HARDY. And it took them a whole year. By George, they lost money, didn't they. Mr. SWOFFORD. I think we got our money's worth. Mr. H1~BERT. Next contract, please. Mr. SANDWEG. Other contracts that are pretty much in the context of the area that we have mentioned here are as follows: (The documents above referred to are as follows:) Realm of contract: Effort type (best effort). Identity of contractor: Atlantic Research Corp., Shirley Highway and Ed- sail Road, Alexandria, Va. Cost of contract: $57,447. Subject matter: Analysis of 81 millimeter mortars M-29 and M-23A5 for the purpose of defluing certain elements in the performance of the present mortars and collecting a new body of data to be used in the proposed design and develop- ment of an improved medium mortar. PAGENO="0300" 296 CONTRACTING-OUT PROCEDURES Results of undertaking: Brief statement as to recommendations: None. If incomplete contract: Effort as of March 30, 1961: Technology of instru- mentation may not be advanced sufficient to measure elements involved. Realm of contract: Feasibility studies. Identity of contractor: Armour Research Foundation of Illinois, Institute of Technology, 10 West 35th Street, Chicago 16, Ill. Cost of contract: $34,220. Subject matter: A feasibility study with the objective of using alternate methods processes and materials in the manufacture of the weapon havin as the objective lower production costs and to reduce the use of highly skille labor, critical materials and special tooling. Results of undertaking: Brief statement as to: Recommendations: Make in area of tooling, machining techniques, and * other manufacturing processes. To whom made: Watervliet Arsenal. Accepted. Realm of contract: Feasibility studies. Identity of contractor: Atlantic Research Corp., Shirley Highway and Ed- sail Road, Alexandria, Va. Cost of contract: $62,811. Subject matter: Project for conducting concepts studies and preparation of designs for a new 81-millimeter medium mortar and a new 4.2-inch heavy mortar. Results of undertaking: grief statement as to: Recommendations, none. If incomplete contract: Effort as of March 30, 1961, satisfactory progress in preparation-of-concepts study. Contractor: Operations R~search Inc., Silver Spring, Md. Contract No.: DA 49-193-MD-2115. Contract cost: $76,993. Subject matter: A method which will serve as a basis for determining medical personnel requirements of selected type units to support the combat forces envisioned by current and future concepts. Results of undertaking: The results of this study provided a working sub- model for the examination bf the Field Medical Service through computer simulation up to and including the level of battle group or comparable unit. This submodel will permit the evaluation of various unit staffing patterns in relation to the effectiveness of the medical service provided under any number of situations. Contractor: Operations Research, Inc., Silver Spring, Md. Contract No.: PA 49-193-MD-2154. Contract cost: $97,027. Subject matter: A method for evaluating the relative effectiveness of the field army medicine support system. Results of undertaking: The results are intended to extend the submodel up to and including division level. Type of effort: State-of-the-art study. Contractor: Armour Research Foundation, Illinois Institute of Technology, 10 West 35th Street, Chicago, Ill. Contract No.: DA-36-039--sc-80021. Date of award: April 30, 1958. Cost of contract: $74,902. Completion date: July 20, 1959. Subject matter: Services required for a period of 14 months, for a continuing study of new and proposed types of sensory and data transmission processing and display equipments, devices, and techniques. Recommendation or suggestion and to whom made: None. The contractor was required to canvass industries as to what was available and proposed in techniques and components. The findings were presented by the contractor to PAGENO="0301" CONTRACTING-OUT PROCEDURES 297 the USAEPG with a condensed version listIng significant items of interest to the USAEPG. Acceptance or rejection of recommendation or suggestion and why: Not applicable. Type of effort: Research. Contractor: Booz-Allen Applied Research, Inc., 4921 Auburn Avenue, Bethesda, Md. Contract No.: DA-36-039-sc-83758. Date of award: September 30, 1960. Cost of contract: $84,192. Completion date: May 31, 1961. Subject matter: Research and development of ground combat models and other war games. The requirements cover review of existing models, computer programs, and research activities related to the development of ground combat models and other war games. Recommendation or suggestion and to whom made: Recommendations have not been completed. Acceptance or rejection of recommendation or suggestion and why: Technical progress is satisfactory. Type of effort: Prepare training exercise. Contractor: International Business Machines Corp., 590 Madison Avenue, New York, N.Y. Contract No.: DA-36--O39-sc-83~9. Date of award: September 28, 1959. Cost of contract: $72,000. Completion date: February 1961. Subject matter: Prepare a realistic simulation of U.S. Army's continental wholesale supply system. This simulation will be used as a training exer- cise by U.S. Army Logistics Management Center. The simulation will be called logistics simulation-wholesale computer assorted. Recommendation or suggestion and to whom made: Recommendation was made to the contracting officer's technical representative. These were con- tained in final flow charts and computer coded program supplied on cards. Acceptance or rejection of recommendation or suggestion and why: Recom- mendations of method of approach and training exercise furnished were accepted. Type of effort: Research. Contractor: Stanford Research Institute, Menlo Park, Calif. Contract No. DA-36-039-sc--76454. Date of award: June 27, 1958. Cost of contract: $430,140 (basic contract, $150,480; modification No. 3, April 13, 1959, $74,735; modification No. 6, October 2, 1959, $115,000; modifica- tion No. 9, March 17, 1960, $89,925). Completion date: October 31, 1960. Subject matter: Objective of this procurement was to obtain professional services for research into techniques and their application for the reduction of leadtime and the orderly scheduling of Signal Corps organizations, opera- tions, systems, and materiel. Recommendation or suggestion and to whom made: The contractor recom~ mended to the Chief Signal Officer a system of mechanized aid for programing and scheduling be implemented to improve the flow of management information throughout the Signal Corps. Acceptance or rejection of recommendation or suggestion and why: The contractor's proposal is presently being studied. * INT0nMATT0N RELATIVE TO CONTEACTS ron BASIC RESEARCH, MANAGEMENT SERVICES, FEASIBILITY STUDIES, AND OTHER ErronT TYPE CONTRACTS 1. Type of effort: Effort type. 2. Contractor's name and address: Federal Electric Co., Industrial Park, Paramus, N. J. 3. Contract No.: DA 36-039 SC-85276. 4. Date of award: December 24, 1959. PAGENO="0302" 298 CONTRACTING-OUT PROCEDURES 5. Cost of contract: $43,134.18. 6. Estimated completion date: Completed. 7. Subject matter: Develop revised maintenance concepts of Signal Corps equipment. 8. Recommendations or suggestions: The final report under this contract to U.S. Army Signal Material Support Agency contained recommendations concerning revised maintenance concepts. The report recommended abolish- ment of second and fourth echelon maintenance and establishipeiit of lij~ita- tions on first and third echelon. They further recommended an increase in fifth echelon maIntenance. 9. Were recommendations accepted or rejected and why: Recomeudations are currently being studied and when Signal Corps position is established coordi nation with other activities will be effected. ri'~FoRMA~rxoN RELATTVE uo CO1cuRACTS ron BASIC RE5EAnCH, MAirAGEMRNT 5znvicns, FEASIBILITY STUDIEs, AND Oruzu Erronu Tvrn CONTRACTS 1. Type of effort: Basic research. 2. Contractor's name and address: ~General Electric Co., Heavy Military Electronics Department, Court Street, Syracuse, N.Y. 3. Contract No.: DA 36-Q~9 SC-7S147. 4 Date of award Basic contract awarded June 26 1956 and modified to extend services on June 11, 1959 and December 27, 1960. 5. Cost of contract: $208,987. 6. Estimated completion date: April30, 1961. 7. Subject matter: Studies in connection with modes of failure an~ reliability prediction studies of pulse cables. 8. RecommendatiOns of suggestions: Draft of tinal report contains recom- mendations for new methods of testing pulse tables and indicates areas for further development. 9 Were recommendations accepted or re)ected and Why Recommendations are beIng partially imiilemented by means of new contract presently being negotiated. ______ Type of e~ort: Feasibility study. Contractor: RCA, Front & Cooper Streets, Camden, N.J. Contract No.: DA_36-Q39-Sc-67468. Date of award: June 10, 1955. Cost of contract: $1,787,446. Completion date: November 30, 1958. Subject matter: Furnish services to conduct investigations on bow the interim division, Corps, and Army area communication systems can be utilized for maximum capability and improved to meet future requirement. Recommendation or suggestion and to whom made: Reports submitted by centractor to USAEPG covered recommendations of area communication systems for the Division, Corps, Army, Armored Divisions, and Airborne Divisions. The reports were reviewed with recommendations and final conclusions prepared to OCSigO. Acceptance or rejection of recommendation or spggestion and why: Approx- imately 85 percent of the recommendations and suggestions made by the con- tractor were accepted by the Office of the Chief Signal Officer and are presently being implemented. ______ Type of effort: Concept study. Contractor: Radio Corp. of America, Front & Cooper Streets, Camden, N.J. Contract No.: DA-36-039-SC-80071. Date of award: May 31, 1958. Cost of contract: $1,700,434. Completion date: March 31, 1960. Subject matter: Services and Materials to conduct investigations relative to bow the interim Division and Army area communication systems can be utilized for maximum capability and improved from the future viewpoint in accordance with technical requirement, Signal Communication 12-58, May 9, 1958, "Technical Requirement for Development of IBM 709, which will provide simulated tactical PAGENO="0303" CONTRACTING-OUT PROCEDURES 299 communication systems, from the platoon to Army group, using manual and automatic switching." Recommendation of suggestion and to whom made: Improvement of the Area communication systems at Field Army, Corps, and Division. Contractor's recommendations were concurred in by the U.S. Army Electronic Proving Ground and submitted to the Office of the Chief Signal Officer. Acceptance or rejection of recommendation or suggestion and why: A mini- mum of 50 percent of the recommendations were accepted by the Office of the Chief Signal Officer and are currently being applied to the current Signal Corps tables of organization and equipment, resulting in changes to Signal units, personnel, and equipment, communications doctrine and procedures. Type of effort: Technical assistance. Contractor; Radio Corp. of America, Front & Cooper Streets, Camden, N.J. Contract No,: DA-36--O3~-SC-8O466. Date of ward: May 4, :19(30. Cost of contract: ~96,042.88. Completion date: July 24, 1960. Subject piatter: ?rovide specific eflgiiieering assistance in certain designated areas to develop the communicatioa systems for the Field Army for the period 1962-65. Recommendation or suggestion and to whom made: Contractor was required to furnish engineering assistance to improve the Division, Area communications systems to include: (a) Repackaging of equipment; (b) T.O. & E. changes: (c) Training of personnel; and (d) Communications systems. Reports were reviewed with recommendations and final conclusions prepared by U~AEPG and submitted to OCSigO. Acceptance or rejection of recommendation or suggestion and why: Recom- mendations and suggestions currently being evaluated. Mr. SANDWEG. We will go to others in a moment, but I think we might indicate here at least it appeared to me on not infrequent occasions we have had not only the Army but the Air Force as well to indicate that it did not have a capability and had to go out for that, and I think this might be something that* the military could consider addressing itself to perhaps when these hearings are finished. General TRUDEAU. Well, you wouldn't us to have the capability of building this. You want this done by private enterprise, and by the same token the checkout of this ought to be done by private enterprise. Mr. SANDWEG. Wouldn't you think it important that you have the capability to measure these radiation frequencies? General TRUDEAU. I think we have developed them over the years. Mr. SANDWEG. But you didn't have it up to this time. General TRUDEAU. I don't think we had them as rapidly as industry comes out with them. Mr. NORBLAD. Well, your Signal Corps must be a tremendously. big organization. General TRUDEAU. It is. Colonel ~JOHNSTON. With regard to this specific thing, we now have this capability, we now have radiation measurement teams we send out to take field strength measurements, to do a task just like this. Again we get into the situation where naturally we are using elec- tronics at much higher powers and in greater quantities than we have ever before. We have to check very, very carefully. Many of our airborne devices or tremendous antennas that are being constructed and utilized in support of our national space program-we must be PAGENO="0304" 300 CONTRACTING-OUT PROCEDURES sure that the radiation hazards are recognized and the tolerable limits are maintained. We do have this capability now. At the time we are speaking of we did not. Mr. SANDWEG. May we proceed to contract MD-997, with Dunlap & Associates, Inc., of Stamford, Conn., in the amount of $74,386. (The details of the contract referred to are as follows:) Contract No.: MD-997. Contractor: Dunlap & Associates, Inc., 429 Atlantic Street, Stamford, Conn. Contract cost: $74,386. Subject matter: To conduct research on the analysis and prevention of motor vehicle accidents to off-duty military personnel. Results of undertaking: A significant number of man-days are lost annually due to motor vehicle accidents involving military personnel. A reduction in motor vehicle accidents would, in addition to the readily recognizable benefits, result in large monetary savings to the Government through additional time being available for normal duties of the military personnel involved. Objective of this study is to discover major causes of motor vehicle accidents involving mil1tar~r personnel and to devise measures for an effective j~rOgram to eliminate or control the causes for such accidents. Mr. SANDWEG~ The subject matter was to conduct research on the analysis and prevention of motor vehicle accidents to off-duty mili- tary personnel. The results of the undertaken are set forth as follows: A significant number of man-days are lost annually due to motor vehicle accidents involving military personnel. A reduction in motor vehicle accidents would, in addition to the readily recognizable bene- fit, result in large monetary savings to the Government through addi- tional time being available for normal duties of the military person- nel involved. The objective of this study is to discover major causes of motor vehicle accidents involving military personnel and to devise measures for an effective program to eliminate or control the causes for such accidents. Now, since this appears to be an area within the realm of the Na- tional Safety Council and the American Automobile Association, I wonder why it was necessary for the Army to spend approximately $75~OOO to obtain these data ~ Colonel WRIGHT. Sir, I am Colonel Wright, executive officer of the Medical Research and Development Command. Colonel Dunne here is now the project officer for the area which at that time would have handled the contract. I believe he can explain it. Colonel DUNNE. This contract came up about the time we were phasing out for the same question you asked, sir. It is actually part of a package of several contracts which we have had for-oh, 1954, 1955, 1956. and 1956, when NIH wasn't doing anything in this field. About this time we were phasing it out, we ran it for 1 year and ended it. We actually have no work going on in this field now. Mr. SANDWEG. I don't think that addresses itself to this particular contract, Colonel. Colonel DUNNE. That is just background. We have gotten out of this business. On this contract, this was recommended to us by one of our major advisory groups, the Commission on Accidental Trauma of the Armed Forces Epidemiological Board. This is the way contracts in the field of preventive medicine come in to us. PAGENO="0305" CONTRACTING-OUT PROCEDURES 301 As I say, they were active in this field, had been the leaders in this field for several years. Dr. McFarland, who heads up the Commis- sion, was then in the process of beginning to shift this work over and building up the funds through NIH, and through other civilian agencies. At that time ther~ was no one else to do this work. It is a military problem, and we do have a number of people injured in off-duty, off- post accidents and I would say we have accomplished some of the basic data in finding out what the problem is and then we phased out of it. Mr. SANDWEG. It is a national problem, 40,000 people a year. Colonel DTJNNE. Yes, sir. Mr. NORBLAD. What does the National Institutes of Health have to do with automobile accidents? 1'sn't that something for the military or the provost marshal-not the shore patrol, but whatever you have in the Army, the same thing. Colonel DUNNE. They have a large program going now on the basic epidemiology of why we have automobile accidents. Mr. NORBLAD. On what? Mr. HI~BERT. You asked for it and you got it. Mr. NORELAD. I just have a law degree. I don't have a medical degree. If you would explain that, I would appreciate it. Colonel DUNNE. They were developing basic data on why we have automobile accidents. Mr. NOEBLAD. It would be interesting for all of us to know that. Colonel DtrNNE. It is not a military problem alone, and so we phased out of it. Mr. SANDWEG, Was this study from the medical standpoint? Colonel DUNNE. This was from the medical standpoint. Actually what this study did- Mr. SANDWEG. Well, what are Dunlap & Associates, medical researchers? Colonel DUNNE. They are a group of statisticians involved in all sorts of statistical research. This was a statistical study. Mr. COURTNEY. Did they reach a medical conclusion? Colonel DUNNE. I will have to get my annual report out on this, or my final report. I wasn't here at the time. What they did-they did this at an Air Force base, and they took a group of 138 airmen who were drivers who had recently been involved in the past year in some type of injury- Mr. NORELAD. Airmen, did you say? Colonel DUNNE. Yes, this was done at an Air Force base. Mr. NORBLAD. This is an Army contract. Colonel DUNNE. This is a contract recommended to the Army by the Armed Forces Epidemiology Board, and whether it is done at an Army base, Air Force base, or Navy post is immaterial. We all reap the benefits of the result. They took 138 airmen, drivers, who had in the past year had some type of personal injury accident while driving their personally owned motor vehicles off the post, off duty, and they took another 100 airmen, selected them as controls who had those accidents, and compared them. One of the very interesting findings that came out of this is the finding that the lost-time injury accident is usually 74109-61------20 PAGENO="0306" ~3O2 CONPRM~TING-OUT PROC~PURES *a local, nighttime affair that cannot be attributed to fatigue or long~distance- Mr. HARDY. Do you think that is unusual, Colonel? Mr. HJ~BERT. How much did it cost you to find that out? Mr. COuRTNEY. $75,000. Mr. H1~BERT. $75,000 to find out what I could have told them for nothing. Colonel DUNNE. The thing we got out of this was the accidents occurred close to the military post. It wasn't this business of the man driving 300 or 400 miles and being tired and cracking up his vehicle in the last hour or so. They occurred close to the post, within a `50-mile radius, and about 641/2 percent of them were preceded by drinking. Mr. HEBERT. Alcoholics Anonymous should. have this study. Mr. ~ The National Safety Council could have told you that. Mr. SANDw~G. Where does this differentiate be~wesn the tesults brought out by the National Safety Council and the Aweric~n Automobile Association? Mr. HARDY. The only basis on which you can get, into that area is to start out witl~ an assumption `and maybe it is an accurate one, that members of the military have a higher accident rate off- duty than civilians. Colonel DUNNE. The findings aren't any different than the findings in allof the other surveys going on. Mr. SANFORD. Then how can you justify the $75,000'? Colonel DUNNE. The other surveys as I understand it at that time were not being done or were just in the process of being worked out. Originally Dunlap & Associates bad developed the basic tech- niques of studying accidents and the causes of accidents from the medical viewpoint. Mr. HARDY. Insurance companies have been doing that for a long time. These accident insurance compunies must have had all o~ this kind of data. Colonel DUNNE. That I don't know. Mr. COURTNEY. That is the way they fix the rates. Mr. HARDY. That is the reason for the distinction between the rates between civilians and military personnel. Unless you make a distinction there it is hard for me to ~e why somebody spent $75,000 on it. Colonel DUNNE. As I say, we got out of it, this was the last type of such contract we had. Mr. HARDY. Had you had a series of these contracts? Colonel DUNNE. Yes, sir, there had been a series of the contracts. Mr. HARDY. Oh my gracious, what is the total amount? Colonel DUNNE. Actually this was the third of a series. Mr. HEBERT. Did you have a series to study whether you should get out or stay in? Mr. COURTNEY. Well, they had to cover the Navy and the Army maybe in addition to the Air Force. Colonel DUNNE. There were two other contracts in this series. Mr. HARDY. They predated this one, I take it? PAGENO="0307" CONTRACTING-OUT PROCEDURES 303 Colonel }DTJNNE. December 1955 to June 1957 was the first one, July 1957 to October 1958 was the second one---- Mr. NORBLAD. What were the dollar amounts? Colonel DUNNE. The figures I have here, sir, from the old file are ~66,874 on the first one; $85,321 on the second one. Mr. H~EERT. The cost of living has gone up. COlonel DUNNE. And $74,386 on this last one. Mr. SANDWEG. Were these all in the realm of traffic accidents? Colonel DUNNE. These were all in the realm of traffic accidents. There were all sorts of variations of them. They concerned drinking, driving, and- Mr. HARDY. The same contract on all of them? Colonel DUNNE. They have three different contract numbers, but they are all research on techniques of accident analysis. Mr. SANDWEG. All Dunlap? Colonel DUNNE. Yes, all Dunlap. Mr. NORBLAD. You spent $225,000 to find out how these acoidents occurred. Colonel DUNNE. This is a package of three, actually; you have to consider it that way. Mr. HARDY. What kind of contracts do they have now? Colonel DUNNE. None. * Mr. HARDY. They don't have any type of contracts? Colonel DUNNE. None with my section. I don't know what else they have, sir. Mr. NORELAD. What has been the result of this, has it cut down on the number of accidents of military men or improved the situation? What did we get for a quarter of a million? I think that is a fair ~question. Colonel DUNNE. Well, I don't have the information here. Dr. McFarland's group is in the process of summarizing this. Mr. HARDY. How much money are we spending in summarizing these things? Colonel DUNNE. We are not spending anything any more in the field of accidental trauma. We haven't in the past year. Mr. HARDY. You mean other than that which is being done by the military personnel itself? Colonel DUNNE. Well, no. Mr. NORBL.AD. Five years ago they started this. Are they still summarizing it after 5 years? Colonel DUNNE. They have just finished a review of what the Commission of Accidental Trauma has accomplished over the years and I thing it is almost a 10-year period that this advisory group has been in existence. Mr. NORBLAD. Have there been any results by way of the men ~having less accidents or giving them lectures or- Colonel DUNNE. There has been a lot of educational programs on it, I can't give*you a dollar amount on that. Mr. H~BERT. Well, I think we can come to the conclusion that there are automobile accidents. I think that is the proper conclusion. The next contract, Mr. Sandweg. PAGENO="0308" 304 CONTRACTING-OUT PROCEDURES Mr. SANDWEG. May we now refer to the contract with Melpar, Inc., Falls Church, Va., contract DA36-039-SC-80543, awarded in August 1960 in the amount of $249,852.57. (The detail on the contract above referred to is as follows:) Type of effort: Feasibility study. Contractor: Melpar, Inc., 3000 Arlington Boulevard, Falls Church, Va. Contract No.: DA36-039--SC-80543. Date of award: August 2, 1960. Cost of contract: $249,852.57. Completion date: September 15, 1961. Subject matter: Perform for a period of 12 months engineering tests on automatic telephone switching equipment developed for the U.S. Army Signal Corps. The objectives of the tests were: (a) To obtain sufficient information to establish the functional capabili- ties, limitations, electrical and mechanical characteristics of the electronic telephone switching equipment. (b) To determine the compatibility of this equipment with specific items of Signal Corps communication equipment. Under terms of the require- ments the contractor will plan and conduct fair and impartial tests and analyses of the equipment. Recommendations or suggestions and to whom made: The contract is approx- Imately 55 percent complete. No recommendations or conclusions to be made by the contractor. In lieu thereof, the results of the engineering type tests performed on GFP available to the contractor at Fort Huachuca will be sub- mitted indicating whether or not original design specifications have been met. Acceptance or rejection of recommendation or suggestion and why: Not ap- plicable. ~Jontractor required to furnished engineering assistance only. Mr. SANDWEG. The subject matter was to perform for a period of 12 months engineering tests on automatic telephone switching equip- ment developed for the U.S. Army Signal Corps, the recommenda- tions and suggestions are listed as follows: No recommendations or conclusions to be made by the contractor. In lieu thereof, the results of the engineering type tests performed on GFP available to the contractor at Fort Huachuca will be submitted indicating whether or not original design specifications have been met. Now, gentlemen, in reading that that appears to me to say that the Signal Corps obtained a new piece of automatic telephone switching equipment. Who developed it, I don't know, but they then asked Melpar to come in and determine whether the original design specifications of the manufacturer had been met. Could you explain that, Colonel Johnston ~ Colonel JOHNSTON. Right. This particular contract is placed with Melpar, as the record shows, to assist us in an evaluation of this equipment. Our laboratory has supervised the contract for the development of this equipment. This is a family of automatic switchboards. Mr. SANDWEG. Who developed it ~ Colonel JOHNSTON. The name of the contractor is Stromberg Carlson. Mr. SANDWEG. On whose specifications ~ Colonel JOHNSTON. The specifications as prepared and published by the Signal Corps, by our own laboratory. Mr. SANDWEG. In other words, Melpar was to check on your specifications ~ PAGENO="0309" CONTRACTING-OUT PROCEDURES 305 Colonel JOHNSTON. No, not quite. Melpar was to check on the performance of this equipment as to the specified performance charac- teristics not the technical characteristics. Mr. ~ANDwEG. There was no responsibility on the part of Strom- berg Carlson then to- Colonel JOHNSTON. Certainly to meet the technical characteristics, but we are taking this unit, putting it in the hands of units in the field at Fort Huachuca and testing it. We are still in the process of building our capability there so we can use it as a proving ground. The electronic environmental test facility is to be there, and it is being constructed there. But in this overall evaluation we needed the assistance of a group to perform the engineering tests of this family of equipments in a tactical environment. Now, we do have the laboratory personnel and personnel from CONARO with us making a joint test, an evaluation, but in addi- tion is was considered that this contract effort was necessary to assist us in evaluating this equipment. Mr. SANDWEG. Isn't this generally a function of the manufacturer? Colonel JOHNSTON. No, sir; not the test of the equipment. The manufacturer produces it for us but we must insure ourself through our own engineering tests that it meets the specifications that we laid clown. Mr. NORBLAD. You designed it yourself, you said, didn't you? Colonel JOHNSTON. We laid out the technical specifications, not the design. Mr. NORBLAD. Can't you test the thing if you can technically lay out specifications? Colonel JOHNSTON. Yes, we can in the laboratory. But that is not the same type test, when you take a series of these different units used at different echelons and put them in the field. Then you are getting into an operational evaluation, not an engineering test, but its opera- tional capability, as opposed to simply the working of one switchboard in a laboratory environment. Mr. SANDWEG. Is this another area where the Signal Corps did not have the capability to perform these tests? Colonel JOHNSTON. I would have to say yes. We had the capability of performing it on a limited basis, but not in the time frame that we are talking about here. Mr. HARDY. I understand that actually you put out design and technical specifications, you provided that to the contractor. Colonel JOHNSTON. Yes, sir. Mr. HARDY. You manufactured the equipment. Colonel JOHNSTON. Yes, sir. Mr. HARDY. You didn't just give him performance specifications. Colonel JOHNSTON. No, sir. Mr. HARDY. You gave him actual design and technical specifications and then, according to the way I read this, you employed this con- tractor to determine whether or not the original design specifications have been met. Colonel JOHNSTON. No, sir. Mr. HARDY. Well, then the thing reads wrong, because that is the way it appears to me. PAGENO="0310" 306 CONTRACTING-OUT PROCEDURRS Colonel JOHNSTON. No, sir; the actual attainment by the contractor of an original design and the actual attainment of an individual piece of equipment of the technical specification, I think we are perfectly competent of evaluating.. We wanted to see the behavior of this eqtdp- ment in the field and the field environment, in organizational usage. Mr. HARDY. Then the thing that was said a while ago was an incor- rect evaluation of what you wanted. Let me read it to you again, Colonel, and we will see: This thing says, no recommendation or con- clusion to be made by the contractor, That is No. 1. And he is not making any recommendation. He doesn't make any conclusion or finding. Next, in lieu thereof, the result of the engineering type test performed on GFP available to the contractor at Fort Huachuca will be submitted indicating whether or not original design specifica- tions have been met. Colonel JoHNsToN This is the systems capability, the design of the systems capability, sir, rather than the individual piece of hardware Mr. NORBLAD. Well, did Melpar assist you in the design originally or did you people do it yourself? Colonel JOHNSTON. Well, actually, sir, we went out to industry, telling industry what we desired in the way of an automatic switching capability. We received several different proposals. We evaluated these proposals, we selected the technical approach which we thought. offered the greatest opportunity. We then assisted the contractor by putting into our final contract with him certain specific technical specifications. He did meetthose specifications. This was proven in our engineering test at our labora- tory. The systems test is a totally different thing and we did not~ have the internal capability to do the systems test at Fort Huachuca without assistance from a contractor. Mr. HARDY. How many man-years was required of the contractor on this? Major BEAM. I will have to get that from the contracting officer. Mr. HARDY. That is all right. How many men were they employing on the contract? Mr. C0vINOT0N. My name is Robert E. Covington. I am from the 13.5. Army Electronic Proving Ground. We had from 9 to 12 men. working on this contract. Mr. HARDY. Continuously, full-time? Mr. COVINOTON. Yes, sir, full-time. Mr. SANDWEG. For how long, Mr. Covington? Mr. COVINGT0N. Approximately 8 months now. Mr. HARDY. Well, it says it is a 12-month contract. Mr. COVINOTON. Yes, sir. Mr. HARDY. And it is supposed to be over on September 15. Now what is involved-insofar as the contractor is concerned, what is involved other than the technicians that are employed here? Mr. COVINGTON. Do you mean military people, sir? Mr. HARDY. No, I am talking about the contractor. Mr. COVINOTON. The necessary support that we would have for the direct people? Mr. HARDY. Well, let's see what the major has to say about that. Maybe he can give details on it. Major BEAM. The contract as per the document that was submitted several months ago said it was to be completed in September. How- PAGENO="0311" C0NTRACTII~G-OVT PROCEIYUEES 307 ever, this has been extended for several months, and this extension was required because th~ equipment was damaged in transit to the proving ground, so, therefore, the contractor could not complete his tests. Mr. HARDY. How much is the additional cost involved? Major BEAM. To extend the contract? Mr. HARDY. That is right. Major BEAM. No cost, sir. Mr. HARDY. He couldil't begin as soon as he was~supposed to begin, is that right? Major BEAM. That is right. Mr. HARDY. All right, sir. Now what about the other elements of cost to the contractor besides personnel? Major BEAM. Elements involved here are the renting of equipment; that is, the specialized test equipment required to conduct this test.. We may have some of this equipment in our system, but the chances are that we do not have the newer, types which, will do the best job for us. Mr. HARDY. Did the contract specify the equipment which the contractor was supposed to furnish? Major BEAM. The contract is a performance-type contract which specifies what tests will be run. Mr. HARDY. Well, does it have anything to say about' the equip- inent, who is going to furnish the equipment? Major BEA1~. Yes, sir; it says that most of this will be furnished by the contractor. Mr. HARDY. Well, it spells out then the equipment that the con- tractor is going to furnish? Major BEAM. I don't believe so, but I will have to defer to- Mr. HARDY. Well, how do we arrive at a price if we don't know what the contractor is going to supply; that is the thing that I am trying to get at. Now, you have a price on here of $250,000, approximately, and I am trying to figure out what it consists of, what we are getting for that. Majot' BEAM. This is a competitive bid, sir. The contract is cost- plus-fixed fee. Mr. HARDY. This was not negotiated? Major BEAM. This was a solicited bid. Mr. HARDY. Cost-plus-fixed fee. The only thing that he could bid on then was his fee. Major BEAM. We solicited 18 different contracts, or we solicited across the board to industry 18 manufacturers, 3 bidders were respon- sive, and 1 was nonresponsive to the invitation to bid. In the invita- tion to bid we told them what it was that we expected them to do. Of these three-they were Melpar, General Analysis, and Design Services. Of them, Melpar was chosen as being the most responsive' and offering the best service to the Government. Mr. HARDY. And thereafter you began negotiations; is that right ~ You did not accept a proposal that was sent in without any negotia- tions, did you, Major Major BEAM. Oh, no sir. This is all factors. Mr. HARDY. So after the proposals came in, and they were not bids, they were proposals, I take it- PAGENO="0312" 308 CONTRACTING-OUT PROCEDURES Major B&tM. That is right, sir. Mr. HARDY. And after the proposals came in somebody had to evaluate the proposals, select one of them, and then negotiate; is that right? Major BEAM. That is right, sir. Mr. HARDY. Now what I am trying to get at is how did you arrive at a negotiated price of $249,852.57, unless you knew specifically what the contractor was going to be called upon to supply? Mr. H1~BERT. Mr. Covington has a contribution. Mr. COVINUTON. I am Mr. Covington, from the proving ground. I have here, sir, our price analysis of the offer that was given us. The initial offer was $252,231.38. The negotiated final price wa~ $249,852.57. If you would like the elements of price, sir, I have them. Mr. HARDY. I will try to. find out, and I don't care about getting into the cents column, but I would like to find out at least in some rough figure what was involved in the way of equipment that Melpar was going to furnish, from 9 to 12 men, and that is the only figure I have gotten up to now as to the personnel involved, for 9 to 12 men for up to a period of 8 months. That is my understanding of it. And unless there was a considerable amount of equipment involved, you must have had something beyond the mere personal services of these individuals to add up to this $250,000, and I am just trying to understand what it is. Mr. COVINGTON. Yes. May I go through this? I think this will answer your question, sir. Direct labor was $101,000, roughly-slightly more. The overhead was 110 percent, or $111,000. Mr. NORBLAD. In what way are you using the word "overhead" there? Mr. C0vINOT0N. This is indirect charges, sir, rather than direct charges. Mr. HARDY. That is a management fee back in the office, the over- head. Go ahead. Mr. CovINOToN. There was direct material and purchased parts to be supplied by the contractor of $3,000. There was travel and sub- sistence of those individuals that do travel for us. That totaled $17,000. We paid them a fixed fee of $16,889.80. That is approxi- mately 7.25 perce.nt. Mr. Hi~BERT. Do you know what that overhead includes? Mr. C0vINOTON. I know the types of things it would include, sir. Mr. H1~BERT. Well, what types of things? Mr. C0vINOT0N. Anything not charged direct, such as the cost of a purchasing department, such as the cost of the man that turns the lights on or sweeps the floor. Mr. HARDY. They are not going to sweep the floor out there in the field, though, are they? This is a field test. Mr. HEBERT. That is $110,000, that is 100 percent of the contract or 110 percent overhead and $16,000 fee additional. Mr. COVINOTON. Yes, sir. Mr. H]~BERT. I am in the wrohg business. Next contract, please. PAGENO="0313" CONTRACTING-OUT PROCEDURES 309 Mr. SANDWEG. We have a series of three contracts on the long sheet that we had, Corps of Engineers, they are Contracts Nos. EA44.-009-- Eng-4606, 4607, and 4608. They are, respectively, with the Joy Man- ufacturing Co., of Michigan City, md.; the Arthur Orlaff Associ- ates, of Nunda, N.Y., and Caterpillar Tractor Co., of Peoria, Ill. They are R. & D. contracts for studies to be made on a combat emplacement excavator, which I imagine is a fancy name for a fox- hole digger. The contracts were in the amount of $44,054, $10,400, and $22,000. (The contracts referred to are as follows:) Researcl~ and development stndy contracts, fiscal year 1960 Contract No. Contractor Subject Amount DA-44-009-ENG Status 4515 4517 Jered Industries, Na~el Park, Mich. Food Machinery & Chemical Corp., San Jose, Calif. Study assault ferry. do $64, 780 116, 575 Made various recommendations none of which were adopted which had not already been adopted by USAERDL. Made various recommendations the most important of which was that the design prepared 4606 Joy Manufactur- ing Co., Michi- gan City, md. Combat emplace- melt excavator studies. 44,054 by TJSAERDL be used for this bridge. In each instance the contractor recommended that he be awarded a contract to develop a combat emplacement excava- tor in accordance with a general design which he prepared. None of the recommendations 4607 Arthur Orlaff do 400 were rejected. Extent of ac- ceptance is subject to the avail- ability of funds. 4608 Associates, Nunda, N.Y. Caterpillar Tree- tor Co., Peoria, ni. do 22,000 Do. Do. Mr. SANDWEG. The status of each contract is set forth identically and it is as follows: In each instance the contractor recommended that he be awarded a contract to develop a combat emplacement exca- vator in accordance with a general design which he prepared. None of the recommendations were rejected. Extent of acceptance is sub- ject to the availability of funds. General, these appear to be three R. & D. contracts for the same item, and we wondered why this couldn't have been placed on a de- sign competition basis, with the cost to be borne by the man who gets the contract, and the others to fall by the wayside if they desired to participate in the R. & D. General TRUDEAU. I will ask the Corps of Engineers to explain that. Mr. NEw. My name is William J. New. Mr. SANDWEG. First would you tell us whether this is a foxhole digger? Mr. NEw. My name is William J. New, Technical Director, Re- search and Development, Office Chief of Engineers. I have with me Mr. Alexander. Mr. ALEXANDER. My name is Robert G. Alexander. I am Chief of Mechanical Equipment Branch, Engineer Research and Develop- ment Laboratories, Fort Belvoir, Va. PAGENO="0314" 310 CONTRACTING-OUT PROCEDURES Mr. NEW. In response to your first question, this is not a foxhole digger. We have a requirement for a device to permit rapid digging- in on the battlefield. This goes for command posts, equipment, as well as personnel, per Se. rfhe military characteristics for this device require a rate of digging that far exceeds any piece of mobile equip- ment that, as far as we know, has been produced to date. We ana- lyzed the problem involved, discussed it informally with various manufacturers, and decided that we would like to have three studies made: one from the construction earthmoving industry, one from the mining industry, and the third was from a design, straight engi- neering design of `any concept that might appear to be feasible. We did seek proposals and awarded three contracts, and these con- tracts call for making a concept, a preliminary concept design study and furnishing us a one-tenth scale model representing the approach that each contractor thought should be taken. I think it is only natural that once an organization had come up with a preliminary design that they would recommend that they be permitted to proceed with the detailed design. The reason that we have not gone forward is that we do not have sufficient funding at the present time to finance a contract that wouuld be involved for the detailed design and fabrication of a unit. Mr. SANDWEG. Now there is a considerable difference in price be- tween the Joy Manufacturing Co. and the other two. Could you explain that? Mr. H1~BERT. Name the prices, first. Mr. SANDWE~. Joy Manufacturing was paid $44,054 for its efforts. Arthur Orlaff Associates was paid $10,400. And Caterpillar was paid $2~,000. Now it would seem to me that they were all coming up with a some- what comparable piece of equipment, depending on the design approach. Mr. NEW. It would appear so. There was a Government estimate made on what we thought it would cost to make such a study. The estimate was in the vicinity of $43,000. Normally a contract of this type is negotiated on the basis of the amount of man-hours, based on the design or the engineering disciplines involved, electronics, mechan- cal, and so forth, and the price is arrived at based on the number of man-hours that are tobe applied to the job. We had mining. Joy had a mining approach. Caterpillar gave an estimate of better than $40,000, and they were willing to pay half of this out of their own pocket because they felt that this was some- thing that they were interested in getting into. The third approach, Orlaff, was an engineering unique approach, but did not involve the detail or the manpower required by the others to come `up with the concept study. Furthermore, it was small business, and he had no overhead whatsoever listed in his statement of services, cost of service to be performed. Mr. SANDWEG. You wouldn't say you took advantage of him? Mr. NEW. We did not. He submitted his proposal and we did as we would with anyone else, we attempted to get the best price we could. Mr. SANDWEG. Was each manufacturer given whatever latitude he felt necessary in this construction, or were they limited, say, to $45,000? Mr. NEW. I would like for Mr. Alexander to pick up from here. I PAGENO="0315" CONTRACTING-OUT PROCEDURES 311 think he has more of the details on these individual contracts than I have. Mr. ALEXANDER. Each manufacturer was given a basic set of per- formance requirements that we wanted out of this machine, including the dimensions and the production rate that we wanted to dig these holes, and things of that type, and was asked to come up with both negative as well as positive information; in other words, if they went down a blind alley, to give us the benefit of the approach they con- sidered at that time, and each of them did come up with a number of areas that they had considered at one time and then discarded before they finally came to their recommended approach. Both of the contractors of the higher amounts did have more alter- natives than did Mr. Orlaff. Mr. SANDWEG. Is this a usual procedure in automotive equipment, which I imagine this would be classed as,, to give three contracts out like this for li. & D.? Mr. NEW. First, this is not an automotive type contract. This is for a device, the like of which no one has conceived in the past. The most closely related type of equipment you have is in the mining industry and in the earthmoving industry. Now this is not unusual to solicit proposals for such a device, in that we feel that it essential that you take advantage of the best talent you have throughout in- dustry on a new device such as this, particularly when the end item is going to be very costly, at best; and while we have considerable talent in our own laboratories we would never have the talent that would supersede the talent we would have in these industries on the outside. I would say this should. not be unusual for this type device. Mr. hARDY. Well, now, these contractors were not supposed to bring in a model. They were just supposed to give you a design; is that right? Mr. NEW. No, sir; they were to give us a small scale model of the device. It would not be designed in great detail, but it would portray the actual major components that would be involved and the type of digging head, and so forth, that is required on tim device under their design concept. Mr. HARDY. Actually, this was only a design contract; it didn't have anything to do with performance other than that which could be computed in the design effort? Mr. NEW. That is correct, as I understand your statemeflt. Mr. HARDY. Did they all three bring in designs? Mr. NEW. Yes, sir, and they were entirely different designs. Mr. HARDY. Did I understand that you have selected one that you want to go ahead with when you get the money? Mr. NEW. What we propose to do is to have a test bed prepared that would Dot represent the full, complete, expensive item, but on which we can put one, and hopefully both, the two best approaches on a test bed to determine whether or not the digging head, which is the crux of the problem, that is it is the principal component-can be tested out in the field to see how well it works before we go into the final fabrication of a complete model. Mr. HARDY. So you are going to make two of them, make two differ- cut heads? PAGENO="0316" 312 CONTRACTING-OUT PROCEDURES Mr. NEw. That is what we would plan to do, yes. Mr. HI~BERT. The next contract. Mr. SANDWEG. Next we have two contracts, both with the Cornell Aeronautical Laboratory, Inc., basic research contracts, Nos. PA 36- 039-SC-74980, and DA-36--039 SC-74910. (The contract data not read is as follows:) INFORMATION RELATIVE TO CONTRACTS FOR BASIC RESEARCH, MANAGEMENT SELvICES, FEASIBILITY STUDIES AND OTHER "EFFORT TYPE" CONTRACTS 1. Type of effort: Basic research. 2. Contractor's name and address: Cornell Aeronautical Laboratory, Inc., 4455 Genesee Street, Buffalo, N.Y. 3. Contract No.: DA 36-039 SC-74980. 4. Date of award: Basic contract was awarded prior to July 1, 1958. Subsequent modifications for extensions were awarded on April 15, 1959, and September 28, 1960. 5. Cost of contract: $3,106.244. 6. Estimated completion date: December 31, 1961. 7. Subject matter: Study and evaluation of combat surveillance systems. 8. Recommendations or suggestions: tinder this contract the contractor is required to prepare recommendations to the U.S. Army Combat Sur- veillance Agency for providing an improved combat surveillance capability, performing additional studies, investigation and evaluation, as necessary. Eleven formal reports have been submitted by contractor, containing hun- dreds of technical recommendations. 9. Were recommendations accepted or rejected and why: A great majority of the recommendations have been accepted and the contractor's recommen- dation constitutes the principal recommendation for the current combat sur- veillance midrange program. INFORMATION RELATIVE TO CONTRACTS FOR BASIC RESEARCH, MANAGEMENT SERVICES, FEASIBiLITY STUDIES, AND OTHER EFFORT TYPE CONTRACTS 1. Type of effort: Basic research. 2. Contractor's name and address: Cornell Aeronautical Labs, Inc., 4435 Genesee Street, Buffalo, N.Y. 3. Contract No. : DA-36-039 80-74910. 4. Date of award: Basic contract was awarded prior to July 1, 1958. Sub- sequent extensions were awarded on August 1, 1958, February 27, 1959, September 29, 1959, and June 29,1960. 5. Cost of contract: $1,572,695. 6. Estimated completion date: November 80, 1966. 7. Subject matter: Research investigation and analysis culminating in the development of overall miiltary plans and future technological requirements for reconnaissance airborne drone system. 8. Recommendations or suggestions: Many valuable recommendations have been received as a result of this research investigation. 9. Were recommendations accepted or rejected and why: Recommendations have been and still are being used as a basis for much of the Signal Corps research and development activity in the area of airborne drone surveillance reconnaissance systems. Mr. SANDWEG. The contracts are in the total amount of about $4.6 million, and basically the subject matter is to study and evaluate combat surveillance systems. Recommendations or suggestions under this contract: The contractor is required to prepare recommendations to the U.S. Army Combat Surveillance Agency for providing an improved combat surveillance capability, performing additional studies, investigation and evaluation as necessary. Eleven formal reports have been submitted by the contractor con- taining hundreds of technical recommendations. PAGENO="0317" CONTRACTING-OUT PROCEDURES 313 I wondered, General Trudeau, if we could have someone explain just what is meant by a study and evaluation of combat surveillance systems. General TRUDEAU. Yes, we can. It is one of the most important fields in which the Army is engaged, and this is the effort to find out what is behind the enemy's lines other than by putting in somebody on foot behind there to find out. With these very expensive weapons systems and the tendency for dispersion on the battlefield and rapid movement, we have got to find out where these targets are and quickly bring this fire to bear on them if we are going to be successful. And with the cost of modern weapons we can't afford to be firing at places where there isn't anybody, so I would like to have the Signal Corps pick it up from there. Colonel JOHNSTON. Yes, sir. Mr. SANDWEG. I think if we could limit ourselves, Colonel Johnston, to just what type of work they were doing, it would give an explana- tion of this. Colonel JOHNSTON. All right. Mr. Goidwag is here from the Combat Surveillance Agency and can give you that information, also Mr. Greenspan-we are talking of two contracts-who can give you information on the particular de- vices and developments stemming from these contracts. Perhaps Mr. Goldwag would care to start. Mr. GOLDWAG. The efforts of the Cornell Combat Surveillance proj- ect, Contract No. 74980. Mr. NORBLAD. May I ask at the outset, is the word "Cornell' to be associated with the university, or has it nothing to do with it? Mr. GOLDWAG. Cornell Aeronautical Laboratory is a not-for-profit subsidiary of Cornell University. Mr. NORBLAD. Thank you. Mr. GOLDWAG. As General Trudeau indicated, the combat surveil- lance and target acquisition problem is a most critical one for the Army. Back in early 1957, the Chief of Staff of the Army directed an acceleration of the Army's efforts in combat surveillance and target acquisition and shortly after that, the U.S. Army Combat Surveil- lance Agency was activated to manage the Chief Signal Offices pro- grams for the development of a combat surveillance capability for the field army. In July 1957, the Chief of Research and Development, General Oavin at that time, stated that the activities of the Combat Surveil- lance Agency must be expedited without delay and indicated that contractual support to assist the Agency in its management rule might be desirable. As an .outgrowth of this, action was taken to obtain contractual support, and after multiple source negotiations with a variety of companies and detailed technical evaluation of bids and so forth, a contract was awarded to Cornell Aeronautical Laboratory. They have been concerned with the assessment of the state of the art aud the various technologies applicable in the field of combat surveillance. This means radar, photography, infrared, seismics and acoustics, aerial reconnaissance systems, both manned and unmanned, and so forth. PAGENO="0318" 314 CONTRACTING-OUT PROCEDURES They have been concerned with the technical evaluation of the feasibility of proposed systems and equipments to accomplish this mission, and they have been assisting in a continuing review of both the overall system and of the combat surveillance program to insure that gaps do not exist in this. We feel that Cornell has made major contributions to the basic program, to the design of specific systems, and to the philosophy and techniques of tests of some of these totally new types of equipment. The real details, of course, of much of what they do are classified, and we certainly are prepared to go into them if you desire. Mr. H~BERT. We don't care to go into them. We just wailt the general overall picture, and I think the manner that General Trudeau would explain what this involves is sufficient for the overall picture. Mr. SANDWEG. I think so. General TRTJDEAtT. Well, they provide substantial numbers of scientists, analysts, and engineers who are concerned with the develop- mRnt of this special equipment fo~r surveillance. Mr. H~BERT. Well, this is a very understandable contract as you have explained it. There is no need to go into this type of contract. Mr. HARDY. The only question that concerns me in connection with this type of thing is how did you arrive at the pricing of this kind of contract? Mr. GOLDWAG. The contract itself is a cost-plus-fixed-fee contract, as you might expect. Multipis ~oifrce negotiations were used. In an area like this the quality of the talent to be applied is of course considerably more im- portant than the ptliee. Mr. HAnIW. Did yottr contract specify the indivMuals who were tG perform the contract? Mr. GOLDWAG. It did not specify them by name, it specified them by caliber: so many Ph. D.'s or equivalent. Mr. HARrY. You could get a wide' variety in that. Mr. GOLDWAG. During the course of negotiations, agreements were reached between the Government and the proposed contractors as to the specific names of individuals to be employed. The bulk of the cost is obviously iti terms of personnel, a special overhead rate was negotiated for the contract and the detailed pricing analysis was performed. The Cornell bid was neither the highest nor the lowest, hut it was considered to be the best bid that was made considering what we considered a superior technical approach and the high caliber of the technical and scientific personnel that they proposed to furnish. Mr. HARDY. Now, just one other aspect of this. I notice that this contract runs concurrently with the other contract which was also referred to, 74910. Mr. G0LDwAG. Yes, sir. Mr. HARDY. Now, are they using the same personnel on these two contracts~? Are they paying for the same personnel twice? Mr. GOLDWAO. No, different personnel are involved. Mr Greenspan can give you more details on the other contract but I can cover it briefly Mr HARDY I just want to try to understand how the pricing was done, whether or not there is an overlap of contracts, and-well, one question might be interesting in this PAGENO="0319" CONTRACTING-OUT PROCEDURES 315 What is the overhead factor in this? This is a cost plus fixed fee contract. What is the overhead factor in the fee? Mr. STIEGLITZ. My name is Stieglitz. I am the contracting officer at Fort Monmouth. The fee is approximately 6 percent. The charges are all direct. They only charge 15 percent for general and administrative expense. Mr. H~EERT. Fifteen percent as compared to 110 percent on the other contract we had just a while ago. Mr. HARDY. Fifteen percent overhead. Mr. SPIEGLITZ. General and administrative expense. Mr. HARDY. And you said the fee is how much? Mr. S~rIEGLITZ. Six percent. Mr. HARDY. Six percent based on the face amount of the contract? Mr. STIEGLITZ. No; direct labor cost. Mr. HARDY. On the direct labor cost. Mr. COURTNEY. Well, it is a fixed fee. Mr. STIEGLITZ. Approximately an overall of 6 percent. Mr. HARDY. Wait a minute. It it a percentage fee? I didn't think we had any percentage fees. Mr. STIEGLITZ. No, it is equivalent to 6 percent, to be accurate. Mr. COURTNEY. It is a sum which would be the equivalent of 6 percent on the contract; is that it? Mr. STIEGLITZ. Yes. Mr. HARDY. It is 6 percent on direct labor, not on the face amount. Mr. STIEGLITZ. Well, we have various charges so it may be a little- Mr. HARDY. Do you know what the amount of the fee is? Mr. SPn~GLIPz. At the present time, I don't have that. I could get it for you. Mr. HARDY. We are taking in percentages here, and percentages of what? Mr. G0LDwAG. I have the exact figure, sir. Mr. HARDY. I think that would be better. If we could just get the fee for each of these contracts, we would know more about what we are talking about. Mr. STIEGLITZ. I have the exact figure. Estimated cost is $2,930,50~, and the fixed fee is $175,735. That adds up to just slightly under 6 percent-5.99, to be exact. Mr. HARDY. The figure came out something over a hundred thou- sand dollars above the estimated cost that you have there, according to the sheet that I have in front of me. Mr. STIEGLITZ, Total allotment is $3,106,244, and I have broken it down into those two elements. Mr. hARDY. I see. I still don't know if I understand, but that is all right. Mr. HEBERT. Next contract. Mr. COURTNEY. Let me ask this question, please, Mr. Chairman. Was this done by university personnel? Mr. GOLDWAG. The contract is with Cornell Aeronautical Labora- tory. They are a separate entity. They are located in Buffalo in- stead of Ithaca, but they are a wholly owned subsidiary of the univer- sity. There is no connection with the university except at the highest level. PAGENO="0320" 316 CONTRACTING-OUT PROCEDURES Mr. COURTNEY. How high in the professional ranks do you go? Mr. GOLDWAG. It is not a question of that. Cornell Aeronautical Laboratory is a separate entity. The professors are not particularly involved. However, thepresident of Cornell University is president of Cornell Aeronautical Laboratory. The executive vice president is the effective de facto head of the laboratory. Mr. HARDY. If you require so many Ph. D.'s, you don't know whether they come from Cornell's staff. Actually, you don't know whether there are people from Cornell's staff serving on this contract or not. Mr. GOLDWAG. We know the people serving there and we know where they come from. What I said, sir, was the contract itself, the contractual document does not specify the names of the people. It specifies the caliber. By separate arrangements we have agreed on specific people. At the time the contract was placed, all of the key people came down from Cornell, Buffalo, from the laboratory. Mr. HARDY. You didn't borrow anybody from the university? Mr. G0LDwAG. No, sir. Mr. HARDY. So we are getting up to the questions the chairman has been working on lately, in this case it is not demonstrable that we are subsidizing higher education. Mr. GOLDWAG. That is correct. Mr. HuBERT. The next case. Mr. SANDWEG. I think we can finish up, then, with two contracts by the Corps of Engineers, contracts Nos. DA44-009--ENG, 4515, with Jered Industries of Nazel Park, Mich., to study an assault ferry, $64,780, and also contract No. DA-004~-ENG, 4517, with Food Machinery & Chemical Corp. of San Jose, Calif., also to study an assault ferry for $116,575. The results of the contracts are both the same. Each of the con- tractors made various recommendations. I correct myself. Jered Industries made various recommendations, none of which were adopted which have not already been adopted by USAERDL. Food Machinery made various recommendations, the most impor- taut of which was that the design prepared by USAERDL be used for this bridge. Again it appears here you might have drilled a couple of dry holes, and I wondered if we could have some explanation of that2 since the results were (1) not adopted which had already been put into effect by USAERDL, and the other recommendation was one that was being used by USAERDL. Mr. NOIiBLAD. Pardon me. What contract was this, what com- pany at the top? Mr. SANDWEG. Well, it is a separate page, Mr. Norblad, both of them are together. Mr. NORBLAD. Thank you. General TRUDEAU. Mr. Mullins. Mr. MULLINS. Howard H. Mulhns, chief, Bridge and Research Group, Engineering Research and Development Laboratories, Fort Belvoir. General TRUDEAU. Would you respond to Mr. Sandweg's question? Mr. SANDWEG. Would you want me to repeat it again? PAGENO="0321" Mr. MIJLLINS. I believe you said it looked like we drilled a couple of dry holes. Mr. SANDWEG. Yes. One corporation made recommendations which had already been adopted by the Army, and the other made recom- mendations to use a design already prepared by the Army. Mr. MULLIN5. Well, now, I don't believe that the statement that you are r~~1 ie.re q~ ~ reflects the exact situation. Now, the statement got there, it was probably ort that is not just exactly so. ~. `i what we had to proceed on. NS. I realize that, sir. ~e to read here, and I think if I read it I probably would do a tittie better than if I tried off the cuff, you know. ~ Ss~mw:Eo. That is quite all right. Mr. I~sfnLLINs. I believe this will explain it. In September 1959, we at the laboratories heard that we would be asked to design a bridge of the mobile floating type. This is the type that you gentlemen are looking at. We had not yet received the military characteristics for the bridge, but we immediately began making sketches to determine as many different concepts for doing the job as possible. In November 1959, I discussed the proposed bridge with engineer- ing representatives of several outside firms to determine if these firms would be interested in doing work on such a bridge, and if they had any worthwhile ideas as to how the problem should be solved. This was being done because we anticipated that the time allotted for the complete design of this bridge would be so short that we could not with the force we now have prepare the complete designs for the hull, the superstructure, and all of the machinery in time to ask for quotations in fiscal 1961. In January 1960, several of these firms submitted unofficial pro- posals showing how they would solve the problem. We had asked these people to submit these unofficial proposals with drawings depicting just how they would attack the problem, because we wanted to see what they could do and to make sure that they had an overall appreciation of the problems involved. We were not interested in having these people come in and just tell us what a fine job they could do. We were interested in having them prove that they were competent. While this was going on here at the laboratories, we proceeded to work on the design concept ~vhich we had worked out, and we con- sidered most satisfactory. We started preparing the details for the hull, the superstructure, and we also made a machinery layout and determined the hOrsepower requirements at the various speeds wlieii operating as a ferry. In the meantime we had come to the conclusion that since this was such an extremely expensive and complicated piece of equipment it) would 1)e wise before committing ourselves to a final design and ex- pending any money t.liereoii, that we make siiie beyond all rea~nable doubt that we were on the correct road, that we had the correct design. `We thought it advisable that we bring some outside engineering talent to bear on the subject. it occurred to us that outside firms working in~lependently might perhaps come up with a more simple and more economical design. 74i0a-6i---2i CONTRACTING-OUT PROCEDURES 317 PAGENO="0322" 318 CONTRACTING-OUT PROCEDURES We thought that, if we were going to do so, this engineering talent should be brought to bear in the very early stages of the design As a result of this thinking, we recommended to the Chief of Engi- neers that we be allowed to let some contracts on overall studies to outside industry We did not feel we should depend on one contrac- tor only, and we recommended that we be allowed to let more than one contract. This recommendation was approved. As a result of that approval we let the two contracts under discus- sion, that is, to Food Machinery & Chemical Corp., and Jered Industries. In setting out the scope of this work we tried to list everything that we could think of that we wanted these people to investigate In other words, these were specific things that they must look into, and we emphasized to these people many times that the sky was the limit so so far as their investigation was concerned, that anything that they could design or invent would be satisfactory with us so long as it was practical and could be used. We made it very plain to them that we did not want a lot of so- called harebrained ideas which would be of no practical value to us and which we could not incorporate in our final design. After these contracts were let, we decided that it would not be a good idea for these contractors to go home and work for 4 months, which was the period the contracts were to run, and come back with the same layout we had worked out here. We had been working on this job for some months now, and had many drawings quite well along. So we decided to show the con- tractors everything that we had done so they would know as much as possible about the job before starting their work. We emphasized to them that they were acting as consulting engi- neers to us and we expected them to come up with recommendations at the end of these studies as to exactly the type of structures we should use, the arrangement of the machinery, the type of drive line, the type of suspension, the type of water propulsion system, and every other item involved. Now, that, sir, I think is the statement which will give you the reason why we thought we. should let contracts to outside firms to make sure that we had not missed the boat, because this is to be an extremely costly job, and I suppose that we might assume that when completed and adopted that based on military bridges we have bought in the past that we can expect a minimum of probably $100 million will be involved in procurement of such eauipment. Mr. HARDY. Well, you gave them all the design work that you had done; you made that available to them. Mr. MuLLIN5. We showed them everything that we had worked out. Mr. HARDY. And they came back and said, OK, boys, you did a good job, that is what you ought to go ahead with. Mr MULLINS Not exactly We got very extensive reports and also this is the type of report, Mr Hardy, that we got Mr. HARDY. Which one is that, Food Machinery? Mr. MtrLLrns. Yes. Mr. HARDY. Y~u said $116,000 for that. PAGENO="0323" CONTRACTING-OUT PROCEDURES 319 Mr. MULLINs. No, sir. We paid $51,000 for that. At the same time that we let these study contracts, the question came up: Should this vehicle have installed as the drive system a mechanical drive line, an electric drive line, or a hydraulic drive line? Now, that is a very difficult problem to determine. Mr. HARDY. What had you already recommended? Mr. MULLINS. I had not recommended either yet, and that was the particular thing that we wanted these people to investigate, was all of those drive lines. And, of course, if they could come up with a scheme that was better than ours we would set ours aside and adopt theirs. Mr. HARDY. It would be a whole lot easier for them to use what you had, though, wouldn't it? Mr. Muu~INs. Sir, I am quite sure that they would not have dared come back on that basis, because they were told: If you come back and recommend anything other than this, we will want to adopt it, but it has to be proven better than what we have worked out here. Mr. HARDY. Well, you sure did tell them, if you have to prove it better than what we have got, you better take what we have got. Mr. MULLINS. We told them that we were not interested in just coming back and handing us a report, Sir. Mr. HARDY. Well, I don't know. I would like to know what you got for this money. You say fifty-some-thousand dollars-what is this $116,000 shown? Mr. MULLINS. That was for the design of an electrical drive line. Now, when this firm came back with- Mr. HARDY. That is in addition to the $51,000? Mr. MULLINS. That is right. Mr. HARDY. So in total, you paid Food Machinery $16~t,000 for this? Mr. MULLINS. No, no. Mr. HARDY. How much? Mr. MnLLIN5. The contract with Food Machinery was for the de- sign of an electric drive line and an overall study. They were given 4 months to complete the overall study, and when they came in with the overall study they recommended that the mechanical drive' line be used. As a result, we closed the contract for the ele~ètric drive line and paid them off. Mr. HARDY. You mean because they didn't recommend what you wanted? Mr. MULLINS,. No; they were supposed to recommend what they thought was best. They already had a contract to make the com- plete drawings and design for an electric drive line for us, but they recommended in their overall~ study that the mechanical drive line was best; that we were not quite to the state of the art where we could use an electric drive line. As a result, we closed out the electric drive line. Mr. HARDY. And used a mechanical line whk~h they did rsoom- mend? Mr. Muu~Ns Used a mechanical drive line which they recoin- mended. Mr. HARDY. I was interested in trying to find out just exactly what we got for all this money. PAGENO="0324" 320 CONTRACTING-OUT PROCEDURES How much money did you pay Food Machinery altogether on this? Mr. MiILLINS. The total, we paid $93,260. Mr. HARDY. That included a drive line business which we have just been talking about, plus a design study? Mr. MULLINS. That is right, a design study plus what work they had done to the time we closed it out on the electric drive line. Mr. HARDY. Then this $116,705 figure we have is a wrong figure. Mr. MULLINS. That is not just for the overall study. Mr. HARDY. Well, what is it for? Mr. MULLINS. It is for the overall study plus the design of the electric drive line. Mr. HARDY. But that finally didn't come up to about $95,000. Mr. NEW. Sir, maybe I can help on this. Mr. HARDY. Please. Mr. NEW. rfhe original contract price was set at this figure you have before you, $116,000. rrMt called for two items of work, as justex- plained, one for the overall study~ one for the electric drive systeth. When the first study was made, the 4-month study, it was determined that the mechanical drive should be adopted, so all work was ordered stopped on the electric drive. Therefore the original amount of the contract was reduced from the $116,000 to the figure just quoted, $93,~ 000, which is the total amount paid or to be paid to Food Machinery. Mr. HARDY. In other words, you amended their contract and stop- ped what they were doing on the electric drive line? Mr. NEw. Yes, sir. And had they recommended the electric drive, we probably would have gone on through with the contract, but they said "We think the mechank~al drive Is better," so we stopped work on the electric drive. Mr. HARDY. And so instead of $116,000 you had $90-some thousand that you actually paid them? Mr. NEW. Yes, sir. Mr~ MULLIN5. That is right. Mr. SANDWEG. Well, then the figure we have is incorrect. Mr. NEW. It is not incorrect, sir, for the contract as a whole. The contract was a combination; it covered two items. Mr. HARDY. It was amended. Mr. SANDWEG. It was my assumption that the figures m here were what was paid. Mr. MIJLLINS, No, that is the original figures on the contract. Mr. HARDY. Now did they also carry a recommendation that the contract for the production of this vehicle be negotiated with Food Machinery? Mr. MULLINS. No, Sir. Mr. HARDY. They didn't include that recommendation? Mr. MULLINS. No, sir. Mr. Hf~BERT. That is strange. That is the exception from the rule. Mr. COVRTNEY. Mr. New. Mr. MUJLINs. We are still waiting for that. Mr. HEw~RT. You will get it, don't worry. Mr. SANDWEO. Have either of these companies ever built assault feifriesbefore?. Has anyone built them, of the nature you are speaking of here? PAGENO="0325" CONTRACTING-OUT PROCEDURES 321 General TRUDEAU. Yes, there was one built and tested in 1958 and thrown out as being unsatisfactory, and the U.S. Army today is using the French assault bridge and ferry because we have not been able to build as good a one, and that is what we are trying to do here. Mr SANDWEG Well, in effect, General, would it be right in saying for the amounts of money spent here, you verified your own feeling that what you were designing was the best that could be designed as of right now? General TRUDEAU. I think that is right. Mr. NEW. General, if I may, we did verify that, but we also obtained considerable information on equipment layout and details of some of the components, and I think Mr. Mullins should speak on this point because we didn't get a report that merely said we think you have the ultimate in design, you should go ahead. Mr. HARDY. You are a fine fellow, you did a good job. Mr. NEW. We obtained a lot more than that, and I think Mr. Mullins should speak to that point. Mr. H1~BERT. Well, they did give recommendations? Mr. MULLINS. That is correct. Mr. H]~RERT. That is sufficient. Mr. HARDY. Oould I ask just one more question; now what did you get for the $64,000 that you paid Jared Industries? You got a book from them, too. Mr. MULLINS. Well, sir, we had another study of everything in there and they came back and recommended a slight variation in the end of the boat, which we did not adopt. They recommended a com- bination mechanical and hydraulic drive back to the propeller, which you saw folding up there, which we did not adopt, because we didn't think that that was the way to do it. Mr. HARDY. Don't take anything that folds up. Mr. H1~BERT. Thank you very much. Thank you, General, very much, for your appearance. And thank your colleagues who appeared with you. We appreciate your cooperation. The committee will stand recessed until 10 o'clock, Wednesday morning. (Whereupon, at 4:04 p.m., the subcommittee recessed to 10 a.m., Wednesday, August 16, 1961.) PAGENO="0326" PAGENO="0327" CONTRACTING-OUT PROCEDURES WEDNESDAY, AUG~JST 16, 1961 HousE OF REPRESENTATIVES, CoMMrrniE ON ARMED SERVICES, SUBO0MMIrFEE FOR SPECIAL INVESTIOATIONS, Washingtort, D.C. The subcommittee met at 10:10 a.m., the Honorable F. Edward Hébert (chairman of the subcommittee) presiding. Mr. COURTNEY. Mr. Chairman, if we may resolve ourselves into a ~continuation of anothei hearing on contracting out, we have a state- ment from the National Society of Professional Engineers, dated August 11, 1961, which I will ask to be included in the record as though read, as a matter of contracting out for services, relating to the employment of professional engineers. Mr. IIéuERT. It may be inserted at this point as though having been read. (The letter above referred to is as follows:) NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS, Washington, D.C., August 11, 1961. Hon. F. EDWARD R~BERT, Chairman, Subcommittee for Specia' Investigations, house Armed Services Committee, Washington, D.C. DuAR Mn. H~nnwr: In connection with the current hearings of the subcom- mittee on contracting-out procedures of the military departments, we should like to present for the record this letter of comment and some reference material which we hope will be of interest and value. The National Society of Professional Engineers is composed of 55,000 mem- bers, all of whom are registered under the appropriate State engineering regis- tration laws, through 53 affiliated State societies of professional engineers and approximately 400 local community chapters. Our membership includes pro- fessional engineers in all categories and fields of employment and professional activity, with substantial numbers in both governmental employment and private practice. Within the society considerable attention has been given to the formulation of appropriate policies as a guide for determining the most suitable methods of administering engineering projects for various governmental bodies. Our functional sections for consulting engineers In private practice and engineers In Government practice have particularly collaborated in these studies. Quoted below is the policy statement developed by these two units of the society and approved by the society's board of directors. We would particularly like to emphasize that the major consideration should be for the planning and execu- tion of engineering projects which will most effectively protect the public interest, health, and safety, and that all engineering projects undertaken by or for governmental agencies should be under the direct supervision of professional engineers. NSPE policy No. 63, engineering services for Government projects, NSPE ad- irocates and supports the practice of high quality engineering services in both Government and private practice, ami maintains that engineering services should be under the direction of registered professional engineers. Professional engi- 828 PAGENO="0328" 324 CONTRACTING-OUT PROCEDURES neers in Government employ should perform the highest qr services for preliminary study, preplanning and budgeting, an~ visory management and control of governmentally funded activities. Govern- mental ag~ncies should contract for engineering services with highly qualified private engineering consultants to the extent consistent with national security, proper continuity of governmental programs and the public interest. NSPE further reaffirms its traditionally stated position that engineers in Government and private practice recognize a need for engineering activities of a comple- mentary nature. With regard to the matter of costs for employment of consulting engineers on governmental projects, we enclose a copy of a comprehensive survey report by our functional section for consulting engineers in private practice, "The Role of the Consulting Engineer in Federal Public Works Projects." We believe that the factual information in this report will be pertinent to your study. If ad- ditional copies of this report are desired by the members of the subcommittee, or its staff, we would be happy to oblige. Very truly yours, PAUL H. ROBBINS, P.E., Ea'ecutive Director. Mr. COURTNEY. Additionally, Mr. Chairman, Mr. Lyle Jones, who represents the Society of Consulting Engineers, who has at many times requested to be heard and has been advised of this hearing. I am sure that he is here this morning. Mr. SANDWEG. Apparently his representative was unable to be here at this time. Mr. HEBERT. Well, we will accord Mr. Jones the privilege of fflmg his statement at this point in the record. (The statement referred to follows:) CoNsULTING ENGINEERS COUNCIL, Springfield, Ill., August 15, 1961. Hon. F. EDWARD HfiBERT, Chairman, Subcommittee for Special In'vestigations, Committee on Armed Ser'u- ices, House Office Building, Washington, D.C. DEAR Mn. CHAIRMAN: Inasmuch as it was not convenient for Mr. Harold P. King, president, Consulting Engineers Council to appear as a witness before your subcommittee on August 16, I am respectfully submitting his testimony for filing with the committee. It is my understanding that it will be printed in the official records of the hearings on the subject of contracting out. Very truly yours, LYLE W. JONES, Washington Representative, Consulting Engineers Council. CONSULTING ENGINEERS COUNCIL-CONGRESSIONAL STATEMENT TO THE SUBCOM- MITTEE FOE SPECIAL INVEsTIGATION OF THE HOUSE COMMITTEE ON ARMED SERVICES Consulting Engineers Council, Springfield, Ill., July 1961 Mr. Chairman and members of the subcommittee, I wish to express the ap- preciation of the Consulting Engineers Council for the opportunity of appearing before you today. My name is Harold P. King, a consulting engineer of Sherman Oaks, Calif., and I am speaking in my official position as president of the Consulting Engi- neers Council. The council is a national organization consisting of 33 State or area associations, and thereby represents some 1,300 engineering firms in private practice. The firms vary in Size from individuals to some with hundreds of employees. The consulting engineers of our Nation firmly believe that we have a real responsibility to our Government and our citizens for the planning and design of Government projects involving engineering skills and techniques. We are ready and willing to accept this responsibility and feel that established consulting engineer firms with proper qualifications and proven ability have demonstrated this acceptance in the past and can do so in the future. It is also our conviction PAGENO="0329" CONTRACTING-OUT PROCEDURES 325 that, in accepting this responsibility, we can serve our Nation further by direct reduction o~ the cost of engineering services that are now being furnished by Government agencies. Gentlemen, all of this depends upon private enterprise and its judicious application. It is our understanding that your committee is interested in the so-called contracting out practices of the Armed Forces. To us, this means the retaining of consulting engineers or architects, or both, to provide qualified professional planning and design services for specific Armed Forces projects. We believe that there are distinct advantages to our Government and therefore the public in the use of services provided by engineers in private practice by Government agencies. Briefly, these advantages may be listed as follows: (1) Affirmation of the principle of private enterprise, (2) greater national security, (3) opportunities for selecting specialists, (4) greater alertness to effective prosecution of the work, (5) a deterrent to overexpansion of governmental staffs, (6) true and complete records of engineering costs, and (7) economy. Each of these items is discussed in some detail in the remainder of this presentation. 1. Affirmation of the principles of private enterprise which are implicit in the concepts of sound economy under a democratic form of government: From time to time we must all reaffirm our belief in the principle of private enterprise. Our democratic form of government is based upon this premise and a sound economy depends upon it. We are very much concerned that if the philosophy of using engineers in private practice is eliminated by Government agencies, it will lead to a cowplete destruction of an important segment of the private enterprise system. Remember, when Government competes with private busi- ness, it foreshadows the eventual denial of the right of Its citizens to engage in business. We do not wish to infer that this principle applies to engineers only, but that it should be the guide for our Government in the procurement of all services and goods. Please refer to appendix A, below, entitled "State. ment of Consulting Engineers Council Policy Regarding Private or Public En- gineering." Your particular attention is directed to Bulletin 60-2, issued by the Director of the Bureau of the Budget, which states: "2. Policy.-It is the general policy of the administration that the Federal Government will not start or carry on any commercial-industrial activity to provide a service or product for its own use if such product or service can be procured from private enterprise through ordinary business channels." The council subscribes wholeheartedly to this philosophy and recommends its adoption by the present administration. 2. Greater national security through buildup and strengthening of a pool of highly qualified specialists whose services are available in times of emergency: The use of private practicing engineers by our Government can provide a very important reservoir of engineering talent. The Armed Forces can become ac- quainted with the particular qualifications of various firms and thereby have ready an engineering force to call upon at a time of a major emergency. This has been necessary twice in the last two decades. During World War II and the Korean conflict, the engineering profession has provided the know-how In both the military and civilian fields. This facet can be a very important part of our national defense. We believe strongly that if this reservoir of scientific and engineering talent is destroyed by the nonuse of the private practicing engineer and architect for Armed Forces projects the Nation will be the ultimate loser. The established Government staffs have never been and never will be of sufficient size to cope with major emergencies unless the "state" is substituted for private enterprise. This we are sure is not your desire or ours. 3. Opportunities for selecting specialists whose unusual skills, knowledge, and experience would not otherwise be available to public agencies: Consulting engi- neers in private practice can be selected whose qualifications are particularly Suited to that required for a specific project The present method in use by the Armed Forces for obtaining professional services by interview and negotiations f~re4ctdes an opportunity for the selection of a properly qualified firm Consult ing engineers approve of this method and believe that it is in the public interest for it provides the best possible results for the least cost. Engineering staffs of private practicing engineers are easily adjusted to meet the demand to properly handle specific problems and can augment the talent either by direct employ- ment of experts or by joint venture with other firms. An engineering staff tends to reflect the ability and ingenuity of the men who are at its head. Private engineering firms can stay in business only if they are receptive to new ideas knd more economical methods of providing qttality service. However, it seems that, in general, the competitive challenge to adept new concepts does not exist PAGENO="0330" 326 CONTRACTING-OUT PROCEDURES in many Government engineering staffs. The consulting engineer practices hir profession over a wide and varied field, and will thereby apply new ideas, in~ novations, and techniques to projects he designs. As you well know, sudden adjustments in civil service staffs to obtain par- ticular skills, knowledge, or experience for a specific project is neither prac- ticable nor probable. 4. Greater alertness to effective prosecution of the work in compliance with time schedules : Consulting engineers in private practice are accustomed to executing work under pressure and thereby comply with time schedules as specified in contracts. Seldom do planning and design projects run beyond time limits as long as the scope of the project is not materially changed Government staffs may often have projects delayed by other projects assigned a higher priority Often this predicament cannot be avoided and if the staff is already working to capacity a serious delay may result The consulting engineer works under a very rigid contract, prepared by the Government, which stipulates, very definitely the time limit Therefore the retaining of consulting engineers reduces the possibility of unwarranted delay to the minimum 5. A deterrent to overexpansion of Governmental departments, thus mini- nuzing empire building There is a growing aiid continuing tendency for Government agencies to increase their engineering staffs. Much of this is the result of sudden expansion to handle speci.fie problems or temporary peak de- mands. The services of engineers in private practice can be utilized to great advantage in these instances, and the judicious use of consulting engineers will be a deterrent to overexpansion of Government staffs. This is sometimes re- ferred to as empire building and must be discouraged In the interest of economy in Government. 6. True and complete records of engineering costs allocable to specific projects in an improved accounting system that would serve the interests of sound administrative procedures: Often engineers in private practice are called upon to prove that the cost of consulting engineering services is more economical than the same services provided by Government forces. We know the cost of our services is less, but we find ourselves at a great disadvantage to prove it con- elusively because of the unrealistic accounting system of our Government. It is deplorable that our Government insists that private business maintain financial records for tax purposes from which we can submit an accurate and realistic cost for doing business, but it does not have an accounting system Which indicates the true and complete cost of providing it~ engineering services It is questioned in published data by Government agencies regarding cost of engineering services, whether nonproductive time or items paid out of unal- located funds are included, such as cost and maintenance of buildings and utilities. These are certainly overhead costs and, to make a true and honest comparison with private business, must be included-since they are a coat to the taxpayer. Government cost information, in its entirety, is not available to us, but it is to you gentlemen, and we recommend that you investigate this matter to assure yourselves that all costs for services are included before making a comparison with fees paid to consulting qngineers. We believe that the cost accounting system of the Government should be revised so that It will be a fully reliable basis for examining costs of engineering work performed by Govern- ment staffs. We believe further that the private practice of engineering, or any other private enterprise, should not be subject to price competition by Government activity. We wish to refer you to appendix C below entitled Consulting Engineering Services by Private Firms Versus Public Agencies." This important resolution was adopted by the American Institute of Consulting Engineers on May 4, 1960. it vividly expresses the fallacy of comparing engineering costs without a reliable basis for doing so and urges that Government agencies establish proper systems of accounting to provide a reliable basis for comparison. 7 Fconomies in the handling of engineering in Federal programs, particularly for increased workloads occasioned by programs of an emergency nature, and projects of unusual character or magnitude: It is the council's contention that definite economies can be realized in the engineering design of Government projects by consulting engineers. Particularly those where it is deemed neces- sary to suddenly augment Government staffs to care for increased workloa4s occasioned by emergency programs of unusual nature or size. Reduction of Civil Service staffs seldom occurs, if ever. Staffs not kept busy to maximum emoiency are very costly end sb*uld be avoided. We believe that every owner or client is entitled to the highest possible return on u~oxiey spent for eugiueei' PAGENO="0331" CONTRACTING-OUT PROCEDURES 327 lug services. On Government work the taxpayer is the owner and, in essence, the client, and therefore he should be accorded the same consideration. We believe that properly manned Government engineering staffs must be maintained at a level to provide certain services. The recommendation (No. 19) in the report to the task force to the second Hoover Commission expresses our idea on this point very well: "That the Federal design and construction organizations (a) retain in their own organizaions only the personnel required for preliminary study, preplan- fling and budgeting, and essential supervisory management and control, and (b) contract to private architect-engineer and construction firms design and supervision of construction to the maximum extent consistent with national security." This task force report also brings out the very interesting fact that when the architect-engineer costs of three of the more important Government agencies are compared, the results are as follows: Atomic Energy Commission: Almost exclusive use of consultants- A. & E. cost is 5.23 percent of construction cost. Navy, Bureau of Yards and Docks: Considerable use of consultanta-~ A. & E. cost is 8.17 percent of construction cost. Corps of Engineers, Army: Approximately 60,000 on staff. Some use of consultants-A. & E. cost is 12.15 percent of construction cost. Please refer to appendixes D and E, below, for examples of cost comparisons for private and public engineering services on highway projects. Appendix D is data compiled from the 1959 annual report of the California Division of Highways. The data is self-explanatory and brings out the glaring fact that the item "Preliminary engineering" as an average for 6 years equaled 13.2 percent of the volume of construction. It should be noted that none of these figures include the cost of administration, offices, utilities, or other apparent overhead items. It should also be noted this includes (1) preliminary route location and reconnaisance survey, (2) final route survey, and (8) preparation of construction plans. We believe the firat item of the three should be a function of the State agency, but the last two items could well be done by consulting engineers at a savings in cost. Appendix B is data compiled from official reports of toll highway agencies and is illustrative of engineering costs where engineering services were provided to a large extent by private consulting engineers. The engineering costs for these projects include both preliminary and construction engineering and the per- centage figures are comparable to the last column of figures on the right of appendix D. The engineering costs of these highways vary from 7.2 to 10.09 percent of the construction cost and average 8.7 percent. This is approximately one-third of the cost of the State designed highways in California. The above is an excellent example of the savings that can be realized on highway design when the services of consulting engineers are judiciously utilized. We believe that similar facts would be forthcoming if honest comrn parisons of cost were made on Armed Forces projects. The Consulting Engineers Council and the National Society of Professional Engineers have both made extensive surveys of costs of engineering services performed on Armed Forces and other Federal public works projects. We wish to direct your attention to the report submitted by the fees and contracts committee to the Consulting Engineers Council, dated October 20, 1958, a copy of which is attached to this presentation. The report is a compilation of Armed Forces projects upon which the architect-engineer services were furnished by private consulting firms. This report breaks the projects into nine categories or types and indicates that the fee averages 2.4 percent of construction cost. A detailed study of the individual projects listed brings out the fact that the fees received by the architect-engineer resulted in a very reasonable average. There is no method of direct comparison of these fees with the cost that may have been incurred by Government staffs furnishing the same services, but it can be compared with the overall average mentioned above for a few of the agencies as determined by the task force of the Second Hoover Commission. There is no question that private enterprise is more economical. Soon after the Consulting Engineers Council assembled the data on consulting fees for Armed Forces projects the National Society of Professional Engineers accomplished a similar task for a variety of Federal works projects. The results of the efforts of the NSPE task force on Government contract relations wa~ published in a booklet entitled "The Role of the Consulting Engineer in PAGENO="0332" 328 CONTRACTING-OUT PROCEDURES Federal Public Works Projects." The data is presented in considerable detail, and proves without question the following conclusions which are listed on page .2 of the above booklet: A. The average fees of private consultants are considerably lower than the Ilgures widely publicized. B. A common eroneous assumption is that the consulting engineer always receives a maximum fee based on a percentage of construction cost. C. It is impractical to generalize on engineering fees as a function of construction cost for a specific project. Lump sum fees are generally more equitable to the Government and to the engineers. D. By using private consulting engineers, the public pays for the services only when needed. E. Private consulting engineers, motivated by a profit desire, constantly strive to minimize overhead and can adjust more quickly to changes in conditions. It is our hope that we have presented a clear picture of the consulting engi- neers in private practice and their desire to be of service to the Government. Their services are highly qualified, both technically and professionally, and can be obtained more economically than similar services furnished by Government staffs. This, we believe, is certainly of great interest to the public and will further the principle of private enterprise. Thank you for the privilege and opportunity of appearing before your committee. Supporting data follows: Appendix A: Statement of Consulting Engineers Council Policy Regarding Private or Public Engineering. Appendix B: Consulting l~ngineers and Private Enterprise. A statement by Hueston M. Smith, president of Consulting Engineers Council 1960-61. Appendix C: A Resolution-Consulting engineering services by private firms v. public agencies prepared, and adopted by the American Institute of Consulting Engineers on May 4, 1960. Appendix D: California `~Division of Highways-Representative Cost Data. Abstracted from 12th annual report, dated January 1959. Appendix E: Some Toll Highways-from official reports of toll highway agencies. APPENDIX A. STATEMENT OF CEC PoLICY REGARDING PRIVATE OR PUBLIC ENGINEERING CONSULTING ENGINEERS COUNCIL BELIEVES IN PRIVATE ENTERPRISE The council believes that the question of whether public staffs or private consultant firms should design and supervise construction on public projects ~hou1d be resolved by one criterion only: WHICH APPROACH WILL BEST SERVE TEE INTERESTS 0]? THE TAXPAYER? One of the few impartial studies of the relative merits of public and private engineering has been made by the Commission on Organization of the Executive Branch of the Government, headed by former President Herbert Hoover. The Commission recommended that Federal design and construction agencies retain in their own organizations only the personnel required for preliminary study, preplanning, and budgeting, and the essential Supervisory management and control; and that private organizations be engaged for design and Supervision of construction to the maximum extent consistent with national security. Bulletin 60-2 issued by the Director of the Bureau of the Budget contains the following: "2. Policy: It is the general policy of the administration that the Federal Government will not start or carry on any commercial-industrial activity to provide' a service or prOduct for its own use if such product or service can be procured from private enterprise through ordinary business channels." The council subscribes wholeheartedly to the philosophy expressed by the Hoover Commission and by the Bureau of the Budget. It is clearly uneconomical for Government agencies to expand or reduce their~ engiReering `organizations to meet the changing demands for design and super-P vts}en ..o~ `constr.nction.: Retebtion ol personnel' during ~lat~k period~ results ~flr PAGENO="0333" CONTRACTING-OUT PROCEDURES 329 unjustiflably high overhead costs. In practice, reductions in personnel of Government staffs during slack periods seldom occurs; payrolls, pensious, and other overhead costs continue long after the programs have been completed. Consulting Engineers Council believes that the private practitioner has demonstrated his ability to save the taxpayer money on public projects by efficient design, by expeditious services, and by reasonable fees. To the end that the facts regarding engineering costs are determined and made public, the council recommends to the Congress of the United States that all public agencies utilizing engineering services for design and supervision of public improvements be required to establish accounting procedures which will truly evaluate the entire costs of the services, including direct and indirect costs such as pay and other allowances for personal services and leave, coii- tributions for retirement and disability, rent, supplies, materials, transportation, warehousing, utilities, depreciation, interest on Government investment, and all other costs reasonably chargeable to the operation. Consulting Engineers Council urges that true costs to the taxpayer be secured, evaluated, and made public. At that time Consulting Engineers Council will welcome a qualified and unbiased comparison of public and private engineer- ing costs. The council is confident that the results will justify private enterprise. Adopted April 8, 1960, Board of Directors, Consulting Engineers Council APPENDIx B. CONSULTING ENGINEERS AND PRIVATE ENTERPRISE A statement by Consulting Engineers Council President Hueston M. Smith, issued November 22, 1960, for broadcast by the Engineering-News Report Network, Pittsburgh, Pa. Consulting engineers represent an important segment of private enterprise in this country. They are the only engineers who furnish unbiased professional services to members of the general public. As engineers in private practice, they have a responsibility to provide the engineering services necessary for consultation, planning, design, and supervision of construction on a multitude ~f jçrojects. These projects may be done for industry, for private enterprise, and for government at the Federal, State, and municipal levels of activity. Members of Consulting Engineers Council believe that engineers in private ~ practice should be used on all government work other than in those areas of activity where the use of consulting engineers would be impractical. Therefore, consulting engineers should be commissioned to do the maximum amount of engineering work for the Federal, State, and municipal levels of government consistent with the most economical cost to the taxpayer. Government engineering should be maintained with a staff adequate for a normal workload. Such a staff would handle basic planning, approving, and supervising of projects designed by consulting engineers and built by independent contractors. Most government programs create work above and beyond what should be considered a normal workload. On that account, it would be eminently proper to assign the overflow work to engineers in private practice who comprise a substantial reservoir from which competent consulting engineers can be selected for such assignment. Consulting engineers have no conflicting business interests. They do no~ manufacturing, sell no equipment or materials, and in no construction work. Therefore, they serve a client's r - by engineers - req pJ engineering si PAGENO="0334" 330 CONTRACTING-OUT PROCEDURES There are no bargains in engineering any more than there are in law or in medicine. Charges for engineering services, ordinarily called fees, should not be con- fused with the costs of engineering. SometImes, equipment fabricators and erectors offer to make detailed designs of their own portions of a project in order to get business. In such cases, it should be evident that charges for engineering are not eliminated. Such charges are merely transferred to con- struction costs. Therefore, clients should be alert for any arrangement which calls for so-called free engineering. Adequate engineering is never "free." Present-day growth in science dictates a need for more consulting engineers. They will be required to design industrial plants, civil engineering works, Government Installations, and a host of commercial and institutional projects. Engineers in private practice, like men in law and medicine, comprise an essential part of the American community. A1'I'ENDt~ C. AME1iE~AN IN8TI~U1~S2 05' CONSULTING ENGINEERS CONSULTING ETNEERING SFIIIV1CES Br PIIIVA5'E FIRMS VERSUS Punuo AGENCIES RESOLUTION Whereas some governmental officials have issued statements In recent months advocating the performance of public works engineering services by the perma- nent staffs of Government agencies, rather than by private consulting engineer- ing firms, on the ela~m of purported economies; and Whereas such claims are contrary to the established experience of those few governmental agencies that have kept detailed and complete cost records of engineering work they have elected to have performed by their own staffs, rather than by private consulting engineering firms; and Whereas the accounting procedures of most governmental agencies do not fully reflect true and complete engineering costs, including appropriate allowances for fixed charges, overhead, indirect expense, and standby nonproductive time; and Whereas any such statements by governmental agencies that fall to take into account all elements of comparable costs, as between the performance of equal engineering s~rvices by governmental employees, or by private consulting engi- neering firms, may tend to reflect upon the economy and efficiency of services offered by such private firms, and thus upon the integrity of the engineering profession as a whole; Now, therefore, be it Resolved, That the American Institute of Consulting Engineers regrets the implication that either the American public or the members of the engineering profession-whether publicly or privately employed-will derive economic bene- fit by the invariable performance of public works engineering by governmental staff employees. The American Institute of Consulting Engineers further sug- gests that responsible governmental officials exercise care to avoid making un- supported statements as to the relative cost of engineering service by private firms versus public agencies; and urges that governmental agencies establish systems of accounting that will afford a fully reliable basis for examining and comparing the costs of engineering work as performed under the two systems, to the end that engineering which can be done to the better overall advantage of the public by permanently employed staffs of Government may so be done; and that engineering which can be done to the better public interest through private enterprise may so be done. I the undersigned secretary of the American Institute of Consulting Engi ileers, a professional society duly organized and existing under the laws of the State of New York, and having its principal place of business In the city of New York, hereby certify that the above is a true copy of a resolution adopted by the council of the institute of the said professional society, in accordance with the bylaws at, and recorded In the minutes of a meeting of the council of said Society duly held on May 4, 1960, and not subsequently rescinded or modified. In witness whereof I have hereunto subscribed my name and affixed the seal Of the said professional society this 4th day of May 1960. AMERICAN INSTITUTE OF CONSULTING ENGINEERS, By T. T. McCnosscr, Secretary. tSSALI RIChARD II. TATLO~ III, President. I I PAGENO="0335" CONTRACTING-OUT PROCEDURES 331 APPENDIX D. CALIFOENIA DwrsIoN OF HIGHWAYS The following figures were abstracted from the 12th annual report of the 4ivision of highways, dated January 1959. Excluded from the figures are all administrative expense, "Highway planning" and "Planning survey." The total expenditure for the latter two items for the fiscal year ending June 30~ 1958, was~ Highway planning $1, 178,000 Planning survey 1, 161,099 An eXamination of the report indicates that "Preliminary engineering" in- ~cludes: 1. PrelIminary route location and reconnaissance survey. 2. Final route survey. 3. Preparation of construction plans. "Construction engineering" includes construction supervision and material testing, Years Volume of construction Preliminary engineering Construction engineering Total engineer- ing percent of con- struction Cost Percent of construe- tion volume Cost Percent of construe- tion volume 1952-53 1953-54 1984-55 1955-56 1956-57 1957-58 Total $94, 130, 979 110,025,902 132,210, 121 144, 124, 391 195, 115, 702 213,083, 114 888, 690, 210 $11, 648, 494 14735,724 17, 200,386 19, 737, 032 25, 168,692 29, 158, 262 117, 648,589 12. 37 13.39 13.01 13.69 12.90 13. 68 13.20 $9, 385,309 11,906,251 12,382,526 15, 227, 790 18, 757,035 21, 894, 487 89, 553,398 9.97 10.82 9.87 10. 57 9.61 10.27 10. 07 22.34 24.21 22.38 24. 26 22. 51 23.95 23.27 NoTE-California makes practically no use of consultants on the highway program.~ APPENDIX E. SOME TOLL HIGHwAYs The following information taken at random from official reports of toll high- -way agencies is illustrative of engineering costs on highway work where serv- ices are performed to a large extent by private consultants. The engineering costs for these projects include "Preliminary engineering" and "Construction engineering" within the meanings accepted in highway work. Also included are the costs of the supervisory engineering staffs of the respective authorities. Source, Texas Turnpike Authority: Financial statements of contruction and operation, month of December and calendar year 195D: ~Construction cost .~-. ~_ $33, 136, 929-. 80 Engineering cost * $3, 044,984. 02 Engineering cost, percent of construction cost 8.43 Source, the Illinois State Toll Highway Commission: 15th quarterly progress report, Sept. 30, 1959: Construction cost $289, 810, 370. 00 Engineering cost $26, 131, 045. 00 Engineering cost, percent of con$trnetlon cost 9 02 Source, West Virginia Turnpike Commission: Statement of construction costs, as of Feb. 29, 1960: ~Construction cost $95, 042, 02& 65 Engineering cost $8, 301, 767. 56 Engineering cost, percent of construction cost 8. 96 Source, Indiana Poll Itoad Commission: 1959 annual report: ~Construction cost $167, 218, 375. 88 Engineering cost $16, 871, 334. 61 Engineering cost, percent of construction cost 10. 09 PAGENO="0336" 332 CONTRACTING-OUT PROCEDURES Source New York State Thruway Authority 10th annual report and letter dated Apr. 4, 1960: Construction cost $799, 663, 799. 00 Engineering cost $76, 894, 371. 00 Engineering cost, percent of construction cost 9. 62 Source, Richmond-Petersburg Turnpike Authority: 15th progress report: Construction cost $49, 130, 282. 56 Engineering cost ~_ $3, 536,904.28 Engineering cost, percent of construction cost 7. 20 Source, Florida State Turnpike Authority: Sunshine State Parkway, Miami to Port Pierce section, final engineering report, dated July 1, 1958: Construction cosL $42,903, 786.00 Engineering cost $3, 368, 636. 00 Engineering cost, percent of construction cost 7. 85 Novn.-The above project is particularly noteworthy in that the entire project, 108 miles in length, was completed and opened to traffic in 19 months after proceeds from the bond issue were received. The short-time duration resulted in savings to the turnpike authority in excess of the totar c6st of `enginOering by virtue of savings in bond interest. ANALYsIS OF REPLIES RECEIvED FRoM MEMBERS OF THE CONSULTING ENGINEERS COUNCIL To QUESTIONNAIRE WITH RESPECT TO FEES RECEIvED FRoM AGENCIES OF THE ARMED SERVICES CONTRACTING FOR ARCHITECT-ENGINEER SERvICES A. A. Heft, chairman, Fees and Contracts Committee, Consulting Engineers Council, October 20, 1958 A. SCOPE AND EXTENT OF QUESTIONNAIRE AND REPLIES 1. Under date of July 21, 1958, questionnaire was issued to the members of the Consulting Engineers Council with respect to architect-engineer serviceS which they have performed for the Corps of Engineers, the Bureau of Yards and Docks, the Air Force Installations Office, or other similar agencies of the armed services. The questionnaire was directed to the fee, cost, and profit aspects of contracts which members bad performed. 2. As of May 1958 the consulting engineering firms represented in the Consu1t~ ing Engineers Council include 1,195 principals. 3. Replies were received from 144 members who indicated that they have bad no recent experience with the armed services but are interested in performing such types of architect-engineer services, and replies were received from 157 furnishing fee and cost data about specific projects. 4. The number of replies analyzed hereht does not coincide with the number of 157 given above. In some instances, replies concerning more than one project were received from one member. In other cases, replies were omitted from the analyses because certain data was omitted. Many valuable replies were received summarizing experience on a number of projects and making comments of a general nature. These also could not be included in the analyses, but are included in section B hereof. 5. It is believed that the replies are representative of the experience of arcbi- test-engineers in recent years on a wide variety of services performed for agencies of the Armed Forces. There is no indication that they represent unduly either favorable or unfavorable experience. 6. Firms replying are spread very widely throughout the country, the principal exception being the New England region. They include large, medium, and small firms, principally large and medium ones. Replies were received from a number of firms of outstanding national reputation, including several who are doing quite a large amount of work for the armed services. 7. Some of these firms have been performing architect-engineer services for the armed services since 1940; most replies are from firms which have been doing such services during the last 10 years. PAGENO="0337" CONTRACTING-OUT PROCEDURES B. GENERAL COMMENTS BY ARCHITECT-ENGINEERS 1. As previously stated, in addition to replies which could be analyzed, numerous replies were received which are felt to be of great value but which must be summarized in terms of the comments presented rather than in tabular form as the analyses in section C hereof. Most of these replied cov"~'~ section were received from large firms which have been doing a cons amount of work for the armed services r-~ --`----- ----~ ~--ir comr-'-~- ---------~`--~`--~--. In of t 6 p t ma imum fee which is al J as the per diem rate allowed for consultation and similar services. is also criticism of the practice of some districts of grouping together a number of small unrelated jobs and endeavoring to base a fee on the total estimated construction cost as though they were a single large job instead of many small ones. 5. Although most members do not object to lump-sum fees as such, many comments were received that fees originally negotiated based on preliminary cost estimates for construction furnished by the contracting officer should be revised based on either actual costs or final estimated costs. There is widespread criticism that the preliminary cost estimates furnished are frequently grossly inadequate, Because of the architect-engineer's unfamiliarity with the proposed job at the time the fee is negotiated, it is difficult, if not impossible, for him to make a check of such estimates and to prove that they are inadequate. There is also ~criticism of the practice of requiring extepsive alternates without making provi- sion for them in the fees negotiated, which is usually not done. 6. Many comments were received that practices of a given agency vary from district to district, with different interpretations being placed on standards and policies. This results in both confusion and needless expense to the architect- engineer. There is extremely widespread criticism of review policies. Many firms feel that reviews are unnecessarily detailed if the architect-engineer is expected to do a responsible piece of work. Similarly, it is felt that unneces~ary changes are requested, many of them being of a nature that the desired details should have been furnished to the architect-engineer when he commenced work. Many firms point out that different changes are required by different reviewing offices without significailt benefit to the project but with substantial expense to the architect-engineer. All those commenting feel that reviews should be made by only one office and that these should be final, unless the architect- engineer is to be additionally compensated for other changes which may be required. 7. Many changes are reported required by changes in directives without additional compensation to the architect-engineer. In many other cases there are criticisms of standard manuals furnished as being inadequate, obsolete or not applicable to a particular project. There is very widespread feeling that better and more economical construction would be obtained if general require- ments were established and design and details made the responsibility of the architect-engineer. 8. Although this questionnaire was confined to fees, very widespread com- ments on other aspects of such architect-engineer services were received. The principal one appears to be that those replying feel that the contract terms for architect-engineer agreements with agencies of the Armed Forces require sub- stantial improvement. The principal changes sought are a relation of the fee paid to the actual or final estimated cost of the work performed instead of the 333 74109-6t--22 PAGENO="0338" 334 CONTRACTING-OUT PROCEDURES preliminary estimate of cost furnished by the contracting officer, compensation for various alternates requested, a much clearer definition of the architect- engineer s responsibilities a limitation on changes or provision for additional compensation for making them and more authority for the architect-engineer to exercise responsible judgment in the performance of his services. It is especially interesting to note that these comments were received even though not requested. 9. There are many criticisms of circumstances where an architect has been retained and has later retained an engineer on a subcontract basis; presumably, there would be similar criticisms from architects in the reverse situation. Engineers performing such work on a subcontract basis feel that they should participate in the negotiations between the architect and the contracting officer in order to be familiar with the obligations undertaken They also criticize the inadequate information furnished them by the architect, requiring unnecessary revisions and changes in their work. 10. Comments of particular interest were received on a large number of different projects from an outstanding firm which does a great deal of soils and foundation work. On six fairly large sized jobs, the fee received by this firm was substantially inadequate and resulted in a fairly large loss. On one project for which the firm was not retained after expending a very substantial amount of money on preliminary studies and surveys necessary for estimating and negotiating the firm learned that it did not receive the job because of its supposedly high fee This appears to be somewhat in conflict with the Depart ment of Defense policy that consulting engineering services are not to be retained on a price basis. This firm is doing a large amount of similar work for numerous clients both public and private, on the same basis of fees which it sought in this instance. C. ANALYSIS OF REPLIES 1. Replies on fees for specific projects were separated, tabulated and analyzed as set forth on the following sheets. It was necessarily difficult to make a uniform classification of projects, particularly because many overlap. They were assigned to the various categories set up in accordance with the best interpretation of the information furnished. fees shown are the actual final fees reported for each project, including adjustments and extras. Construction costs of projects where shown are in accordance with the information furnished. Although there was very widespread criticism in the replies received, of the unrealistic preliminary cost estimates upon which fees are based, compara- tively few replies gave data on this point which could be included in an analysis To do this would require both the preliminary estimate of cost of construction used in the fee negotiations and the actual cost of construction or the final estimated cost based on completed plans-both figures were furnished in only a few cases. The figures shown for actual cost of construction is either such actual cost or final estimated cost in event that the work did not proceed or the architect-engi~~er did not have available information as to the actual cost of construction. "The percentages shown are based on the replies showing the architect-engineer's costs as a percentage of the total fee and his profit as a percentage of the total fee. Where a loss is involved, the profit is shown as a negative figure. As a matter of interest, the fees are shown as percentages of construction cost; for many reasons which are apparent, these percentages vary widely even within a given classification of work. The total dollar profit or loss for each given project is shown. Based on the total net profit for each category into which projects have been subdivided and the total tees represented, both the cost of doing the work and the profit or loss are shown as a percentage of the total fee. These percentages are, in effect, averages for all of the projects reported in that particular classification. PAGENO="0339" CONTRACTING-OUT PROCEDURES 335 For purposes of analysis, replies were classified into nine categories according to type of service performed. A. summary of these replies is shown below: Type of work Total fee Total con- struction cost Fee as percent of cost Percentofarchi- tect-engineerfee Costs Profit Dollar profit or loss 1. Preliminary reports or advance plan- ning 2. Complete services for major installa- tions ~. Buildings and related facilities (major design) 4. Site adaptation of standard buildings - 5. Utilities, paving (streets, roadways, runways, aprons, taxiways, etc.), and grading 16. Alterations, conversions, repair, and rehabilitation 7. Dams, locks, waterfront facilities, and other civilian work of Corps of Engi- neers 8. Subcontract forotherarchitect-engineer 9. Miscellaneous engineering services Total $149, 020 773,800 711, 800 140, 600 952,600 181,485 525,300 433,075 65, 535 $17, 499,000 41,608,000 16,456,000 8,060,000 26, 761,000 3,887,000 19,870,000 303,500 1,677,300 0.75 2.06 4.30 1.60 3.56 3~ 80 2.00 3.20 3. 74 78 95 96 97 75 84 96 106 107 22 5 4 3 25 16 4 -6 -7 $32, 500 40,300 28, 100 4, 100 233,600 29,500 20,900 -26,840 -4,735 357,425 3,933,215 136, 121,800 1 2.40 91 9 1 Several projects included in fee totals for which construction costs were not available. This percentage was developed from reports where full data was available. Froni this analysis several things are evident: 1. Certain types of work are much more profitable to the architect-engineer than others. 2. In no category is the profit greater than many Consulting Engineers Coun- cii members consider necessary to properly perform responsible services. 3. Preliminary reports or advance planning, and utilities, paving, and grading, categories No. 1 and 5, result in the largest percentage of profit to the ardhitect- engineer, yet many members consider this a minimum profit which must be earned to maintain an adequate staff and perform services of the quality required. 4. Certain types of work which carry heavy responsibility and should be ade- quately compensated for, such as performing complete services for major in- stallations, do not appear very attractive. While it is true that fees as a per- centage of construction should vary inversely as the cost of construction, projects of this type usually result in sereral construction contracts, each of which requires an individual set of plans and specifications. This is often not considered in negotiations, but rather, the total cost of all construction contracts is used as the basis for fee determination. 5. Major design of buildings, which in the replies included several large btiild- ings of a specialized nature, resulted in an average fee of 4.3 percent of con- struction cost. Fifty percent of the projects reported showed a net loss to the architect-engineer. This fee is less than that required for similar civilian work, and the low margin of profit on this basis is evidently inadequate to make the project attractive to responsthle architect-engineers. ~. Site adaptation of standard buildings is quite often represented as a proj- ect of a simple nature. The marginal profit reported indicates that perhaps more work is actually required in site adaptation than was intended when build- ing plans were standardized, or that possibly too much emphasis is placed on lJsing standard buildings when they do not readily fit local conditions. 7. Alterations, conversions, repair and rehabilitation are projects which re- quire much additional work not normally required of new construction and, in PAGENO="0340" 336 CONTRACTING-OUT PROCEDURES normal civilian practice, command a much higher fee. Actually it appears from this data that on an average basis, it neither commands an adequately higher fee nor results in a sufficient profit to compensate for the added work. 8. Civilian work for the Corps of Engineers also appears to suffer from an inadequate fee. While these projects are of their nature large and should carry low percentage fees, it would appear that the fee is now set too low to result in what could be considered an adequate return. 9. Subcontract work for prime architect-engineers while, not the direct re- sponsibility of the Department of Defense, reflects the fees awarded tr the~ architect-engineer. Here again, this work can only be considered marginal fropi the profit standpoint. 10. Over 34 percent of the projects on which complete data was received showed a net loss to the architect-engineer. 11. In most cases, the fees reported are below the minimum fees as set forth in accepted fee schedules for comparable civilian work. 12. A study of the profits shown on these returns indicate why many medium and large architect-engineers do not regard projects for the Department of De- fense very desirable. Preliminary reports or advance planning 1. Storm drainage re- port 2. Corps of Engineers, study of electrical system 3. Navy, widening and realinement of road. 4. Air Force, study on water supply and sewerage 5. Navy, study for missile facility__ 6. Navy, aviation op- erations building and control tower~ 7. Corps of Engineers, dormitories- Ad- aptation from standard design_ 8. Navy, aircraft hangar and lean- tos 9. Navy, aircraft hangar 10. Navy, dispensary building 11. Navy, 3 aircraft hangars, includ- ing I set design drawings and 3 plot plans 12. Navy, aircraft maintenance hangar and lean- tos 13. Navy, aviation con- trol tower 14. Navy, aircraft maintenance hangar 15. Propositions only for procedure studies Total Job ~ Services per- formed Fee Construction cost . Percent of architect- engineer fee - - Fee as per- cent of actual Dollar profit or loss . cost 240 -140 69 31 87 13 0.64 38 62 116 -16 .60 X $4,000 X 2,100 X 18,300 $285,000 X 12,000 27, 400 4, 600, 000 X 8,450 910,000 -- 4,630 504, 700 X 22,300 3,386,300 X 3,490 409,000 N 4,860 513,000 X 10,300 2,063, 000 X 15,000 2,691,000 X 6,400 135,000 X 9,790 2,002,000 N (1) -$5, 600 600 2,400 7,500 -4,400 1,400 2,800 9,800 1,200 1,900 4,200 4,600 1,800 4, 300 83 40 56 66 61 59 69 73 56 83 .93 .92 66 .85 .95 .50 56 4.75 49 17 60 44 34 39 41 31 27 44 17 149,020 17,499,000 78 22 .75 32, 500 I $125 per day. PAGENO="0341" CONTRACTING-OUT PROCEDURES 337 C1ompZete services for major insta,Ucstions Job Services per- formed ~ 1 2 3 4 Fee Construction cost Estimated Actual Percent of architect- engineer fee -- Costs Profit Fee as per- cent of actual cost Dollar profit or loss 1. Air Force, housing facility, including roads, utilities, etc X X 2. Naval Air Station facilities X X ~3. Naval Air Station facilities X X 4. Engineering test fa- cilities X 5, Aircraft warning fa- cilities X 6. Air freight termi- nal X ..~ 7. Test facilities X 8. Antiaircraft instal- lations..... X 9. Air Force hangars, buildings, utili- ties, etc 10. Air Force, base, buildings, paving, utilities, and re- lated facilities Total $278,000 $21,400,000 55, 800 $1, 430,000 32,300 2,080,000 54, 500 1,300,000 39, 400 1, 970,000 27, 400 1, 200,000 25, 100 835,000 112,000 7,000,000 90, 600 1,966,000 58,700 2,427, 000 102 -2 100 0 65 35 78 22 144 -44 94 6 100 LI 75 25 90 10 99 1 1.3 3. 9 1. 55 4. 2 2.0 2.3 3.0 1.6 4. 6 2. 4 $5, 000 0 11,300 12,000 -17,300 1, 600 0 28,000 9, lOG ~ 600 773, 800 41,608,000 95 5 2.06 40,300 Bs~il~2ings ani related facilities (major ~-Iesign) Job ServIces performed 1 2 3 4 Fee Construction cost -- Estimated Actual Percent of architech- engineer fee Costs Profit Fee as per- cent of actual cost Dollar profit or loss ~ 1. Army classroom - - - X -~_ X $20,000 2. AIr Force, shop and laboratory build- ing X X 24,600 3. AIr Force, messhalL X X 39, 500 4. Navy accounting building . X 20,700 .5. Air Force, base the- ater X X 4, 500 6, Air Force, arma- ment and elec- tronics building X 14,400 7. Navy school X X 72,000 8. Navy electronic supply building..... X ---- X 151,600 `9. Navy aircraft hangar.. X ~ X 108,000 10. Navy barracks (de- signed and rede- signed) X .~ X 48,000 11. Airmen's dormitory X X 14, 500 12. Navy barracks X 26,000 13. Air Force, aircraft maintenance shop X X 21, 100 14. Air Force, auto maintenance sbop X X 18,200 .15. Maintenance shop X 9, 100 16. Navy dispensary X 55,000 17. Navy mess build- lug and other ía- duties.. X 42,000 18. Air Force, rocket . storage building and infirmary 8,600 19, Air Force, ware- house, parachute building and taxi- ways 14,000 Total 711,800 $433, 000 182,000 240,000 3,800,000 2,340,000 695,000 720,000 .. $1,000,000 468,000 300,000 419,000 1,885,000 2, 185,000 1, 140,000 505,000 520,000 195,000 1,000,000 525,000 292.000 385,000 110 140 139 82 100 124 85 81 57 , 126 147 86 75 59 82 130 118 137 117 -10 -40 -39 18 0 -24 15 19 43 -26 -47 14 25 41 18 -30 -18 -37 -17 2.0 5.3 13.2 4.9 2. 5 6.0 3.8 4.0 4.9 4. 2 2. 1 3. 6 4.2 3. 5 4. 7 5.5 8.0 2.9 3. 6 -$2,000 -9,800 -15,400 . 3,700 0 -3,500 10,800 ~ 28,800 46,500 . -12, 500 -6, 800 3,600 , 5,300 7,500 1,600 -16,500 . -7,600 , , -3,200 . . -~, 400 16,456,000 96 4 4.3 28, 100 PAGENO="0342" 338 CONTRACTING-OUT PROCEDURES ~~ite adaptation of standard buildings Dollar profit or loss Services per- formed 1 2 3 4 Fee Construction cost Estimated Actual Percent of architect- engineer fee Costs Profit Fee as per- cent of actual cost 1. Navy maintenance hangar 2. Army Reserve train- ing centers 3. 3et engine test fa- cility 4. Air Force Reserve hangars, aprons, roads X 5. Army National Guard buildings... X X 6. Air Force, airmen's dormitory X Total X $34, 700 X 7,600 X 4,100 41,500 45,000 7,700 $2, 040,000 $1, 635,000 2,300,000 1,500,000 585,000 114 129 74 81 100 73 -14 -29 26 19 0 27 2.1 1.8 3.0 1.3 -$4, 900 -2,200 1,100 8,000 0 2,100 140, 600 8,060,000 97 3 1.6 4,100 Utilities, paving (streets, roadways, runways, aprons, ta~~viways, etc.) and grading ~fob ~ Services per- formed ~ Fee Construction cost ~ Percent of architect- engineer fee - Fee as per- cent of actual cost Dollar profit or loss X $60,000 $1, 100,000 ----x $10,200,000 89,000 60,000 56,000 5.4 $25,900 4. 5 120,000 2.7 700 10. 0 600 x N 160,000 2,400 5,600 36,000 69,600 4,500 61,500 13,600 28,400 1,400 7,000 600 41,500 14,200 x x x N x x x x x N N 1. Navy, roads and utilities 2. Air Force, power and heating sys- tems 3. Water system 4. Chemical-type fire protection system 5, Central heating plant and high- temperature water system 6. Air Force, utilities and taxiways 7. Navy, utilities 8. Navy, taxiways and aprons 9. Air Force, sewerage facilities 10. Air Force, utilities.... 11. Drainage 12. Electrical facilities_ 13. Electrical facilities... 14. Navy, utilities 15. Sewerage system..~~ 16. Sewage treatment plant, pumping stations and out- fall 17. Air Force, roads, utilities, and sew- age treatment plant 18. Steam distribution system 19. Underground heat- ing system 20. Water supply and treatment system 21. Drainage 22. Navy, electrical distribution sys- tem 23. Navy, utilities 24. Navy, utilities Total x x N N N N N x x N N 57 74 71 90 121 54 59 53 45 58 138 74 100 84 104 113 75 70 87 131 85 43 26 29 10 -21 46 41 47 55 42 -38 26 0 16 -4 -13 25 30 13 -31 15 4,100, 000 4,100,000 1,495, 000 25,500 11,000 650,000 1,950, 000 118,000 314,000 24,000 246,000 850,000 200,000 465,000 170,000 100,000 200,000 - 18,100 1.9 1.7 5.3 1.5 4.3 1.9 5.7 2.9 5.5 4.9 7. 1 8.9 4. 1 5,0 5.5 5.3 -7,600 32,000 1,800 29,000 7,500 11,900 -500 1,800 (5 7,00(1 -600 -2,400 6,600 2,50(1 700 -3,300 200 -60(1 800 -400 26,500 8,400 5,500 10,700 1,400 x N N x---- 8,000 55,000 107 -7 14.6 2,200 48,000 65 35 4.6 10,500 220,000 104 -4 5.0 25 3.56 233,600 952,600 26,761,000 75 PAGENO="0343" CONTRACTING-OUT PROCEDURES 339 Alterations, conversions, repair, ant~1 rehabilitation Job Services per- formed Fee Construction cost ~ Percent of architect- engineer fee Fee as per- cent of actual cost Dollar profit or loss 1 2 3 4 Estimated Actual Costs Profit 1. Heating of arctic towers, northern United States 2. Alterations to pro- vide for electronic X $5, 830 $97, 000 61 39 6.0 $2, 300 data processing machine room - 3. Corps of Engineers- Army National Guard facility 4. Aircraft facility 5. Navy, additions and modifications X X X X 10,700 22,400 10,900 $85, 000 99,000 218,000 102 43 123 -2 57 -23 12.6 2.25 5. 0 -200 12,800 -2, 500 to aircraft hangar 6. Navy, repairs to building heating system 7. Plans for rehabilita- X X 7,650 2,325 153, 000 42,000 150 69 -50 31 5. 0 5.0 -3,800 700 tion of camp 8. Corps of Engineers, revision of missile X X 62,000 2,480,000 71 29 2. 5 18,000 sites 9. Alteration and re- X X 13,000 80 20 2,600 habilitation of overhead electri- cal distribution system 10. Conversion of ware- 2,870 44, 000 96 4 6. 5 100 house into inter- communications school 11. Conversion of ware- X .~- X - 11,800 295,000 74 26 4.0 3, 100 house into electri- cians school 12. 6 aircraft warning stations, rebuild- ing and increasing facilities 13. 5 miscellaneous al- X X X --- -- 9,000 21,000 225,000 73 126 27 -26 4. 0 2,400 -5, 500 teration projects including paving, utilities, build- ings, sprinkler systems, etc Total X -~ 2,210 49,000 122 -22 4. 5 -500' 181,485 3,887,000 84 16 3.8 29, 500 Dams, locks, waterfront facilities, anl other civilian work of Corps of Engineers Job Services performed ~ 1 2 3 4 Fee Construction cost Percent of architect- engineer fee Cost Profit Fee as per- cent of actual Dollar profit or loss Estimated Actual cost 1. Dam 2. Lock walls 3. Dam 4. Dam abutment and fish ladder 5. Waterfront construc- tion Total X X X X X X ~. $103,200 30,000 97,000 126,000 169, 100 $4, 570, 000 1,500, 000 7,200, 000 6,600, 000 66. 0 49.0 99. 5 108.0 112.0 34.0 51.0 . 5 -8.0 -12.0 2.26 2.00 1.35 2.57 $35, 200 15, 300 500 -10,000 -20, 000 525,300 $19,870,000 96.0 4.0 2.00 20, 900 PAGENO="0344" 340 CONTRACTING-OUT PROCEDURES guboosztraet for other architect-engineer Mr. COURTNEY. We have also had a request from the National Edu- cation Association to be allowed to submit a statement for the record. Mr. ITEBERT. Without objection, it is so ordered. (The statement is as follows:) NATIONAL EDUCATION AssoCIATION, Washington, D.C., August 16, 1961. lion. F. EDWARD HEBERT, Chairman k~ubcommittee for ~pecia1 Investigations, Com4nittee on Armed ~erv- ices, House Office Bui'ding, Washington, D.C. DEAR Mn. HJ~BERT: Thank you for y~our letter of August 9 advising me that your hearings on contracting out practices began on August 8, 1961. After receiving your letter, I requested to talk with counsel of the subcom- mittee and on August 10, Mr. William ii. Sandweg, counsel, was able to confer with me and with Mr. Robert R. Shafer, president of the Far East Education . Job Services per- formed 1 2 3 4 Fee Construction cost Percent of architect- engineer fee Costs Profit Fee as per- cent of actual cost Dollar profit or loss Estimated Actual 1. Armory and garage 2. ArmyReserveTrain- ing Center, survey, utilities, paving 3. Structural work on aircraft warning system. 4. Heating and air con- ditioning for 2 Air Force BOQ 70-unit housing proj- ect, paving and utilities 6. Mechanical and elec- trical work for Air Force infirmary..... X Total X X X X ~. X X , X $3, 700 2,000 419,600 1,775 3,000 3,000 $92, 500 100, 000 111,000 93 117 106 70 80 193 7 -17 -6 30 20 -93 4. 0 3. 0 2. 7 $300 -340 -25, 100 300 600 -2,800 433,075 303,500 106 -6 3.2 -26,840 Miscellaneous engineering services Job ~ Services per- formed ~. 1 2 3 4 Fee Construction cost ~ Percent of architect- engineer fee ._.~ -- Costs Profit Fee as per- cent of actual cost Dollar profit or loss Estimated Actual X $5, 475 $91, 300 168. 0 X 4,200 70,000 63.0 X X 17,000 $496,000 100.0 x x x x x x 1. Facilities for naval air station 2. Air Force 3. Missile facilities_ -- 4. Aviation navigation aids 5. Swimrring pool 6. Firewall design 7. Machinery founda- tions S. Air conditioning for operating s'iites at naval hospitaL -- 9. Control system for dehumidification and temperature control 10. Berthing facilities for deactivated vessels Total 211,000 131.0 331,000 113.0 300, 000 75.0 x x x 92.0 6, 350 9.400 12,000 3,000 2, 300 1,150 4,460 -68 37 0 -31 -15 23 8 -5 -20 7 6.0 6.0 3.43 3.0 2.84 4.0 5.0 8.9 3.9 50,000 105.0 13,000 120.0 -$3, 700 1, 550 0 -2,000 -1,400 3,000 240 -125 -2,600 300 65, 535 105,000 93.0 1,67,300 107.7 -7 3.74 -4,735 PAGENO="0345" CONTRACTING-OIJT PROCEDURES 341 Association, in Mr. Sandweg's office. * Mr. Shafer happened to be in the city at our request on matters pertaining to the oversea dependents' schools. He was familiar with the Kwajalein contracting-out practices and concurs with me in my views expressed on the Kwajalein situation as we understand them. After conferring with Mr. Sandweg, it seems clear that I should submit to you some remarks with the suggestion that these might be included as part of the official record of your committee. However, because our information about conditions on Kwajalein is limited, I have not prepared a formal staten~ent as I would ordinarily have done, and I am not requesting to appear before the subcommittee to present testimony. These remarks, and the attached statements from teachers on Kwajalein, concern conditions in the program and the adniinis- tration of the school on Kwajalein operated for the dependents of military per- sonnel and others stationed on the island. The school formerly was operated by the U.S. Navy, under the direction of the Department of Defense. Now all the military installations and those of the school on the tiny atoll are operated under contract from the Federal Government by the Texas Transport Co. of Corpus Christi, Tex. Briefly the correspondence from the two former educators on Kwajalein main- tains that the Texas Transport Co., after taking over the Kwajalein installation, markedly raised the rents and other living costs to the teachers and instituted unprofessional demands upon the teaching staff there, seriously lowering teach- er morale. We first heard about these things in a letter from a teacher dated December 1, 1959; a copy of this letter is enclosed. We had some interim cor- respondence with the writer, and recently, following my letter to you of March 27, 1961, we sought to obtain more current information about the situation. I am enclosing a copy of a letter written in response to this request by another teacher from Kwajalein on June 12, 1961, while he was still on duty on Kwajalein. Names of the writers of these letters can, I believe, be made available to the committee. It would appear that while the educational program has been im- proved somewhat since we first heard in late 1959, the personnel program has~ if anything, deteriorated. The details of the changed conditions are contained in the two letters. We have no other direct information from Kwajalein itself about the situation. Yet, from informal discussions with officials in the Department of Defense, it is my feeling that the Navy Department desires to take back this school into their overseas dependents' schools system. From what I have been able to learn here in Washington, when the contract was written, costs of operating the school r program were inadvertently omitted, and therefore the company apparently has felt it must institute practices which would conserve its expenditures. I also understand that the contract company has levied a tuition charge upon the service personnel and upon the civilian parents whose children go to school on Kwajalein in order to attempt to further recover the costs of operating the school on Kwajalein. Paradoxically, if the school had remained as part of the oversea dependents' school system, working conditions and salaries would have been improved by Public Law 86-91, a law passed in 1959 at our request to bring about needed beneficial changes in the personnel practices of the oversea dependents' schools. When the contract was written, provisions should have been made for prop- erly funding the school's operations. If this had been done, I feel that the a]- leged conditions which seemed to have occurred since the Texas Transport Co. took over the operation of the school would not have occurred at all. Despite the fact that the two teachers from Kwajalein believe that the educational pro- gram, from the evidence of the results of standardized tests, seems not to have been adversely affected, I cannot help but feel that the quality of the teaching continues to be limited because of the serious morale problems which apparently still exist according to our latest information I feel that whenever the Federal Government proposes to contract out the operation of oversea installations on which children will be attending school, that the funding and operation of the schools should be carefully planned and adequately provided, for so that the program for the children and the personnel bolicies for the teachers will be continuously maintained and strengthened, just as if the school had been kept under the wing of the Department of Defense. I hope that your committee can use this example as an indication of what might happen if contracting-out practices are not carefully instituted. PAGENO="0346" 342 CONTRACTING-OUT PROCEDURES We are concerned with the quality of the education of American children and the professional welfare of American teachers wherever they are. We ~would not like to see the situation on Kwajalein, hs we understand it, to con- tinue. Nor do we want to see these practices instituted elsewhere. To me, it seems clear that the best interests of the Federal Government and of the Nation are not being served when a situation such as apparently exists on Kwajalein is permitted to contiRue. The continued interest of your committee in this matter, which I first brought to your attention on March 14, 1961, is sincerely appreciated by me and by the National Ed~cat1on Association. The Overseas Education Association also cxpresses its sincere appreciation for the continued interest of the committee in professional standards for the schools and the teachers responsible for pro- viding education for our children on Kwajalein. Cordially, ROBERT W. MOLAIN, fftaff Contact for Oversee~ Teachers. GEORGE Siwrz ScRoon, &z~n Fcaneisco, CalIf., December 1, 1959. NATIONAL EDUCATION AssOCIATION, Washington, D.C. (Attention: William G. Carr, executive secretary.) Dm~n Mn. CARR: We are a group of 10 teachers and 1 principal in need of come advice concerning the improvement of our professional standards here Tin Kwajalein, Marshall Islands. We hope that you might be able to offer some advice or sources where we could obtain this information. Perhaps it would be better if I gave you some background information so ithat you might better understand what I mean when I say we are a contractor- operated school. Until June of this year Kwajalein had been a naval base and as such the teachers were a part of the Navy oversea dependent school system. The mission of the island changed and now we have the Navy acting in the capacity of contract administrators for the Transport Co. of Texas who was hired by the Department of Navy to support and furnish housekeeping needs for the island and the people living here. The Army is in charge of installing and testing the equipment of the Nike-Zeus missile system which has become the primary activity for Kwajalein. Due to the change here the teachers as of this year were hired by the Trans- port Co. of Texas. While we are not a part of the Navy oversea school system ~ we are using the Navy oversea school guides to determine our academic stand- ards. The principal is responsible to the resident manager of the Transport Co. of Texas. With this information In mind I would like to present the following facts to you. The contract by which the teachers were hired is the standard contract by which all job classifications were hired, i.e., plumbers, truckdrivers, clerks, officeworkers, engineers, administrators, and the like. Our salary scale is $7,200 per 12-month year. During Christmas holidays and summer vacations ~we are expected to fill in as officeworkers, sales people in the company stores, and any manner of jobs where additional help is required. The salary for the teaching year is about $5,200 and this does not include pay during the school holidays unless the teacher works in any other jobs as mentioned above. We are expected to work a 48-hour week and remain on the job until 4:30 p.m. just as others are who are paid on an hourly wage scale. The only con- sideration given is that we do not have to work on Saturdays while we are doing our teaching jobs. Other than legal holidays we are required to be at school if it is not an extended period of nonteaching time. No provision is made for any salary schedule to take in consideration years in the profession or ~advanced degrees. To say the least we here are not pleased with the terms and are hoping to Improve our status. I might add that the cost of items ha~ve increased about ~20 percent over the prices when the Navy ran what was then called the post ~exchange and the commissary. Also rents have gone up about $25 for the ~quarters furnished the teachers. The working conditions from the standpoint of the teacher and from the learning point of view are far from ideal. Our school is housed in three wooden~ buildings which are a very definite fire hazard, one of which had been an auto- PAGENO="0347" C~NTRACTINQ-OWT PROCEDURES 343 motive repair shop. The lighting is very poor, the floors are of rough concrete, and here in thO Tropics our source of air is from two open deors and a few openings high up which allow the rain as well as the air to come in. No windows at all in the building which is the newest of all. Plans are under consideration to improve the physical facilities but as yet nothing definite. In spite of poor working conditions we think are doing a good job of teaching our children and maintaining the standards so that when they return to the United States they will have the same standing as their fellow students. We are hoping that you might have some information or know where we could write to obtain information to use as a basis for a factual discussion of better salary and working conditions. We here in Kwajalein feel that in keeping with the pay scales of other pro- fessions that our salary of $7,200 should be for a teaching year and that if we desire on an individual basis to work during the summer months we then should be paid at the going rate for that particular job. Also that our working bours should not have to conform to the hourly paid people. Those days which are designated as school holidays should be days off for teachers without taking udditional work or suffering loss of pay. While the pay of $7,200 might seem high in relation to some areas there should be some incentive for teachers as this is an isolated area. To be exact we are 2,000 miles from any place on the globe. Our island is 21/2 miles long and one-half mile wide. We have no chance for professional advancement and other than exchange of ideas among ourselves and the Overseas Education Association and the National Education Association Journals are our only source of educational enrichment. As the OTA and NEA representative for the school I have written OTA giving them the same information that I am sending you. We would like your opinion concerning our goals to Improve our working con- ditions and any advice you might care to offer us in helping us to obtain these goals. Very truly yours, (Name withheld on request.) KWAJALEIN, MARsHALL IsLANDS, June 12, 1P61. Mr. ROBERT W. MOLAIN, ~ National Education Association, Washington, D.C. DEAR MR. MCLAIN: Your interest in the educational program here on Kwaja- leiri, and concern for the morale of the teachers, is gratifying to say the least. We have had rather a difficult situation here for the past 2 years. Things have improved quite a bit, however, since Mrs. Smith first wrote in 1959. As a whole, the education received here by the children has been very good. Excellent year-to-year gains have been evidenced by results of the standardized testing program, as well as through correspondence with parents of students who have been transferred elsewhere. Part of the exceedingly poor school facilities described by Mrs. Smith are being replaced by a new school building next year, although even this fails to meet the minimum criteria for a new school plant according to current directives (BuPers Inst.). We still work under the same contract governing the employment of all TOT employees. It isn't by any stretch of the imagination a document normally signed by a teacher. It is a typical labor contract. The local management of the Transport Co. of Texas maintains a management-labor relationship in its dealing with the school. Serious morale problems have existed because of nebulous, questionable, and objectionable personnel policies, such as: the requirement that teachers and the principal work in other areas of the company in order to stay on the payroll during the Xmas holidays, unless annual leave is taken (two teachers spent the 2-week period canvassing the housing area counting funiture); the refusal, for ambiguous reasons, to reclassify a teacher to a higher pay classification legally authorized under the terms of the amended BuWeps contract last year (teachers are on the lowest two salary classifications in the manning scale); *the refusal, by management, to eniploy substitute teachers for a period of 3 months this year (K-12 school); status of the school within the company structure-a subordinate element of the Special Services Department; failure to appoint a governing school board, which was recommended by the under- PAGENO="0348" 344 `CONTRACTING-OUT PROCEDURES signed in the early fall of 1959 (the commanding officer's school advisory board functions in an advisory capacity only, and has not even met since July 1960, though instructed by the commanding officer to do so once a months, submitting the minutes thereof to him within 7 days). I brought the matter of teachera working elsewhere during the Xmas holidays to the commanding officer's atten- tion through his advisory board a year ago last Xmas, and as a result was told by the resident manager of TCT that, "When management makes a decision you will support it or you can get out." In view of the financial mousetrap aspects of our employment (income tax exemption, etc.), "getting out" was highly impractical at the time. Two specific recommendations for future company operations of oversea ~schools that I would make are- (1) Provide a normal school-year contract for school personnel, with provision for summer employment, if mutually agreeable to employee and' employer, and a salary schedule that provides for both experience and training beyond the AB/BS. (2) Require the appointment of a representative school board to govern the administration of the school and to be responsible directly to the resident `manager instead of placing the school at the bottom of a lengthy chain of command of nonprofessional people unqualified to make educational decisions. Inasmuch as we have been told that complaints concerning the company taken' outside of channels would result in the termination of the employee concerned (which would involve several thousands of dollars in transportation money and bonus), I would appreciate it if you would keep the source of this information anonymous until after July 15, after which time my association with this company will be concluded. Sincerely yours, HousE or REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS, Washington, D.C. August 21, 1961. Mr. RoBERT W. MOLAIN, staff Contact for Oversea Teachers, Nafional Education Association, Washington D.C. DEAR ME, MOLAIN: Thank you for your letter of August 16, 1961, in which you have amplified upon the pro'test filed by the association concerning the employment of teachers under Navy contract to the Texas Transport Co. for `the management of Kwajalein Island. As you have requested, the subcommittee will make your letter a part of its record, and I shall bring to the attention of the subcommittee the recommenda- tions which you have made. Sincerely yours, F. EDW. HEBERP, Chairman, Mr. COURTNEY. For the record, may it appear that the interpola- .tions which were directed and authorized from various witnesses `who have appeared on this subject have been, I believe, substantially `completed at this time. Is that right, Mr. Sandweg ~ Mr. SANDWEG. Yes. Mr. COURTNEY. So the record will be at the printer within days and printed. Mr. H1~BERT. Well, there will be one more meeting. As I suggested at the beginning there will be one more meeting, and that will be a meeting in executive session, an executive meeting in connection with ~sole source. That will be on Tuesday morning. PAGENO="0349" CONTRACTING-OUT PROCEDURES 345 (Mr. Courtney aside to the chairman.) Mr. H1~BERT. The executive session hearings will be released after action by the committee, which is necessary under our rules. The executive sessions on sole source were held in accordance with our rules. They have been cleared for security, and as soon as we have the full clearance for security review made, and the testimony back with the necessary deletions in the interest of security, the committee will make available in public the full text of those executive hearings, within the realm of security, of what has been deleted. Mr. COURTNEY. One of the purposes of the meeting would be, on Tuesday, to take the necessary vote to clear the record and authorize the release of the transcript. Mr. H1~BERT. If there is no further business before the committee, then the committee stands recessed until Tuesday. Mr. COURTNEY. Tuesday, August 22. Mr. HEBERT. August 22. Thank you, gentlemen. (Whereupon, at 10:47 a.m., the subcommittee adjourned, to re~ ~convene at 10 a.m., Tuesday, August 22, 1961.) (COMMITTEE N0TE.-Subsequent to the hearings, the American Fed- ~eration of Government Employees submitted a statement for the rec- ord which is set forth in the appendix hereof. Also set forth in the appendix is an exchange of correspondence between the committee staff and the Department of the Navy with reference to the statement submitted by the National Education Association.) PAGENO="0350" PAGENO="0351" APPENDIX STATEMENT OF AMERICAN FEDERATION or GOVERNMENT EMPLOYEES TO THE ROUSE ARMED SERVICES C0MMIUFxE CONCERNING ADVERSE EFFECTS OF CONTRACTING GOVERNMENT WORK TO PRIVATE BUSINESS (Submitted by John A. McCart, director of legislation) The interest of the American Federation of Government Employees In the Government's use of contractual agreements with private industry is twofold: (1) The need for safeguarding the interest of the Government in utilizing the most economical means of satisfying its needs; and (2) protecting the employ- ment rights of Federal civil service employees who are needlessly displaced and who in so many Instances are subjected to extreme hardship by the deprivation of their means of livelihood. The organization is disturbed over the increasing practice of contracting with private interests for certain governmental services and activities which for many years have been provided by civil service employees. The policy of dis- continuing Government services and facilities and having the same work done in private industry has caused the separation of thousands of career employees of the Government. In many instances it has occurred when those employees were unable to obtain employment elsewhere or at a time when they were economically unprepared for the ending of their services with the Government. Such a policy wastes valuable skills and in some instances has resulted in a sizable loss to the Government of millions of dollars invested in special equip- ment or plant facilities which were peculiarly suited to their governmental use but which were not readily adaptable to other uses. It is a policy ostensibly intended to bring about savings, but which in many instances has increased the cost of national defense and of other services needed by the Government. ~ During the last several years this practice of contracting by the Government has been accelerated in compliance with the Bureau of the Budget Bulletin 60-2, dated September 21, 1959, which amplifies two earlier directives__Bureau of the Budget Bulletins No. 55-4 of January 15, 1955, and No. 57-7 of February 5, 1957. Those who have supported this policy have the viewpoint that the Government is needlessly competing with private enterprise when it provides a service or a product 1~or its own benefit. It is our view that it is wrong to con- sider the Government as being in competition with private enterprise when it provides a service or does any work which superficially would seem to duplicate the same type of work done in industry. We believe that the purpose of the service, the circumstances of its need and its existence should govern. True economizing does not necessarily consist of seeking the lowest price of a service or a product. The general policy outlined in Bureau of the Budget Bulletin 60-2 is that the Federal Government is not to start or carry on any commercial-industrial activ- ity if the product or service involved can be procttred from private enterprise. Exceptions to this policy provide that Government operation may be continued where an activity cannot for reasons of national security be turned over to pri- vate industry or if procurement through commercial sources would involve higher costs. We submit that national security is not always served by contracting and that in many instances the work can be done in a less costly manner if the Government were to use its own facilities and its own employees. Some work traditionally belongs in en establishment operated by the Government. While many private contracts have been substituted for governmental activities, numerous examples of Government disillusionment with private contracting have come to light. Contracting has been erroneously believed to be economical and to afl~ord services which the Government itself could not provide. This viewpoint is 347 PAGENO="0352" 348 CONTRACTING-OUT PROCEDURES fallacious and numerous instances can be cited of contractual situations which do not offer as satisfactory results as doing the job with Government personnel or which are more costly than if the work were done in Government facilities. It is our contention that certain types of work required by the Government should be done by Government personnel. By so doing the Government can maintain greater control over such activities. This is of vital concern where there is any involvement of security or the national defense. There have been proposals that as much as 75 percent of the money expended by the Navy for conversion, alteration, and repair of naval vessels be allocated to private shipyards. Presently the amount spent for these types of work is about 20 percent. It is appropriate to patronize the facilities provided by private enterprise where a governmental agency is not as well equipped to supply the product or service needed. However, naval shipyards provide essential service to ships of the Navy. This capability of the Naval Establishment i~ funda- mental to the strength of the Navy and typifies a principle which has governed the repairing of naval ships from the founding of this country. The paramount issue is not the desirability of giving profitable business t~ commercial oper~tors but rather providing needed repairs and engineering changes to complicated ships in a timely and reliable manner. Private ship- yards are given the opportunity to bid on selected work on the repair of certain auxiliary ships and smaller noncombatant vessels. Ship conversion, alteration, and repair is normally assigned to naval shipyards to enable the Navy to main- tain the proper amount and kinds of skilled manpower as well as facilities at strategically dispersed navy yards. Government-owned shipyards already represent $1'/2 billion invested in build- ings, drydocks, and other facilities including special tools and equipment. They ~Jso have prepaid inventories of shipboard equipment and spare parts which are readily available when needed. Emergency work cannot be prephtrlned and specifications could not be prepared adequately to bid the work commercially. Finally, reserves of journeymen mechanics and technical personnel are required to serve as the nucleus for increases upon mobilization. Such reserves exist in the Navy shipyards. The Redstone Arsenal is one of the military installations where contracting has bad adverse effect on a substantial number of employees. At beginning of this year there were 1,072 contractor employees working at the George 0. Mar- shall Space Flight Center. Their services ranged from the operation and main- tenance of motor vehicles to engineering and fabrication of parts for the Saturn heavy space ~eb4c1e. There were 626 other contractor facilities in the city of Huntsville also working for Marshall Center. The varied impact of contracting is well illustrated by events at this one in- stallation. The salaries paid to these 1,698 employees totaled more than $1 million a month. One of the first instances of contracting at this installation was for transporta- tion services. One motor vehicle contract called for the delivery of 133 vehicles to the Marshall Center and 56 to Cape Canaveral. They ranged from motor scooters to 5-ton truck tractors. The firm supplying these items also provided maintenance for 90 other road vehicles which have been transferred from the Army and for 163 material-handling vehicles such as forklifts, warehouse cranes, and tractors. Contracting at this one installation had every indication a year ago of expanding to a point where within a year 00 percent of the National Space Agency's work at Huntsville would be performed by contractors, These facts were only part of the story of contracting at Huntsville. Of far greater importance was its effect on the persons who bore its real brunt-the employees who were displaced by workers hired by the contractors. Incltlded in their number were veterans who ironically were displaced when Government called in private enterprise to take over certain features of defense activities. Their personal problems were many and to them were of major seriousness. A 41-year-old truekdriver caught in a r.i,f. which abolished 100 jobs had built a new home for his wife and 6 children. Repayment of the loan almost over- night became a virtual impossibility. Another employee of 18 years was let out, ending his hope t~ make Govern- ment a career. Then there was a veteran's widow who lost out despite her 10~ point preference status and despite the fact that her husband had some years before given his life for the same national defense which now has deprived his widow of her livelihood. Some phases of contracting at the Marshall Space Flight Center raised serious questions as to the economic benefits if any which accrued to the Government. PAGENO="0353" CONTRACTING-OUT PROCEDURES 349 Information has reached us that maintenance contractors are using Govern- ment-owned tools and equipment in supplying the carpentry, plumbing, steam- fitting, and other building trades services which are being performed under contract to the Marshall Space Flight Center. We have been told that their employees are transferred to and from the arsenal construction and maintenance locations by Government transportation. Further, that daily overtime and Saturday overtime is being authorized for contractor personnel but not for civil service employees performing the same type of functions. This instance of large-scale contracting with it~ attendant adverse effect on employees began a little more than a year ago when part of the Army Ballistic Missile Agency was transferred to form the nucleus of the George C. Marshall Space Flight Center of the National Aeronautics and Space Agency. It was believed at the time that in. transferring, individual civil service employees would lose no pay nor be in any danger of losing their jobs. Since entire func- tions were transferred, the employees had no choice but to go along with the organization in which they had been employed. However, in the reduction-in-force letters mailed to the personnel affected by the transfer, it was stated "prior to the activation of this center it was deter- mined that certain support functions, such as guard service, motor pool opera- tions, and janitorial services, could best be obtained by award of contract to private enterprise." It has also been stated that in addition to the support functions already mentioned the center is planning to contract certain general maintenance services which will include carpenters, concrete finishers, elec- tricians, masons, millwrights, painters, sheet metal workers, welders, and un- skilled laborers. Had the policy of contracting been made known at the inception of the center, civil service employees who have been or had been affected could have availed themselves of retreat rights within the entire Army installation. Now their competitive area is restricted to NASA. Even those who were willing to trans- fer to the Space Flight Center could have applied for employment within the Department of the Army if they had known that their jobs eventually were to be discontinued because of contracting. Serious question can be raised with respect to the contracting engaged in at the center from the standpoint of economic operation and justice to employees. Reportedly the contractor hourly rate at the Marshall Space Flight Center ranges upward to more than $10 an hour. Such a rate does not mean that an individual employee will be so compensated. On the contrary his earnings remain essen tially at the rate at which he would be employed directly by the Government. The difference of course would remain with the contractor. There are also instances of substandard wages paid by a contractor. It has been stated that contractors costs of janitorial services had been fixed at $5 an hour, but that the services of janitors obtained for such work were com- pensated by the contractor at $1 an hour ancj at $1.15 an hour for supervisors. It is difficult to understand why contracting is necessary for some 0f the services and positions involved. It would appear On the basis of available information that the total cost to the Government is likely to increase as time goes on. Two months ago there were 5,500 civil service employees at the Mar- shall Center. The immediate effect of contracting was indicated as the elimina- tion of 105 civil service positions. However, the 1962 budget for NASA called for an additional 400 civil service employees at the Space Center. It was not clear whether these additional positions would be filled by use of contractor or civil service personnel. The AFGE has been able to obtain assurance that the proposed contracting for maintenance work will not adversely effect civil service employees at the center, but there was no such assurance for the security of nearly 80 employees who were facing separations because of extensions of a previous contract for janitorial and truck-driving operations. The costly effects of Government contracting were evidenced at Fort Wain- wright at Fairbanks, Alaska.. Contracting reportedly has been becoming more extensive at this pOst, and the result has been that several reductions in force have taken place during the last 3 years. Many activities previously manned by civilians are more and more carried on by contractors. When it was indicated that certain work was to go to private industry, the AFGE Lodge at Fort Wainwright in cooperation with other lodges in Alaska circulated a petition among the employees seeking their support for a request that Congress make an investigation. Letters also were addressed to President Kennedy, the Director of the Budget, and to Members of the Alaska delegation 74109 O-01----C3 PAGENO="0354" 350 in Congress and to other interested Congressmen pointing out the fallacies of military contracting. ~. One of the striking examples - - post was that of a contractor `~ other maintenance work by i~ - skilled workers. It was emph the work performed by th'~" tion of the buildings and i proof of the wastefulness of contract Not all contracts involve defense activities. One such instance which did not seem to be in the public interest was recently reported to th.e AFGE national office. It concerned the cleaning of all floors of a Government Services Admin- istration office building In a southern city. It is understood that the price to clean and wax the floors was $400. The work apparently is done Saturday and Sunday. The job is said to have covered 125 man-hours. As for the pay, it was reported to be 75 cents an hour-less than the Federal minimum wage even before the recent moderate increase. At this rate, manpower cost $84, which left a sizable profit, since equipment used was limited and cleaning materials would have cost little. The cleaning and waxing of floors is to be done once a month and cleaning of walls also once a month at approximately the same price. Recently the national office was informed of a plan that was underway to contract with a private firm for the collection of trash at Boiling Field, Wash- ington, D.C. A conservative estimate was that it would cost the Department of the Air Force $32,000 annually. Another instance of contracting resulted in the private employer paying lower wages than the Government. It occurred at Williams Air Force Base, Chandler, Aria. Involved were motor maintenance, garbage collection, aircraft refueling, food services, heavy equipment operation, and water and sewage plant operation. The contractor was reportedly paying lower wages than rates formerly paid by the Air Force Nearly 100 employees were involved Some had 18 years of Government service. We were told that they had the choice of a layoff or of accepting lower wages with the private employer. About 218 positions were abolished at Craig Field because of contracting. To save some of the incumbents, certain functions were transferred to Max- well Air Force Base, Montgomery, Ala. However, the move only complicated the situation at Maxwell, since it placed the Craig Field employees in competition with those at Maxwell which already had its own r.i.f. problems. The national office of AFGE was recently informed that a contract for main- tenance is contemplated at Maxwell Air Force Base. It involves the mainte- nance of 250 housing units at Maxwell Heights from October 1, 1961, to June 30, 1962. For the fiscal year 1962, $51,000 is said to be programed, which included maintenance, material, and refuse collection. The proposed contract covers only routine maintenance during normal duty hours Monday through Friday. Outside normal duty hours or on weekends or holidays it Is performed by civil service employees of the Directorate of Civil Engineering. Replacement of military messmen with civilians has been under considera- tion by the Navy. Instead of arbitrarily resorting to contracting for such personnel the Navy followed the enlightened policy of ~nitlating a survey to determine the cost of an estimated number of civilians if hired under civil serv- ice or under contract. The data were sought by the Bureau of Ships for possible inclusion of the item in the 1963 budget Such replacement personnel would be used for messmen duties in general messes ashore. Investigation also was being made recently by the Navy of the cost of janitorial services at the naval base at Norfolk Va with a view to determining the desirability of having the work done by a private firm. A commercial cleaning business had offered to do the work, for less than the estimated cost when performed by Government employees The lower cost of work done by contract la made possible in such instances by paying wages below those paid by the Government It certainly should not be the purpose of the Government to effect economies by depressing wage rates. An instance of Government contracting which had broad implications for the personnel involved as well as the community was that involving the mainte- nance of Capehart housing units at the Marine Corps Air Station, Beaufort, S.C., and at the Naval Station, San Diego, Calif. The purpose was experimental to be a pilot study in that it was to arrive at a comparability study upon which CONTRACTING-OUT PROCEDURES ntai ied 1 PAGENO="0355" CONTRACTING-OUT PROCEDURES 351 a cost analysis of the operation and maintenance functions could be made. As planned the program was to include 550 units to be maintained by station forces and 550 units by contract forces. The purpose was ostensibly one of economy, but whatever might be gained in that respect, and such a gain is by no means assured, will be more than offset by the hardship caused for 85 to 90 civil service employees who will be displaced if the decision is finally to use contractual services. If they are dis- placed, there will be a payroll loss to residents of the Beaufort area of $433,500 to $459,000. Contracting has been used on an increasing scale at the Laredo Air Force Base in Texas. In the second quarter of 1961 civilian personnel numbered 641 and contractor personnel 85. In the fourth quarter of 1962 it is planned to reduce civilians to 533 and increase contractor employees to 182. Prior to April 1961, the feeding of troops and refueling of planes were on contract. Addi- tional contracts have been let for trash collection, custodial service, photo- graphic services, motor vehicle and maintenance operations, pavement and ground maintenance, and insect and rodent control. Recently a group of custodial employees at McClellan Air Force Base were involved in a reduction in force because of contracts let for cleaning services. Some of the employees affected are in the 40- to 50-year age group and have had as much as 19 years of service. These examples of Government contracting, Mr. Chairman, emphasize the questions which can properly be raised concerning this practice. It is our belief that services which have been traditionally performed by Federal personnel should continue to be so performed. It is not a case of keeping persons on the Government payroll who could be dispensed with. If service they perform is needed, and it is given to private employees on contract, there will still be as many persons to be paid. If they are paid less, the Government has been a party to wage exploitation. This issue should be judged not only from the standpoint of possible sav- ings-for they are so often questionable-but In every instance in relation to the human values, standards of quality, and whatever relation it may have with the national defense. We are appreciative, Mr. Chairman, of the opportunity to acquaint the corn- mittee with these facts concerning a matter of vital Importance to the Govern- ment and Its employees. AUGUST 14, 1961. Memorandum for Rear Adm. R. B. M. Ward, Department of Navy, Legislative Liaison, Room 4D-760, the Pentagon, Washington, D.C. The subcommittee is advised that the Navy Department has entered into a contract with the Transport Co. of Texas to support and furnish community needs and other community services for the island of Kwajaleln and that this company furnishes services usually supplied by Government and on Govern- ment standards-among these are teachers. The subcommittee requests to be advised of (1) full content of this contract; (2) services being supplied by this contractor for the civilian and military com- munity; (3) the cost of such support, salaries, paid, criteria employed In select- ing personnel; (4) the supervision given: (a) by the contractor, (b) Depart- ment of Navy. Also, the following information: Does this contractor establish the curriculum; does It fix salaries; does it determine qualifications; does it provide tenure? Is' the school system maintained at standards set by the U.S. Office of Educa- tion and the National Educational Association as to personnel and text? To whom do the teachers report and who supervises the conduct of the schools, and what are the qualifications of supervisor? These questions are the minimum to be answered: With respect to other support services; does the contractor maintain a "corn- pany store"? Does this contractor furnish any other service usually supplied by the Gov- ernment? If so, what is it? Who supervises? What are the salaries and what supplies and equipment are used, if any? Finally, the same information as sought above relating to other territories or installations, where the community (civilian or military) is serviced by PAGENO="0356" 352 CONTRACTING-OUT PROCEDURES contract with a private contractor for the account of the Navy Department. You will understand that the subcommittee's hearings are about to close: therefore, this information is desired promptly. By direction of the chairman. DEPARTMENT OF THE NAVY, OFFICE OF THE SECEETARY, Washington, D.C., August28, /961. Hon. F. EOWARn HEBERT, Chairman, Subbeommittee for Special Investigations, Committee on Armed Services, House of Representativve.s, Washington, D.C. M~ DEAR MR. CHAIRMAN: This is in reply to a letter dated August 14, 1961, from Mr. John J. Courtney of your staff, which posed several questions relating to the contract between the Navy Department and the Transport Co. of Texas for the operation of base facilities at Kwajalein Atoll, in the Marshall Islands. I am pleased to furnish the following data in response to the questions. The original contract for the operation at Kwajalein was let early in fiscal year 19~9. it contained three options for renewal, if determined to be in the best interests of the Government. The company is currently operating under an option that the Government exercised to provide services from July 1, 1960, to September 30, 1961. The document covering this period is amendment 7 to the basic contract. Since the subcommittee appears to be interested in present rather than in past operations, I am attaching that amendment. It covers completely all facets of the contractual relationship presently in force between the Navy Department and the Transport Co. of Texas. This re- lationship has remained substantially unchanged in terms of services rendered since the initial bid was won by the Transport Co of Texas in July 1W58 All the background documents are, of course, available should the subcommittee care to examine them. Exhibit B to the amendment (p. 10) stipulates the services to be supplied by the contractor for the civilian and military community at Kwajalein. It will be noted that the contractor under this contract provides virtually every service normally provided at all military installations by the operating activity. All initial equipment anti initial facilities are furnished to the contractor as Gov- ernment-furnished equipment. Replacement and additional equipment neces- sary for the performance of the contract are procured by the contractor with the approval of the contract administrator. In certain instances such as the areas of transportation, construction material handling, and aircraft, increased allowances and replacement are filled through Navy channels and provided as Government-furnished equipment to the contractor. No profits accrue to the contractor other than the fixed fee paid under this contract. The contractor does not maintain or operate a "company store." In fact, the contractor has no business enterprises on Kwajalein that are foreign to or sepa- rate from the prime contract with the Navy. Compensation, therefore, to the contractor for all types of services rendered is an integral part of the fee stipu- lated in the contract. Within the scope of the contract, the contractor operates a bard and soft goods store (Navy exchange) and a commissary store. The price structure for merchandising the items sold in these stores parallels the pattern established for Navy-operated navy exchanges and commissaries. In brief, the contractor purchases all material as an allowable reimbursable under the contract. Markups are applied as appropriate to cover the cost of sales services. Collections from sales by the contractor are then credited against the reimbursables due under the contract. This complete operation is under the surveillance of Navy auditors on the site. The contractor derives no profits from merchandising operations. The contractor receives no percentage of sales. Mer- chandising operations in terms. of collections credited against reimbursables due the contractor have been included in the gross scope of the contract as a basis for fee determination. By way of further explanation, the estin~ated net cost of $12,631,6b0 shown in the contract excludes that volume of business managed and operated by the contractor on a "no cost to the Government basis" such as the two stores above. At the present time virtually all supplies are procured by the contractor either from Navy supply channels or in the open market depending on price and avail- JOHN J. CoURTNEY, Special Counsel. PAGENO="0357" CONTRACTING-OUT PROCEDURES 353 ability, but, of course, are paid for by the Government. Under the terms of the contract, such supplies become the property of the Government upon delivery by the vendor. The salaries paid all personnel are stipulated in exhibit C to the amendment. Where a need arises for a skill not contemplated when the contract was nego- tiated, salary scales, are subject to approval of the contract administrator. These salary scales were originally based on the rates paid by the Atomic Energy Com- mission to its logistic support contractor at Eniwetok. The rates generally are prevailing U.S. west coast rates. The estimated cost and fixed fee for the contractor's services during the 15- month current period and beginning July 1, 1960, was as stated in the contract $13,418,650. Through June 30, 1961, the actual gross costs incurred have been $14,350,000. These gross costs have been offset by collection from private parties (as was anticipated in establishing the contract amounts) by $5,791,552. Net charges to the contract through June 30, 1961, therefore, have been $8,564,448. The criteria employed in selecting personnel have been established by the contractor. These include- 1. All employees are examined by a doctor for physical capability. 2. Management personnel are subjected to three separate interviews by the following contractor's employment staff: a. Personnel interviewer. b. Supervisor of personnel. c. Manager Pacific operations. 3. All other personnel receive two interviews, one from the personnel interviewer and a second from the supervisor of personnel. The supervisor of personnel is a highly qualified personnel administrator and nil employees are also screened to eliminate moral, mental, and social incompata- bility to the maximum extent possible. The supervision given to contractor's employees comes solely from the con- tractor. This embraces complete supervisory functions on all aspects of the em- ployees work. The company has published rules and regulations governing employees activities on and off the job because of the nature of the assignment. Employees may be penalized, for example, for unauthorized entry onto adjoining Islands as certain of these islands are under the jurisdiction of the Trust Ter- ritory of the Pacific and such entry constitutes illegal entry into another politi- cal entity. The supervision given by the Department of the Navy is given to the. corporate entity of the contractor and consists of work requirements generated by the military operations on the island. The Navy, for example, establishes the level of maintenance to be attained on the island installations; it transmits to the contractor work requests from other military users of the island; and it ap- proves overall personnel and inventory ceilings on the basis of justifications gen- erated by the contractor. Normal recurring functions are given the contractor on a blanket order basis such as the requirement to operate the public utilities, the housing and messing facilities, the school, etc. Once such an order is given, the Navy interest consists of monitoring the operation to insure satisfactory contract performance. Succinctly stated, the Navy does not supervise. In broad terms the Navy tells the contractor what to do but not bow to do it With respect to the school, and its management, the following data are furnished: 1. The curriculum of the George Seits School Is established by the school ad- visory board which consists of two members each from the Navy; the Navy's logistic contractor, the Transport Co. of Texas; the Army and the Army's tech- nical contractor, Western 2. ` ~e maximum saIar~ ~ -```- 11 is or c PAGENO="0358" 354 CONTRACT 0-OUT PROCEDURES 4. The Transport Co. of Texas hire~ teachers only for the school at Kwajalein. Since the Transport Co. of Texas ope~rates only this school, the tenure of their teachers, as well as all other employees, is subject to the ability of TCT to main- tain an efficient and economic operation and thus retain their contract. Spe- cifically, a teacher without an employed spouse has a contract for 2 years which requires that during the school vacation he or she be assigned other tasks to Preclude unemployment with compensation. Conversely, a teacher who is the spouse of a full-time employee may be employed or hired on the island and com- pensated for the duration of the school term. The teacher may or may not be employed during the school vacation periods but in the event employment is not desired, compensation is not rendered by the contractor. It might also be added that a teacher's salary is a weekly rate for the period of actual teaching and that the policy of the Navy is not to reimburse a contractor's employee for idleness. 5. Prior to contracting with the Transport Co. of `Texas for the base operation of Kwajalein, the Navy maintained an accredited elementary school and a cor- respondence high school associated with the University of California. Trans- port Co. of Texas maintained this arrangement through the last school year. At the present time a new elementary and junior-senior high school coinbina- tion is being constructed. Even though the senior high school population will probably not exceed 60 students, the Transport Co. of Texas is establishing a regular high school. The Navy has requested that the North Central Associa- tion of Colleges and Secondary Schools, which is under contract with the Army to examine Department of Defense schools in the Pacific area, visit Kwajalein this fall for the purpose of at~crediting the George Seitz School. Transport Co. of Texas has based its recommendations to the school advisory board on the standards of the State of California. These standards are in consonance with the U.S Office of Education and the National Education Association. 6. The teachers report to the school principal. The school principal super- vises the conduct of the schools. The qualifications of the school principal are as set forth in enclosure (2) attached hereto. The Navy has only one `other contract where a community is serviced by a private contractor. This is at Eniwetok where the Navy in June 1960 took over an existing Atomic Energy Commission contract with Holmes & Narver, Inc. `The operation under this contract is virtually `the same as that described above except that there are no dependents on Eniwetok so certain functions peculiar to dependents are not required at this base. The above information, and the attachments hereto, are designed to be specifically responsive to the subcommittee's areas of interest, as evinced in your August 14, 1961, letter. Should you require any additional information, however, we shall, of course, be pleased to furnish it. Sincerely yours, KENNETh E. BuLinu, Assistant ~eeretary of' the Navy (Installations and Logistics). PAGENO="0359" CONTRACTING-OUT PROCEDURES 355 D~PARTMSNT OF THE NAVY Bureau of Naval Weapons Washington 25, D. C. NSE-3l2 CONTROL NUt4BHR: e539-60 CONTRACT NUMBER: NOas 59-t~l76-c ANENDNENT NUMBER: 7 AUTHORITY: CAOR-~+-5OOO-OOl-l APPN: See Appropriation Data Sheet Attached The Transport Company of Texas P. 0. Box 151 Corpus Christi, Texas WHEREAS, The Transport Company of Texas and the Government are parties to an agreement, Contract NOas 59-i~176-c, under which the Transport Company of Texas furnishes logistic support to Government installations on Kwajalein Island; and WHEREAS, Section H entitled `Option' of Contract NOas 59-1a76-c provides that the Government has an option to renew the contract for additional period~ hot; to exceed two (2) years, with modifications mutually agreeable to the parties; and WHEREAS, the Government has reviewed the competitive situation and has determined that it is in the best interest of the Government to exercise the option and extend the contract for a period of fifteen (15) months; and WHEREAS, negotiations have been conducted and a mutually satisfactory agreement reached by the Contractor and the Government for the extension of the contract; NOW, THEREFORE, effective 1 July 1960 Cbntract NOas 59-l~l76-c is amended as follows: 1. Under Section A, `Articles to be Furnished and Estimated Cost and Fee", make the following cLnges: (a) Add Item 3 as tbllows: Item Articles or Services 3 Services and materials necessary for the logistic support of Kwajalein Islar4 during period 1 July 1960 through 30 September 1961. NawSupAct, Kwajalein Island (3) 8539-60 D & F No.843 PAGENO="0360" 356 CONTRACTING-OUT PROCEDURES (b) Increase the total estimated cost by $12,631,650.00. (c) Increase the fixed fee by ~785,000.00. (d) Increase the total estinated cost plus fixed fee by $l3,I~l6,650.00. 2. Under Section B, Deliveries', add the following: Item3 - The services and materials hereunder shall be provided by the Contractor du~ing the period from 1 July 1960 to and including 30 September 1961. 3. The following clauses and exhibits are deleted: (a) Sections C through BR; (b) The provisions of the existing contract contnined on \ DO Form 7L~8 (1 Dec 53); (c) Exhibits B and. C including $ched.ules I and II of Exhibit C. t~. The following clauses and exhibits are added to and made a part of this contract: (a) Sections C, D, H, 0, H, I, L, and V and Exhibits B and C, including Schedules I and II of Exhibit C, all as attached hereto; (b) \\DD Form 71~8 (Navy) (1 July 1958) and BuWeps Supplement CR-S ~(Jan. 6o), omitting numbers ~, 5, 7, 10, 12, 13, 18, 19, 20, 2~, 28, ?9, and 33, as attached hereto. (c) Exhibit D as attached h3reto. (\d) SECTION F - PlACE OF INSPECTION Acceptance of the services hereunder will be made at the location where such aéz'vices are performed. (e) SECTION J CHARGES ¶10 BE COLLECTED FOR FUBNISHI~1G OF PERSONAL SERVICL~S Escept as may be provided for under the terms of this contract, the Con- tractor is not authorized to furnish personal services free of charge either to Contractor or U. S. Government Personnel. Personal services as~ used herein includes domestic services, laundry and dry cleaning services, harboring and beautician services, tailoring services arid any other services for the personal benefit of the person to whom furnished. PAGENO="0361" CONTRACTING-OUT PROCEDURES 357 SECTION C DESCRIPTION OF ITEMS AND SPECIFICATIONS Services and materials shall be provided by the Contractor as necessary to accomplish the requirements specified in Exhibit B hereof. SECTION D - CONTRACT ADMINISTRATION The administrator of this contract shall be the individual designated as such by the Contracting Officer. Written notifi~ cation to the Contractor of the individual so designated shall be given by the Contracting Officer within 10 days after execu- tion of this Contract. The Contract Administrator or his duly authorized representative shall be physically located on Kwajalein. He shall observe the overall operations of the Con- tractor. He shall make available to the Contractor all Govern- ment-owned equipment, materials end facilities on Kwajalein Atoll required for the performance of this contract. He shall be the representative of all the United States Government Agencies, foreign Governments and private parties on Kwajalein Atoll re- questing Contractor services and, as such, shall provide the Contractor with User requirements for logistic support. He shall also approve from time to time the overall ceiling in personnel to be maintained by the Contractor on ICvajalein Atoll. SECTION E - OPTION The Government shall have en option to renew this contract for two successive periods, the first to commence 1 July 1960 and. end on 30 September 1961, the second to commence 1 October 1961 and end on 30 September 1962, with such modifications in Exhibit B hereof and the estimated cost and fixed fee as the parties PAGENO="0362" 358 CONTRACTING-OUT PROCEDURES may agree upon at the time of each option exercise. The Govern- ment may exercise the option for the first successive period without obligation to exercise the option for the second period. The exercise in each case shall be by written notice signed by the Contracting Officer and furnished to the Contractor on or about 15 July of the year involved. SECTION G - GOVEBNNENT FURNISHED PROPERTY (a) The Government-furnished property hereunder shall be all existing Government-owned equipment and facilities on Kwajalein Atoll which are required for the performance of this contract and. all existing Government-owned material on Kwajalein Atoll which is required for performance of this contract. (b) Upon depletion of existiug supplies of Government-owned material on lCwajalein Atoll, the Contractor shall procure supplies for non-merchandizing functions within the inventory levels established by the Contract Administrator through regular Navy channels. If the contractor determines that the required supplies are not available from current Navy stocks at NSC OaJ~land, procurement shall be from sources determined by the contractor and consistent with the best interests of the Government~ The Contractor shall procure supplies for the merchandizing facili- ties within the monetary inventory level established by the Con~ tract Administrator. Procurement of such supplies shall be through channels determined by the Contractor and consistent with the best interests of the Government. (c) The Contractors personnel shall be housed in Government- owned quarters on Kwajalein AtoU. The assignment to quarters, PAGENO="0363" CONTRACTING-OUT PROCEDURES 359 barracks, bachelor officer quarters or family housing shall be made on an equitable basis considering the status, position and requirements of individuals and available housing space. Fifty family housing units are presently assigned to the Contractor and occupied by its employees. No less than 30 family units shall be assigned to the Contractor for use by its employees after such 50 family units occupied by Contractor's employees as of 1 July 1960 shall have been phased down to 30 by attrition or expiration of contract of such employees occupying the excess over 30. Notwithstanding the provisions of the above, the Con- tract Administrator may, when his judgment so determines, assign additional quarters above 30 to the Contractor for his use, if so desired by the Contractor, for such periods of time as may be specifically designated. A charge will be made for Contrac- tor employees occupying quarters at the rates set forth in Schedule II of Exhibit C, and such charge will be deducted from allowable wages under Schedule I of Exhibit C hereto. Amounts so deducted from Employee's salaries will be credited against amounts otherwise due the Contractor under this contract. SECTION H - COMPENSATION (a) The costs of performance of this contract, as referred to in paragraph (a) of the "Allowable Cost, Fixed Fee, and Pay- ment," clause hereof, are hereby defined as the cost of labor, materials, and other items of the nature described in sub- paragraphs (1) through (9) below, incurred by the Contractor and which are claimed by the Contractor and accepted as such costs by the Comptroller of the Navy (Contract Audit Division), PAGENO="0364" 360 CONTRACTING-OUT PROCEDURES as chargeable in accordance with Part 2 of Section XV of the Armed Services Procurement Begulation revised 2 November 1959. (1) The cost of material including (I) the net cost after deducting all discounts, of material, foodstuffs and parts purchased directly for performance of this contract, whether or not such materials, foodstuffs and parts are purchased through commercial channels or through the Navy Supply System; (ii) the cost of materials and parts withdrawn from the Contractor's Stores or stock; and (III) the cost of transportir~g material purchased by the Contractor for the performance of this con- tract. (2) The salaries and wages of all personnel employed in the performance of this contract except those personnel permanently located in the Contractor's Corpus Christi, Texas ar4 Honolulu, Hawaii Offices, but excluding corporate officers. The salary of any employee permanently assigned to said Corpus Christi, Texas or Honolulu, Hawaii Office except corporate officers of the contractor, shall be an allowable cost hereunder for such temporary period of time as he is assigned solely to the perform- ance of this contract away from Corpus Christi, Texas or Honolulu, Hawaii including necessary travel time. Such ten- porary assignments shall be made for business purposes only in connection with the performance of this contract, and shall be made in the sole discretion of the Contractor. The salary scales and fringe benefits allowable as costs hereunder shall be those set forth in Exhibit C and/or D to the contract, how- ever, employees assigned temporarily to the performance of this PAGENO="0365" CONTRACTING-OUT PROCEDTJRES 361 contract, the salary allowable as costs shall be that salary normally paid by the Contractor for the performance of such duties. In the event any individual employed under this contract is discharged because of inability to secure a security clear- ance from the United States Government, the salary and trans- portation of such individual during the time he was in the employ of the Contractor shall be an allowable cost hereunder. (3) The cost which the Government has agreed to assume under the clauses hereof entitled "Government Property" and `Insurance- Liability to Third Persons', including the cost of such extra- hazardous insurance as may be approved by the Contracting Officer under the provisions of subparagraph (9) of this section. (1k) Transportation and reasonable subsistence of personnel employed in the performance of this contract while in travel status. Transportation and subsistence costs of Corporate Officers of the Contractor while in travel status in connection with this contract. (5) Charges for the use of equipment, other than Government- furnished equipment, utilized in the performance of the con- tract, provided, however that such charges shall not exceed the cost of the services accomplished by the use of such equipment if such services were procured commercially. (6) The cost of maintaining offices in Oakland, California and any other place or places as may be directed by the Contract Administrator, in connection with the performance of this con- tract. PAGENO="0366" 362 CONTRACTING-OUT PROCEDURES (7) For those employees required to wear specialized clothing in the performance of their duties under this contract, the cost of providing each such employee with an initial outfit of three (3) sets. (8) The costs of physical examination for new employees where required by law to be paid by the employer. (9) Such other items, not excluded by other provisions of this contraèt or considered unallowable under Section XV, Part 2, of the Armed Services Procurement Regulation, as should, in the opinion of the Contracting Officer, be included in the cost of the work called for by this contract. Any such item allowed by the Contracting Officer shall be specifically certified by the Contracting Officer as being allowed under this subparagraph (9). (b) The parties to this contract have mutually agreed that the below listed costs shall be specifically unallowable under this contract; (1) Corpus Christi, Texas and Honolulu, Hawaii office expense. (2) Contributions, gifts and donations. (3) Premiums for insurance on the lives of any persons where the Contractor is the beneficiary directly or indirectly. (1k) Cost of any action with respect to which the contractor fails to secure prior or advance approval or authorization is expressly required by any provision of this contract, unless such action is subsequently ratified by the Contracting Officer. PAGENO="0367" CONTRACTING-OUT PROCEDURES 363 SECTION I - OPERATION OF MERCHANDISING FACILITIES (a) Merchandising facilities are defined as those facilities selling consumer-type merchandise and foodstuffs or providing per- sonal services to civilian and government personnel such as barber and beatztician services, short-order and restaurant type meals (excluding regular messing facilities), laundry and dry cleaning services and club or bar facilities. (b) The costs which the Contractor shall recover in the price charged in the merchandising facilitIes shall be all costs except those provided in Paragraph 035851 NAVCOMP Manual as allowable charges to appropriated funds. (c) Cash derived from the operation of the merchandising facilities shall be credited against amounts otherwise due the Contractor under this Contract. (d) Upon completion of this contract, or upon termination of the contractor's operation of the merchandising facilities, overall profits accruing, if any, from these operations of such facilities shall be credited to the Government and losses, if any,will be absorbed by the Government. SECTION L - GENERAl4 WRPO$E EQUIP~4ENT The Contractor shall not acquire any general purpose equipment, the acquisition of which is to be charged directly to the per- formance of this contract unless prior written approval to do so is obtained from the Contract Administrator. SECTION V - DEFINITIONS (a) The term "Secretary' means the Secretary, the Under Secretary, 728 or any Assistant Secretary of the Department, and the head or any I, PAGENO="0368" 364 CONTRACTING-OUT PROCEDURES assistant head of the Federal agency; and the term `hi.s duly author- ized representative" means any person or persons or board (other than the Contracting officer) authorize&"to~ act for the Secretary. (b) The term "Contracting Officer" means the person executing this contract on behalf of the Government, sad any other officer or civilian employee who is a properly designated Contracting Officer; and the term includes, except as otherwise provided in this contract, the authorized representative of a Contracting Officer acting within the limits of his authority. (c) Except as otherwise provided in this contract, the term "sub-contracts" Includes purchase orders under this contract except purchase orders for the procurement of materials end supplies. (d) As used throughout this contract, the term "Department" means the Department of the Navy. PAGENO="0369" CONTRACTING-OUT PROCEDURES 365 EXHIBIT "B" to CONTRACT NOas 59-~l79-c 1. Departments and Agencies of the U. S. Government, Poreign Governments, and Private Parties will be provided logistic support and services by the Contractor when authorized by the Contract Administrator. (a) Subsequent to initial authorization therefor, the Contractor will provide such support and services as are set forth in sub-paragraphs (1) thru (22) below without further direction or authority from the Contract Administrator except as provided in sub-paragraph (21): (1) The maintenance, operation, and. protection of all 3~and, buildings, facilities and equipment (less certain operational and project' equipment) required for `the providing of logistic support and services with the exception of the U. S.' Coast Guard LORAN installation on Ebeye Island. (2) The maintenance and operation of facilities and organiza- tion to provide the requisition, receipt, custody, storage, issue, in- ventory control, packing, unpacking, transporting, reporting, and accounting for provisions, supplies, equipment, spare parts, fuel and other items of property, required to provide such logistic support and services. This requirement includes into aircraft refueling and logistic support of enroute aircraft and other functions incident to aircraft operations. (3) The maintenance and servicing of all transportation equip- ment assigned to or in the custody of the above named agencies. The maintenance and operation required by sound industrial practice to be operated from a central transportation pool (non-government owned vehicles are specifically exempt from this provision). 74109 O-61---24 PAGENO="0370" 366 CONTRACTING-OUT PROCEDURES (1k). The maintenance and operation of shop maintenance facilities to provide for the shop maintenance of all equipment that in the interest of sound industrial practice requires equipment or skills normally included in a central public works type maintez~ance shop. This includes, but is not limited to, aircraft crash fire fighting and rutlva%lr clearance equipment, aircraft parking ramp and air terminal handling equipment, aircraft maintenance ground handling equipment, and other equipment required for logistic support. (5) Install, maintain and operate such interisland communication facilities and services as required. (6) The maintenance and operation of all medical and dental. facilities to provide routine and emergency medical and dental service. (7) The maintenance and operation of the billeting (berthing) facilities including family housing for all agencies - civilian and military personnel including dependents, aircraft crews, and passengers of all ages and both sexes. (8) The maintenance and operation of facilities to provide all essential retail, commissary and exchange services. (9) The maintenance and operation of facilities to, support religious services and chaplain coverage for assigned civilian and military personnel and their dependents. (10) The maintenance and preparation of food service facilities including food preparation and in-~f light meals. (11) The maintenance and operation of recreational activities. (12) The maintenance and operation of essential educational facilities for military and civilian dependents. PAGENO="0371" CONTRACTING-OUT PROCEDURES 367 (13) The maintenance and operation of an air passenger and cargo terminal including facilities and an organization manned and equipped to provide cargo and passenger handling, manifesting, loading, servicing for flights, unloading, passenger lounge facilities, and other services normally considered appropriate for passenger comfort in an air passenger terminal. (lu) The maintenance and operation of aircraft maintenance facilities, and an aircraft maintenance organization manned and equipped to accomplish inspections, to perform emergency engine changes, to replace components and accessories, to correct safety of flight discrepancies, and to perform all other maintenance generally known as organizationl or line maintenance. (15) Maintain and operate approach control, control tower, and ground control facilities for the airfield on Kwaja.lein Island. (16) The maintenance and operation of emergency sea drome facilities including mooring buoys, emergency lighting, beaching ramp, refueling buoys including alongside refueling and harbor craft for craSh rescue. (17) The maintenance and operation of such overhead facilities as are required by sound business management to co-ordinate and provide the various elements of logistic support essential to all assigned oper- ations, such as police protection, fire protection, bank and post office. (18) The maintenance and operation of all port facilities in- cluding port and harbor services and cargo operations on Kwajalein Atoll and operation and maintenance of all Government water transportation based on the Atoll. (19) Maintenance and operation of water borne barracks facilities in Kwajalein Atoll. PAGENO="0372" 368 CONTRACTING-OUT PROCEDURES (20) Install, maintain and operate central photographic and printing facilities. (21) Pei~form such alterations, minor new construction, repairs and demolition as may be specifically authorized by the Contract Adminis- tratôr. Monetary limitations for the above work when ultimately charge- able to Navy Appropriations shall be limited t~ those amounts shown in BuWeps Instruction iioiJ~.i dated 28 January 1960 or revisions thereto. Construction projects exceeding $2,000.00 in costs are excluded from the scope hereof. Repairs, irrespective of monetary amàunts, are included in the scope of this contract. However, for those repair projects costing $5,000.00 or more, prior written approval of the Contract Administrator will be required when the ultimate charges for such project is to. be lodged as a direct or indirect charge to Navy Appropriations. (22) The contractor will prepare reports as required by the Contract. Administrator who will advise the Contractor as to management or cost data required, formats, and due dates for such reports. (II). Adequate notice shall be given the Contractor of any change in the functions outlined herein. (iii). For the overall administrative aupport:of the contract, the Con- tractor shall maintain an established office on the Island of Oahu, Hawaiian Islands to perform the following minimum functions: (a) Provide necessary coordination with Department of Defense activities in the Pacific area. (b) Provide for the forwarding of Contractor s personnel and Contractor furnished materials in transit to or from Kwajalein. The cost of maintaining this office on Oahu shall not be an allowable cost under this contract tnasmuch as the fixed fee provided for in this contract contemplates the furnishing of this services by the Con- tractor at no cost to the Government. PAGENO="0373" CONTRACTING-OUT PROCEDURES 369 EXHIBIT "C" to CONTRACT NOas 59-14176-c PERSONNEL POLICIE~,j~E and S~ABY SCHEDULE$, TRANS~O~TAT~ON, TRAVEL and LIVING EXPENSE POLICY for EMPLOYEES AT FOREIGN LOCATIONS A. FORMAL EMPLOYMENT AGREEMENTS Formal Employment Agreements shall be entered into between the Contractor and its employees permanently assigned to Kwajalein Atoll. The content and form of such employment agreement shall be subject to written approval by the Contracting Officer. B. JOB CLASSIFICATION1 WAGE end SALARY RATES (1) Employees with classifications having weekly rate ranges shall be referred to herein as "salaried" employees. Employees with hourly rate ranges shall be referred to herein as "hourly." employees. Em- ployees with hourly rates shall be referred to herein as "hourly manual" employees. The job classification and maximum wage and salary for salaried, hourly, and hourly manual employees shall be in accordance with Schedule I attached hereto. Each employee will be placed in the proper job classification for the principal duties he performs. Any job classification and wage rates not contained in Schedule I hereto, shall be approved by the Contract Administrator. (2) Any change in wage or salary rates set forth in Schedule I shall be non-retroactive and shall be subject to the approval of the Contract Administzator. (3) Changes in classification or wage rates of Contr~ctor employees, within the classification set forth in Schedule I hereto, shall be at the sole discretion of Contractor and shall be non-retroactive. (14) Temporary employees may be employed by the Contractor, and at wage or salary rates approved by the Contract Administrator. Temporary em- ployees are defined as follows: Full Time - those employed on a PAGENO="0374" 370 CONTRACTING-OUT PROCEDURES scheduled basic ~8 or ~O hour week; Part Time - those employed on an occasional or irregular basis. (5) The employment of Marshallese labor shall be at ceilings and salary rates established by the Contract Administrator and shall be approved by the cognizant representative of the Trust Territory of the Pacific Islands. C. OVERTIME AND HOLIDAY PAY~ 1. The basic work week for the Contractors employees hereunder, except fire-fighting personnel, shall be a ~48 hOur week consisting of six work days of eight hours each within a designated period of seven consecutive days. For this work, hourly and hourly manual employees shall be paid at the rate of ~4O hours at straight time and 8 hours at time and one-half. Firefighting personnel, except the senior firefighting officer and his principal assistant) shall work alternate 21~ hours "on and `off" shifts. Compensation shall be at the rate of 8 hours at regular pay, 8 hours at overtime rates, and 8 hours will be treated as eating and sleeping time for which no compensation will accrue. However, should productive work be required during the established eating and sleeping period (2300-0730), personnel performing such work will be compensated for the time involved at the regular overtime rate. When deemed essential to the performance of work under this contract, the contractor may authorize additional overtime of up to eight hours per man per week at time and one-half. No overtime in excess of these amounts shall be performed without the express permission of the Contract Admini- strator. 2. Each employee shall, if possible, be granted time off with pay on each of the six following holidays which falls on or which is observed as falling on a regularly scheduled workday: PAGENO="0375" CONTRACTING-OUT PROCEDURES 371 New Yeers Day Labor Dey Memorial Day Thanksgiving Day Independence Day Christmas Day An hourly or hourly manual employee who works on a (lay within the regularly scheduled workweek which is, or which is observed as, one of the six holi- days listed above, shall be paid double his regular basic wage rate for the time worked. Firefighting personnel who are required to work on any of the six holidays listed above shall be paid double their basic rate of pay for 8 hours of such day, one and one-half their basic rate for the 2nd 8 hours worked and no compensation shall be paid for the 3rd 8 hours of the 2~4 hours which is considered to be eating and sleeping time. D. SICK LEAVE Sick leave shall accrue to Contractor's employees at the following rates: Non-temporary Employees - 3 hours per week employed. Temporary Full-Time Employees - 3 hours per each 148 hour week employed 2 1/2 hours per each 1#O hour week employed Temporary Part-Time Employees - None Marshallese Employees - At rates established by the Contract Administrator Advances of sick leaves may be made by the Contractor with the approval of the Contract Administrator in specific cases. Such advanced sick leave to be recouped as earned or by deduction of a cash equivalent to the extent available from final payment to the employee or his estate. No payment to the employee shall be made on account of unused sick leave. E. LEAVE OR ABSENCE (1) Employees may be allowed to accrue annual leave with pay at the rate of two (2) days per month of employmentS Temporary full-time em- ployees will accrue annual leave at the rate of two days per month of employment if employed on a 148 hour week basis, or one and two-thirds PAGENO="0376" 372 CONTRACTING-OUT PROCEDURES (1 2/3) days per month if employed on a I~O hour week basis. Temporary part-time employees will not accrue annual leave. Marshallese employees shall accrue annual leave at rates established by the Contract Administrator. (2) Emergency leave of absence without pay may be granted any employee for compelling reasons. F. SUBSISTENCE A deduction for subsistence of ~lO.5O shall be made from the weekly pay of each employee who utilizes the contractor's general mess. Amounts so with- held shall be credited against amounts otherwise due the contractor under this contract. G. MEDICAL CARE ~1) DEATH BENEFITS (1) The following shall be allowed: (a) The cost of according medical and dental care on the island to employees and their dependents to the extent available. (b) The cost of insurance to cover other medical care and hospitali- zation of employees nQt to exceed $25.00, per employee per year. (2) In the event of death of an employee due to any cause whatsoever during an employment term, the cost of returning the body to the point of hire or an e<~ui-distant point shall be allowable. In the case of Non-Temporary employees, the widow, or if there is no widow, the dependents if any, shall be `paid in addition to any Workmen's Compensa- tion Award, an amount equal to four (1~) times the employee' s basic wage for a ~48 hour work week. Such payment shall not be z~iade to estates or non-dependents. H. TRANSPORTATION AND TRAVEL EXPENSE (1) The Contractor's `employees shall be transported from the point-of- hire or Contractor's place of business (whichever is closer to Kwajalein'), PAGENO="0377" CONTRACTING-OUT PROCEDURES 373 to Kwajalein at the expense of the Government. Upon completion of this contract or upon satisfactory completion of the employee's term of employment, the employee shall be returned to the point-of-hire or Contractor's place of business (whichever is closer t~ Icwajalein), at the expense of the Government. (2) The cost of transporting dependents of contractor' s employees from the West Coast of the United States or the point-of-hire (which- ever constitutes the lesser distance) t~ Kwajalein, and the cost of returning such dependents upon completion of this contract or upon satisfactory completion of the employee's term of employment shall be an allowable cost hereunder. (3) The cost of transportation incident to annuaJ. leave vacations for employees and dependents shall be limited to the `common user" MATS rate existing at the time of travel between the Island of Kwajalein and the United States Port~ of Entry, on the West Coast of the United States and return. At the employee' s option, he may select the point of desti- nation and will be subject to reimbursable cost o~ the basis of MATS Common User rates. For points of travel other than the West Coast of the United States and/or Hawaii, allowable costs will be limited to the appropriate MATS Common User rate, Commercial rate, or the Common User rate to the West Coast of the United States and return to Kwajalein, whichever is less. ~) The term `dependents" as used in this contract shall be in accordance with the definition contained in the Internal Revenue Code of l951~. (5) Costs of moving household goods shall not be !allowable costs hereunder. PAGENO="0378" 374 CONTRACTING-OUT PROCEDURES $ATISFACTOR~( COMPI~TION QF P~RIOD OF EMPLOThENT Upon the satisfactory completion of an employee S term of employment, as determined by the Contractor within its sole discretion, the Contractor may pay any employee an amount equal to four weeks pay at the employee s basic rate for his basic work-week, for the first full year of employment and a pro-rata amount for each additional ~ionth thereafter. 3. EMPLOYEES TERMINATION BENEFITS In the event the Government does not exercise its option to extend this contract for the twelve month period beginning 1 October 1961 because the U. S. Government cCases to use the island Of Kwajalein as a U. S. Govern- ment installation or because of a decision on the part of the Gøvernment to no longer contract for the serwicea covered by this contract, the contractor may pay its employees a termination benefit as follows: (a) Employees on the atoll less than 18 months: an amount computed at the rate of 1/3 of the employees basic rate for a ~48 hour week for each full month of the employee's period of employment on the atoll. (b) Employees on the atoll in excess of 18 months: an amount computed at the rate of 1/3 of the employee's basic rate for a ~8 hour week of each full month of the employee a period of employment in excess of 18 months on the atoll. K. EDUCATIOKAL COSTS OF CO~TRACT~R EMPI9YEES DEP~(DENT CHILD~EN The total costs of education, through grade 12, including instructional coSts, for th~ children of Contractor (TCT) employees arid ~epen~ent children of D.O.D. and Coast Guard personnel, shall be an allowable cost hereunder. PAGENO="0379" CONTRACTINGOUT PROCEDURES 375 SCHEDtjL~ I TO EXHIBIT C TO Contract NOas 59~~4l76-~ Class Maximum No. SALABI~D CLASSI~'IC~IONS Camp Chief $ l63.~6 Chief Communicator Chief TV Announcer/ope~~~0~ Fire Chief Radio Announcer/ope~a~0~ School Teacher BS/BA Store Floor Manager 2 Accountant 175.12 Asst. Auditor As~t. Chief Timekeeper Asst. Office Manager Asst. Supervisor - Recreation Asst. Safety Engineer Camp Manager Chief Agent Chief Aid Man Club Manager Dental Prosthetic Technician Dispatcher (speci±~y) a. Air b. Auto c. Motor vehicle d. Heavy equipment Doctor's Clinica]. Assistant Dental Assistant Draftsman Editor Entertaimment Director Guard Lieutenant Laboratory Technician - X-Ray Nurse (specify) Operating Room Assistant Pharmacist Post Office Manager School Principal/Teacher (Highschool) School Teacher - BS/BA, plus 30 units Senior Controller - Aircraft PAGENO="0380" 376 CONTRACTING-OUT PROCEDURES Class Maximum No. 1~8-Hour Weekly Rate Range 3 Administrative Assistant (specify) $ l98.51~ Asst. Security Officer Asst. Supervisor (specify) a. Camp b. Commissary c. Rousing d. Material Control, Inventory e. Material Control, Stock Records f. Property g. Stevedoring h. Warehousing Asst. Manager - Mess Facilities Auditor Chaplain Chief Timekeeper Draftsman (and Surveyors) Guard Captain Hospital Administrator Inspector Material Take-Off Engineer Materials Coordinator *School Principal Senior Accountant Senior Draftsman Senior Photographer and Lab. Technician Supervisor - Communications Supervisor- APL Operations Supervisor - Housing Supervisor `- Personnel Supervisor - Recreation TV Station Manager - Announcer Wage and Salary Analyst Assistant Engineer (specify)* 218.62 Assistant Engineers - Insp. Assistant Engineers - P&E Assistant Supervisor - Special Services Asst. Rad-Sa.fe Officer Chief.Accountant Chief Auditor Chief of PartI - Draftsman Computor Design Draftsman Laundry Manager Maintenance Scheduler (Office Manager) Manager Island Store & Commissary Manager - Mess Hall Marine Dispatcher *Office Manager Safety Engineer Safety Officer Security Officer PAGENO="0381" CONTRACTING-OUT PROCEDURES 377 Class Maximum No. ~48-Hour Weekly Rate Range Sr. Material Take-Off Engineer $218.62 Sr. Materials Coordinator Supervisor - Camp (grounds) Supervisor - Coat Accounting and Billing Supervisor - General Records Supervisor Material Control Supervisor - Payroll Supervisor - Property Supervisor - Ste~edoring Supervisor - Warehousing Procurement Agent 5 Asst. Gen. Supervisor. - A/C Maintenance .. 263 .23 Asat. Gem. Supervisor - Billeting Asat. Gen. Supervisor - Boilers, Stills and Filter Plant Asat. Gem. Supervisor - Industrial Relations Asst. General Supervisor - Marine Asst. Resident Controller Asst. General Supervisor - Supply Auto Inspector Supervisor - Control Tower (Aircraft) Dockmaster Engineer General Supervisor - Special Services Harbor Pilot (Operator - Large Craft) Rad-Safe Officer Asat. Gem. Supervisor - Transportation Chief Electronic Technician 6 Assistant Superintendent (specify) 283.31 a. Aviation b. Boilers, Stills & Filter Plant c. Building & Maintenance d. .Conaiunications e. Distillation Plants f. Electrical g. Excav. & Grading h. Maintenance i. Marine Equip. j. Marine Operator k. Mechanical 1. Power Plant m. Transportation n. Utilities Chief Engineer (LSM) Doctor PAGENO="0382" 378 CONTRACTING OUT PROCEDURES Class Maximum 1~8-Hour Weekly Rate Rsz~ge 6 General Supervisor Industrial Relati~*is $ 283.31 General Supervisor - Supply Principal Engineer (Dept. Head) Resident Controller Superintendent Fire Department Supervisor - Mess Facilities 7 Assistant Resident Engineer 3O1~16 Asst. Gen. Supervisor Service Operations Asst. Gen, Supervisor Communications Dentist Master (LSM) - Boat Pilot Superintendent (specify) a. Aviation b. Construction c. Electrical d. F t i. tenance f. Marine g. Mechanical h. Power and Distill. i. Transportation j. Utilities k. Communications 8 Asst. General Superintendent 319.00 Chief Dentist General Supervisor - Service Operations General Supervisor - Communications Procurement Mannger 9 General Superintendent 31~l. 12 Mannger - Construction and Maintenance 10 Chief Medical Officer/Surgeon 36L00 Medical Officer Assistant Resident Manager (specify) Resident Engineer Management Engineer Program Coordinator 11 Island Medical Officer 381~.6l Resident Manager 12 Division Manager I~30.77 PAGENO="0383" CONTRACTINGOTJT PROCEDURES Class No. 1 2 H0tJRr~y CLASSIFICATIONS 379 Maximi~ Maxim~ !2~y~at~~e ~urWeek Rate $ 2.10 * 109.20 2.30 119,60 2.40 124,80 130.00 Camp ~Jtilit1 Worker Barracksn~ Dish Washer (Messnian) Kitchen Helper House Boy (specify) BOQ, Hotel Janitor Senior Law~dry~ Busboys 3 Assi's~~ Postal Clerk Assistant Timekeeping Clerk Bookkeeper (store) 7 Clerk - ¶I~rpist - Store Facilities Clerk Messenger - Driver SteflOgraph~~ Telephone Operator Barber Film Checker, Handler Firefighter Guard He&i Janitor Reproduction Machine Operator Second Cook Second Butcher Snack Bar Operator Peletype Operator Waiter - Club 5 Aircr~ Cleaner/B~g~5 Handler Blueprint Operator Chief Telepiij~~~ Operator Clerk Guard Serge~t Hobby Shop Gear Locker Operator Housing Clerk Librarian Life Guard Locker Operator Material Clerk Nei~spaper Clerk Postal Clerk Perso~el Clerk Procuj.ement Clerk 2.50 2.60 135.20 PAGENO="0384" CONTRACTINGOUT PROCEDU1~ 380 Class MaximUm Maximum Nc~ at~~ ~urWeeklL~te 5 ProjectioniSt $ 2.60 property Clerk ReceptioniSt - Clerk ReceiPt Control Clerk Secretary Senior Clerk Shipping & ~eceiVing Clerk Stock Records Clerk Storekeeper Timekeeper ~~mekeeping Clerk TV ~nnouncer Work Reception Desk Clerk 6 Asst. Dispatcher (Air) 2~.80 l~5.60 Bartender Beautician Butcher Read Barber Headwaiter - Club Rad-Safe Technician Security Patrolman presser - Laundry Boat Pool Operator 2.90 150.80 Bowling Alley Operator Chief Clerk Chief Reproduction MachiRe Operator Cost Clerk Coordinator - ATCO~- Traffic Hxecutive Secretary Financial Control Clerk Fire Department - Driver/Ope~tor First Aid Man Laundry Foreman Medical 5ecretary Medical Technician photographer Sanitation - Mortician Second Baker Sr. Rad-Safe Technician Steward Stock Analyst Test Laboratol7 Assistant Ward Orderly PAGENO="0385" CONTRACTINGOUT PROCEDURES Class * No. 8 Security Patrolman (Sergeant) 9 Agent Aviation Aircraft Serviceman Fire Captain Control Tower Operator - Aircraft 10 First Baker First Cook Photo Lab Technician 381 Maximum Maximum ~ 2~We~1fla~ $ 3.00 $ 156,00 3.00 156.oo 3.20 166.4o 74109 O-61--25 PAGENO="0386" 382 CONTRACTING0UT PROCEIMJRES EXHIBIT C Hourly I~8-Eour Rate ~1Rate Able Seaman (LSM) $ 2.61 $ 135.72 Air Compressor Operator 3.13 162.76 Aircraft Electronics Tech. 1~.25 221,00 Aircraft Mechanic A&E Lead 3.91 203.52 Aircraft Mechanic A&E 3.13 162.76 Apprentice Engineer (Specify) 3.13 162.76 Asbestos Worker 1~.00 208.00 Asphalt, Concrete, Crushing Plant Oper. 3.91 203.32 Asphalt Raker and Ironer 3.09 i6o .68 Assistant Cook (LSM) 2.~43 126.36 Assistant Material Checker 2.91~ 152.88 ASsistant Material Handler 2.9~4 152.88 Blacksmith - Boilermaker 3.90 202.80 Boilermaker 3.90 202.80 Boiler Operator 3. ~3 178.36 Canvas Worker - Marine 3.0k i~8.o8 Cargo Handler 2.9k 152.88 Carpenter 3.60 187.20 Carpenter Helper 3.16 l6~4.32 Cement Mason 3.625 188.50 Chainmnafl 3.61 187.72 Chief CoOk~m(L~4) 2.91 151.32 Chief Mechanic - Aircraft ~4.28 222.56 Chief Boatson 3.12 l62.2~ Concrete Mixer Oper. - Skip TThe 3.37 175.2k Concrete/Asphalt Spreading Machine Oper. 3.91 203.32 Diver (Skin) (Daily basis) 1~6.O0 per day PAGENO="0387" CONTRACTING-OUT PROCEDURES 383 EXHIBIT C HOURLY MAMJAL CI~.S$IFICATIOtiS, Eourl~r ~48~Hour Driller (Core, Diamond or Wagon) $ 3.33 $ 173.16 Drilling Machine Operator 3.72 l93,1~L~ Electrician (specify) 1~.225 21970 Electrician Lineman - Power Plant ~.225 219.70 Electrician - Motor Rewinder ~.225 219.70 Electrician Cable Splicer l~.5l5 23~4.78 Electrician - Refrigeration ~.5l5 23l~.78 Electrician - Helper (specify) 3.535 183.82 Electrician - Telephone 3.985 207.22 Elevator Hoist Operator 3.61 187.72 First Assistant Engineer (LSM) ~4.26 221.52 First Officer (LSM) 3.875 201.50 Fitter, Industrial Lb 213.20 Fork Lift Operator 3.225 167.70 General Helper (Specify) 3.014 158.08 Generating Plants Operator (Stationary) 3.143 178,36 Hatch Boss 3.314 173.68 Heavy Duty Repairman 3.91 203.32 Heavy Duty Repairman Helper - 3.13 162.76 Inspector - Automotive 14.26 221.52 Instrumentman 3.72 193,1414 Ironworker - Reinforcing 3.60 187.20 Ironworker - Structural 3.85 200.20 Laborer - General, Construction, Skilled 2.88 1149,76 Laundry Routeisan 2.87 l1#9.214 Locksmith 3.575 185.90 Machinist 3.87 201.214 Machinist - Helper 3.09 160.68 PAGENO="0388" 384 CONTRACTING-OUT PROCEDURES EXHIBIT C HOURLY MAEtJPL CLASSIFICATIONS Hourly 48-Hour ~ Weekly Rate Marine Deckhand $ 2.92 $ 151.84 Marine Engineman (specify) 3.83 199.16 Marine Operator - Large Craft 4.01 208.52 Marine Operator - Small Craft 3.55 181i.60 Marine Operator - Utility Craft 3.66 190.32 Marine Rigger 3.64 189.28 Material Checker 3.14 163.28 Material Handler 3.14 163,28 Mechanic (specify) 3.91 203.32 l4echanic - Boiler 3.91 203.32 Mechanic - Diesel 3.91 203.32 Mechanic Electrician, Auto 3.91 203.32 Mechanic - Helper 3.13 162.76 Motor Patrol Operator (any type) 4.01 208.52 Oiler - Diesel - LSM 2.61 135.72 Oiler - Heavy Equipment 3.37 175.24 Operator - Amphibious Truck 3.55 184.60 Operator - Distilling Equipment 3.43 178.36 Operator - Filter Plant 3.43 178.36 Operator - Heavy Equipment (3/4 CX and under)(Tractor Operator, Bull- dozer, tamper, scraper, drag type shovel or boom attachment, etc.) 3.91 203.32 Operator - Heavy Equipment (over 3/4 CX) (Universal equipment operator, shovel dragline7 derrick derrick barge, clamshell or crane, etc. 5 4.01 208.52 Operator - Pneumatic & Electric Tools 3.09 160.68 Packer and Crater 3.60 187.20 Painter, Brush 3.71 192.92 Painter, Spray or Sandblaster 3.81 198.12 painter, Helper 3.30 171.60 Party Chief 4.11 213.72 Piledriverman (bridge or dock carpenter) 3.73 193.96 Piledriver Operator 4.01 208.52 Plumber - Helper 3.275 170.30 Plumber - ~Xourneyman 4.10 213.20 Power Plant Operator - Diesel 3.43 178.36 Power Plant Operator - Switchboard 3.76 195.52 PAGENO="0389" CONTRACTINGOUT PROCEDURES 385 Hourly Rate .$ 3.37 3.24 2.92 3.28 3 .6o 3.64 3.91 3.72 3.33 3.07 3.68 3.70 3.77 3.425 3.90 3.26 4.10 3.275 3.43 3.43 3.12 3.91 3.72 3.37 ~~te $ 175.24 168.48 151.84 170.56 187.20 189.28 203.32 * 193.44 173.16 159.64 191.36 192.40 196.00 179,10 202.80 169,52 213.20 170.30 178.36 118.36 162.24 203.32 193.44 175.24 EXhIBIT C ~0iJRI~~ o P.0.L. Plant Operator Powderman Radio Operator (APL) Radio Officer (LSM) Red-Safe Electronic Technician Rigger Road Oil Mixing Machine Operator Roller Operator Sandblaster (Nozzleman) Sandblaster (Pot Tender) Saw filer Saw Operator - *Utilit7 (table & Power) Second Assistant Engineer LSM Second Officer (LSM) Sheet Metal Worker Sheet Metal Worker - Helper Steaznfitter Steanifitter - Helper Supply Coordinator Third Assit. Engineer (LSM) Third Officer (LSM) Tournapull Operator Trenching Machine Operator Truck or Crawler Crane Oiler Truck Driver - Dump Truck Truck Driver - 8 CY and Under Truck - over 8 CX Truck - Medium Truck - Utility 3.185 165.62 3.235 168.22 3.235 168.22 3.185 165.62 PAGENO="0390" 386 CONTRACTING0UT PROCEDURES EXHIBIT C ~Thk Hourly 1~8..Hour ~ ~Rate Truck - Transit MIX (over 3 ~) $ 3.535 $ 183.82 Truck - Heavy 3.535 183.82 Truck Oil/water Spreader & bootmsxl 3.335 l73.~2 Truck - 20 Tons or over 3.535 183.82 Truck Creaser and Tireman 3. l~5 181.22 Truck Repairman ~.995 207.7k Truck Repairman - Helper 3.265 169.78 Typewriter Mechanic 3.91 203.32 Upholsterer 3.575 185.90 Upholsterer - Helper 2.935 152.62 Utilitylnan (LSM) 2.07 l07.6~ Wa.rebouseman 3~39 176.28 Welder 3.755 195.26 Welder - Certified 3.855 200.~6 Welder - Helper 2.935 152.62 Winch Operator 3.09 i68.68 Foreman shall be paid 25~ per hour more than hia basic pay. ~ Employees shall be paid lO~ per hour over regular basic pay when engaged in handling explosives or Dirty work as defined in Navy Civilian Personnel Instructions. PAGENO="0391" CONTRACTING-OUT PROCEDURES 387 SCHEDULE II to EXHIBIT "C" to CONTRACT NOes 59-L~176-c CHARGES FOR GOVERN~NT FURNISHED QUARTERS MADE AVAILABLE to NON-GOVERN~NTAL PERSORNEL on KWAJALEIN ISLAND Family Quarters Monthly Charge Per Unit** ~ Bedroom $ 150.00 3 Bedroom 127.00 2 Bedroom 115.00 1 Bedroom 105.00 BOQ ¶E~ype Quarters 1 to room - $90.00 per man per month (Includes utilities, Furnishings, Linens and Maid Services) 2 to room - $70.00 per man per month (Includes utilities, Furnishings, Linens and Maid Services) Barracks - $30.00 per man per month ** Includes Utilities and Furnishings Rents to be collected from Governmental personnel will be in accordance with monthly rates established by the Contract Administrator. PAGENO="0392" 388 CONTRACTING-OUT PROCEDURES EXHIBIT I) TO CONTRACT NOas 59JaT6-c Personnel Policies, Wage and Salary Schedules, Transportation, Travel and Living Expense Policy Tor Offices other than Kwajalein Atoll. A. FORMAL RMPLOYMENT AGREEMENTS Not required. B. JOB CI$SSIFICATION, WAGE AND SALARY RATES (1) Employees with clas~ification having weekly rate ranges shall be referred to herein as "salaried" employees. Employees with hourly rate ranges shall be referred to herein as "hourly" employees. Employees with hourly rates shall be referred to herein as "hourly manual" employees. The job classification and maximum wage and salary for salaried, hourly, and hourly manual employees shall be in accordance with Schedule I to Exhibit C. Each employee will be placed in the proper job classification for the principal duties he performs. (2) Any change in wage rate or salary range shall be non-retroactive. C. OVERTIME AND ROLIDAY PAY (1) The basic work week for the Contractor's employees hereunder shall be a 1~O hour work week consisting of five work days of eight hours each within a designated period of seven consecutive days. When deemed essential to the performance of work under this contract, the Contractor may authorize overtime up to sixteen hours per man per week at time and one-half. (2) Rach employee shall, if possible, be granted time off with pay on each of the six following holidays which falls on or which is observed as falling on a regularly scheduled workday: PAGENO="0393" CONTRACTING-OUT PROCEDURES 389 New Years Day Labor Day Nemorial Day Thanksgiving Day Independence Day Christmas Day An hourly or hourly manual employee who works on a day within the regularly scheduled ~iorkweek, which is, or which is observed as, one of the six holidays listed above, shall be paid double his regular basic wage rate for the time worked. D. SICK LEAVE Sick leave with pay shall accrue to Contractors employees at the rate of two (2) hours per week employed. No payment to the employee shall be made on account of unused sick leave. E. LEAVE or ABSENCE (1) Annual leave with pay shall accrue to Contractors employees at the rate of one (1) day per month of employment. (2) Emergency leave of absence without pay may be granted any employee for compelling reasons. F. MEDICAL CARE The cost of insurance to cover medical care and hospitalization of employees and their dependents shall be an allowable cost hereunder, not to exceed $75.00 per employee per year. G. TRANSPORTATION AND TRAVEL EXPENSE (1) The Contractort s employees and their dependents shall be transported from the point-of-hire or Contractors principal place of business (whichever is closer to job-site), to job-site at the expense of the Government. Upon completion of this contract, the employee and his dependents shall be returned to the point-of-hire or Contractors principal place of business (whichever is clo~er to job-site) at the expense of the Government. PAGENO="0394" 390 CONTRACTINGOUT PROCEDURES (2) Costs of moving hou5eho1~ goods shall be allowable costs hereuMer. H. DWNGEVI~O~ The Contractol' me~r pay any employee an amount equal to two (2) weeks pay at the employees basic rate for his basic work week for the first full yeaX of employment and a pro-rata 8~5O~i1t for each additional month thereafter. PAGENO="0395" CONTRACTING-OUT PROCEDURES 391 (a) The Contractor shall procure and thereafter maintain workmen's compen- sation employer's liability, comprehensive general liability (bodfl.y injury) and comprehensive automobile liability (bodily injury and property damage) insurance, with respect to performance under this contract, and such other insurance as the Department may from time to time require with respect to performance under this contract; provided, that the Contractor may with the approval of the Department maintain a self-insurance program, and provided further, that with respect to workmen's compensation the Contractor is qualified pursuant tc statutory authority. All insurance required pursuant to the pro- visions of this paragraph shall be in such form, in such amounts, and for such periods of time, as the Department may from time to time require or approve, and with insurers approved by the Department. (b) The Contractor agrees, to the extent and in the manner required by the Department, to submit for the approval of the Department any other insurance maintained by the Contractor in connection with the performance of this contract and for which the Con- tractor seeks reimbursements hereunder. (c) The Contractor shall be reimbursed: (i) for the portion allocable to this contract of the reasonable cost of insurance as required or approved pur- suant to the provisions of this clause, and (ii) for liabilities to third persons for loss of or damage to property (other than property (A) owned, occupied or used by the Contractor or rented to the Contractor or (B) in the care, custody, or control of the Contractor), or for death or bodily injury, not compensated by insurance or otherwise, arising out of the performance of this contract, whether or not caused by the negligence of the Contractor, his agents, servants or employees, provided such liabilities are represented by final judgments or by settlements approved in ~Jriting by the Government, and expenses incidental to such liabilities, except liabilities (I) for which the Contractor is other- wise responsible under the express terms of the clause or clauses, if any, specified in the Schedule, or (II) with respect to which the Contractor has failed to insure as required or maintain inourance as approved by the Department or (III) which results from willful misconduct or lack of good faith on the part of any of the Contractor's directors or officers, or on the part of any of his managers, superintendents, or other equivalent representatives, who has supervision or direction of (1) all or substantially all of the Contractor' s business, or (2) all or substantially all of the Contractor's operations at any one plant or separate location in which this contract is being performed, or (~) a separate and complete major industrial operation in connection with the performance of this contract * The foregoing shall not restrict the right of the Contractor to be reimbursed for the cost of insurance maintained by the Contractor in connection with the per- formance of this contract, other than insurance required to be submitted for approval or required to be procured and maintained pursuant to the provisions (f) P7-203.22 SECTION - INSUBANCE-LIABILIT~ TO THIRD PERSONS PAGENO="0396" 392 CONTRACTING-OUT PROCEDURES of this clause, provided such cost would constitute Allowable Cost under the clause of this contract entitled "Allowable Cost, Fixed Fee and Payment." (d) The Contractor shall give the Government or its representatives immediate notice of any suit or action filed, or prompt notice of any claim made, against the Contractor arising out of the performance of this contract, the cost and expense of which may be reimbursable to the Contractor under the provisions of this contract, and the risk of which is then uninsured or in which the amount claimed exceeds the amount of coverage. The Contractor shall furnish immediately to the Government copies of all pertinent papers received by the Contractor. If the amount of the liability claimed exceeds the amount of (g) P7-203.7-i SECTION (a) (1) The Contractor agrees to maintain books, records, documents and other evidence pertaining to the costs and expenses of this contract (herein.. after collectively called the "records") to the extent and in such detail as will properly reflect all net costs, direct and indirect, of labor, materials, equipment, supplies and services, and other costs and expenses of whatever nature for which reimbursement is claimed under the provisions of this contract. The Contractor's accounting procedures and practices shall be sub.. ject to the approval of the Comptroller of the Navy (Contract Audit Division); provided, however, that no material change will be required to be made in the Contractor' a accounting procedures and practices if they conform to coverage, the Contractor shall authorize represenatives of the Government to collaborate with counsel for the insurance carrier, if any, in settling or defending such claim. If the liability is not insured or covered by bond, the Contractor shall, if required by the Government, authorize representatives of the Government to settle or defend any such claim and to represent the Contractor in or take charge of any litigation in connection therewith: Provided, however, that the Contractor may, at his own expense, be associated with the representatives of the Govern.. ment in the settlement or defense of any such claim or litigation. RECORDS generally accepted accounting practices and if the costs properly applicable to this contract are readily ascertainable therefrom. (2) The Contractor agrees to make available at the office of the Contractor at all reasonable times during the period set forth in subparagraph (1~) below any of the records for inspection, audit or reproduction by any authorized repre- sentative of the Department or of the Comptroller General. (3) In the event the Comptroller General or any of his duly authorized representatives determines that his audit of the amounts reimbursed under this contract as transportation charges will be made at a place other than the office of the Contractor, the Contractor agrees to deliver, with the reimburse.. PAGENO="0397" CONTRACTING-OTJT PROCEDIJRES 393 ment voucher covering such charges or as may be otherwise specified within two years after reimbursement of charges covered by any such voucher, to such representative as may be designated for that purpose through the Comp- troller of the Navy (Contract Audit Division); such documentary evidence in support of transportation costs as may be rec~uired by the Comptroller General or any of his duly authorized representatives. (Ii) Except for documentary evi- dence delivered to the Government pur- suant to subparagraph (3) above, the Contractor shall preserve and make available his records (i) for a period of three years from the date of final payment under this contract, and. (ii) for such longer period, if any, as is req~zired by applicable statute, by any other clause of this contract, or by (A) or (B) below. (A) If this contract is corn.- pletely or partially terminated, the records relating to the work terminated shall be preserved and made available for a period of three years from the date of any resulting final settlement. (B) Records which relate to (i) appeals under the Disputes clause of this contract, (ii) litigation or the settlement of claims arising out of the performance of this contract, or (iii) cost and expenses of this con- tract as to which exception has been taken by the Comptroller General or any of his duly authorized representa- tives, shall be retained by the Con- tractor until such appeals, litigation, claims, or exceptions have been disposed of. (5) Except for documentary evi- dence delivered pursuant to subparagraph (3) above, and the records described in subparagraph (I~)(B) above, the Con- tractor may in fulfillment of his obli- gation to retain his records as recluired by this clause substitute photographs, microphotographs, or other authentic reproductions of such records, after the expiration of two years following the last day of the month of reimbursement to the Contractor of the invoice or voucher to which such records relate, unless a shorter period is authorized by the Contracting Officer with the concurrence of the Comptroller General or his duly authorized representative. (6) The provisions of this para- graph (a), including this subparagraph (6), shall be applicable to and included in each subcontract hereunder which is on a cost, cost-plus.-a-fixed-fee, time- and-material or labor-hour basis. (b) The Contractor further agrees to include in each of his subcontracts here- under, other than those set forth in subparagraph (a)(6) above, a provision to the effect that the subcontractor agrees that the Comptroller General or the Department, or any of their duly authorized representatives, shall, until the expiration of three years after final payment under the subcontract, have access to and the right to examine any directly pertinent books, documents, papers, and records of such subcontractor involving transactions related to the subcontract. The term "subcontract," as used in this paragraph (b) only, excludes (i) purchase orders not exceeding $2,500 and (ii) sub- contracts or purchase orders for public utility services at rates established for uniform applicability to the general public. PAGENO="0398" 394 This eaneudflleflt incz'eafl0 t the tixea fee by $7$5,OOO.~- CONTRACTINGOUT PROCEDURES PAGENO="0399" 395 CONTRACTING-OUT PROCEDURES GENERAL PROVISIONS (Deportment of Defense Cost-Reimbursement Supply Contract) INDEX OF CLAUSES 1.-DEFINITIONS 2.-CHANGES 3.-LIMITATION OF COST 4.-ALLOWABLE COST, FIXED FEE, AND PAYMENT 5.-INSPECTION OF SUPPLIES AND CORRECTION OP DEFECTS 6.-ASSIGNMENT OF CLAIMS 7.-RECORDS 8.-SUBCONTRACTS 9.-UTILIZATION OF SMALL BUSINESS CONCERNS 10.-TERMINATION 11.-EXCUSABLE DELAYS 12.-DISPUTES 12.-BUY AMERICAN ACT 14.-CONVICT LABOR 15.-EIGHT-HOUR LAW OF 1952-OVERTIME COMPENSATION 16.-WALSH-HEALXY PUBLIC CONTRACTS ACT 17.-NONDISCRIMINATION IN EMPLOYMENT 18.-NOTICE TO THE GOVERNMENT OF LABOR DISPUTES 19,-GOVERNMENT PROPERTY 20.-INSURANCE-LIABILITY TO THIRD PERSONS 21.-OFFICIALS NOT TO BENEFIT 22.-COVENANT AGAINST CONTINGENT FEES 23.-GRATUITIES 24.-SOVIET-CONTROLLED AREAS 25-RENEGOTIATION 26.-MILITARY SECURITY REQUIREMENTS 17.-FILING OF PATENT APPLICATIONS -NOTICE AND ASSISTANCE REGARDING PATENT INF1OINGEMENT 29.-REPORTING OF ROYALTIES 20.-AUTHORIZATION AND CONSENT I. DEFINITIONS As used throughout thin contract, the following terms shall have the meanings set forth below: (a) The term "Secretary" means the Secretary, the Under Secre- tary, or any Assistant Secretary of the Department, and the head or any assistant head of the Federal agency; and the term "his duly authorized representative" means any person or persons or board (other than the Contracting Oittcer) authorized to act for the Secretary. (b) The term "Contractlssg Ofitcer" means the person executing this contract on behalf ot the Government, and any other ofScer or civilian employee who is a properly designated Contracting Officer; and the term Includes, elcept as otherwise provided in this con- tract, the authorized representative of a Contracting Officer acting within the limits of his authorIty. (0) Except ss otherwise provided in this contract, the term "subcontracts" includes purchase orders under this contract. 2. CHANGES The Contracting Officer may at any time, by a written order, and without notice to the sureties, if any; malts changes, within the general scope of this contract, in any one or more of the following: (I) drawings, designs, or specifications, where thC supplies to be furnished are to be specially sttanufacttsred for the Government in accordance therewith; (ii) method of shipment or packing; (iii) piece of delivery; and liv) the amount or Government-furnished property. If any such change causes an increase or decrease in the estimated cost of, or the time required for, the performance any part of the work undec this contract, whether changed or i changed by any such order, or otherwise affects any other provision of this contract, an equitable adjustment shall be made (I) in the estimated cost or delivery schedule, or both, (ii) In DD FORM 148 (NAVY) the amount of any filed fee to be paid to the Contractor, and (iii) in such other provisions of the contract as may be so affected, and the contract shall be modified in writing accordingly. Any claim by the Contractor far adjustment under this clause must be asserted within thIrty (30) days from the date of receipt by the Contractor of the notification of change: Provided, however, That the Contracting Officer, If he decides that the facts justify such action, may receive and act upon any such claim asserted at any time prior to final payment under this contract. Failure to agree to any adjuatment shall be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes." However, nothing in this clause shall excuse the Contractor from proceeding with the contract as changed. 3. LIMITATION OF COST (a) It is estimated that the total cost to the Goverhment, exclu- sive of any nEed fee, for the performance of this contract will not exceed the estimated cost set forth in the Schedule, and the Con- tractor agrees to use its bgst efforts to perform the work specified In the Schedule and all obligations under this contract within such estimated cost. If at any time the Contractor has reason to believe thst the coots which it expects to incur in the performance of this contract in the next succeeding thirty (30) days, when added to all costs prevIously incurred, will exceed eighty-five per- cent (85%) of the estimated cost then set forth in the Schedule, or If at any time, the Contractor has reason to believe that the total cost to the Government, exclusive of any filed fee, for the performance of this contract will be substantially greater or less than the then estimated cost thereof, the Contractor shall notify the Contracting Officer in writing to thst effect, giving its revised estImate of such total cost for the performance of this contract. (b( The Government shall not be obligated to reimburse the Contractor for costs incurred in excess of the estimated coat set forth In the Schedule, and the Contractor shall not be obligated to continue performance undec the contract or to Incur cooto in excess of the estimated cost set forth lit the Schedule, unless and until the Contracting Officer shall have notified the Contractor in writIng that such estImated cost has been increased and shall have specified in such notice a revised estImated cost which shall thereupon con- stitute the estimated cost of performance of this contract. When and to the extent that the estimated cost set forth in the Schedule has been increased, any costs incurred by the Contractor in excess of such estimated cost prior to the inccease in estimated cost shall be allowable to the same extent as if such costs bad been incurred after such Inoroase in sotimated cost. 4. ALLOWABLE C~ST, FIXED FEE, AND PAYMENt (a) For the performance of thIs contract, the Government shall pay to the Contractor: (i( the cost thereof (hereinafter referred to as "allowable cost") determined by the Contract-Audit Division of the Comptroller of the Navy to be allowable in accordance with- (A) Part 2 of Section XV of the Armed ServIces Procure- ment Regulation as In effect on the date of this contract; and (B) the terms of this contract; and (ii) such fixed fee, if any, as may be provided for in the Schedule. )b) Once each month or at msre frequent intervals, if approved by the Contract-Audit Division of the Comptroller of th4. Navy, the Contractor may submit to an autho~Ized reprOsentative of the Contract-Audit Division of the Comptroller of ~be"N8t~'in such form and reasonable detail as such representative may re~sire, an invoice or public voucher supported by a statement of cast incurred by the Contractor in the performance of this contract and claimed to constitute allowable cost. PAGENO="0400" 396 CONTRACTING-OUT PROCEDURES (c) (1) Promptly after receipt of each invoice or voucher and statement of cost, the Government shall, except as other- wise provided in this contract, and subject to the pro- visions of paragraph (d) below, make payment thereon, to the extent of 80% thereof, as approved by the Con- tract-Audit Division of the Comptroller of the Navy. The cumulative amount of such invoices Si' vouchers from time to time approved but not paid pursuant to the ioregoing provisions (regarc.ildss of whether they are paid under the next sentence hereof) shall constitute a gross withheld payments amount. Upon acceptance and delivery of articles identified in the Schedule of this contract as the principal end item being procured under this conttact, the Government shall pay to the Contractor an amount which, when added to any amounts previously paid under this sentence, shall be the same percentage of the gross withheld payments amoant as the cumulative number of articles accepted and delivered under this identified principal end item is of the total number of articles called for by such item. (2) Payment of the fixed fee, if any, shall be made to the Contractor as specified in the Schedule; Provided, how- ever, That after payment of eighty-Ova percent (86%) of the fixed fee set forth in the Schedule, further pay- ment on account of the ttxed fee shall be withheld until a reserve of either fifteen percent (10%) of the total fixed fee, or one hundred thousand dollars ($100,000), whichever is less, shall have been set aside. (d) At any time or times prior to final payment under this con- tract the Contract-Audit Division of the Comptroller of the Navy may have the invoices or vouchers and otatementa of coot audited. Each payment theretofore made shall be subject to reduction f or amounts isicluded in the related invoice or voucher which are found by the Contract-Audit Division of the Comptroller of the Navy, on the basis of such audit, not to constitute allowable coat. Any payment may be reduced for overpayments, or increased for underpayments, on preceding invoices or vouc hers. )e) On receipt and approval of the invoice or voucher desig- Sated by the Contractor as the "completion invoice" or "corn- pletion voucher" and upon compliance by the Contractor with all `he provisions of this contract )iociuding, without limitation, the ovioi005 relating to patents and the provisions of )f) below); ne Government shall promptly pay to the Contractor any balance of allowable cosl, and any part of the toed fee, which has been withheld pursuant to (c) above or otherwise not paid to the Con- tractor. The completion invoice or voucher shall be submitted by the Contractor promptly following completion of the work under thio contract but in no event later than one (1) year or ouch longer period so the Contracting Officer may in his diocre- tion approve in writing) from the date of such completion. )f) The Contractor agrees that any refunds, rebateo, credits, or other amounts (including any interest thereon) accruing to or received by the Contractor or any assignee under this contract shall be paid by the Contractor to the Government, to the extent that they are properly allocable to Costs for which the Contractor has been reimbursed by the Government, under this contract. Reasonable expenses incurred by the Contractor for the purpose of securing such refunds, rebates, credits, or other amounts shall be allowable costs hereunder when approved by the Contracting Officer. Prior to final payment under thin contract, the Contractor and each assignee under this contract whose assignment is In effect at the time of final payment under this contract shall eoecute and deliver: )i) an aisignment to the Government, in form ansi substance satisfactory to the Contracting Officer, of refunds, rebates, credits, or other amounts (including soy interest thereon) properly allocable to roots for which the Contractor has been reimbursed by the Government under this contract; (Ii) a release discharging the Government, its officers, agents, and employees from all liabilities, obligations, sn4 claims arising out of or under. this contract, subject only to the following exceptions- (A) specified claims in stated amounts or in estimated amounts where the amounts are sot susceptible of exact statement by the Contractor; (B) claims, together with reasonable expenses incidental thereto, based upon liabilities of the Contractor to third parties arising out of the performance of this contract: Provided, That such claims are not known to the Contractor on the dote of the enecution of the release; 4ncf provzded further, That the Contractor gives notice of such claims in writing to the Con- tracting Officer not more than sin (6) years after the date of the release Or the date of any notice to the Cositractor that the Government is prepared to make final payment, whichever is earlier; and (C) claims for reimbursement of costs (other than en- penses of the Contractor by reason of its indemnifi- cation of the Government against patent liability), including reasonable expenses incidental thereto, in- curred by the Contractor under the provisions of thie contract relating to patents. )g) Any cost incurred by the Contractor under the terms of this contract which would constitute allowable coot under the provisions of this clauve shall be included in determining the amount payable under thin contract, notwithstanding any provi- sions contained in the specifications or other documents incor- porated in this contract by reference, designating services to be performed or materials to be furnished by the Contractor at its eopenne or without cost to the Government. 5, INSPECTION OF SUPPLIES AND CORRECTION OF DEFECTS (a) All supplies (which term throughout this clause includes without limitation raw materials, components, intermediate as- semblies, and end products) shall be subject to inspection and teat by the Government, to the extent practicable at all times and places including the period of manufacture, and In any event prior to acceptance. The Contractor shall provide and maintain an inspection system acceptable to the Government covering the supplies, fabricating methods, and special tooling hereunder. The Government, through any authorized representative, may inspect the plant or plants of the Contractor oc of any of its subcontractors engaged in the performance of this contract. If any inspection or teat is made by the Government on the premises of the Con- tractor or a subcontractor, the Contractor shall provide and shall require subcontractors to provide all reasonable facilities and assistance for the safety and convenience of the Government inspectors in the performance of their duties. All inspections and tests by the Governmest shall be performed in such a manner as will not unduly delay the work. Except as otherwise provided in this contract, acceptance of any supplies or lots of supplies shall be made as promptly as practicable after delivery thereof and shall be deemed to have been made no later titan sixty (60) days af Icr the date of such delivery, if acceptance has not been made earlier within such period. )b) At any time during performance of this contract, but hot later thaii sin (6) moritho (or ouch other period as may be pro- vided in the Schedule) after acceptance of the supplies or lots of supplies loot delivered in accordance With the requirements of this contract, the Government may require the Contractor to remedy by currection or replacement, as directed by the Con- tracting Officer, any euppliea or lots of supplies which at the time of delivery thereof are defective in material or workman- ship or otherwise not in conformity with the requirements of this contract. Except as otherwise provided in paragraph (0) hereof, the cost of any such replacement or correction shall be included in Allowable Cost determined as provided in the clause of this contract entitled "Allowable Cost, Fixed Fee and Payment," but no sdsiitional fee shall be payable with reopect thereto. Such supplies or lots of supplies shall hot be tendered thereafter for acceptance unless the former tender and the requirement of cor- rection is disclosed. If the Contractor falls to proceed with reasonable promptness to replace or correct such supplies or lots Of supplies, the Government ii) may by contract or otherwise replace or correct ouch supplies and charge to the Contractor any increased cost occasioned the Government thereby, or may reduce any fixed fee payable under this contract (Or require repayment of any fined f cc theretofore paid) in such amount as may be equitable under the circumstances, or (Ii) in the case of supplies 000 delivered, may require the delivery of such supplies, and shall have the right to reduce any fixed fee payable under this contract (or to require repayment of any fixed fee theretofore paid) in such amount as may be equitable under the circumstances, or PAGENO="0401" C o~J ~ PAGENO="0402" 398 CONTRACPING-OiJT PROCEDURES of their duly authorized representatives, shall, until the expira- tion of three years after final payment under the subcontract, have access to and the right to examine any directly pertinent boots, documents, papers, and records of such subcontractor involving transactions related to the subcontract. The term "sut- -`ixtract," as used In this paragraph (5) only, etcluales (I) rchase orders not exceeding *1,000 and (ii) eubcontracts or ~ut'chase orders for public utility services at rates established (or uniform applicability to the general public 8. SUBCONTRACTS (a) The Contractor shall give advance notification to the Con- tracting Officer of any proposed subcontract hereunder which )i) is on a' cost or cost-plus-a-fixed-fee basis, or (ii) is on a. fixed- price basis exceeding in dollar amount either $25,000 or five percent (5%) of the total estimated cost of this contract (b) The Contractor shall hot, without the prior written con- sent of the Contracting Officer, place any subcontract which (I) is on a cost or cost-plus-a-fixed-f cc basis, or (ii) is on a flocd- price basis exceeding in dollar amount either $25,000 or five per- cent (5%) of the total estimated cost of this contract, Or (iii) provides (or the fabrication, purchase, rental, lnstallation or other acquisition, of any item of industrial facilities, or of special cooling having a value In excesa.of $1,000, or (iv) lion a tifls~-and-material or labor-hour basis. The Contracting Officer may, in his discretion, ratify in writing any such subcontract; such action shall con- stitute the consent of the Contracting Officer as required by this paragraph (b) )c) The Contractor agrees that no subcontract placed under this contract shall provide for payment on a cost-plus-a-percentage-of- coat basis. )d) The Contracting Officer may, In his discretion, specifically approve in writing any of the provisions of a subcontract. How- ever, ouch approval or the consent of the Contracting Officer obtained as requIred by this clause shall not be construed to constitute a determination of the allowability of any cost under this contract, unless such approval specifically provides that it constitutes a determination of the allowability of such cost, )e) The Contractor shall glee the Contracting Officer Immediate `tire in writing of any action or suit Sled, and prompt notice any claim made against the Contractor by any subcontractor or vendor which, in the opinion of the Contractor, may result in litigation, related in any way to this contract with respect to which the Contractor may be entitled to reimbursement from the Government. 9. `UTILIZATION OF SMALL BUSINESS CONCERNS (a) It is the policy of the Governinent as declared by the Con- gress that a fair proportion of the purchases and contracts for supplies and services for the Government be placed with small business conceros. (b) The Contractor agrees to accomplish the maximum amount of subcontracting to small business concerns that the Contractor finds to be consistent with the efficient performance of thlo contract. ID. TERMINATION (a) The performance of work under the contract may be terminated by the GoverniOlent in accordance with this clause in whole, or from kline to time in part, (I) whenever the Contractor shall default iii. performancg of this contract in accordance with its terms (including in the term "default" any such failure by the Contractor to make progress in the prosecution of the work hereunder as endangers such performance), and ahall fail to cure ouch default within a period of ten days (or such longer periods as the Contracting Officer may allow) afterreceipt from the Contracting Officer of a notice specifying the default, or (2) when- ever (or any reason the Contracting Officer shall determine that ouch termination is in the best Interests of the Government. Any `such termination shall be effected by delivery to the Contractor of a NotIce of Termination specifying whether tefminatioe is for the elefaulx of the Contractor or for the convenience of the Gay- nment, the extent to which percormance of work under the .,ntraft is terminated, and the date upon which such termination becomes effective. If, after notice of terminatIon 0f this con- tract (or default under (I) a,,ove, It is determined that the Con- tractor's failure to perform or to make progress in performance is due to causes beyond the control and without the fault or negligence of the Contractor pursuant to the previsions of the clause of this contract relating to excusable delsys, the Notice of Termination shall be deemed to have been issued under )2) above, and the rights and obligatIons of the parties hereto shall in such event be governed accordingly. (5) After receipt of a Notice of Termination ahd except as otherwise directed by the Contracting Officer, the Contractor shall (1) stop work under the contract on the date and to the en- ent specified In the Notice of Termination; 2) place no further orders or aubcontracts for materials, services, or facIlities except as may be necessary for completion of such portion of the work under the contract as )s not terminated; (3) terminate all orders and subcontracts to the ettent that they relate to `the performance of work terminated by the Notice of Termination; (4) assign to the Government, in the manner and to the extent directed by the Contracting Officer, all of the right, title, and interest of the Con- tractor under the orders or subcontracts so terminated, in which case the Government shall have the right, in its discretion, to settle or pay any or all claims arising out of the termination of such orders and subcontracts; (5) with the approval or ratification of the Contracting Officer, to the extent he may require, which approval or ratification shpll be final and conclusive for all pur- poses of this clause, settle all outstanding liabilities and all claims arising otit of such termination of orders and stibcontracts, the cost of which would be reimbursable in whole or is part, in accord- ance with the provisions of this contract; (0) traxafer title (to the extent that title has not already been transferred) and, in the manner, to the extent, and at the timea directed by the Con- trading Officer, deliver to the Government (I) the fabricated or uhf abricatec.t parts, work in process, completed work, supplies, and other material produced as a part of, or acquired in respect of tne performance of, the work terminated by the Notice of Termina- tion, Ii) the completed or partially completed plans, drawings, Information, and other property which, if the contract had been completed, would be required to be furnished tcs the Government, and (iii) the jigs, dies, and fixtures, and other special tools and tooling acquired or manufaciured for the performance `Of this con- tract f or the cost of which the Cofitractor has been or will be reimbursed under this contract; (`1) use its best efforts to sell in the manner, at the times, to the exent, and at (he price or prices directed or authorized by the Contracting Officer, any property of the types referred to In provision (6) of this paragraph: Provided, however', That the Contractor (I) shall not be required to extend credit to any purchaser, and (ii) may acquire any such property under the conditions prescribcd by and at a price or prices ap- proved by the Contracting Officer: And provided further, That the proceeds oc any ouch transfer or disposition shall be applied in reduction of any payments to be made by the Government to the Contractor under this contract or shall otherwise be credited to the price or cost of the work covered by this contract or paid in such other manner as the Contracting Officer may direct; 5) complete performance of such pact of the work as shall not hove been termisated by the Notice of Termination; and )9) take such action as may be neceesary, or as the Contracting Officer may direct, for the protection and preservation of the property related to thia costract which is in the p000ession of the Con- tractor In which the Government has or may acquire an interest. The Contractor shall proceed Immediately with the performance of the above obllgbtioni notwithstanding any delay in determining or adjuoting the amount of the fixed-fee, or any item of reim- bursable cost, under this clause. At any time after expiration of the plant clearance period, as defined ix Section VIII, Armed Servites Procurement ltegtiIatlon, so it may be ,smended from time to time, the Contractor may submit to the Contracting Offi- cer a list, certified as to quantity and quality, of any or all items of termination inventory not previously disposed of, exclusive of items the disposition of which has been directed or authorized by the Contracting Officer, and may request the Government to remove such items or enter into a storage agreement covering them. Not later than ftc tees 15) days thereafter, the Government will accept title to such items sod remove them or enter into a storage agreement covering the same, provided that the list sub- mitted shall be sublect to verification by the Contracting Officer upon removal of the items, or if the items are stored, within forty- five (45) days from the date of submission of the list, and any necessary adjustment to correct the list as submitted shall be made prIor to final settlement. PAGENO="0403" CONTRACTING-OUT PROCEDURES 399 (~( After receipt of a Notice of Termination, the Contractor shah aubmit to the Contracting Officer its termination claim in `cc form and with the certification prescribed by the Contracting ,flcer. Such claim shall be submitted promptly but in no event iater than two yearn from the effective date of termination, un- less one or more exteosiona In writing are granted by the Con- tracting Officer upon request of the Contractor made in writing within such two-year period or authorioed extension thereof. However, if the Contracting Officer deteymines that the facts justify such action, he may receive and act upon any such termi- nation claim at any time after such two-year period or soy exten- sion thereof. Upon failure of the Contractor to submit its termi- nation claim within the time allowed, the Contracting Officer may determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termina- tion and shall thereupon pay to the Contractor the amount no determined. )d) Subject to the provisions of paragraph Ic), the Contractor and the Contracting Officer may agree upon the whole or any pact of the amount or amounts to be paid )incluciisxg an allowance for the hard-fee) to the Contractor by reason of the total or partial termination of wails pursuant to this clause. The contract shall be amended accordingly, and the Contractor shall be paid the agreed amount. (5) fn the event of the failure of the Contractor and the Con- tracting Officer to agree in whole or in part, as provided in paragraph )d) above, as to the amounts with respect to costs and fined-fee, or as to the amount of the fixed-fee, to be paid to the Contractor irs connection with the termination of work pursuant to this clause, the Contracting Officer shall determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termination and shall pay to the Contractor the amount determined as follows: 1) If the settlement includes cost and fixed-fee (I) There shall be included therein all costs and ropenses reimbursable in accordance with this contract, not pre- viously paid to the Contractor for the performance of this contract prior to the effective date of the Notice of Termination, and such of these costs as may con- tinue for a reasonable time thereafter with the ap- proval of or as directed by the Contracting OlIver: Provided, however, That the Contractor shall proceed as rapidly as practicable to discontinue such costs ii) There shall be included therein so far as not in- cluded under (1) above, the cost of settling and paying claima arising out of the termination of work under stibcohtracts or orders, as provided in paragraph )b) (5) above, which are properly chargeable to the termi- nated portion of the contract. ((ii) There shall be included therein the reasonable costs of settlement, including accounting, legal, clerical, and other ropers sea reasonably ncressary I or the preparation of settlement claims and supporting data with respect to the terminated portion of the contract and for the termination and settlement of subcon- tracts thereunder, together with reasonable storage, transportation, and other costs incurred in connection with the protection or disposition of termination in- ventory: Provided, however, That if the termination is for default of the Contractor there shall not be inclucigd any amounts I or the preparation of the Con- tractor's settlement proposal. (iv) There shall be included therein a portioh of the fixed-fee payable uvder the coiitract determined as follows: IA) in the ovent of the termination of this contract for the convenience of the Oovernment and not for the default of the Contractor, there shall be paid a percentage of the fee equivalent to the percentage of the completion of work contem- plated by the contract, less fived-fer payments previously made hereunder. (B) In the event of the termination of this contract for thedefault of the Contractor, the total fixed- fee payable shah be such proportionate part of the fee (or, if this contract calls for articles of different types, of such part of the fee as is rea- sonably allocable to the type of article under con- sideration) as the total number qf articles de- livered to and accepted by the Government bears to the total number Of articles of a like kind SaIled for by this contract. If the amount determined under this paragraph is less than the total pay- ment of fixed-fee theretofore made to the Con- tractor, the Contractor shall repay to the Government the excess amount. (2) If the settlement includes only the fixed fee, the amount thereof will be determined in accordance with sub- paragraph (e) (1) (ii') shove. (I) The ContractOr shall have thC right of appeal, under the clause of this contract entitled "Disputes," from any determina- tion made by the Contracting Officer under paragraphs (c) or (e) above, except that if the Contractor has failed to submit its claim within the time provided in paragraph (c( above and has failed to request extension of such time, he shall have no sudh right of appeal. In any case where the Contracting Officer has made determination of the amount due under paragraph (c( or (e( above, the Government shah pay to the Contractor the following: )i( if there is no right of appeal hereunder or if so timely appeal has been taken, the amount so determined by the Contracting Officer, or (ii) if an appeal has been taken, the amount finally determined on such appeal. )~) In arriving at the amount due the Contractor under this clause there shall be deducted (I) all uniiquidated advance or other unliquidated payments theretofore made to the Contractor, (2) any claim which the Government may ivave against the Con- tractor in connection with this contract, and (3) the agreed price for, or the proceeds of saie of, any materials, sdpplies, or other things acquired by the Contractor or sold pursuant to the provi- siods of this clause and not otherwise recovered by or credited to the Government. 4h) In the event of a partial termination, the portion of the fixed-fee which is payable with respect to the work under the continued portion of the contract shall be equitably adjusted by agreement between the Contractor and the Contracting Officer, and such adjustment shall be evidenced by an amendment to this contract. (I) The Government may from time to time, under such terms and conditions as it may prescribe, make partial payments and payments on account against costs incurred by the Contractor in connection with the terminated portion of the contract whenever in tile opinion of the Contracting Officer the aggregate of such payments shall be within the antotsnt to which the Contractor will be entitled hereunder. If the total of such payments is in ex- cess of the amount finally determined to be due under this clause, such excess shall be payable by the Contractor to the Government upon demand, together with interest computed at the rate of 6% per annum, br the period from the date such excess payment Is re- ceived by the Contractor to the date on which such excess is cepaid to the Government: Provided, however, That no intereat shall be rharged with respect to any ouch excess payment attributable to a reduction in the Contractor's claim by reason of retention or other disposition of termination inventory until ten days after the date of such retention or dispositios. )j) The provisions of this clause reiating to the fixed-fee shah be inapplicable if this contract does not provide for payment of fixed-fee. I I, EXCUSABLE DELAYS Except with respect to defaults of subcontractors, the Con- tractor Shall not be in default by reason of any failure in per- formance of this contract in accordance with its terms (including any failure by the Contractor to make progress in the prosecution of the work hereunder which endangers such performance) If such failure arises out of causes beyond the control sad without the fault or negligence of the Costractor. Such causes may include, but are not restricted to, acts of God or of the public enemy, acts of the Government in either its sovereign or contractual capacity, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, and unusually severe weather; but in every case the failure to perform must be beyond the control and with- out the fault or negligence of the Contractor. If the failure to PAGENO="0404" 400 CONTRACTING-OUT PROCEDURES perform is caused by the failure of a subcontractor to perform or (iv) as to which the Secretary determines the cost to the Gov' make prygress, and if such failure arises out of causes beyond ernment to be unreasonable. the toutrol of both the Contractor and subcontractor, and without the fault or negligence of either of them the Contractor shall (The foregoing requirements ace administered in accordance not be deemed to be in default, unleas (1) the supplies or services with Executive Order No. 10082, dated December 17, l954.( ~.o be furnished by tite subcontractor were obtainable from other ,ources, (2( the Contracting Officer shall have ordered the Con- tractor in writing to procure such supplies or services from such 14. CONViCT LABOR other sources, and (3) the Contractor shall have failed to comply reasonably with such order. Upon request of the Contractor, the In connection with the' performance of work under this con- Contracting Officer shall ascertain tile facts and extent c~ such tract, the Contractor agrees not to employ any person undergoing allure and, If he shall determine that any failure to perform was sentence of imprisonment at hard labor. occasioned by any one or more of the said causes, the delIvery the lB. EIGHT-HOUR LAW OF 1912-OVERTIME COMPENSATION This contract, to the extent that It is of a character specified 12. DISPUTES In the Eight-Hour Law of 1912, as amended (40 U. S. Code 224-326) and is not covered by tile Walsh-Healey Public Contracts Act 41 (a) Except as otherwlre provided In this contract, any dispute U. S. Code 35-45), Is subject to the following provisions and cx- concernIng a question of fact arising under this contract which ceptiosa of said Eight-Hour Law of 1912, as amended, and to all is not disposed of by agreement shall be decided by the Contract- other provisions and exceptions of said Law: ing Officer, who shall reduce his decision to writing and mail or otherwise furnish a copy thereof to the Contractor. The decision No laborer or mechanic doing any part of the work contem- of the Contracting Officer shall be final and conclusive unless plated by this contract, in the employ of the Contractor or asy wIthin 30 days from the date of receipt of such copy, the Con- subcontract or contracting for any part of said work contem- tractor malls or otherwise furnishes to the Contracting Officer plated, shall be required or permitted to Work more than eight a written appeal addressed to the Secretary, The decisIon of the hours in any one calendar day upon Ouch work, except upon Secretary or ills duly authorized representative for the determi- the condition that compensation is paid to such laborer or me- nation of such appeals shall be final and conclusive unless deter- ohanic in accordance with the provisions of this clause. The mined by a court of competent jurisdiction to have been fraudu- wages of every laborer and mechanic employed by the Con- lent, or capricious, or arbitrary, or so grossly erroneous as neces- tractor or any subcontractor engaged in the performance of this racily to Imply bad faith, or not supported by substantial evIdence, contract shall be computed on a basic day rate of eight hours In connection wIth any appeal proceeding under this clause, tile per day: and Work in excess of eight hours per day Is permItted Contractor shall be afforded an opportunity to be heard and to only upon the condition that eoery such laborer and mechanic offer evIdence In support of Its appeal. Pending final decision shall be compensated for all hours worked in excess of eight of a dIspute hereunder, the Contractor shall proceed diligently hours per day at not lees than one and one-half times the basic with the performance of the contract and in accordance with the rate of pay. For each violatIon of the requirements of this ContractIng Officer's decision. tlause a penalty of five dollars shall be imposed for each laborer or mechanic for every calendar day In which such employee is (5) This "bloputes" clause does not preclude consideration of required or permitted to labor more than eight hours upon said law questions 1st connection with decisions provided for in pars- work without receiving compensation computed in accordance graph (`a) above: Provided, That nothing In this contract shall with this clause, and all penalties thus imposed shall to with- be construed as making final the decision of any administrative held for the uoe and benefit of the Oovernment. ilicial, representative: or board on a question of law. (6, WALSH-HEALEY PUBLIC CONTRACTS ACT 13. BUY AMERICAN ACT If this contract is for tne manufacture or furnishing of mate- Code In acqsslring end products, th:BtsyAnserican Act (41 U. S. ~ xó,o7o ~ tWhal~: d m tI U d p d t P'o th p p f till I I y I ~ A~t0 by ~ ci ci (~1 t S CtdtioSS_4S)d (1) "components" means those articles, materials, and sup- stipulations required by said Act and regulations leaned there- plies, which are directly incorporated In tile end prod- under by the Secretary of Labor, such representations and stipula- ucts; tions being subject to all applicable rulings and Interpretations of (II) "end products" means those articles, materials, and sup- the Secretary of Labor which are now or may hereafter be in effect. piles, which are to be acquired under this contract for public use; and Il. NONDISCRIMINATION (N EMPLOYMENT (iii) a "domestic source end product" means (A) an unmanso- (a) In connection with the performance of work under this con- factored end product whiOh has been mined or produced tract, the Contractor agrees not to diecriminate against any em- s the United States and (B) as end product manu. ployee or applicant for employment because of race, religion, color, factored in the United States if the cost of the compo~ or national origin. The aforesaid provision thall Include, but not seats thereof which are mined, produced, or manufac. be limited to, the following: employment, upgrading, demotion or tured in the United Stat en exceeds 50 percent of tile cost transfer, recruitment or recruitment advertising: layoff or terml~ of all its components. For the purposes of this (a) iii) nation; rates of pay or other forms of compensation; and sclec- (B), components of foreign origIn of tile same type or tion for training; Isciuding apprenticeship. The Contractor agrees kind as the products referred to is (b( (Ii) or (lii) of this to post hereafter in conspicuous places, available for employees clause shall be treated as cOmponents mined, produced and applicants for employment, notices to be provided by the or manufactured in the United States. ` Contracting Officer setting forth the pcov)slons of the nondiscrimi- nation clause. (5) Tse Contractur agrees that there will be delivered under this contract only domestic source end products, escept end (5) The Contractor further agrees to insect the foregoicg pro. p u . vision In all subcostracts hereunder, except subeoctracts for (I) which ace for use outside the United States; standard commerclal supplies or raw materials. 1~ ~ ~ ~ 18. NOTICE TO THE GOVERNMENT OF LABOR DISPUTES and reasonably available commercial quantities sad of Whenever the Contractor has knowledge that any actual or p0- satisfactory quality; tential labor dispute is delaying or threatens to delay the timely (iii) as to which the Secretary det h performance of this contract, the Contractor shall immediately race to be Inconsistent with the public sr:tc:e~t~ spect thereto, to the Contractlng OMoec information with re- PAGENO="0405" CONTRACTING-OUT PROCEDURES 401 9. GOVERNMENT PROPERTY (a) The Government shall deliver to the Contractor, for uee i connection with and under the terms of this contract, the prop- orty described in the Schedule or specifications, together with such ref ated data and information as the Contractor may request and as may reasonably be required for the intended use of such prop- erty (hereinafter referred to as "Government-furnished Property"). The delivery or performance slates for the supplies or errviceo to be furnished by the Contractor under this contract are based upon the expectation that Government-furnished Property ouit- able for use will be delivered to the Contractor at the times stated in the Schedule or, if not ro stated, in sufficient time to enable the Contractor to meet such delivery or performance dates. In the event that Government-furnished Property is not delivered to the Contractor by such time or times, the Contracting Officer shall, upon timely written request made by the Contractor, make a de- termination of the delay occasioned the Contractor and shall equitably adjust the estimated cost, fioed fee, or delivery or per- formance dates, or all of them, and any other contractual pro- visions affected by such delay, in accordance with the procedures provided for in the clause of this contract entitled "Changes." In the event that Government-furnished Property is received by the Contractor in a condition not suitable for the intended sac, the Contractor shall, upon receipt thereof notify the Contracting Offi- cer of such fact and, as directed by the Contracting Officer, either )i) return such property at the Government's expense or other- wise dispose of the property or (ii) effect repairs or modhlkcatlonn. Upon completion of )i) or (ii) above, the Contracting Officer upon written request of the Contractor shall equitably adjust the estimated cost, fixed fee, or delivery or performance dates, or all of them, and any other contractual provision affected by the re- turn or disposition, or the repair or modification, in accorciance with the procedures provided for In the Clausa of this contrast entitlad "Changes." The foregoing provinions for adjustment are exclusive and the Government shall not be liable to suit for breach of contract by reason of any delay in delivery of Government- furnished Property or delivery of such property Iss a condition not suitable for its intended use. )b) Title to all property furnished by the Government shall mkin in the Government. Title to all property purchased by ne Contractor, for the cost of which the Contractor is entitled to be reimbursed as a direct item of cost under this contract, shall pars to and vest in the Government upon delivery of such property by the vendor. Title to other property, the cost of which is re- imbursable to the Contractor under this contract, shall pass to and vest in the Government upon 1) issuance for use of such property in the performance of this contract, or (ii) commence- ment of processing or use of such property in the performance of this contract, or (iii) reimbursement of the cost thereof by the Government, which ever first occurs. .511 Government-furnished Property, together with bli property acquired by the Contractor title to which vests In the Government under this paragraph, arr subject to the provisions of thiu clause and are hereinafter col- lectively referred to as "Government Property." (C) Title to the Government Property shall not be affected by the incorporation or attachment thereof to any property sot owned by the Government, nor shall such Government Property, or any part thereof, be or become a fixture or lose ha identity an per- sonalty by reason of affination to any realty. The Contractor shall maintain adequate property control records of the Govern- ment Property and shall identify the Government Property as ouch in accordance with the requirements of the "Manual for Control of Government Property in Possession of Contractors" Appendix B, Armed Services Procurement Regulation), as in effect an the date of the contract, which Manual is hereby incorporated by reference and made a part of this contract, )d) The Government Property pcovidid or furnished pursuant to the terms of this contract shall, unless otherwise provided herein, be used only for the performance of this contract. )e) The Contractor shall maintain and administer in accord- ance with sound industrial practice, a program, for the mainte- nance, repair, protection and preservation of Government Prop- erty so as to assure its full availability and unefulnena for the per- formance of this contract. The Contractor shall take all reason- °bie steps to comply with all appropriate directions or instructions sich the Csntractiag Officer nay prescribe an reasonably nines- ry for the protection of Government Property, )f) 1) The Contractor shall shot be liable for any loss of or damage to the Government Property, or for expenses incidentai to such ions or damage, except that the Con- tractor shall be responsible for any such loss or dam- age including enpensen incidental thereto) (A) which results from willful misconduct or lack of goad faith on the part of any of the Contractor's directors or off- coca, or on the part of any of its managers, superintend- ents, or other equivalent reprsoentatites, who has as- pervinion or direction of )i) all or aubotantially all of the Contractor's bunineas, or If) all or substantially all of the Contractnr'n operations at any one plant or separate location in which thin contract in being per- formed, or III) a separate and complete major indus- trial operation in connection with the performance of thin contract; or )B) which results from a failure on the part of the Contractor, due to the willful miscon- duct or lack of good faith on the part of any of its di- rectorn, officers, or other seprenentativen mentioned in subparagraph .5) above, (I) to maintain and admin- inter, in accordance with sound industrial practice, the program for maintenance, repair, protection and pres- ervation of Government Property an required by para- graph )e) hereof, or (II) to take nil reasonable steps to comply with any appropriate written directions of the Contracting Officer under paragraph )e) hereof; or )C) for which the Contractor is otherwise responsible under the express terms of the clause or clauses desig- nated in the Schedule; or (U) which results from a rink expressly required to be insured under this contract, but only to the extent of the insurance so required to be procured and maintained, or to the extent of insurance actually procured and maintained, whichever in greater; or (B) which results from a risk which is in fact covered by insurance or for which the Contractor is otherwise reimbursed, but only to the extent of nuch insurance or reimbursement: Provided That, if more than one of the above exceptions shah be applicable in any case, the Contractor's iinbiiity tinder any one exception shaii not be iimltad by any other exception. This clause uhail not be construed as relieving a subcontractor from liability for ions or destruction of or damage to Gov- ernment Property in its porsession or controi, except to the extent that the subcontract, with the prior ap- proval of the Contracting Officer, may provide for the relief of the subcontractor from such liability. In the absence of such approval, the subcontract shsii con- tain appropriate provisions requiring the return of au Government Property in an good condition as when received, except for reasonable wear and tear or for the utilization of the property in accordance with the pro- visions of the prime contract. ii) The Contractor eh~ii not be reimbursed for, and shah not include ns an item of overhead, the oost of insur- ance, or any provision for a reserve, covering the risk of loss of or damage to the Government Property, except to the extant that the Government may have required the Contractor to carry ouch insurance under any other proviiion of this contract. iii) Upon the happening of isnn or destruction of or damafe to the Government Property, the Contractor shail notify the Contracting Officer thereof, and nhnii communicate with the Loss and Saivage Organization. if any, now or hereafter designated by the Contracting Officer, and with the assistance of the Lose and Saivage Organiza- tion en designated (unless the Contracting Officer has designated that no such organization be empioyed), shall take all reasonable steps to protect the Govern- ment Property from further damage, separate the dam- aged and undamaged Government Property, put au the Government Property in the best possible order, and furnirh to the Contracting Officer a statement of (A) the lost, destroyed and damaged Government Prop- erty, (B) the time and origin of the ions, destruction or damage, )C) au known interests in oommingied property of wh)ch the Government Property is a part, and )D( the insurance, if any, covering any part of or interest in such commingled property. The Contractor nhall make repairs and renovations of the damaged Government Property or take such other action, as the Contracting Officer directs. iv) In the event the Contractor is indemnified, reimbursed, or otherwise compensated for any iose or destruction PAGENO="0406" 402 of or damaged to the Government Property, it shall cisc the proceeds to repair, renovate or replace the Govern- ment Property involved, or ohall credit such proceeds against the cost of the work covered by the contract, or shall otherwise reimburse the Government, as di- rected by the Contracting Officer. The Contractor ohall do nothing to prejudice the Government's right to re- cover against third parties for any such loss, destruction or damage and, upon the request of the Contracting Officer, shall, at the Government's expense, furnish to the Government all reasonable assistance and coopera- tion (including the prosecution of suit and the execu- tion of instruments of asoIgnsosent in favor of the Gov- ernment) in obtaining recovery. In addition, where the subcontractor has not beef) lelieved IronS liability for any loss or destruction of or damage to Government Property, the Contractor shall enforce the liability of the subcontractor for ouch loss or destruction of or damage to the Government Property for the benolit of tne Government. *)v) In the event any aircraft are to be furnished under this contract, any loss or destruction of, or damage to, ouch aircraft or other Government Property occurring in connection with operations of said aircraft wilt be gov- erned by the clause of this contract captioned `Plight Risks," to the extent such clause is, by its terms, appli- cable. (g) The Government shall at all reasonable times have across to the premises where any of the Government Property is located. )h) The Government Property shall remain in the possession of the Contractor f or such period of time `as is required for the performance of this contract unless the Contractiivg Officer deter. mines that the interests of the Government require removal of such property. In such case the Contractor shoii promptly take such action as the Contracting Officer may direct with respect to the removal and shipping of Government Property. In any such instance, the contract may be amended to accomplish an eqoitable adjustment is the terms and provisions thereof. (I) Upon the completion of this contract, or at such earlier dates as may be fixed by the Contracting Officer, the Contractor -tall submit to the Contracting Officer in a form acceptable to `a, inventory schedules covering all items of the Government ,sperty not coasumed in the performance of this contract, or not theretofore delivered to the Government, and oloali deliver or mate such other `dispoasi of such Government Property as may be di' rected or authoriZed by the Contracting Officer. The net proceeds of any such disposal shall be Cred)ted to the Cost of the work cov- ered by the contract or shall be paid in such manner as the Con- tracting Officer may direct. The foregoing provisions shall apply to scrap from Government Property provided, however, that the Contracting Officer may authorize or direct the Contractor to omit from such inventory schedules any ecrap consisting of cutting and processing waste, such as chips, cuttings, borings, turnings, short ends, circles, trimmings, clippings, and remnants, and to dispose of such scrap in accordance with the Contractor's normal practice and account therefor as a pact of general overhead or other reimbursable `cost in accordaf)ce with the Contractor's es- tablished accounting procedures. (j) Unless otherwise provided herein, the Government shall not be under any dtity or obligation to restore or rehabilitate, or to pay the costs of the restoration or rehabilitation of the Contractor's plant or any portion thereof which is adected by the removal of any Government Property. 1k) Directions of the Contracting Officer and communications of the Contractor issued pursuant to this clause shall be In writing. For soc where sppiimbie. 20. INSURANCE-LIABILITY TO THIRD PERSONS (a) The Contractor shall procure and thereafter maintain work- men's compensation, employer's iisbility, comprehensive general liability (bodily injury) and comprehensive automobile liability )bodily injury and property damage) insurance, With respect to performance under this contract, and such other insurance as the Department may from time to time require with respect to per. `srmance under this contract: Provided, That the Contractor in *lflllment of its obligation to procure workmen's compensation `e Coni - ibythel partment any other insurance maista 0 by ti,.. connection with the performance of tI,a contract a~, the Contractor seeks reimbursement hereunder. (ci The Contractor shall be reimbursed: (I) for the portion allocable to this contract of the reasonable coat of inatiralice as required 0) approved pursuant to the provisions of this clause, and ii) for liabilities to third persons for loss of or damage to property (other than property (A) owned, occupied or used by the Contractor or rented to the Contractor or (B) in the race, custody. or control or the Contractor), or for death or bodily injury, nOt compensated by insurance or otherwise, arming out of the per- formance of this contravt, whether or not caused by the negligence of the Contractor, Its agents, servants or employees, provided such liabilities are represented by final judgments or by settlements ap- proved in writing by the Government, aod expenses incidental to such liabilities, except liabilities 1) for which the Contractor i~ otherwise reeponsible under the express terms of the clause or clauses, If any, specified in the Schedule, or II) with respect to which the Contractor has failed to insure as required or maintain insurance as approved by the Department or (III) which reovilts from willful misconduct or lack of good faith on the part of any of the Contractor's directors or officers, or on the part of any of its maoagers, superintendents, or other equivalent representatives, who has sspervioion or direction of )l) all or substantially all of the Contractor's business, or 2) all or substantially all of the Contractor's operations at any one plant or separate location iii which this contract is being performed, or (3) a separate and com- plete major industrial operation In connection with the perform- ance of this contract. The foregoing shall sot restrict the right of the Contractor to be s'eimburred for the cost of insurance main- tained by the Contractor in connection with the performance of this contract, other than Insurance required to be submitted for approval or required to be procured Sad maintained pursuant to the provisions of this clause, provided such cost would constitute Allowable Cost under the clause of this contract entitled "Allow- able Cost, Pined Fee and Payment." (0) The Contractor shall give the Government or its representa- tives immediate notice of any suit or action filed, or prompt no- tice of any claim made, against the Contractor arising out of the performance of this contract, the cost ansI expense of which may be reimbursable to the Contractor under the provisions of this con- teoct, and the risk of which is then uninsured or in which the amount claimed esreeds the amount of coverage. The Contractor shall furnish immediately to the Government copies of all perti. sent papers rereived by the Contractor. `If the amount of the liability claimed eoceecis the amount of coverage, the Contractor otali authorize representatives of the Government to collaborate with counsel for the insurance sorrier, if any, in settling or dg- fending such claim If the liability is not insured or covered by bond, the Contractor shall, if required by the Government, au- thorize representatives of the Government to settle or defend any such clamS and to represent the COntractor in or take charge of soy litigation In consection therewith: Provided, however, That the Contractor may, at it; own expense, be assoCiated with the representatives of the Gooersment in the settlement or defense of any such claim or litigation. CONTRACTING-OUT PROCEDURES 21. OFFICIALS NOT TO BENEFIT No member 01 or delegate to Congress, as resident romsnissisner, shall be admitted to any share or part of this contract, or to any benefit that may arise thetefrom but this provision shall sot be construed to extend to this contract if made with a corporation for its general benefit. 22. COVENANT AGAINST CONTINGENT FEES The Contractor warrants that no persan or seliing agency has been employed or retained to solicit or secure this Contract upon an agreement or understanding for a rommissiqn, percentage, brokerage, or coatisgest fee, excepting bosa Ode emplayees ar boss Ode established commercial or seliing agencies maintained PAGENO="0407" by the Contractor for the purpose of securing busisaeso. For breach OC viOlation of this warranty the Government shal I have the right annul this contract without liability or in its discretion to educt from the contract price or consideration, or otherwise re- cover, the full amount of such commission, percentage, brokerage, or contingent fee, 23, GRATUITIES (a) The Government may, by written notice to the Contractor, terminate the right of the Contractor to proceed under this conl tract if it is found, after notice and hearing, by the Secretary or isis duly authoriued representative, that gratuities (in the form of entertainment, gifts, or otherwise) were offered or given by the Contractor, or any agent or representative of the Contractor, to soy offIcer or employee of the Government with a view toward securing a contract or securing favorable treatmeht with respect to the awarding or amending, or the mating ot any determinations with respect to the performing, of ouch contract: Provided, That the exIstence of the facts upon which the Secretary or his duly authorized representative makes such findings shall be in issue and may be reviewed in any competent court. (b) In the event thin contract is terminated as provided in paragraph (a) hereof, the Government shall be entitled (I) to pursue the same remedies against the Contractor as it could pur- sue in the event of a breach of the contract by the Contractor, and (ii) as a penalty in addition to any other damages to which it may be entitled by law, to exemplary damages in an amount (as determined by the Secretary or his duly authorized representative) which shall be not lees than three nor more than ten times the costs incurred by the Contractor in providing any ouch gratuities to soy such officer or employee. (c) The rights and remedies of the Government provided in this clause shall not be exclusive and are in addition to any other rights and remedies provided by law or `under th)s contract. 24, SOVIET.CONTROLLED AREAS If acceptance under this contract is to take place outside the "nitod States, its Territories, its possessions, or Puerto Itico, the lowing clause shall apply: (a) The Contractor shall not acquire for use in the perform- ance of this contract any supplies or services originating from eourceo within Soviet-controlled areas, as listed in the Schedule of this contract. or from Song Itong or Macas, without the written approval of the Contracting OItcer. )b) The Contractor agrees to insert the provisions of this clause, including the Soviet-controlled areas listed in the Schedule and this ssbparagraph )b), in all ouboontradtn hereunder. 25. RENEGOTIATION (a) To the cstrnt required by law this contract is subject to the Renegotiation Act of ioni (P. 1.. 9, 82d Cong., 65 Stat. 7) as amended (P. t~. 784, Old Cong., ca Stat. 1116; P. L. 218, 04th Cong., 69 Stat. 447), and to any oubsequent act of Congress pi'ovidlng car the re- negotiation of contracts. Nothing contained in this clause shall impose any renegotiation obligation with respect to this contract or any subcontract hereunder which isnot imposed by an act of Congress heretofore or hereafter enacted. Subject to the fore- going this contrsvt shall be deemed to contain all the provisions required by Section ltd of the Renegotiation Act of 1051, and by any such other act, without subsequent contract amendment rpecilically incorporating such provisions. )b) The Contractor agrees to Insert the provisions of this clause, including this paragraph (b(, in all subcontracts, as that term is deSned in Section 103g. of the Renegotiation Art of lOll or in any subsequent act of Congress providing for the renegotiation of contracts. (c) To the estent the Government has indicated as of the dais of this contract or thereafter indicates security classification under this contract as provided in paragraph (b) above, the Contractor shall safe' uard all ciasaified eiemessts of this contract and shall provide and maintain a system of security controls within its own orgsssization In accordance with the requirements of: )i) the Security Agreement (Dl) Form 441), including the De- partment of Defense Industrial Security Manual for Safeguarding Clarsified Information as In effect on date of this contract, and any ~ssodlOlcation to the Security Agreement for the purpose of adapting the Manual to the Contractor's business; and (ii) any amendments to said Manual made after the date of this contract, notice of which has been furnished to the Contractor by the Security Office of the Military Department having security cognizance over the cacillty. )d) Representatives of the Military Department having security cognizance over the facility and representatives of the fontracting Military Department shall have the right to inspect at resoonable intervals the procedures, methods, sod facilities utilized by the Contractor in complying with the security requicemento under this contract. Should the Government, through these repreaeat' atives, determine that the Contractor is not complying with the vecurity requirements of this contract, the Contractor shall be informed in writing by the Security Office of thc cognizant Military Department of the proper actIon to be takes in order to rffect compliunce with such requirements. (e( If, subsequent to the date of this contract, the security clacsificationa or security requirements under this contract are changed by the Government as provided in this clause, and If such change causes ass increase or decrease in the estimated cost of per. formance of this contract, the estimated cost and fixed fee shall, to the extent approprIate, be subject to an equitable adjustment, Any such equitable adjustment shall be accomplished In the man- ner net forth in the "Changes" clause In this contract. (f) The Contractor agrees to insert, in all subzontractn here. under which involve access to ciasoifted informstloe, provisions which shall conform substantially to the language of this classes, including this paragraph If) but excluding paragraph Ic) of this clause. The Contractor may insert in any such subcontract, and any such subcontract entered into thereunder may contain, in lieu of paragraph Ic) of this clause, provisions which permit equitable adjustments to be made In the subcontract prize or in the estimated cost and fixed fee of the subcontract (as appro- priate to the type of subiontract involved) on account of changes in oecurity classifications or requirements made Under the pro. visiom of thin clause subsequent to the date of the subcontract invoiced. )g)ç Tine Contractor also agrees that It shall determine that any 4sbcontractor proposed by It for the furnishing of supplies and ~es'vlces `which will involve access to classified inlormatlon in t3ie Contractor's cuotody has been granted an appropriate fa- cility security clearance, which is still In effect, prior to being accorded access to such classified information. 27. FILING OF PATENT APPLICATIONS (a) Before ice "s Css'Oing `to be filed a patent ~"sllcatiosi dioclosi: `- -. this contract, which ci ct mat- CONTRACTING-OUT PROCEDURES 403 26, MILITARY SECURITY REQUIREMENTS (a) TOe provisions of this clause shall apply to the entent that th this contract involves access to information classified "Conlldrn. tial" including "Confidential-Modified Handling Autisoriced" or higher. (0) The Government shall notify the Contractor of the security `siScation of this contract and the elements thereof, ond of .oy subsequent revisions in such aecurity riassilicatioss, by the use of a Security Requirements Check List (GD Form 2541. or other written notification, o PAGENO="0408" (c) to flung any patent application coming within the scope basis for ouch royalties, (iii) a brief description of the subject of this clauoe. the Contractor,shall observe all applicable security matter of the license under which royalties are charged, (iv) the regulations covering the transzfllesion of classified subject matter. percentage rate or unit amount, or if the royalties do not accrue by rate or unit amount, such other data showing the manner by `8. NOTICE AND ASSISTANCE REGARDING PATENT INFRINGEMENT approxim:tion (wtthotit detailed accounting) of the portion of Sac provisions of this clause shall be applicable only if the such royalties that may be attributable to Government contracts. amount of this contract exceeds $5,000. The Contractor shall, if requested by the Government, furnish at (a) The Contractor shall report to the Contracting Officer, Governnsent expense a more detailed allocation of such royalty promptly and in reasonable written detail, each notice or claim p y ta to Government contracts. of patent infringement based on the performance of thia contract )c) In the event that the Contractor requests written approval of which the Contractor has knowledge, to furnish consolidated reports tinder paragraph )b) above, the (b) In the event of any stilt against the Government, or any Asoistant Chief of Naval Research for Patents shall promptly con- ciaim against the Government made before suit has been inoti- rider the request and furnish to the Contractor a letter stating toted, on account of any alleged patent Infringement arising out whether or not the request is approved and, notwithstanding any of the performance of this contract or out of the use of any stq,- ouch approval, the Contracting Officer shall have the right to ques- plies furnished or work or services performed hereunder, the Con- tion any ouch subsequently furnished report as to accuracy or tractor shall furnish to the Government, upon request, all evi- completenees of data and to aek for additional Information. The defoe and information in possession of the Contractor pertaining Contractor shall furnish a copy of such letter of approval to the to such suit or claim. Such evidence and information shall be Contracting Officer administering this contract. furnished at the expense of the Government except in those cases (d) After payment of eighty percent (80%) of the amount of In which the Contractor has agreed to indemnify the Government this contract, as from time to time amended, further payment against the claim being asserted, shall be withheld until a reserve of either (I) ten percent (10%) of such amount or (ii) $6,000, whichever is less, shall have been 29. REPORTING OF ROYALTIES set aside, such reierOe or the balance thereof to be retained until the Contractor Shall have furnished to the Contracting Officer the The provisions of this clause shall be applicable only if the report called for by'paragraph (a) hereof or the copy of the letter th tract I in xc 5 of $50,000. approving the Contractor's request to furnish the report under (a) The Contractor shall report in Writing (in quadrupllcate) paragraph )b) Provided, That no amount shall continue to be to the Contracting Officer as coon as practicable after execution withheld from payment for the causes specified in this paragraph of this contract whether or not any royalties In excess of $280 (d) if the Contracting Officer shall find that the Contractor has have been paid or are to be paid by the Contractor directly to any not been furnished a letter as required by paragraph (c) within person or firm in connection with the performance of this con- a reasonable time after making written request to submit a sIngle, tract, If royalties In excess of $260 have been paid or are to be consolidated report under the provisions of paragraph (b) of this paid to any person or firm, the report shall include the following clause, and Provided jurcher, That the Contracting Officer may, items of information with respect to such royalties (including the Is his discretion, order payment to be withheld In the amount Initial $250) and manner above provided If the report called for by paragraph 1 Th a) Is unsatisfactory or If the AssIstant Chief of Naval Research in m f $250 h been Id cc to bepid y ltiee r ~ytpnt~gn ~ (b)la ci b thas t bit thi1 ~)o t ~ll d (3) The patent numbers, patent application serial numbers celved, Ia found to be unsatisfactory. No amount shall be w(th- (with filing dates), or other identification of the basis held under this paragraph when the minimum amount specified by for such royalties. this paragraph is being withheld under other provisions of this (3) The manner of computing the royalties consisting of (I) contract. The Withholding of any amount or subsequent payment a brief identification of each royalty-bearing unit or proc- thereof to the Contractor shall not be construed as a waiver of any eas, (II) the total amount of royalties, and (Ill) the per- right accruing to the Government under this contract. centage rate or dollars and cents amount of royalties on each such unit or process: Provided, That if the royalties cannot be computed is terms of units or dollars and cents value, then other data showing the manner ln.whlch the Contractor computes the royalties. )b) In lieu of furnishing a report under paragraph (a), the Con- tractor may furnish a single, consolidated report for each account- ing period of the Contractor during Which the Contractor has contracts with the Government, provided the Contractor has re- quested and obtained the prior written approval of the Assistant Chief of Naval Research for Patents. Such consolidated report shall be furnished, when the furnishing thereof has been ap- proved, In the number of copies as approved, ao soon as practica- ble alter the clone of the accounting period covered by the report. Such consolidated report shall be made in accordance With Con- tractor's established accounting practice and shall Include, for the accounting period, the total amount of royalties accruing to each licenser at a rate in excess of $1,000 per annum on the Con- tractor's overall business, together with (I) the name and address of each such licenser, (ii) the patent numbers, patent application serial numbers (with filing dates), or other identification of the 404 CONTRACTING-OUT PROCEDURES 30. AUTHORIZATION AND CONSENT The Governmeltt hereby gives Its authorlcation and consent (wIthout prejudice to its rights of indemnification, if such rights are provided for In this contract) for all use and manufacture, in the performance of this contract or any part hereof or any amendment hereto or any subcontract hereunder (including any lower tier subcontract), of any patented invention (I) embodied in the structure or composition of any article the delivery of which is accepted by the Government under this contract, or (11) utilized in the machinery, tools, or methodo the use of which necessarily results from compliance by the Contractor or the using subcontractor with (a) opecincatlons or written provisions now or hereafter forming a part of this contract, or )b) opecillc written instructions given by thC Contracting Officer directing the manner of performance. The Contractor'o entire liability to the Government for patent Infringement shall be determined solely by the provisions of the indemnity clauoe, if any, included in the contract and the Government ssoumeo liability for all other infringement to the extent of the authorization and consent hereinabove granted. PAGENO="0409" CONTRACTING-OUT PROCEDURES ADDITIONAL GENERAL PROVISIONS BuWeps Supplement CR-S (jan60) 31. ALLC~1ABLE COST, FIXED FEE, AND PAYNENT (a) For the performance of this contract, the Government shall pay to the Contractor: 405 (i) the cost thereof (hereinafter referred to as allowable cost") determined by the Contract-Audit Division of the Comptroller of the Nav-y to be allowable in accordance with-- (A) Part 2 of Section XV of the Armed Services Procurement Regulation as in effect on the date of this contract; and (B) the terms of this contract; and (ii) such fixed fee, if any, as may be provided for in the Schedule. (b) Once each month (or at more frequent intervals, if approved by the Contract-Audit Division of the Comptroller of the Navy, the Contractor may submit to an authorized representative of the Contract-Audit Division of the Comptroller of the Navy, in such form and reasonable detail as such representative may require, n invoice or public voucher supported by a statement of cost incurred by the Con- ractor in the performance of this contract and claimed to constitute allowable cost. (c) Promptly after receipt of each invoice or voucher the Government shall, subject to the provisions of (d) below, make payment thereon as approved by the Contract-Audit Division of the Comptroller of the Navy. Payment of the fixed fee, if sn~r, shall be made to the Contractor as specified in the Schedule; provided, however, that after payment of eighty-five percent (85%) of the fixed fee set forth in the Schedule, further payment on account of the fixed fee shall be withheld until a reserve of either fifteen percent (15%) of the total fixed fee, or one hundred thoursand dollars ($100,000), whichever is less, shall have been Set aside. (a) At any time or times prior to final payment under this contract the Contract-Audit Division of the Comptroller of the Navy may have the invoices or vouchers and statements of cost audited. Each payment theretofore made shall be subject to reduction for amounts included in the related invoice or voucher which are found by the Contract-Audit Division of the Comptroller of the Navy, on the basis of such audit, not to constitute allowable cost. Any payment may be reduced for overpayments, or increased for underpayments, on preceding invoices or vouchers. (e) On receipt and approval of the invoice or voucher designated by the Contrac- tor as the "completion invoice" or "completion voucher" and upon compliance by the Contractor with all the provisions of this contract (including, without limitation, the provisions relating to patents and the provisions of (f) below); the Government shall promptly pay to the Contractor any balance of allowable cost, and any part of the fixed fee, which has been withheld pursuant to (c) above or otherwise not paid to the Contractor. The completion invoice or voucher shall be submitted by the )ntractor promptly following completion of the work under this contract but in no PAGENO="0410" 406 CONTRACTING-OUT PROCEDURES srent later than one (1) year (or such longer period as ti in his discretion approve in writing) from the date of suct (f) The Contractor agrees that any refunds, r (including any interest thereon) accruing to or r - -- assignee under this contract shall be paid by the Contractor the extent that they are properly allocable to costs for i~ been reimbursed by the Government, under this contract. Reasonable expenses incurred by the Contractor for the purpose of securing such refunds, rebates, credits, or other amounts shall be allowable costs hereunder when approved by the Contracting Officer. Prior to final payment under this contract, the Contractor and each assignee under this contract whose assignment is in effent at the time of final payment under this contract shall execute and deliver: (i) an assignment to the Government, in form and substance satisfactory to the Contracting Officer, of refunds, rebates, credits, or other amounts (including any interest thereon) properly allocable to costs for which the Contractor has been reimbursed by the Government under this contract; and (ii) a release discharging the Government, its officers, agents, and em- ployees from all liabilities, obligations, and claims arising out of or under this contract, subject only to the following exceptions- - (A) specified claims in stated amounts or in estimated amounts where the amounts are not susceptible of exact statement by the Con- tractor; (B) claims, together with reasonable expenses incidental thereto~ based upon liabilities of the Contractor to third parties arising out of the performance of this contract: Provided, That such claims are not Iniown to the Contractor on the date of the cxc.. cution of the release; And provided further, That the Contractor gives notice of such claims in writing to the Contracting Officer not more than six (6) years after the date of the release or the date of any notice to the Contractor that the Government is pre- pared to make final payment, whichever is earlier; and (C) claims for reimbursement of costs (other than expenees of the Contractor by reason of its indemnification of the Government against patent liability), including reasonable expenses incidental thereto, incurred by the Contractor under the pro- visions of this contract relating to patents. (g) Any cost incurred by the Contractor under the terms of this contraót which would constitute allowable cost uxxter the provisions of this clause shall be included in datermining the amount payable under this contract, notwithstanding any provisions contained in the specifications or other documents incorporated in this contract by reference, designating services to be performed or materials to be furnished by the Contractor at its expense or without cost to the Government. PAGENO="0411" CONTRACTING-OUT PROCEDURES 407 32. INSPECTION OF SUPPLIES AND CORRECTION OF DEFECTS (a) All supplies (which term throughout this clause includes without limitation raw materials, components, intermediate assemblies, and end products) shall be sub- ject to inspection and test by the Government, to the extent practicable at all times and places including the period of manufacture, and in any event prior to acceptance. The Contractor shall provide and maintain an inspection system acceptable to the Government covering the supplies, fabricating methods, and special tooling hereunder. The Government, through any authorized representative, may inspect the plant or plants of the Contractor or of any of its subcontractors engaged in the performance of this contract. If any inspection or test is made by the Government on the premises of the Contractor or a subcontractor, the Contractor shall provide and shall require subcon- tractors to provide all reasonable facilities and assistance for the safety and convenience of the Government inspectors in the performance of their duties. All inspections and tests by the Government shall be performed in such a manner as will not unduly delay the work. Except as otherwise provided in this contract, acceptance of any supplies or lots of supplies shall be made as promptly as practicable after delivery thereof and shall be deemed to have been made no later than sixty (60) days after the date of such delivery, if acceptance has not been made earlier within such period. (b) At any time during performance of this contract, but not later than six (6) months (or such other period as may be provided in the Schedule) after acceptance of the supplies or lots of supplies last delivered in accordance with the requirements of this contract, the Government may require the Contractor to remedy by correction replacement, as directed by the Contracting Officer, any supplies or lots of supplies ich at the time of delivery thereof are defective in material or workmanship or otherwise not in conformity with the requirements of this contract. Except as other- wise provided in paragraph (c) hereof, the cost of any such replacement or correction shall be included in Allowable Cost determined as provided in the clause of this con- tract entitled "Allowable Cost, Fixed Fee and Payment," but no additional fee shall be payable with respect thereto. Such supplies or lots of supplies shall not be tendered thereafter for acceptance unless the former requirement of correction is disclosed. If the Contractor fails to proceed with reasonable promptness to replace or correct such supplies or lots of supplies, the Government (i) may by contract or otherwise replace or correct such supplies and charge to the Contractor any increased cost occasioned the Government thereby, or may reduce any fixed fee payable under this contract (or require repayment of any fixed fee theretofore paid) in such amount as may be equitable under the circumstances, or (ii) in the case of supplies not delivered, may require the delivery of such supplies, and shall have the right to reduce any fixed fee payable under this contract (or to require repayment of any fixed fee theretofore paid) in such amount as may be equitable under the circumstances, or (iii) may terminate this contract for default as provided in the clause of this contract entitled `Termination." Failure to agree to the amount of any such increased cost to be charged to the Con- tractor or to such reduction in, or repayment of, the fixed fee shall be a dispute concerning a question of fact within the meaning of the clause of this contract entitled "Disputes." (c) Notwithstanding the provisions of paragraph (b) hereof, the Government may at any time require the correction or replacement by the Contractor, without cost to the Government, of supplies or lots of supplies which are defective in material or workmanship, or otherwise not in conformity with the requirements of this contract, if ~h defects or failures are due to fraud, lack of good faith or willful misconduct on part of any of the Contractor's directors or officers, or on the part of any of its managers, superintendents, or other equivalent representatives, who have supervision or PAGENO="0412" 408 CONTRACTING-OUT PROCEDURES direction of (i) all or substantially all of the Contractors business, or (ii) all substantially all of the Contractor's operations at any one plant or separate ~cation in which this contract is being performed, or (iii) a separate and complete major industrial operation in connection with the performance of this contract. Fraud, lack of good faith or willful misconduct on the part of any of such supervisory personnel shall be deemed to include the selection of individual employees or the retention of employees after any of such supervisory personnel has reason to believe that such employees are habitually careless or otherwise unqualified. (d) Corrected supplies or replaced supplies shall be subject to the provisions of this clause in the same manner and to the same extent as supplies originally delivered under this contract. (e) The Contractor shall *ake its records of all inspection work available to the Government during the performance of this contract and for such longer period as may be specified in this contract. (f) Except as provided in this clause and as may be provided in the Schedule, the Contractor shall have no obligation or liability to correct or replace supplies or lots of supplies which at the time of delivery are defective in material or workmanship or otherwtse not in conformity with the requirements of this contract. (g) Except as otherwise provided in the Schedule, the Contractor's obligation to correct or replace Government-furnished property (which is property in the posses- sion of or acquired directly by the Government and delivere4 or otherwise made available to the Contractor) shall be governed by the provisions of the clause of this contract entitled "Government Property." SECORDS (a)(l) The Contractor agrees to maintain books, records, documents and other evidence pertaining to the costs and expenses of this contract (h~rein- after collectively called the "records") to the extent and in such detail as will properly reflect all net costs, direct and indirect, of labor, materials, equipaent, supplies and services, and other costs and expenses of whatever nature for which reimbursement is claimed under the provisions of this contract. The Contractor's accounting procedures and practices shall be subject to the approval of the Contract-Audit Division of the Comptroller of the Navy: Provided, however, That no material change will be required to be made in the Contractor's accounting procedures and practices if they conform to generally accepted accounting practices and if the costs properly applicable to this contract are readily ascertain- able therefrom. (2). The Contractor agrees to make available at the office of the Contractor at all reasonable times during the period set forth in subparagraph (It) below any of the records for inspection, audit or reproduction by any authorized representative of the Department or of the Comptroller General. (3) In the event the Comptroller General or any of his duly authorized representatives determines that his audit of the amounts reimbursed under this contract as transportation charges will be made at a place other than the office of the Contractor, the Contractor agrees to de~.iver, with the reimbursement voucher covering such charges or as may be otherwise PAGENO="0413" CONTRACTING-OUT PROCEDURES 409 specified within two years after reimbursement of charges covered~by any such voucher, to such representative as may be designated for that purpose through the Contract-Audit Division of the c~omptroller of the Navy such documentary evidence in support of transportation costs as may be required by the Comptroller General or any of his duly authorized representatives. (~) Except for documentary evidence delivered to the Government pursuant to subparagraph (3) above, the Contractor shall preserie and make available its records for a period of three years (unless a longer period Of time is provided by applicable statute or by any other clause in this contract) from the date of the voucher or invoice submitted by the Contractor after the completion of the work under the contract and designated by the Contractor as the "completion voucher" or "com- pletion invoice' or, in the event this contract has been completely terminated, from the date of the termination settlement agreement; provided, however, that records which relate to (A) appeals under the clause of this contract entitled "Disputes", (B) litigation or the settlement of claims arising out o~ the performance of this contract, or (C) costs or expenses of the contract as to which exception has been taken by the Comptroller General or any of his duly authorized representatives, shall be retained by the Contractor until such appeals, litigation, claims, or exceptions have been disposed of, but in no event for less than the three-year period mentioned above. (5) Except for documentary evidence delivered pursuant to subparagraph (3) above, and the records described in the proviso of subparagraph (Ii) above, the Contractor may in fulfillment of its obligation to retain its records as required by this clause substitute photographs, micro- photographs or other authentic reproductions of such records, after the expiration of two years following the last day of the month of reimbursement to the Contractor of the invoice or voucher to which such records relate, unless a shorter period is authorized by the Contracting Officer with the concurrence of the Comptroller General or his duly authorized representative. (6) The provisions of this paragraph (a), including this Subparagraph (6), shall be applicable to and included in each subcontract hereunder which is on a cost, cost-plus-a-fixed-fee, time-and-material or labor-hour basis. (b) The Contractor further agrees to include in each of his subcontracts hereunder, other than those set forth in subparagraph (a)(6) above, a provision to the effect that the subcontractor agrees that the Comptroller General or the Department, or any of their duly authorized representatives, shall, until the expiration of three years after final payment under the subcontract, have access to and the right to examine any directly pertinent books, documents, papers, and records of such subcontractor involving transactions related to the subcontract. The term "subcontract," as used in this paragraph (b) only, excludes (i) purchase orders not exceeding $2,500 and (ii) subcontracts or purchase orders for public utility services at rates established for uniform applicability to the general ,ublic. PAGENO="0414" 410 CONTRACTING-OUT PROCEDURES 3t~. T~NINATION (a) The performance of work under the contract n~y be terminated, by the Government in accordance with this clause in whole, or from time to time in part: (i) whenever the Contractor shall default in performance of this contract in accordance with its terms (including in the term "default" any such failure by the Contractor to make progress in the prosecution of the work hereunder as endangers such performance), and shall fail to cure such default within a period of ten days (or such longer periods as the Contracting Officer may allow) after receipt from the Contract- ing Officer of a notice specifying the default; or (ii) whenever for any reason the Contracting Officer shall determine that such termination is in the best interest of the Government. Any such termination shall be effected by delivery to the Contractor of a Notice of Termination specifying whether termination is for the default of the Contractor or for the convenience of the Government, the extent to which perform- ance of work under the contract is terminated, and the date upon which such termination becomes effective. If, after notice of termination of this con- tract for default under (i) above, it is determined that the Contractor's failure to perform or to make progress in per- formm$.nce is due to causes beyond the control and without the fault or negli- gence of the Contractor pursuant to the provisions of the clause of this con- tract relating to excusable delays, the Notice of TeraLirmation shall be deemed to have been issued wider (ii) above, and the rights and obligations of the parties hereto shall in such event be governed accordingly. (b) After receipt of a Notice of Termination and except as otherwise directed by the Contracting Officer, the Contractor shall: (i) stop work under the contract on the date and to the extent specified in the Notice of Termination; (ii) place no further orders or sub- contracts for materials, services, or facilities, except as may be necessary for completion of such portion of the work under the contract as is not terminated; (iii) terminate all orders and sub- contracts to the extent that they relate to the performance of work terminated by the Notice of Termination; (iv) assign `to the Government, in the manner and to the extent directed by the Contracting Officer, all of the right, title, and interest of the Con- tractor under the orders or suboontracts so terminated, in which case the Govern- ment shall have the right, in its discretion, to settle or pay any or all claims arising out of the termination of such orders and subcontracts; (v) with the approval or ratifica- tion of the Contracting Officer, to the extent he may require, which approval or ratification shall be final and conclu- sive for all purposes of this clause, settle all outstanding liabilities and all claims arising out of such termina- tion of orders and subcontract~, the cost of which would, be reimbursable in whole or in part, in accordance with the provisions of this contract; (vi) transfer title (to the extent PAGENO="0415" CONTRACTING-OUT PROCEDURES 411 that title has not already been trans- ferred) aria, in the manner, to the extent, and at the times directed by the Contracting Officer, deliver to the Government (A) the fabricated or unfabricated parts, work in process, completed work, supplies, and other material produced as a part of, or acquired in respect of the performance of, the work terminated by the Notice of Termination, (B) the completed or par- tially completed plans, drawings, information, and other property whi~,h, if the contract had been completed, would be required to be furnished to the Government, and (C) the jigs, dies, and fixtures, and other special tools and tooling acquired or manufactured for the performance of this contract for the cost of which the Contractor has been or vill be reimbursed under this contract; (vii) use its best efforts to sell in the manner, at the times, to the extent, and at the price or prices directed or authorized by the Contract- ing Officer, any property of the types referred to in (vi) above; provided, however, that the Contractor (A) shall not be required to extend credit to any purchaser, and (B) may acquire any such property under the conditions prescribed by and at a price or prices approved by the Contracting Officer; and provided further that the proceeds of any such transfer or disposition shall be applied in reduction of any payments to be made by the Government to the Contractor under this contract or shall otherwise be credited to the price or cost of the work covered by this contract or paid in such other manner as the Contracting Officer may direct; (viii) complete performance of such part of the work as shall not have been terminated by the Notice of Termination; and (ix) take such action a~ may be necessary, or as the Contracting Officer may direct, for the protection and pres- ervation of the property related to this contract which is in the possession of Contractor in which the Government has or may acquire an interest. The Contractor shall proceed immediately with the performance of the above obli- gations notwithstanding any delay in determining or a&justing the amount of the fee, or airy item of reimbursable cost, under this clause. At any time after expiration of the plant clearance period, as defined in Section VIII, Armed Services Procurement Regulation, as it may be amended from time to time, the Contractor may submit to the Con- tracting Officer a list, certified as to quantity and quality, of any or all items of termination inventory not pre- viously disposed of, exclusive of items the disposition of which has been directed or authorized by the Contract- ing Officer, and may request the Government to remove such items or enter into a storage agreement covering them. Not later than fifteen (l~) days there- after, the Government will accept such items and~remove them or enter into a storage agreement covering the same; provided that the list submitted shall be subject to verification by the Con- tracting Officer upon removal of the items, or if the items are stored, within forty-five (L~5) days from the date of submission of the list, and any necessary a&justment to correct the list as submitted shall be made prior to final settlement. (c) After receipt of a Notice of Termination, the Contractor shall submit PAGENO="0416" 412 CONTRACTING-OUT PROCEDURES to the Contracting Officer its termina- tion claim in the form and with the certification prescribed by the Con- tracting Officer. Such claim shall be submitted promptly but in no event later than one year from the effeotive date of termination, unless one or more exten- sions in writing are granted by the Contracting Officer, upon rec~uest of the Contractor made in writing within such one year period or authorized extension thereof. However, if the Contracting Officer determines that the facts justify such action, he may receive and act upon any such termination claim at any time after such one year period or any extension thereof. Upon failure of the Contractor to submit its termination claim within the time allowed, the Con- tracting Officer may, subject to any Settlement Review Board approvals .`eciuired by Section VIII of the Armed Services Procurement Regulation in effect as of the date of execution of this contract, determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termination and shall thereupon pay to the Contractor the amount so determined. (d) Subject to the provisions of paragraph (C), and subject to any Settlement Review Board approvals recLuired by Section VIII of the Armed Services Procurement Regulation in effect as of the date of execution of this contract, the Contractor and the Contracting Officer may agree upon the whole or any part of the amount or amounts to be paid (including an allow- ance for the fee) to the Contractor by reason of the total or partial termima.. tion of work pursuant to this clause. The contract shall be amended accord- ingly, and the Contractor shall be paid the agreed amount. (e) In the event of the failure of the Contractor and the Contracting Officer to agree in whole or in part, as provided in paragraph (d), as to the amounts with respect to costs and fee, or as to the amount of the fee, to be paid to the Contractor in connection with the termination of work pursuant to this clause, the Contracting Officer shall, subject to any Settlement Review Board approvals required by Section VIII of the Armed Services Procurement Regulation in effect as of the date of execution of this contract, determine, on the basis of information available to him, the amount, if any, due to the Contractor by reason of the termination and shall pay to the Contractor the amount determined as follows: (i) if the settlement includes cost and fee-- (A) there shall be included therein all costs and expenses reimbursable in accordance with this contract, not pre- viously paid to the Contractor for the performance of this contract prior, to the effective date of the Notice of Termination, and such of these costs as may continue for a reasonable time thereafter with the approval of or as directed by the Contracting Officer; provided, however, that the Contractor shall proceed as rapidly as practicable to discontinue such costs; (B) there shall be included therein so far as not included under (A) above, the cost of settling and paying claims arising out of the termination of work under subcontracts or orders, as pro- vided in paragraph (b)(v) above, which PAGENO="0417" CONTRACTING-OUT PROCEDURES 413 are properly chargeable to the termi- nated portion of the contract; (C) there shall be included therein the reasonable costs of settlement, including accounting, legal clerical, and other expenses reasonably necessary for the preparation of settlement claims end supporting data with respect to the terminated portion of the contract and for the termination and settlement of subcontracts thereunder, together with reasonable storage, transpori~ation, and other costs incurred in connection with the protection or disposition of termi- nation inventory; provided, however, that if the termination is for default of the Contractor there shall not be included any amounts for the preparation of the Contractor's settlement proposal; and (D) there shall be included therein portion of the fee payable under the contract determined as follows-- (I) in the event of the termi- nation of this contract for the convenience of the Government and not for the default of the Contractor, there shall be paid a percentage of the' fee equivalent to the percentage of the ccmpletion of work contemplated by the contract, less fee payments previously made hereunder; or (II) in the event of the termi- nation of this contract for th~ default of the Contractor, the total fee payable shall be such proportionate part of the fee (or, if this contract calls for articles of different types, of such part of the fee as is reasonably allo- cable to the type of article under consideration) as the total number of articles delivered to and accepted by the Government bears to the total number of articles of a like kind cal~ed for by this contract; if the amount determined under this sub- paragraph (i) is less than the total payment theretofore made to the Contrac- tor, the Contractor shall repay to the Government the excess amount; or (ii) if the settlement includes only the fee, the amount thereof will be determined in accordance with subpara- graph (i)(D) above. (f) The Contractor shall have the right of appeal, under the clause of this contract entitled "Disputes," from any determination made by the Contract- ing Officer under paragraphs (c) or (a) above, except that if the Contractor has failed to submit its claim within the time provided in paragraph (c) above and has failed to request extension of such time, it shall have no such right of appeal. In any case where the Contract- ing Officer has made a determination of the amount due under paragraph (c) or (a) above, the Government shall pay to the Contractor the following: (i) if there is no right of appeal hereunder or if no timely appeal has been taken, the amount so determined by the Contracting Officer, or (ii) if an appeal has been taken, the amount finally determined on such ap~eal. (g) In arriving at the amount due the Contractor under this clause there shall be deducted (i) all unli~uidated advance or other payments theretofore made to the Contractor, applicabl~ to the termi- nated portion of this cont~ract, (ii) any claim which the Government may have against the Contractor in connection with this contract, and (iii) the agreed price for, or the proceeds of sale of, any materials, supplies, or other things 74109 O-61------27 PAGENO="0418" 414 CONTRACTING-OUT PROCEDURES acquired by the Contractor or sold pursuant to the provisions of this clause and not otherwise recovered by or credited to the Government. (h) In the event of a partial termi- nation, the portion of the fee which is payable with respect to the work under the continued portion of the contract shall be equitably adjusted by agreement between the Contractor and the Contract- ing Officer, and such adjustment shall be evidenced by an amendment to this contract. (i) The Government nay from time to time, under such terms and conditions as it nay prescribe, make partial pay- ments and payments on account against costs incurred by the Contractor in connection with the terminated portion of the contract whenever in the opinion of the Contracting Officer the aggregate of such payments shall be within the ~mount to which the Contractor will be ntitled hereunder. If the total of such payments is in excess of the amount finally determined to be due under this clause, such excess shall be payable by the Contractor to the Government upon demand, together with interest computed at the rate of 6 percent per annum, for the period from the date such excess payment is received by the Contractor to the date on which such excess is repaid to the Governments provided, however, that no interest shall be charged with respect to any such excess payment attributable to a reduction in the Con- tractor's claim by reason of retention or other disposition of termination inventory until ten days after the date of such retention or disposition, or such later date as determined by the Contracting Officer by reason of the circumstances. (j) The provisions of this clause relating to the fee shall be inappli- cable if this contract does not provide for payment of a fee. 35. DISPUPES (a) Except as otherwise provided in this contract, any dispute (other than a dispute as to the allowability of any cost) concerning a question of fact arising under this contract which is not disposed of by agreement shall be decided by the Contracting Officer, who shall reduce his decision to writing and nail or otherwise furnish a copy thereof to the Contractor. The decision of the Contracting Officer shall be final and conclusive unless, within 30 days from the date of receipt of sueh copy, the Contractor nails or otherwise furnishes to the Contracting Officer a written appeal addressed to the Secretary. The decision of the Secretary or his duly authorized representative for the determination of such appeals shall be final and conclusive unless de1~ermfted by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrery, or so grossly er~'oneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any appeal proceed- ing under this paragraph, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the perform- ance of the contract and in accordance with the Contracting Officer's decision. (b) A written notice by the cognizant Government Auditor finding that any PAGENO="0419" CONTRACTING-OUT PROCEDURES 415 amount set forth in any of the Con- tractor's invoices or public vouchers and statements of costs does not con- stitute allowable cost shall be final and conclusive unless within 60 days from the date of receipt of a copy of the notice the Contractor nails or otherwise furnishes to the cognizant Government Auditor a written appeal addressed to the Director, Contract Audit Division, Office of the Comptroller of the Navy, Washington, D. C. Any dispute as to the allowability of any cost arising under this contract by written appeal from the Auditor's finding and which is not disposed of by ngreement shall be decided by the Director, who shall reduce his decision to writing and nail or otherwise furnish a copy thereof to the Contractor. The decision of the ~irector shall be final and conclusive nless, within 30 days from the date of receipt of such copy, the Contractor nails or otherwise furnishes to the Director a written appeal addressed to the Secretary. The decision of the Secretary or his duly authorized representative for the determination of such appeals shall be final end con- clusive unless determined by a court of competent jurisdiction to have been fraudulent, or capricious, or arbitrary, or so grossly erroneous as necessarily to imply bad faith, or not supported by substantial evidence. In connection with any proceeding in an appeal to the Secretary under this para- graph, the Contractor shall be afforded an opportunity to be heard and to offer evidence in support of its appeal. Pending final decision of a dispute hereunder, the Contractor shall proceed diligently with the performance of the contract and in accordance with the cognizant Government Auditor's oy the Director's decision, as the case may be. (c) This "Disputes" clause does not preclude consideration of law questions in connection with decisions provided for in paragraphs (a) and (b) above: Provided, that nothiri~ in this contract shall be construed as making final the decision of any administrative official, representative, or board on a question of law. 36. BUY ANERICAN ACT (a) In acquiring end products, the Buy American Act (t~l U.S. Code lO~.a-.d) provides that the Government give prefer- ence to domestic source end products. For the purpose of this clause: (i) "components" means those articles, materials, and supplies, which are directly incorporated in the end products; (ii) "end products" means those articles, materials, and supplies,which are to be acquired under this contract for public use; and (iii) a "domestic source end product" means (A) an unmanufactured end product which has been mined or produced in the United States and (B) an end product inanmfactured in the United States if the cost of the components thereof which are mined, produced, or manufactured in the United States exceeds 50 percent of the cost of all its components. For the purposes of this (a)(iii)(B), components of foreign origin of the same type or kind as the products referred to in (b)(ii) or (iii) of this öIause shall, except as provided in (c) of this clause, be treated as components mined, produced, or manufactured in the United States. PAGENO="0420" 416 CONTRACTING-OUT PROCEDURES (b) The Contractor agrees that there will be delivered under this contract only domestic source end products, except end products: (i) which are for use outside the United States; (ii) which the Government determines are not mined, produced, or manufactured in the United States in sufficient and ressonably available commercial quantities and of a satisfactory quality; (iii) as to which the Secretary determines the domestic preference to be inconsistent with the public interest; or (iv) as to which the Secretary determines the cost to the Government to be unreasonable. (c) Any component mined, produced, or manufactured in Canada, but not set forth `n the list of Canadian supplies excepted oy the Secretary and maintained pursuant to paragraph 6.-103 .5(a) of the Armed Services Procurement Regulations shall be treated as a component mined, produced, or manufactured outside the United States, for the purpose of (a)(iii)(B) above, unless such component is to be incorporated in an end product to be delivered under this contract which is on such list, or is an item on the list set forth in paragraph 6-105 of the Armed Services Procurement Regu- lations, or is otherwise determined to be nonavailable as set forth in (b)(ii) above. (The foregoing requirements are administered in accordance with Executive Order Nb. 10582, dated December 17, l951~.) 37. NC1~ICE TO ThE GCJs1ERNMEWJ~ OF LADC~ DISPU1~ES (a) Whenever the Contractor has knowl- edge that any actual or potential labor dispute is delaying or threatens to delay the timely performance of this contyact, the Contractor shall iimnedi- ately give notice thereof, including all relevant information with respect theretQ, to the Contracting Officer. (b) The Contractor agrees to insert the substance of this clause, including this paragraph (b), in any subcontract hereunder as to which a labor dispute may delay the timely performance of this contract; except that each such subcon- tract shall provide that in the event its timely performance is delayed or threatened by dels3y by any actual or potential labor dispute, the subcontrac- tor shall immediately notify its next higher tier subcontractor, or the prime contractor, as the case may be, of all relevant information with respect to such dispute. 38. GOVERNME~P PROPERTY (a) The Government shall deliver to the Contractor, for use in connection with and under the terms of this con- tract, the property described in the Schedule or specifications, together with such related data and information as the Contractor may request a~d as may reasonably be required for the intended use of such property (hereinafter referred to as "Government-Furnished Property'). The delivery or performance PAGENO="0421" CONTRACTING-OUT PROCEDURES 417 dates for the supplies or services to be furnished by the Contractor under this contract are based upon the expectation that Government-furnished Property suitable for use will be delivered to the Contractor at the times stated in the Schedule or, if not so stated, in sufficient time to enable the Contractor to meet such delivery or performance dates. In the event that Government- furnished Property is not delivered to the Contractor by such time or times, the Contracting Officer shall, upon timely written request made by the Con- tractor, make a determination of the delay occasioned the Contractor and shall equitably adjust the estimated cost, fixed fee, or delivery or per~ fornance dates, or all of them, and any other contractual provisions affected by uch delay, in accordance with the pro- ~dures provided for in the clause of this contract entitled "Changes". In the event that Government-furnished Property is received by the Contractor in a condition not suitable for the intended use, the Contractor shall, upon receipt thereof notify the Contracting Officer of such fact and, as directed by the Contracting Officer, either (i) return such property at the Government's expense or otherwise dispose of the property or (ii) effect repairs or modi- fications. Upon completion of (i) or (ii) above, the Contracting Officer upon written request of the Contractor shall equitably adjust the estimated cost, fixed fee, or delivery or per- formance dates, or all of them, and any other contractual provision affected by the return or disposition, or the repair or modification, in accordance with the procedrn'es provided for in the clause of this contract entitled "Changes." The foregoing provisions for adjustment are exclusive and the Government shall not be liable to suit for breach of contract by reason of any delay in delivery of Government-furnished Property or de- livery of such property in a condition not suitable for its intended use. (b) Title to all property furnished by the Government shall remain in the Government. Title to all property pur- chased by the Contractor, for the cost of which the Contractor is entitled to be reimbursed as a direct item of cost under this contract, shall pass to and vest in the Government upon delivery of such property by the vendor. title to other property, the cost of which is reimbursable to the Contractor under the contract, shall pass to and vest in the Government upon (i) issuance for use of such property in the performance of this contract, or (ii) commencement of processing or use of such property in the performance of this contract, or (iii) reimbursement of the cost thereof by the Government, in whole or in the percentage prevailing by reason of the clause of the contract entitled "Allow- able Cost, Fixed Fee and Payment,' which- ever first occurs. All Government- furnished Property, together with all property acquired by the Contractor title to which vests in the Government under this paragraph, are subject to the provisions of this clause and are here- inafter collectively referred to as "Government Property," (c) Title to the Government Property shall not be affected by the incorpora- tion or attachmeni~ thereof to any prop- erty not owned by the Government, nor shall such Government Property, or any PAGENO="0422" 418 CONTRACTING-OUT PROCEDURES part thereof, be or become a fixture or lose its identity as personalty by reason of affixation to any realty. The Contractor shall comply with the pro- visions of the `Manual for Control of Government Property in Possession of Contractors" (Appendix B, Armed. Services Procurement Regulation), as in effect on the date of the contract, which Manual is hereby incorporated. by reference and. made a part of this contract. (d) The Government Property provided or furnished pursuant to the terms of this contract shall, unless otherwise provided. herein, be used only for the performance of this contract. (e) The Contractor shall maintain and. administer in accordance with sound. industrial practice, a program, for the maintenance, repair, protection and ~eservation of Government Property so ~ to assure its full availability and usefulness for the performance of this contract. The Contractor shall take all reasonable steps t6 comply with all ap- propriate directions or instructions which the Contracting Officer may pre- scribe as reasonably necessary for the protection of Government Property. (f)(i) The Contractor shall not be liable for any loss of or damage to the Government Property, or for expenses incidental to such loss or damage, except that the Contractor shall be responsible for any such loss or damage (including expenses incidental thereto) (A) which results from willful miscon- duct or lack of good faith on the part of any of the Contractor's directors or officers, or on the part of any of its managers, superintendents, or other equivalent representatives, who has supervision or direction of (I) all or substantially all of the Contractor's business, or (II) all or substantially all of the Contractor's operations at any one plant or separate location in which this contract is being performed, or (III) a separate and complete major industrial operation in connection with the performance of this contract; or (B) which results from a failure on the part of the Contractor, due to the willful misconduct or lack of good faith on the part of any of its directors, officers, or other z'espresentatives mentioned in subparagraph (A) above, (I) to maintain and administer, in accordance with sound industrial practice, the program for maintenance, repair, protection and. pre- servation of Government Property as re- quired by paragraph (e) hereof, or (U) to take all reasonable steps to comply with any appropriate written directions of the Contracting Officer under para- graph (a) hereof; or (C) for which the Contractor is otherwise responsible under the express terms of the clause or clauses designated in the Schedule; or (B) which results from a risk expressly required. to be insured under this con- tract, but only to the extent of the insurance so required. to be procured and. maintained, or to the extent of insurance actually procured. and. main- tained., whichever is greater; or (s) which results from a risk which is in fact covered. by insurance or for which the Contractor is otherwise reimbursed, but only to the extent of such insurance or reimbursement; provided. that, if more than one of the above exceptions shall be applicable in any case, the Con- tractor's liability under any one exception shall not be limited by any other exception. This clause shall not PAGENO="0423" CONTRACTING-OTJT PROCEDuRES be construed as relieving a subcon- tractor from liability for loss or destruction of or damage to Government Property in its possession or control, except to the extent that the subcon- tract, with the prior approval of the Contracting Officer, may provide for the relief of the subcontractor from such liability. In the absence of such approval, the subcontract shall contain appropriate provisions requiring the return of all Government Property in as good condition as when received, except for reasonable wear and tear or for the utilization of the property in accord.. ance with the provisions of the prime contract. (ii) The Contractor shall not be reimbursed for, and shall not include as an item of overhead, the cost of 4nsurance, or any provision for a eserve, covering the risk of loss of or damage to the Governijient Property, except to the extent that the Government ma~y have required the Contractor to carry such insurance under any other provision of this contract. (iii) Upon the happening of loss or destruction of or damage to the Govern.. ment Property, the Contractor shall notify the Contracting Officer thereof, and shall communicate with the Loss and Salvage Organization, if any, now or hereafter designated by the Contracting Officer, and with the assist,ance of the Loss and Salvage Organization so desig- nated (unless the Contracting Officer has designated that no such organization be employed), shall take all reasonable steps to protect the Government proper- ty from further damage, separate the damaged and undamaged Governisent property, put all the Government proper- ty in the best possible order, and furnish to the Contractiz~ Officer a. statement of (A) the lost, destroyed. and damaged Government Property, (B) the time and origin of the loss, destruction or damage, (C) all known interests in commingled property of which the Govern- ment Property is a part, and (D) the insurance, if any, covering any part of or interest in such commingled property. The Contractor shall make repairs and renovations of the damaged Government Property or take such other action as the Contracting Officer directs. (iv) In the event the Contractor is indemnified, reimbursed, or otherwise cc~apeneate(t for ~ny loss or destruction of or danmge ~tb the Government Property, it shall use the proceeds to repair, renovate or replace the Government Property involved, or shall credit such proceeds against the cost of the work covered by the contract, or shall other- wise reimburse the Government, as directed by the Contracting Officer. The Contractor shall do nothing to prejudice the Gowerneent ~ right\ tq recover against third parties fo~ ~.ny such loss, destruction or damage\a,hd, upon the request of the Contractj~ Officer, shall, at the Government's expense, furnish to the Government all reasonable assistance and cooperation (including the prosecution of suit and the execution of instruments of assignment in favor of the Government) in obtaining recovery. In addition, where the subcontractor has not been relieved from liability for any loss or destruction of or damage to Government Property, the Contractor shall enforce the liability of the subcontractor for such loss or destruction of or damage to the Government Property for the benefit of the Government. 419 PAGENO="0424" 420 CONThACTING-OTJT PROCEDUR1~S (v) In the event any aircraft are to be furnished under this contract, any loss or destruction of, or damage to, such aircraft or other Government Property occurring in connection with operations of said aircraft will be governed by the clause of this contract captioned `Plight Risks," to the extent such clause is, by its terms, applicable. (g) The Government shall at all reasonable times have access to the premises where any of the Government Property is located. (h) The Government Property shall remain in the possession of the Con- tractor for such period of time as is required for the performance of this contract unless the Contracting Officer determines that the interests of the Government require removal of such -~`operty. In such case the Contractor .iall promptly take such action as the Contracting Officer may direct with respect to the removal and shipping of Government Property. In any such * instance, the contract may be amended to accomplish an equitable adjustment `in the terms and provisions thereof. (i) Upon the completion of this con- tract, or at such earlier dates as may be fixed by the Contracting Officer, the Contractcir shall submit to the Contract- ing Officer in a form acceptable to him, inventory schedules covering all items of the Government Property not consumed in the performance of this contract, or not theretofore delivered to the Govern- ment, and shall deliver or am~e such other disposal of such Government Property as may be directed or author- ized by the Contracting Officer. The net proceeds of any such disposal shall be credited to the cost of the work covered by the contract or shall be paid in such manner as the Contracting Officer may direct. The foregoing pro~ visions shall apply to scrap from Government Property provided, however, that the Contracting Officer nay author- ize or direct the Contractor to omit from such inventory schedules airy scrap consisting of cutting and processing waste, such as chips, cuttings, borings, turnings, short ends, circles, trimnings, clippings, and remnants, end to dispose of such scrap in accordance with the Contractor's normal practice and account therefor as a part of general overhead or other reimbursable cost in accordance with the Contractor's established accounting procedures. (j) Unless otherwise provided herein, the Govez~nment shall not be under any duty or obligation to restore or reha- bilitate, or to pay the costs of the restoration or rehabilitation of the Contractor's plant or any portion thereof which is affected by the removal of any Government Property. (k) Directions of the Contracting Officer arid consnunications Of the Con- tractor issued pursuant to this clause shall be in writing. 39. RENEGO1~IATZON (a) ~o the extent required by law, this contract is subject to the Rene- gotiation Act of 1951 (50 U.S.C. App. 1211, et seq.), as amended, and to any subsequent act of Congress providing for the renegotiation of Contracts. Nothing contained in this clause shall impose any renegotiation obligation with respect to this contract or airy suboon- PAGENO="0425" CONTRACTING-OUT PROCEDURES 421 tract hereunder which is not imposed bF an act of Congress heretofore or here- after enacted. Subject to the foregoing this contract shall be deemed to contain all the provisions required by Section iO1~ of the Renegotiation Act of 1951, and by any such other act, without subsequent contract amendment spe- cifically incorporating such provisions, (b) The Contractor agrees to insert the provisions of this clause, including this paragraph (b), in all subcon- tracts, as that term is defined in section 103g of the Renegotiation Act of 1951, as amended. ~ NCY2ICE AND ASSISTANCE REGARDING PAPENP INFRINGE~4ENT The provisions of this clause shall be applicable only if the amount of this contract exceeds $10,000. (a) The Contractor shall report to the Contracting Officer, promptly and in reasonable written detail, each notice or claim of patent infringement based on the performance of this contract of which the Contractor has knowledge. (b) In the event of any suit against the Government, or any claim against the Government made before suit has been instituted, on account of any alleged patent infringement arising out of the performance of this contract or out of the use of any supplies furnished or work or services performed hereunder, the Contractor shall furnish to the Government, upon request, all evidence and information in possession of the Contractor pertaining to such suit or claim. Such evidence and information shall be furnished at the expense of the Go~~ernment except in those cases in which the Contractor has agreed to indemnify the Government against the claim being asserted. l~1. ADDITIONAL DEFINITION As used throughout this contract, the term "Department" means the Department of the Navy. 1~2. PAYMEMP OF ROYALTIES Payments by the Contractor of any sum for royalties or patent rights not included in the ordinary purchase price of standard commercial supplies shall not constitute items of Allowable Cost here- under, unless and until approved by the Contracting Officer. Reimbursement to the Contractor on account of any such payments shall not be construed as an admission by the Government of the enforceability, validity or scope of, or title to any of the patents involved, nor shall any such reimbursement con- stitute a waiver of any rights or defenses respecting such patents. I~3. UTILIZATION OF CONCERNS IN LABCR SURPLUS AREAS It is the policy of the Government to place supply contracts with suppliers who will perform such contracts sub- stantially in areas of current labor surplus where this can be done, con- sistent with the efficient performance of the contract, at prices no higher than are obtainable elsewhere. The Contractor agrees to use its best efforts to place its subcontracts in accordance with this policy. In com- plying with the foregoing and with paragraph (b) of the clause of this contract entitled "Utilization of Small Business Concerns", the Con- tractor in placing its subcontracts shall observe the following order of preference: (i) small business concerns in labor surplus areas; (ii) other PAGENO="0426" 422 CONTRACTING-OUT PROCEDURES concerns in labor surplus areas; made on conmmrciai bills of lading with (iii) snail business concerns not inspection at destination, the Contrac~ in labor surplus areas. tor shall on the same day send an air.. nail letter to the consignee, which 14~* ~ ~ SHIPI4E1~S contains the information outlined above. The Contractor shall mark all its shirsr*ents under this contract in accordance with the current edition of "Military Standard ~rking of Shipments" MIL~&~D~l29, issued: by the Department of Defense. The applicable lot or item number, or both, shall be included in the marking prescribed for each shipment in addition to the con~ tract number. 1#~. NCYJYICE (~ SHIP)4EN~ Whenever a shipment of a carload or truckload lot is destined to a consignee located less than 1000 air miles from the point of shipment and is tendered to a carrier hereunder (regardless of ~hether the shipment is transported under a commercial or Government bill of lading), the Contractor shall send a prepaid telegram to the consignee the same day. The telegram shall include the following information: contract or order number; date of shipment; brief description of the commodity and how packed; weight in pounds and number of pieces; Government or commercial bill of lading number; complete routing including car number(s) and initials if by rail, or number of truckloads if by truck; military route order number if applicable; and ultimate destination if to be transshipped. When consignee is located more than 1000 air miles from the point of shi~mant and shipments are PAGENO="0427" CONTRACTING-OUT PROCEDURES 423 1~6. GENERAL SPECIFICATIONS FOR INSPECTION OP MATERIAL There is hereby incorporated in and made a part of this contract that edition of General Specifications for Inspection of Material", issued by the Department of the Navy, which is in effect on the date of this contract. 1~7. PRIORITIES, ALLOCATIONS AND ALL~MENTS The Contractor agrees, in the procurement and use of materials required for the performance of this contract, to comply with the provisions of all applicable rules and regulations of the Business and Defense Services Administration, including Defense Materials System regulations. 1~3. LIMITATION ON WITHEOLDING OF PAYMENTS If more than one clause or Schedule provision of this contract authorizes the temporary withholding of amounts otherwise payable to the Contractor for supplies delivered or services performed, the total of the amounts so withheld at any one time shall not exceed the greatest amount which may be withheld under any one such clause or Schedule provision at that time; provided, that this limitation shall not apply to: (i) withholdings pursuant to any clause relating to wages or hours of employees; (ii) withholdings not specifically provided for by this contract; and (iii) the recovery of overpayments. 1i9. FEDERAL, STATE, AND LOCAL TAXES (a) Except as otherwise provided in this contract, taxes (including State and local income taxes) which the Contractor is required to pay and which are paid or accrued in accordance with generally accepted accounting principles are allowable, except for: (i) Federal income and excess profits taxes; (ii) taxes in connection with financing, refinancing or refunding operations; (iii) taxes from which exemptions are available to the Contractor directly or available to the Contractor based on an exemption sfforded the Government except when the Contracting Officer determines that the administrative burden incident to obtaining the exemption outweighs the corresponding benefits accruing to the Government; and (iv) special assessments on land which represent capital improvements. PAGENO="0428" 424 CONTRACTING-OUT PROCEDURES (b) Taxes otherwise allowsble under (a) above, but upon which a claim of illegality or erroneous assessment exists, are allowable; provided that the Con- tractor prior to payment of such taxes: (i) promptly requests instructions from the Contracting Officer concern- ing such taxes; and (ii) takes all action directed by the Contracting Officer arising out of (b)(i) above or an independent decision of the Government as to the existence of a claim of illegality or erroneous assessment, including cooperation with and for the benefit of the Government to (A) determine the legality of such assessment or, (B) secure a refund of such taxes. Reasonable costs of any such action undertaken by the Contractor at the direction or with the concurrence of the Contracting Officer are allowable. Interest and penalties incurred by a Contractor by reason of the nonpayment of any tax at the direction of the Contracting Officer or by reason of the failure of the Contracting Officer to assure timely direction after prompt request therefor, are also allowable. (c) Any refund of taxes, interest, or penalties, and any payment to the Con- tractor of interest thereon, attributable to taxes, interest, or penalties which were allowed as contract costs, shall be credited or paid to the Government in the manner directed by the Government, provided any interest actually paid or credited to a Contractor incident to a refund of tax, interest or penalty shall be paid or credited to the Government only to the extent that such interest accrued over the period turing which the Contractor had been reimbursed by the Government for the taxes, interest or penalties. PAGENO="0429" CONTRACTING-OUT PROCEDURES CPROPRIATION DATA SHEET 31 TYPE eAVORD FORM 2V95 (Rev 8-RB) 425 APPROPRI All ON AND BUREAU CONTROL NO. ~ ~ ~~E1X~ AMOUNT NOas 59.lfl.76..~ ON 8539-60 PR CAOR_4..$000..ool..1 (PER) 17Xl3l9j.932 RIYP&E,N 96000 3 $12,631,650 00 Bud. Proj. 61756/32250 Allot 250 Report acot 8932 $785,000.0 CAOR..40003/2501/F00900_030 Job Order 1069002 $13,416, 6~o.oo Reqn 61756/2024/61 Above funds authorized for obligation for the purpose cont~xop1ated by the above idertified contractual document. 2y direction PAGENO="0430" 426 CONTRACTING..OUT PEOCE1YtJR~S NAYWEPS 4280/I (12.59) CONTRACT NO. AMENDMEN~°~O~97 COI~ROL NU)~ER: 8539.60 This negotiated amendment is entered into pursuant to the provisions of 10 U. S. C. 2304(a) (_J~.___) end any required determination and findings have been made. IN WITNESS WHEREOF, the parties hereto have executed this amendment as of the day and year first above written: THE UNITED STATES OF AMERICA Signed by Contracting Officer on~ ~, By subsequent to signing by the Contracting Officer Contractor. Bureau of Naval Weapons Department of the Navy ACCEPTED WITNESSES: NOT REQUIRED TR~rjW1SPORTCOMPANYOPTEX~ (Contractor) -` By~. ~ (2)________- NOTE: In the case of a corporation witnesses are not required but TITLE~~... certificate below must be completed. CERTIFICATE NOT EE~UIN~D I, , certify that I am the Secretary of the corporation named as Contractor in the foregoing amendment; that who signed said amendment on behalf of the Contractor was then of said corporation; that said amendment was duly signed for and in behalf of said corporation by authority of its governing body and is within the scope of its corporate powers. (Signature of person certifying) (CORPORATE SEAL) PAGENO="0431" CONTRACTING-OUT PROCEDURES 427 SCHOOL PRINCIPAL The School Principal directs the operation of the Elementary and Junior-Senior High School. His qualifications are as follows: (1) Education: 3~ years State Teachers College, Jacksonville, Alabama, Elementary Education, received 13.S. Degree Education, 1 1/3 years Howard College, Birmingham, Alabama. Secondary Education, received B.S. Degree Education, 1 Year University of Idaho-Education, received M.S, Degree Education. (2) Experience: 3 years elementary teacher, 6 years elementary Principal, 1 year Commandant, Military Academy, Woodland Hill, California, 2 years elementary Junior-Senior High Principal, 2 years high school Principal, 1 year school Superintendent. (3) Credentials: Standard General Administrators Credentials, State of Washington and Superintendent's Credential, State of Idaho. 0 PAGENO="0432"