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
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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."
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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.
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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.
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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'~
---~~
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PAGENO="0215"
CONTRAcPING~OUT PROCEDURES
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PAGENO="0216"
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PAGENO="0217"
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PAGENO="0218"
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PAGENO="0219"
CONTRACTING-OUT PROCEIiJRES
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PAGENO="0221"
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CONTEACTING-OUT PROCEDURES
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PAGENO="0223"
CONTRACTING-OUT PROCEDURES
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PAGENO="0224"
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PAGENO="0225"
CONTRACTING-OUT PROCEDURES
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PAGENO="0226"
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CONTRACTING-OUT PROCEDURES
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PAGENO="0229"
CONTRACTING-OUT PROCEDURES 225
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PAGENO="0230"
226 CONTRACTING-OUT PROCEDURES
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PAGENO="0231"
CONTRACTING-OUT PROCEDURES 227
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CONTRACTING-OUT PROCEDURES 229
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PAGENO="0234"
230 CONTRACTING-OUP PROCEDURES
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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
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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
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CONTRACTING-OUT PROCEDURES
272
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273
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274
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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.
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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"
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o~J ~
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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"