PAGENO="0001"
90th Congress ~? JOINT COMMITTEE PRINT
1st Session
_ ~1
ECONOMY I~ ~EN~E4~' T~M~TED
BA~bS1~R\
çOLU~ ~ M ~ O8~O2
cD~'
~g6~
MATERIALS PREPARED
FOR THE
SUBCOMMITTEE ON ECONOMY IN GOVERNMENT
OF THE
JOINT ECONOMIC COMMITTEE
CONGRESS OF THE UNITED STATES
w
NOVEMBER 1967
Printed for the use of the Joint Economic Committee
DO~
ILS. GOVERNMENT PRINTING OFFICE
85-698 WASHINGTON : 1967
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 - Price 40 cents
~)1 11~ -
747 c
PAGENO="0002"
SENATE
JOHN SPARKMAN, Alabama
I. W. FULB RIGHT, Arkansas
HERMAN E. TALMADGE, Georgia
STUART SYMINGTON, Missouri
ABRAHAM, RIBICOFF, Connecticut
JACOB K. JAVITS, New York
JACK MILLER, Iowa
LEN B. JORDAN, Idaho
CHARLES H. PERCY, Illinois
HOUSE OF REPRESENTATIVES
RICHARD BOLLING, Missouri
HALE BOGGS, Louisiana
HENRY S. REUSS, Wisconsin
MARTHA W. GRIFFITHS, Michigan
WILLIAM S. MOORHEAD, Pennsylvania
THOMAS B. CURTIS, Missouri
WILLIAM B. WIDNALL, New Jersey
DONALD RUMSFELD, Illinois
1~\T~ E. BEOCK 3D, Teisnessee
WILLIASI H. MooRE
ECONOMISTS
JOHN B. HENDERSON
DONALD A. WEBSTER (Minority)
GEORGE R. IDEN
SUBCOMMITTEE ON ECONOMY IN GOVERNMENT
WILLIAM PROXMIRE, Wisconsin, Chairman
HOUSE OF REPRESENTATIVES
WRIGHT PATMAN, Texas
MARTHA W. GRIFFITHS, Michigan
WILLIAM S. MOO RHEAD, Pennsylvania
THOMAS B. CURTIS, Missouri
DONALD RIJMSFELD, Illinois
BAY WARD, Economic Consultant
JOINT ECONOMIC COMMITTEE
(Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.)
WILLIAM P ROXMIRE, Wisconsin, Ghairman
WRIGHT PATMAN, Texas, Vice Ghairman
JOHN R. STARK, Executive Director
JAMES W. KNOWLES, Director of Research
SENATE
JOHN SPARKMAN, Alabama
STUART SYMINGTON, Missouri
LEN B. JORDAN, Idaho
CHARLES H. PERCY, Illinois
II
PAGENO="0003"
LETTER OF TRANSMITTAL
NOVEMBER 17, 1967.
To the iViembers of the Joint Economic Committee:
I am transmitting herewith for your use, and for the use of other
members of the Congress and the interested public, selected back-
ground material on economy in Government. These updated data
have been compiled especially for the supplementary hearings of the
Subcommittee on Economy in Government scheduled for November
27, 28, 29, and 30, 1967.
This study was prepared by Mr. Ray Ward, temporary economic
consultant to tire subcommittee, and any findings and conclusions
herein are the author's arid are neither approved nor disapproved
by the subcommittee.
Sincerely,
WILLIAM PROXMIRE,
G'hairman, Joint Economic Committee.
III
PAGENO="0004"
PAGENO="0005"
CONTENTS
Page
Letter of transmittal III
Introduction 1
Magnitude of DOD property management activities 3
Property holdings 3
Table 1. DOD property holdings as of June 30, fiscal years
1955-66 3
Table 2. Federal Government expenditures and GNP-comparison
with national defense programs and military functions ex-
penditures, fiscal year 1939-68 4
Table 3. Defense personnel and total population in the United
States, as of June 30, 1966 5
Table 4. Defense personnel and total population in the United
States, as of June 30, 1967 12
Table 5. DOD: Estimated payrolls for military and civilian per-
sonnel, fiscal year 1967 20
Table 6. DOD: Estimated payrolls for military and civilian
personnel, fiscal year 1966 22
Supply systems inventories 24
Table 7. DOD supply systems inventories by inventories stratas
as of June 30, fiscal years 1958-66 25
Scope of procurement activities 25
Table 8. Net value of military procurement actions in the United
States and possessions, fiscal years 1951-67 25
Net value of procurement actions by States, fiscal years 1964-67 - - - 26
Percentage breakdown by States and the District of Columbia, fiscal
1967 26
Table 9. Net value of military procurement actions by States,
fiscal years 1964, 1965, 1966, and 1967 26
Table 9(a). Net value of military procurement by States, by
percent of total, fiscal year 1967 27
Awards to 100 largest military contractors 28
Table: Percent of total, 1960-66 28
Negotiated and advertised procurement actions 29
Table 10. Net value of military procurement actions, with busi-
ness firms for work in the United States, classified by method
of procurement, fiscal years 1951-67 29
Table 11. Awards by statutory authority (July-June, 1964-65,
1965-66, 1966-67) 30
Fixed-price versus cost-reimbursement contracts 33
Table 12. Net value of military procurement actions, by type of con-
tract pricing provisions, fiscal years 1952-67 33
Utilization of military stocks 33
Table 13. Utilization of DOD assets, fiscal years 1958-67 33
Disposition of DOD surplus stocks 34
Table 14. Total dispositions (at acquisition cost) of DOD surplus
personal property, fiscal years 1958-67 34
Table 15. Proceeds from disposal sales of surplus personal property
by the military departments, fiscal years 1958-67 34
Table 16. Costs of disposal sales of surplus property by the military
departments, fiscal years 1958-67 34
V
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CONTENTS
APPENDIXES
1. Year end fiscal year 1967 Department of Defense cost reduction pro- Page
grain status report 35
2. Updated progress report of the Defense Supply Agency of the Depart-
ment of Defense 71
History, Mission, and Organization 71
Pre-DSA organization 71
Mission 73
DSA organization 73
Major field activities and commanders 77
DSA objectives 79
Growth of DSA 79
Supply support 80
Inventory control points 80
Distribution system 80
Procurement and production 82
Small business 82
Labor surplus area awards 82
Competitive awards 82
Formal advertising 82
Supply effectiveness 84
Technical and Logistics Services and Programs 85
Item entry control 85
Standardization and cataloging 85
Materiel utilization 87
Weapon systems materiel utilization program 88
Industrial plant equipment (IPE) 88
Subsidiary programs 89
Materiel disposal 89
Warehousing gross performance measurement system 91
Value engineering 91
Defense documentation 91
DOD/GSA relationship-Civil agency support 92
Civil defense logistics 93
Contract Administration Services (CAS) 94
CAS workload 97
Quality assurance 98
Plant safety 98
Delinquent contracts 98
Defense materials and priorities assistance 98
Industrial security 98
Small business 99
Management of property 99
DSA achievements in reducing costs of operations 100
Summary 101
3. U.S. General Accounting Office of selected reports issued to the Con-
gress during the period Mar. 8, 1967 through Oct. 12, 1967 102
4. Digests of selected U.S. General Accounting Office reports listed in
appendix 3 104
5. Budget Bureau Circular No. A-76 (revised). Policies for acquiring com-
mercial or industrial products and services for Government use 133
Purpose 133
Policy 134
Definitions 134
Scope 134
Circumstances under which the Government may provide a com-
mercial or industrial product or service for its own use 135
Cost comparisons 136
Administering the policy 138
Implementation 140
Effective date 140
Summary of changes in revised circular 140
PAGENO="0007"
ECONOMY IN GOVERNMENT-1967: UPDATED
BACKGROUND MATERIAL
INTRODUCTION
The background material selected herein is intended to indicate the
enormity of the Federal Government's property management activities.
Previous reports and hearings of the Subcommittee on Economy in
Government and those of other committees and qualified sources,
especially the General Accounting Office, continue to show that great
economies are possible in these areas at a time of critical need.
1
PAGENO="0008"
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MAGNITUDE OF DOD PROPERTY MANAGEMENT
ACTIVITIES
PROPERTY HOLDINGS
The total of DOD's real and personal property holdings has risen
annually from $129 billion in fiscal year 1955 to $184 billion at the
end of fiscal year 1966.
Real property holdings increased from $21 to $38 billion and
personal property holdings, including construction in progress,
from $107 to $145 billion during the 12-year period.
However, "supply systems" inventories have been reduced by
$13 billion during this period and "stock funds" by $2 billion. During
1966, there was a small buildup of supply inventories.
TABLE 1-DOD PROPERTY HOLDINGS AS OF JUNE 30, FISCAL YEARS 1955-66 (1967 FIGURES NOT AVAILABLE)
[In millio
ns of dollars[
Total and type of property
1955
1956
1957
1958
1959
1960
Total
Real
Personal
Supply systems
Stockfunds
Appropriated fends
128,694
21,343
107,351
50, 780
8,153
42, 627
134,082
22,918
111, 164
50, 974
9,772
41, 202
146,021
24,892
121,129
53, 799
10,970
42, 829
149,465
26,891
112,574
47,652
8,913
38, 739
150,660
29,689
120,971
44, 467
8,162
36, 305
154,617
31,997
122, 620
42, 002
7,312
34, 690
Total
Real
Personal
Supply systems
Stock funds
Appropriated funds
1961
1962
1963
1964
1965
1966
158,508
34,038
124,470
40, 837
6, 413
34,424
164,835
35,378
129,457
40, 652
6, 154
34,498
171,364
36,565
134,799
40, 096
6, 527
33,569
173,455
36,734
136,721
38, 795
5, 749
33,046
176,221
37,557
138,664
36, 986
5, 327
31,659
183,570
38,390
145,180
37, 661
5, 850
31,811
1 Source: `Real and Personal Property of the Departmen
t of Defense,
" an annual
report.
3
PAGENO="0010"
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PAGENO="0011"
TABLE 3.-DEFENSE PERSONNEL AND TOTAL POPULATION IN THE UNITED STATES, BY STATE, AS OF JUNE 30, 1967
Population, July 1, 1966, Department
census (estimated) of Defense
-- ------ as percent
Percent of of State
Number United population
States
Total Department of Army Navy 2
Defense 1
Air Force
Percent of
Number United
States
Number
Percent of
United
States
Percent of Percent of
Number United Number United
States States
100.0 1.5
195, 936, 000
3,511,000
265, 000
1.8
0. 1
1.8
14. 5
United States (including Alaska and
Hawaii):
Military
Civilian
1,864,722
1,135,328
100.0
100.0
790,258
398,121
100.0
100.0
434,656
371,150
100.0
100.0
639,808
287,813
100.0
100.0
Total
3,000, 050
100.0
1,188,379
100.0
805, 806
100.0
927,621
100.0
Alabama:
Military
Civilian
Total
31,142
-__31,274
62,416
1.7
2.8
2.1
22,107
21,736
43,843
2.8
5.4
3.7
546
56
602
0.1
(3)
0.1
8,489
8,984
17,473
1.3
3.1
1.9
Alaska:
Military
Civilian
31,641
6,775
1.7
0.6
13,147
2,954
1.7
0.7
3,627
517
.8
.1
14,867
3,265
2.3
1.1
Total
38,416
1.3
16, 101
1.4
4,144
.5
18, 132
1.9
Arizona:
Military
Civilian
27, 363
9,162
1.5
.8
7,371
4,630
.9
1.2
2,698
302
.6
.1
17, 294
4,004
2.7
1.4
Total
36,525
1.2
12,001
1.0
3,000
.4
21,298
2.3
Arkansas:
Military
Civilian
9,160
4,836
.5
.4
387
3,760
(3)
.9
108
4
(3)
(3)
8,665
1,016
1.4
.4
Total
13,996
.5
4,147
.3
112
(3)
9,681
1.0
California:
Military
Civilian - --
251,232
179,445
13.5
15.8
49,483
25,416
6.3
6.4
124,807
104,235
28.7
28.1
76,942
41,064
12.0
14.4
Total -
430, 677
14.4
74, 899
6.3
229, 042
28.4
118, 006
12.7
See footnotes at end of table, p. 11.
1,603,000
1,956, 000
.8
1.0
2. 3
0. 7
18, 802, 000
9.7
2.3
C~11
PAGENO="0012"
TABLE 3.-DEFENSE PERSONNEL AND TOTAL POPULATION IN THE UNITED STATES, BY STATE, AS OF JUNE 30, 1967-Continued
Population, July 1, 1966,
census (estimated)
Department
of Defense
Total Department of
Defense 1
Army
Navy 2
Air Force
Percent of
as percent
of State
Percent of
Percent of
Percent of
Percent
Number United
States
population
Number United Number United
States States
Number
United
States
Number
Unitedof
States
Colorado:
Military
Civilian
Total
- 1,955, 000
1. 0
3. 3
46,816
17,360
64, 176
2.5
1.5
2. 1
25,830
9,054
- 34,884
3.3
2.3
2. 9
451
6
- 457
0.1
(3)
- 1
-
Connecticut:
Military
Civilian
4,273
4,051
.2
.4
204
210
(~)
. 1
3,989
3, 010
.9
.8
Total
2,878,000
1.5
.3
8,324 -
.3
414
(3)
6,999
- .9
Delaware:
Military
Civilian
9, 199
1,480
. 5
.1
111
67
(3)
(3)
145
0
(3)
0
Total
- 513,000
- .2
2.1 -
- 10,679
.3
178
- (3)
145
-- (3)
Florida:
Military
Civilian
71, 807
31, 667
3.9
2. 8
3,668
1, 933
. 5
. 5
26, 435
18, 750
6. 1
5. 1
Total
- 5,895,000
- 3.0
- 1.8
- 103,474 -
3.5
5,601
.5
45,185
- 5.6
Georgia:
Military
Civilian
94,910
44, 910
5. 1
4. 0
79, 738
20, 099
10. 1
5. 0
5, 837
2, 776
1.4
. 7
Total
- 4,446, 000
2. 3
3. 1
139, 820
4. 7
99,837
8. 4
8,613
1. 1
Hawaii:
Military
Civilian
34,370
22, 570
1.8
2. 0
10,697
5, 967
1.4
1. 5
12,824
13, 065
3.0
3. 5
Total
724,000
0.4
7.9 -
56,940
1.9
16,664
1.4
25,889
3.2
14,339
1.5
Idaho:
Military
Civilian
Total
697, 000
- . 3
.7
4,131
580
4, 711
.2
. 1
. 1
68
133
201
(3)
(3)
(3)
920
3
923
1.2
(3)
. 1
3,143
444
3,587
.5
. 2
.4
20,535 3.2
8,148 2.8
28,683 3.1
80 (3)
70 (3)
- 150 (3)
8,943 1.4
1,397 .5
10,340 1.1
41,704 6.5
10,438 3.6
52,142 5.6
9,335 1.5
21,221 7.4
30, 556 3. 3
10,849 1.7
3,490 1.2
PAGENO="0013"
Illinois:
Military
Civilian
-
55, 929
31,933
3. 0
2.8
6, 821
17,781
. 9
4.5
30, 005
6,447
6. 9
1.7
19, 103
5,540
3. 0
1.9
Total
10,785, 000
5. 5 -
. 8 -
87, 862
2. 9
24,602
2. 1
36, 452
4.5
24, 643
2. 6
Indiana:
Military
Civilian
10,405
17, 289
. 5
1. 5
4,897
7, 351
.6
1. 8
613
8, 460
.2
2. 3
4,895
927
. 8
. 3
Total
4, 951, 000
2. 5
. 6
27, 694
. 9
12, 248
1. 0
9, 073
1. 1
5, 822
.6
Iowa:
Military
Civilian
1,570
886
.1
.1
230
536
(3)
.1
185
4
(3)
(3)
1,155
147
.2
.1
Total
2, 760, 000
1. 4
. 1
2, 456
. 1
766
. 1
189
(3)
1,302
.1
Kansas:
Military
Civilian
Total
2, 275, 000
1. 2
1. 3
23,496
5,973
29, 469
1.3
.5
1. 0
11,888
4,494
16, 382
1.5
1. 1
1. 4
743
144
887
.2
(3)
. 1
10,865
1,200
12, 065
1.7
0.4
1. 3
Kentucky:
Military
Civilian
57,051
18, 137
3.0
1.6
56,254
15,377
7.1
3.9
215
2,714
.1
.7
582
24
.1
(3)
Total
3, 181, 000
1. 6
2. 4
75, 188
2. 5
71, 631
6. 0
2, 929
. 4
606
. 1
Louisiana:
Military
Civilian
35, 839
8,497
1.9
.7
24, 827
5,134
3. 2
1.3
1, 183
1,401
.3
.4
9,829
1,721
1. 5
.6
Total
3, 617, 000
1. 9
1. 2
44, 336
1. 5
29, 961
2. 5
2, 584
. 3
11, 550
1. 2
Maine:
Military
Civilian
10,518
2,176
.6
.2
158
59
(3)
(3)
1,324
778
.3
.2
9,036
1,314
1.4
.5
Total
978,000
.5
1.3
1.2, 694
.4
217
(3)
2, 102
.3
10, 350
1.1
Maryland:
Military
Civilian
44,225
30,467
2.4
2.7
27,541
20,379
3.5
5.1
15,034
9,562
3.5
2.6
1,650
102
.3
(3)
Total
2,609,000
1.3
2.9
74,692
- 2.5
47,920
4.0
24, 596
3.1
1,752
1.1
See footnotes at end of table, p. 11.
PAGENO="0014"
TABLE 3.-DEFENSE PEBSONNEL AND TOtAL POPULATION IN THE UNITED STATES, BY STATE, AS OF JUNE 30, 1967-Continued
Population, July 1, 1966, Department Total Department of Army
census (estimated) of Defense Defense 1
- as percent
Percent of of State Percent of Percent of
Number United population Number United Number United
States States States
Navy 2 Air Force
Percent of Percent of
Number United Number United
States States
26,837
24,131
50,968
18,022
13,946
.4 31,968
5,241
2,532
.2 7,773
22, 247
7,425
1.3 29,672
33,093
23,863
1.2 56,956
9,663
1,467
3.6 11,130
12,221
3,514
1.1 15,735
.3
.2
.3
1.2
.7
1.0
1.8
2. 1
1.9
9.060 1.1 3,111
7,170 1.8 9,603
16,230 1.4 12,714
1,785 .2 1,022
8,814 2.2 183
10,599 .9 1,205
14,666 2.3
5,357 1.9
20,023 2.1
15,215 2.4
2,567 .9
17,782 1.9
3,141 .5
842 .3
3,983 .4
19,364 3.0
3,489 1.2
22,853 2.4
6,724 1.1
5,431 1.9
12, 155 1. 3
9,530 1.5
1,210 .4
10,740 1.1
31,662 1.8
1,849 .7
13,511 1.4
Massachusetts:
Military
Civilian
Total 5, 403, 000 2. 8 0. 9
1.4
2. 1
1.7
1.0
1.2
1. 1
8, 468, 000 4. 4
1.8
1.2
Michigan:
Military
Civilian
Total
Minnesota:
Military
Civilian
Total
Mississippi:
Military
Civilian
Total
Missouri:
Military
Civilian
Total
Montana:
Military
Civilian
Total
Nebraska:
Mittary
Civilian
Total
1,230 .2
1,075 .3
.2
3, 572, 000
2,337,000
4, 564, 000
702,000
- 1,439,000
870
128
998
.1 2,181
.7 1,056
.3 3,237
0. 7
2.6
1.6
.2
.1
.2
.2
(3)
.1
.5
.3
.4
.2
.1
.2
(3)
0
2. 3
.3
.7
2,305
702
2,848
3,550
25,438
17, 134
42,572
88
254
342
219
1,574
1,793
931
301
1,232
45
3.2
4. 3
3.6
(3)
(3)
(3)
.5
.3
.4
.7
.3
.5
45 (3)
340 .1
.4 77 (3)
.2 417 .1
PAGENO="0015"
(3)
(3)
(3)
1, 151
1,517
2,668
.3 6,068 1.0
.4 1,188 .4
.3 7,256 .8
.4 3,386 .5
2.2 670 .2
1.3 4,055 .4
171 (3) 1,871
270 .1 8,237
441 (3) 10, 133
35,223 4.5 2,529
23, 765 6. 0 3, 797
58, 988 5. 0 6, 326
Nevada:
Military
Civilian
7,254
2,831
.4
.3
33
8
Total
431,000
.2
3.3
10,083
.3
41
New Hampshire:
Military
Civilian
5,428
9,258
.3
.8
Total
677,000
.3
2.2
14,686
.5
New Jersey:
Military
Civilian
47,500
31,132
2.5
2.7
Total
6,899,000
3.5
1.1
78,632
2.6
New Mexico:
Military
Civilian
14,828
12, 123
.8
1.1
Total
1,002,000
.5
2.7
26,951
.9
NewYork:
MiOtary
Civilian
Total
18,205,000
9.4
.4
North Carolina:
Military
Civilian
Total
4,972,000
2.6
2.3
North Dakota:
Military
Civilian
Total
643,000
.3
2.2
Ohio:
Military
Civilian
Total
10,364,000
5.3
.6
Oklahoma:
Military
Civilian
Total
2,477,000
1.3
3.2
See footnotes at end of table, p. 11.
3,211
6, 128
9,339
11,359
14, 165
25, 524
48, 166
5,448
53,614
.4 1,016
5 145
1, 181
6, 008
7,965
13, 973
41, 465
7, 178
48,643
18
18
32,338
33,477
65,815
100, 287
14,030
114, 317
12,373
1,470
13,843
19,915
39,431
59,346
44, 106
35,215
79,321
1.7
2.9
2.2
5.4
1.2
3.8
.7
.1
.5
1. 1
3. 5
2. 0
2.4
3. 1
2.6
.6
1.0
.8
.2
(3)
.2
1. 4
2.2
1.7
9. 5
1.9
6.0
(3)
0
(3)
.2
.4
.3
.1
1.0
.5
1.
.8
1.4
3. 5
2.2
6. 1
1.4
4. 5
(3)
(3)
(3)
.3
.6
.4
4. 0
1.5
3. 1
9,748 1.5
2,034 .7
11,782 1.3
10,601 1.7
4,290 1.5
14,891 1.6
14,971 2.3
7,502 2.6
22,473_ 2.4
10,656 1.7
1,220 .4
11,876 1.3
12,281 1.9
1,308 .5
13,589 1.4
17,092 2.7
23,427 8.1
40,519 4.4
12,378 1.9
25,348 8.8
37,726 4.0
74
161
235
2,043
2, 503
4,546
31,320
5,904
37,224
780
1,270
2, 050
408
3,770
4, 178
PAGENO="0016"
TABLE 3.-DEFENSE PERSONNEL AND TOTAL POPULATION IN THE UNITED STATES, BY STATE, AS OF JUNE 30, 1967-Continued
Population, July 1, 1966,
census (estimated)
Department
of Defense
Total Department of
Defenset
Army
Navy 2
Air
Force
Percent of
as percent
of State
Percent of
Percent of
Percent of
-------
Percent of
Number United
States
population
Number United Number United Number United
States States States
Number
United
States
Oregon:
Military
Civilian
Total
1,973,000
1.0
0.4
3,671
4,064
7,735
0.2
.4
.2
230
3,038
3,268
(3)
.8
.3
330
5
335
0.1
(3)
(3)
3,111
901
4,012
0.5
.3
.4
Pennsylvania:
Military
Civilian
Total
11,601,000
6.0
.8
14,545
75,027
89,572
.8
6.6
3.0
6,227
29, 586
35,813
.8
7.4
3.0
7,360
30, 155
37,515
1.7
8.1
4.7
958
2,708
3,666
.1
.9
.4
Rhode Island:
Military
Civilian
7,743
10,165
.4
.9
342
345
(3)
.1
7,350
9,736
1.7
2.6
51
2
(3)
(3)
Total
896,000
.4
2.0
17,908
.6
687
.1
17,086
2.1
53
(3)
South Carolina:
Military
Civilian
56, 196
19,411
3.0
1.7
19, 572
3,566
2.5
.9
19,939
13,379
4.6
3.6
16,685
2,427
2.6
.8
Total
2,588,000
1.3
2.9
75,607
2.5
23, 138
2.0
33, 318
4.1
19, 112
2.0
South Dakota:
Military
Civilian
5,918
1,253
.3
.1
84
531
(~)
.1
16
0
(3)
0
5,818
720
.9
.3
Total
679, 000
.3
1. 1
7,171
.2
615
. 1
16
(3)
6,538
.7
Tennessee:
Military
Civilian
20, 405
7, 470
1. 1
. 7
510
2, 388
. 1
. 6
14, 438
1, 123
3. 3
. 3
5, 457
647
. 9
. 2
Total
3,866,000
2.0
.7
27,875
.9
2,898
.2
15,561
1.9
6,104
.6
Texas:
Military
Civilian
Total
10,747,000
5.5
2.5
192,462
77, 362
269,824
10.3
6. 8
9.0
88,916
30, 155
119,071
11.3
7. 6
10.0
9,907
2, 426
12,333
2.3
. 7
1.5
93,639
43, 542
137,181
14.6
15. 1
14.8
Utah:
Military
Civilian
Total
1, 007, 000
. 5
3.6
4, 730
31, 277
36, 007
. 2
2. 8
1.2
1, 122
7, 440
8, 562
. 1
1. 9
. 7 -
134
197
331
(3)
. 1
(3)
3, 474
18, 437
21,911
. 5
6. 4
2. 3
0
0
0
t~,1
z
H
Co
Ca
PAGENO="0017"
cx
9
15,
Vermont:
Military
Civilian
Total
Virginia: 4
Military
Civilian
Total
Washington:
Military
Civilian
Total
Washington, DC. metropolitan area: a
Military
Civilian
Total
West Virginia:
Military
Civilian
Total
Wisconsin:
Military
Civilian
Total
Wyoming:
Military
Civilian
Total
Undistributed:
Military
Civilian
Total
411,000
0.2
3,781,000
1.9
3.5
3, 041, 000
1. 6
2. 6
2,496,000
1.3
6.8
1,809,000
0.9
0.1
4,167,000
2.1
0.1
319,000
0.1
1.4
246
78
324
(3)
(3)
- (3)
32
89
(3)
(3)
0 0
- 10 (3)
18
197
(3)
(3)
75, 279
56,731
4. 0
5.0
35, 798
12,193
4. 5
3.1
28, 209
39,026
6. 5
10.5
11, 272
1,757
1. 8
.6
132,010
4.4
47,991
4.0
67,235
8.4
13,029
51,130
27,868
2.7
2.5
33,220
7,038
4.2
1.8
4,519
17,407
1.0
4.7
13,391
3,138
2.1
1.1
78,998
2.6
40,258
3.4
21,926
2.7
16,529
1.8
75, 372
94, 621
4. 0
8. 3
35, 417
34, 882
4. 5
8. 8
19, 954
40, 200
4. 6
10. 8
20, 001
9,921
3. 1
3. 4
169, 993
5. 7
70, 299
5. 9
60, 154
7. 5
29, 922
3. 2
464
1,214
1,678
(3)
0.1
0.1
190
1,133
1,323
(3)
0.3
0.1
74
0
74
(3)
0
(3)
200
17
217
(3)
(3)
(3)
3,100
2, 722
0.2
0. 2
855
1, 493
0.1
0. 4
289
4
0.1
(3)
1,966
591
0.3
0. 2
5, 832
0. 2
2, 348
0. 2
293
(3)
2, 557
0. 3
3,799
752
0.2
0. 1
26
10
(3)
(3)
23
1
(3)
(3)
3,750
739
0.6
0. 2
4, 551
0. 1
36
(3)
24
(3)
4, 489
0. 5
83, 224
0
4. 5
0
52, 143
0
6. 6
0
26, 669
0
6. 1
0
4, 412
0
0. 7
0
I Includes 78,244 civilians employed by other defense activities such as Defense Supply Agency 4 Excludes personnel in the Washington, D.C. metropolitan area.
and Office of the Secretary of Defense. Therefore, total Department of Defense column will not add Consists of the District of Columbia; Montgomery and Prince Georges counties in Maryland;
across in all cases. Alexandria, Fairfax and Falls Church cities, and Arlington and Fairfax Counties in Virginia.
2 Includes Marine Corps. . . . .
Less than 05 percent. Source: Directorate for Statistical Services, Office of Secretary of Defense, September 26, 1967. ......~
PAGENO="0018"
TABLE 4.-DEFENSE PERSONNEL AND TOTAL POPULATION IN THE UNITED STATES, BY STATE, AS OF JUNE 30, 1966
Population, July 1, 1965, Department of Total Department Army Navy 2 Air Force
census (revised) Defense as of Defense 1
percent of -______________ ___________
Number Percent of State Number Percent of Number Percent of Number Percent of Number Percent of
United States population United States United States United States United States
United States (including Alaska and
Hawaii):
Military
Civilian
Total
Alabama:
Military
Civilian
Total
Alaska:
Military
Civilian
Total
Prizona:
Military
Civilian
Total
Arbansos:
Military
Civilian
Total
California:
Military
Civilian
Total
Colorado:
Milit~ry
Civilian
Total
1,832, 047
1, 034, 795
2,866, 842
32, 093
33,211
65,304
29,216
6,592
35,808
20,675
7,953
28,628
9,203
4,523
13,726
246, 610
158, 252
404,863
40,516
15,578
715,251 100.0 454,549 100.0
358,292 100.0 327,948 100.0
1,073,543 100.0 782,497 100.0
22,655
20,331
42,986
12,161
3,048
15,209
4, 822
3,390
8,212
3.2 413
5.7 42
4.0 455
1.7 3,001
.9 494
1.4 3,495
.7 1,731
1.0 576
.8 2,307
.1 125
1.0 0
.4 125
6.3 128,416
6. 1 90, 527
6.2 218,943
38.2 72,933 11.0
27.6 38,908 13.9
38.0 111,845 11.9
2.5 415 .1 22,268 3.4
2. 1 2 (3) 7,841 2.8
417 .1 30,109 3.2
193,795,000 100.0
1.5
3,486,000 1.8
1.9
267,000 .1
23.4
1,755,000 .8
1.8
1.0
.7
100. 0
100.0
100.0
1.7
3.2
2.3
1.6
.6
1.2
1. 1
.8
1.0
.5
.4
.5
13.5
15. 3
14. 1
662, 247
280,549
942, 796
9,025
12,383
21,408
14,054
3,016
17,070
14, 122
3,766
17,888
8,649
821
9,470
.1
(3)
.1
.7
.1
.5
84
.2
.3
(3)
0
(3)
100.0
100. 0
100. 0
1.4
4.4
2.3
2. 1
1. 1
1.8
2. 1
1.3
1.9
1.3
.3
1.0
1,941,000
18,403,000 9.5
1,949,000 1.0
2.2
429
3,665
4, 094
45,256
21,692
66,948
2.2 17,833
1.5 7,587
2. 9 56, 094 3. 0 25, 420 2. 4
PAGENO="0019"
Connecticut:
Military
Civilian
-
4,226
3,605
.2
.4
196
208
(3)
.1
3,954
2,751
.9
.8
76
75
151
(3)
(~)
Total
Delaware:
Military
Civilian
Total
2,830,000
503,003
1.5
.3
3.0
1.7
7,831
7,128
1,321
8,449
.3
.4
.1
.3
404
108
52
160
(3)
(3)
(3)
(3)
6,605
136
0
146
.9
(ii)
0
(3)
6.884
1,256
8,140
(3)
1.0
.4
.9
Florida:
Military
Civilian
69,207
27,653
3.8
2.7
3,409
2,123
.5
.6
28,213
15,493
6.2
4.7
37,585
9,627
5.7
3.4
5.0
Total
5,796,000
3.0
1.7
96,860
3.4
5,532
.5
43,7C6
5.6
47,212
Georgia:
Military
Civilian
109,420
39,939
6.0
3.9
86,542
15,839
12.1
4.4
5,431
2,493
1.2
.8
17,447
20,870
2.6
7.4
4.1
Total
4,391,000
2.3
.34
149,359
5.2
102,381
9.5
7,924
1.0
38,317
Hawaii:
Military
Civilian
Total
710,000
.4
7.0
28,695
20,755
49,450
1.6
2.0
1.7
6,827
5,652
12,479
1.0
1.6
1.2
10,777
11,859
22,636
2.4
3.6
2.9
11,091
3,201
14,292
1.7
1.1
1.5
Idaho:
Military
Civilian
Total
693,000
.4
.6
3,976
514
4,490
.2
.1
.1
73
98
171
(3)
(3)
(3)
814
3
817
.2
(3)
(3)
3,089
413
3,502
.5
.1
.4
Illinois:
Military
Civilian
60,287
29,449
3.3
2.9
6,382
16,233
.9
4.5
34,453
5,728
7.6
1.8
19,443
5,558
2.9
2.0
2.6
Total
10,641,000
5.5
.8
89,727
3.1
22,615
2.1
40,181
5.1
25,001
9, 840
14,917
. 5
1.5
4, 386
6,500
. 6
1.8
597
7,068
. 1
2.2
4, 857
860
717
. 7
.3
6
4, 893, 000
2. 5
. 5
24, 757
. 9
10, 886
1. 0
7, 665
1. 0
5,
.
Indiana:
Military
Civilian
Total
See footnotes at end of table, p. 19.
PAGENO="0020"
TABLE 4.-DEFENSE PERSONNEL AND TOTAL POPULATION IN THE UNITED STATES, BY STATE, AS OF JUNE 30, 1966-Continued
Population, July 1, 1965, Department of Total Department Army Navy 2 Air Force
census (revised) Defense as of Defense 1
percent of -______________________ ______________________ ________________________
Number Percent of State Number Percent of Number Percent of Number Percent of Number Percent of
United States population United States United States United States United States
Iowa:
Military
Civilian
1, 555
781
0. 1
. 1
(3)
. 1
204
1
(3)
(3)
1, 101
124
0. 2
(3)
Total
2,758,000
1.4
0.1
2,336
.1
.1
205
(3)
1,225
.1
Kansas:
Military
Civilian
34, 792
5,481
1. 9
. 5
3. 4
1. 1
761
133
. 2
(3)
9, 703
1, 170
1. 5
. 4
Total
2,248, 000
1. 2 -
1.8
40, 273
1. 4
2.6
-- 894
. 1 -
10,873
1. 1
Kentucky:
Military
Civilian
Total
3, 173, 000
1. 6
2. 1
51, 884
15, 184
67, 068
2. 8
1. 5
2. 3
7. 2
3. 6
6. 0
228
2, 290
2, 518
. 1
. 7
. 3
523
23
546
. 1
(3)
. 1
Louisiana:
Military
Civilian
40, 084
7,661
2. 2
.8
4. 0
1.3
1, 323
1,206
. 3
.4
9, 915
1,454
1. 5
.5
Total
3,560,000
1.8
1.3
47,745
- 1.7
- 3.1
2,529
.3
fl,369
1.2
Maine:
Military
Civilian
Total
986,000
- .5
1.3
10,785
1,806
- 12,591
.6
.2
.4
(3)
(3)
(3)
1,248
701
1,949
.3
.2
.3
9,316
1,029
10,345
1.4
.4
1.1
Maryland:4
Military
Civilian
47, 463
28, 172
2. 6
2. 7
4. 2
5. 3
15, 034
8, 737
3. 3
2. 7
2, 197
105
. 3
(3)
Total
2, 587, 000
1. 3
2. 9
75, 635
2. 6
4. 6
23, 771
3.0
2,302
. 2
Massachusetts:
Military
Civilian
28, 222
22, 938
1. 5
2. 2
1. 6
2. 2
2, 798
8, 146
. 6
2. 5
13, 960
5, 123
2. 1
1. 8
Total
5, 361, 000
2. 8
1. 0
51, 160
1. 8
19, 424 1. 8 -
10, 944
1.4
19, 083
2. 0
250
491
741
24, 328
4, 053
28,381
51, 133
12,852
63,985
28, 846
4,805
33,651
221
57
278
30,232
__________ __________ 18,951
49, 183
11,464
__________ __________ 7,960
PAGENO="0021"
Michigan:
Military
Civilian
18,265
12,713
1.0
1.2
1,818
8,443
.3
2.4
1,079
167
.2
.1
15,368
2,020
2.3
.7
Total
8, 317, 000
- 4. 3
. 4
30,978
1. 1
10, 261
1. 0
1, 246
. 2
17,388
1. 8
Minnesota:
Military
Civilian
5,141
2,314
.3
.2
1,233
1,049
.2
.3
903
100
.2
(3)
3,005
718
.5
.3
Total
3, 562, 000
1. 8
. 2
7,455
. 3
2, 282
. 2
1, 003
. 1
3, 723
. 4
Mississippi:
Military
Civilian
28,011
7,357
1. 5
.7
592
2,800
. 1
.8
1, 920
838
. 4
.3
25, 499
3,690
3. 9
1.3
TotaL
2,309,000
1.2
1.5
35,368
1.2
3,392
.3
2,758
.4
29, 189
3.1 -
Missouri:
Military
Civilian
38,846
20,601
2.1
2.0
31,561
14,331
4.4
4.0
846
192
.2
.1
6,439
5,266
1.0
1.9
Total
4,492,000
2.3
1.3
59,447
2.1
45,892
4.3
1,038
.1
11,705
1.2
Montana:
Military
Civilian
9,395
1,233
.5
.1
95
284
(3)
.1
35
0
(3)
0
9,265
947
1.4
.3
Total
703,000
.4
1.5
10,628
.4
379
(~)
35
()
10,212
1.1 -
Nebraska:
Military
Civilian
12,385
3,678
.7
.4
246
1,830
(3)
.5
372
154
.1
(3)
11,767
1,684
1.8
.6
Total
1,459,000
.8
1.1
16,063
.6
2,076
.2
526
.1
13,451
1.4
Nevada:
Military
Civilian
6,329
2,792
.3
.3
28
11
(3)
(3)
1,144
1,416
.2
.4
5,157
1,268
.8
.5
Total
New Hampshire:
Military
Civilian
434,000
.2
2.1
.
9,121
5,213
8,437
.3
.3
.8
39
153
281
(3)
(3)
.1
2,560
1,525
7,577
.3
.3
2.3
6,425
3,535
540
.7
.5
.2
Total
673,000
- .3
2.0
13,650
.5 - 434
(3)
9,102
1.2
4,075
.4
See footnotes at end of table, p. 19.
PAGENO="0022"
TABLE 4.-DEFENSE PERSONNEL AND TOTAL POPULATION IN THE UNITED STATES, BY STATE, AS OF JUNE 30, 1966-Continued
Population, July 1, 1965, Department of Total Department Army Navy 2 Air Force
census (revised) Defense as of Defense 1
percent of - -- _________________________ _______________________ - -
Number Percent of State Number Percent of Number Percent of Number Percent of Number Percent of
United States population United States United States United States United State5
Oklahoma:
Military
Civilian
Total
12,165 .7
1,227 .1
13,392 .5
19,756 LI
38,318 3.7
58,074 2.0
37,866 2.1
31,361 3.0
69,227 2.4
2,635
4,641
5.3 7,276
.5 1,030
1.7 123
_______________ ____________ (3)
.9 1,153 .1
6,029 1.3
9,715 3.0
15,744 2.0
47,536 10.5
6,304 1.9
53,840 69
15 (3)
0 0
15 (3)
812 .2
1,159 .4
1,971 .3
0.6 9,406 1.4
1.4 1,894 .7
11,300 1.2
14,026 2.1
4,490 1.6
18,516 2.0 -
14,913 2.3
7,453 2.7
22,366 2.4
9,975 1.5
1,047 .4
11,022 1.2
12,088 1.8
1,033 .4
13,121 2.4
16,688 2.5
23,310 8.3
39,998 4.2
11,720 1.8
23,878 8.5
35,598 3.8
48,762
28,327
2.7 36,721 5.1
2.7 20,481 5.7
New Jersey:
Military
Civilian
Total
New Mexico:
Military
Civilian
Total
New York:
Military
Civilian
Total
North Carolina:
Military
Civilian
Total
North Dakota:
Military
Civilian
Total
Ohio:
Military
Civilian
TotaL..
6,781,000
3.5
1.1
77,089
1,014,000
.5
3.0
18,655
11,892
- 30,547
18,106,000
- 9.4
.4
33,241
35,357
68,598
-
92,702
11,591
4, 935, 000
2. 5
2. 1
104, 293
2.7 57,202
1.0 3,599
1.1 5.889
1.1 9,488
1.8 12,299
3.4 14,702
2.4 27,001
5.1 35,191
1.1 4,103
3.6 39,294
1.7
4. 1
2. 5
4.9
1. 1
3.7
(3)
.1
(3)
.3
.8
.5
652,000 .3 2.1
10,241,000 5.3 .6
2,448,000 1.3 2.8
62
193
255
2,256
2,923
5, 177
25,768
5, 143
30,911
3.6
1.4
2.9
378
2, 154
2,532
.1
.7
.3
PAGENO="0023"
Oregon:
Military
Civilian
3,578
3,528
.2
.3
190
2,675
(3)
.8
348
1
.1
(3)
3,040
771
.5
.3
Total
1,938,000
1.0
.4
7,106
.2
2,865
.3
349
(3)
3,811
.4
Pennsylvania:
Military
Civilian
14,878
71,386
.8
6.9
5,843
27,294
.8
7.6
7,626
25,901
1.7
7.9
1,409
6,152
.2
2.2
Total
11,583,000
6.0
.7
86,264
3.0
33, 137
3.1
33, 527
4.3
7,561
.8
Rhode Island:
Military
Civilian
9,486
9,332
.5
.9
356
345
.1
.1
9,074
8,921
2.0
2.7
56
1
(3)
(3)
Total
891,000
.5
2.1
18,818
.6
701
.1
17,995
2.3
57
(3)
South Carolina:
Military
Civilian
60,191
17,689
3.3
1.7
25,200
3,050
3.5
.9
18,568
12,365
4.1
3.8
16,423
2,213
2.5
.8
Total
2,550,000
1.3
3.1
77,800
2.7
28,250
2.6
30,933
4.0
18,636
2.0
South Dakota:
Military
Civilian
6,160
1,348
.3
.1
96
766
(3)
.2
18
0
(3)
0
6,046
580
.9
.2
Total
686,000
.4
1.1
7,508
.3
862
.1
18
- (3)
6,626
.7
Tennessee:
Military
Civilian
21,869
6,690
1.2
.6
644
2,269
.1
.6
15, 583
985
3.4
.3
5,642
636
.9
.2
Total
3,850,000
2.0
.7
28,559
1.0
2,913
.3
16,568
- 2.1
6,278
.7
moos:
Military - - -
Civilian -
206,882
70,043
11.3
6.8
78,631
25,209
11.0
7.0
9,712
2,134
2.1
.7
118,539
41,643
17.9
14.9
TotaL
10, 591, 000
5. 5
2. 6
276, 925
9. 7
103, 840
9. 7
11, 846
1. 5
160, 182
17. 0
Utah:
Military
-
4,480
.2
902
.1
137
(3)
3,441
.5
Civilian
-
27,005
2.6
6,703
1.9
181
.1
16,689
6.0
Total
994,000
.5
3.2
31,485
1.1
7,608
.7
318
(3)
20,130
2.1
See footnotes at nod of table, p. 19.
PAGENO="0024"
TABLE 4.-DEFENSE PERSONNEL AND TOTAL POPULATION IN TIlE UNITED STATES, BY STATE, AS OF JUNE 30, 1966-Continued
Population, July 1, 1965,
censun (revined)
Number Percent of
Department of
Defense as
percent of
State
Total Department Army
of Defense 1
Number Percent of Number
Percent of
-
Number
Navy 2
-
Percent of
Air
Number
Force
Percent of
United States
population
United States
United States
United States
United States
263
63
0.1 326
66,253
49,821
116, 074
47, 557
24,534
72,091
- 1.9 3.1
1.5 2.4
Vermont:
Military
Civilian
(3)
()
61
28
(3)
(3)
10
0
(3)
0
192
11
(3)
(3)
Total
404,000
0.2
(3)
89
(3)
10
(3)
- 203
(3)
Virginia:4
Military
Civilian
3.6
4.8
28,976
10,837
4.1
3.0
28,385
34,218
6.2
10.4
8,892
1,608
1.4
.6
Total
3,756,000
4.0
39, 813
3.7
62, 603
8.0
10, 500
1.1
Washington:
Military
Civilian
2.6
2.4
30,348
6,075
4.3
1.7
4,512
15,196
1.0
4.6
12,688
2,998
1.9
1.1
Total
2,973, 000
2. 5
36, 423
3. 4
19, 717
2.5
15,686
1. 7
Washington, D.C. metropolitan area: 5
Military
Civilian
70,526
85,638
3.9
8.3
33,723
32,567
4.7
9.1
17,054
35,354
3.7
10.8
19,749
9,210
3.0
3.3
Total
2,413,000
1.2
6.5
156, 164
5.4
66,290
6.2
52,408
6. 7
28,959
3.1
West Virginia:
Military
Civilian
528
1,125
(3)
.1
240
1,052
(3)
.3
76
0
(3)
0
212
17
(3)
(3)
Total
1, 815, 000
. 9
. 1
1,653
. 1 1, 292
. 1
- 76
- (3)
229
(a)
Wisconsin:
Military
Civilian
3,401
2,485
.2
.2
836
1,360
.1
.4
288
0
.1
0
2,277
549
.3
.2
Total
4,140,000
2.1
.1
5,886
.2
2,196
- .2
288
(3)
2,826
.3
Wyoming:
Military
Civilian
3,992
624
.2
.1
30
11
(3)
(3)
18
2
(3)
(3)
3,944
- 610
.6
.2
Total
330,000
.2
1.4
4,616
.2 - 41
(3)
20
(3)
4,554
.5
PAGENO="0025"
Undistributed:
Military - 39,403 2.2 0 0 36,800 8.1 2,603 .4
Civilian 0 0 0 0 0 0 0 0
Total 39,403 1.4 0 0 36,800 4.7 2,603 .3
1 Includes 68,006 civilians employed by other defense activities such as Defense Supply Agency 3 Less than 0.05 percent.
and Office of the Secretary of Defense. Therefore, total Department of Defense column will not add Excludes personnel in the Washington, D.C., metropolitan area.
across in all cases. 5 Consists of the District of Columbia; Montgomery and Prince Georges Counties in Maryland;
2 Includes Marine Corps. Alexandria, Fairfax, and Falls Church cities, and Arlington and Fairfax Counties in Virginia.
PAGENO="0026"
20 ECONOMY IN GOVERNMENT-1967
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PAGENO="0027"
ECONOMY IN GOVERNMENT-I 967
PAGENO="0028"
22 ECONOMY IN GOVERNMENT-i 967
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PAGENO="0029"
ECONOMY IN GOVERNMENT-i 967 23
-
PAGENO="0030"
24 ECONOMY IN GOVERNMENT-1967
SUPPLY SYSTEMS INVENTORIES
As stated in table,1 above, the total of "supply systems" inventories
from fiscal year 1955 through fiscal year 1966, was reduced from $51 to
$38 billion, or $13 billion. The stratification of such stocks, or break-
down into purpose for which they are held, reflects a distinct change
during fiscal years 1964, 1965, and 1966. In prior years, the strata
were peacetime operating stocks, mobilization reserve stock, economic
and contingency retention stocks, and excess stock. These are shown
in table 7 and are explained in footnotes 2 through 7.
Stratification of supply systems inventories as of June 30, 1964, and
June 30, 1965, was in accordance with improved logistics guidance
which called for application of assets first against requirements to
support (1) approved forces; that is, Active and high-priority Reserve
Forces of the 5-year force structure and financial program; and (2)
general forces.
The guidance was again changed so that, as of June 30, 1966, assets
are applied to approved forces, either as authorized for acquisition or
foi retention
The data for these strata are not comparable with that in prior
years, except in a very general way, and, therefore, have not been
shown separately in the table (see footnotes) but are included in
subtotal and total.
The criteria for the establishment of economic retention and con-
tingency retention strata have not been drastically revised, although
the exigencies of world situations may result in somewhat different
levels being established under them. The excess strata now repre-
sents those stocks that are beyond limits of a particular service and for
which screening for utilization by other elements of the Department
of Defense is underway but for which final DOD disposal action has
not been initiated. They are significantly less in value than those
reported in prior years.
PAGENO="0031"
ECONOMY IN GOVERNMENT-i 967 25
TABLE 7.-DOD SUPPLY SYSTEMS INVENTORIES BY INVENTORY STRATAS AS OF JUNE 30,1 fiscal years 1958-66
(DATA NOT AVAILABLE FOR FISCAL YEAR 1967)
[In millions of dollars]
Total and inventory strata 1958
1959
1960 1961 1962
1963 1964 1965 1966
Total 46,585
44,203
41,727 40,537 40,299
39,684 38,383 36,506 37,167
Unstratified 2,440
Total stratified 44, 145
3,056
41, 147
2,083 1,819 1,837
39, 644 38, 717 38, 462
1,4252,5822 704 3 221
38, 259 35, 801 33, 802 33, 946
Peacetime operating 2 14, 538
Mobilization reserve 4 12, 134
Economic retention 5 5,593
Contingency retention° 1,050
Excess stocks 10, 418
15, 306
11, 530
4,703
1,611
7,146
15,65714,72215,601
10, 893 11, 030 10, 725
6,618 6,343 5,454
1,361 1,246 1,040
5,115 5,377 5,643
15, 379 (~)(~)6)
10, 921 (3) (3) (3)
5,912 3,596 3,629 4,180
636 1,248 1,814 1,865
5,411 5,528 3,466 3,250
Total inventories in this table do not include value of Navy shipboard supplies included in table 1.
2 Peacetime operating stock is that partion of the total quantity of an item on hand which is requirad to equip and train
the planned peacetime forces and support the scheduled establishment through the normal appropriation and leadtime
periods.
These strata are not available for 1964, 1965, and 1966 because of changes in logistics guidance. In 1965 their sum
was $24,893,000,000, divided into approved force stocks ($23,665,000,000) and general force stocks ($1,228,000,000).
The guidance was again revised in 1966 when the sum of these two was $24,651,000,000 allocated to approved forces as
levels of acquisition ($23,640,000,000) and retention ($1,011,000,000).
4 Mobilization reserve materiel requirement: the quantity of an item required to be in the military supply system on
M-day, in addition to quantities for peacetime needs, to support planned mobilization to expand the materiel pipeline
and to sustain in training, combat, or noncombat operations prescribed forces until production by industry equals
consumption.
Economic retention stock in that portion of the quantity in long supply which it has been determined will be retained
for future peacetime issue of consumption as being more economical than future replenishment by procurement.
Contingency retention stock is that partioa of the quantity in long supply of an obsolete or nonstandard item for which
no programed requirements exist and which normally would be considered as excess stock, but which has been deter-
mined will be retained for possible military or defense coi~tingencies for U.S. or allied forces.
Excess stock as reported herein is stock which is indicated to be above the sum of footnotes 2, 3, 4, and 5 above and
for which specific determination as being within the needs of Olin Department of Defense has not been made or disposal
action initiated.
SCOPE OF PROCUREMENT ACTIVITIES
The net value of military procurement actions amounted to $41.8
billion in fiscal year 1967-an increase of $6.1 billion over fiscal year
1966.
TABLE 8._Net value of military procurement actions in the United States and
possessions, fiscal years 1951-67
Fiscal year:
1951
1952
1953
1954
Billions
$31.9
42. 2
28.4
11.9
Fiscal year-Continued
1960
1961
1962
1963
Billions
$22.5
24. 3
27.8
28. 1
1955
1956
15. 5
18. 2
1964
1965
27. 5
26.6
1957
19. 9
1966
35.7
1958
1959
22.8
23. 9
1967
41.8
Source: "Military Prime Contract Awards and Subcontract Payments or Commitments, luly 1066-
June 1967," Office of the Secretary of Defense.
PAGENO="0032"
ECONOMY IN GOVERNMENT-1967
NET VALUE OF PROCUREMENT ACTIONS BY STATES, FISCAL YEARS
1964-67
(See tables 9 and 9-A)
The percentage breakdown of military procurement actions by
States and the District of Columbia shows for fiscal year 1967:
Number Number
fof of
Percent of total: States Percent of total-Continued States
15 to 20 1 2 to 3 5
5 to 10 4 1 to 2 9
4 to 5 2 0 to 1 27
3 to 4 3
TABLE 9.-NET VALUE OF MILITARY PROCUREMENT ACTIONS BY STATES,' FISCAL YEARS 1964, 1965, 1966, AND
1967
[Dollar amounts in thousands[
Fiscal year 1964 Fiscal year 1965 Fiscal year 1966 Fiscal year 1967
State -
Amount Percent Amount Percent Amount Percent Amount Percent
Total, United
States 2 $27, 470, 379 $26, 631, 132 $35, 713, 061 $41, 817, 093
Not distributed by
State3 3,053,272 3,363,052 3,999,758 4,435,384
State total 24, 417, 107 100. 0 23,268, 080 100. 0 31, 713,303 100. 0 37, 381, 709 100. 0
Alabama 190,681 .8 165,176 .7 281,549 .9 297 065 .8
Alaska 101,545 .4 74,175 .3 71,666 .2 85,648 .2
Arizona 173,825 .7 176,857 .8 248,228 .8 249,559 .7
Arkansas 29, 731 . 1 39,284 . 2 95, 701 . 3 127, 180 . 3
California 5, 100, 650 21. 0 5, 153, 639 22. 1 5, 813, 078 18. 3 6,688, 812 17. 9
Colorado 389,511 1.6 249,151 1.1 255,893 .8 210,409 .6
Connecticut 1, 126, 054 4. 6 1, 180, 111 5. 1 2, 051, 560 6. 5 1,935, 895 5. 2
Delaware 30, 424 . 1 38, 239 . 2 37, 445 . 1 51, 672 . 1
Districtof Columbia. 222,947 .9 247,576 1.0 328,111 1.0 357,666 1.0
Florida 782, 591 3. 2 633,332 2. 7 766,955 2.4 799, 005 2. 1
Georgia 520, 169 2. 1 662, 417 2. 8 799, 362 2. 5 1, 148,355 3. 1
Hawaii 52,112 .2 72,213 .3 64,170 .2 65 445 .2
Idaho 7,804 (5) 11,724 .1 20,004 (5) 14,772 (5)
Illinois 429,201 1.8 421,899 1.8 919,779 2.9 1 063 776 2.8
Indiana 537,940 2.2 604, 925 2.6 1,068,259 3.4 898 247 2.4
Iowa 103,392 .4 133,951 .6 247,619 .8 279,328 .8
Kansas 289, 045 1. 2 229, 051 1. 0 312, 629 1. 0 398, 918 1. 1
Kentucky 40,476 .2 42,749 .2 70,057 .2 124,294 .3
Louisiana 181, 427 . 7 255, 834 1. 1 302,906 1. 0 656, 031 1. 8
Maine 31,531 .1 68,771 .3 51,340 .2 56,558 .2
Maryland 547,936 2.3 584,333 2.5 842,527 2.7 868,396 2.3
Massachusetts 1, 032, 062 4. 2 1, 178, 729 5. 1 1, 335, 952 4. 2 1, 422,272 3. 8
Michigan 591, 290 2. 4 532, 897 2. 3 918, 426 2. 9 1, 033, 706 2. 8
Minnesota 217, 941 .9 259, 500 1. 1 497, 994 1. 6 650, 584 1. 7
Mississippi 155, 911 . 6 152, 188 . 7 162, 305 . 5 114, 800 . 3
Missouri 1, 349, 071 5. 5 1, 060, 781 4. 6 1, 112,665 3. 5 2, 277, 597 6. 1
Montana 16,422 .1 69,375 .3 13,779 (5) 78,452 .2
Nebraska 33,921 .1 42,708 .2 80,478 .3 103,522 .3
Nevada 6,361 (5) 19,142 .1 32,028 .1 29,315 (5)
New Hampshire____ 64,857 .3 52,400 .2 109,591 .3 162,551 .4
New Jersey 917,561 3.8 820,309 3.5 1,090,122 3.4 1,234,768 3.3
New Mexico 71, 486 . 3 84, 137 . 4 86, 230 .3 80, 472 . 2
New York 2, 496, 438 10.2 2, 229, 473 9. 6 2, 819, 153 8.9 3,261,750 8. 7
North Carolina 273,516 1.1 288,408 1.2 449,331 1.4 447,608 1.2
North Dakota 192,025 .8 48,997 .2 83,113 .3 16,729 (5)
Ohio 1 028,946 4.2 863,113 3.7 1,588,955 5.0 1 602 593 4.3
Oklahoma 122, 489 . 5 119, 803 . 5 158, 492 . 5 157, 350 . 4
Oregon 29,104 .1 39,624 .2 89,983 .3 99,319 .3
Pennsylvania 883,065 3.6 988,811 4.2 1,665,087 5.3 1,649,091 4.4
Rhode Island 38, 173 . 2 86,323 . 4 131, 722 .4 198, 030 . 5
South Carolina 51,621 .2 81,580 .4 176,424 .6 180,777 .5
South Dakota 23, 308 . 1 21,062 . 1 23, 315 . 1 9, 486 (3)
Tennessee 193, 564 . 8 197, 283 . 8 502, 168 1. 6 538, 225 1. 5
Texas 1 294, 431 5.3 1, 446,769 6. 2 2, 291, 454 7.2 3 546 978 9. 5
Utah 340,040 1.4 191,713 .8 169,681 .5 178,850 .5
Vermont 14,012 .1 32,202 .1 81,066 .3 100,157 .3
See footnotes at end of table, p. 27.
PAGENO="0033"
ECONOMY IN GOVERNMENT-i 967
27
TABLE 9-NET VALUE OF MILITARY PROCUREMENT ACTIONS BY STATES,1 FISCAL YEARS 1964, 1965, 1966, AND
1967-Continued
[Dollar amounts in thousandsi
Fiscal year 1964 Fiscal year 1965 Fiscal year 1966 Fiscal year 3967
State __________________ ___________________
Amount Percent Amount Percent Amount Percent Amount Percent
Virginia
Washington
WestVirginia
Wisconsin
Wyoming
$690,852
1, 085, 696
87,327
177,217
49,408
2.8
4. 5
.4
.7
.2
$469,097
545, 607
90,312
203,003
7,867
2.0
2. 3
.4
.9
(5)
$425,487
444, 368
149,300
364,684
11,112
1.3
1. 4
.5
1.1
(0)
$665,376
606, 114
141,736
383,602
32,868
1.8
1. 6
.4
1.0
.1
1 Notes on coverage: It is emphasized that data on prime contracts by State do not provide asp direct indication as to
the State in which the actual production work is done. For the majority of contracts with manufacturers, the data reflect
the location of the plant where the product will be finally processed and assembled. If processing or assembly is to be
performed in more than 1 plant of a prime contractor, the location shown is the plant where the largest dollar amount of
work will take place. Construction contracts are shown for the State where the construction is to be performed. For pur-
chases from wholesale or other distribution firms, the location is the address of the contractor's place of business. For
service contracts, the location is generally the place where the service is performed, but for transportation and com-
munications services the home office address is frequently used.
Mere important is the fact that the reports refer to prime contracts only, and cannot in any way reflect the distribution
of the very substantial amount of material and component fabrication and ether subcontract work that may be done
outside the State where final assembly or delivery takes place.
The report includes definitive contracts, and funded portions of letter contracts and letters of intent, job orders, task
orders, and purchase orders on industrial firms, and also includes interdepartmental purchoses, made from or through
other governmental agencies, such as these made through the General Services Administration. The State data include
upward or downward revisions and adjustments of $10,000 or more, such as cancellations, price changes, supplemental
agreements, amendments, etc.
The estimoted amounts of indefinite delivery, open end, or call-type contracts for petroleum are ivcludeJ in the ropart
Except for petroleum contracts, the report does not include indnfiaite delivery, opus end, or call-typo cnotra~ts as such
but does include specific purchase or delivery orders of $10,000 or more which are placed against these contracts. Also
excluded frem the report are project orders; that is, production orders; issued to Government owned end operated
facilities such as Navy shipyards. However, the report includes the centructs placed with industry by the Government
operated facility to complete the production order.
2 Includes all contracts awarded for work perfermance in the United States. The United States includes the 50 States,
the District of Columbia, U.S. possessions, the Canal Zone, the Commonwealth of Puerto Rico, and other areas subject to
the complete sovereignty of the United States, but does net include occupied Japanese islands and trust territories.
3 Includes contracts of less than $10,000, all centracts awarded for work performance in the Commonwealth of Puerto
Rico, U.S. possessions, and other areas subject to the complete sovereignty of the United States, contracts which are in a
classified location, and any intragavernmental contracts entered into overseas.
Net value of contracts of $10,000 or more for work in each State and the District of Columbia.
Less than 0.05 percent.
TABLE 9-A-NET VALUE OF MILITARY PROCUREMENT BY STATES, BY PERCENT OF TOTAL, FISCAL YEAR 1967
Inverse State
rank
Percent
Total
Inverse
rank
State
Percent
Total
1 South Dakota
2 Idaho
3 North Dakota
4 Nevada
Wyoming
Delaware
(1)
(i)
(1)
0.1
.1
. 1
0.1
.2
.3
27
28
29
30
31
32
Alabama
Districi of Columbia
Wisconsin
Kansas
North Carolina
Tennessee
0. 8
1.0
1.0
1.1
1.2
1.4
8. 7
9.7
10.7
11.8
13.0
14.4
Maine
Hawaii
Montana
.2
.2
.2
.5
.7
.9
33
34
35
Washington
Minnesota
Louisiana
1.6
1.7
1.8
16.0
17.7
19.5
us New Mexcc
11 Alaska
12 Oregon
13 Vermnnt
.2
.2
.3
.3
1.1
1.3
1.6
1.9
36
37
38
39
Virginia
Florida
Maryland
Indiana
1.8
2.1
2.3
2.4
21.3
23.4
25.7
28.1
14 Nebraska
15 Mississippi
.3
.3
2.2
2.5
40
41
Michigan
Illinois
2.8
2.8
30.9
33.7
16 Keetucty
17 Arkansas
18 West Virginia
.3
.3
. 4
2.8
3.1
3.5
42
43
44
Georgia
New Jersey
Massachusetts
3.1
3.3
3.8
36.8
40.1
43.9
19 Oklahoma
.4
3.9
45
Ohio
4.3
48.2
20 New Hampshire
21 Utah
.4
.5
4.3
4.8
46
47
Pennsylvania
Coenecticet
4.4
5.2
52.6
57.8
22 Snuth Coroline
.5
5.3
48
Missouri
6.1
63.9
23 Rhsdn Island
.5
5.8
49
New York
8.7
72.6
24 Coloreds
.6
6.4
50
Tenon
9.5
82.1
25 Arizsria
.7
7.1
51
California
17.9
100.0
26 Iowa
.8
7.9
1 Less than 0.05 percent.
SO-698-G7----3
PAGENO="0034"
28 ECONOMY ~ GOVERNMENT-i 967
AWARDS TO 100 LARGEST MILITARY CONTRACTORS, FISCAL YE4R
1966-(JULY 1965-JuNE 1966 (DATA NOT AVAILABLE FOR FISCAL
YEAR 1967)
The 100 companies which together with their subsidiaries~received
the largest dollar Volume of military prime contracts of $10,000 or more
in fiscal year 1966 accounted for 63.8 percent of the U.S. total. This
was 5.1 percentage points below the 68.9 percent obtained by the
top 100 companies in fiscal year 1965, and was the lowest percentage
for the 100 top companies since reporting was initiated in fiscal year
1957. The table below shows that the first 25 companies received 5.2
percent less than in fiscal year 1965 with a decrease of 4.4 percent oc-
curring in the first five companies.
[In
percent of U.S.
totall
Companies
Fiscal year
1960
Fiscal year Fiscal year
1961 1962
Fiscal year
1963
Fiscal year
1964
Fiscal year
1965
Fiscal year
1966
1st
2d
3d
4th
5th
6.0
5.1
4.8
4.6
4.3
6.5
5.2
5.2
4.1
3.8
5.6
4.7
4.4
4.0
3.8
5.9
5.2
4.1
4.0
4.0
5.8
5.4
4.6
4.1
3.9
7.1
4.9
3.5
3.4
3.1
4.6
3.5
3.4
3.4
2.7
1 to 5
6tolO
11 to 25
24. 8
11.3
17. 4
24. 8
11.8
18. 2
22. 5
11.1
17. 2
23.2
10.9
17. 8
23. 8
12.0
17. 1
22. 0
10.2
16. 0
17. 6
9.0
16. 4
1 to 25
26 to 50
51 to75
76 to 100
53. 5
11.3
5.4
3. 2
54. 8
11.0
5.5
2. 9
50. 8
12.6
6.0
2. 9
51. 9
13.7
5.5
2. 8
52. 9
12.9
5.1
2. 5
48. 2
13.0
5.2
2. 5
43. 0
12.1
5.4
3. 3
1 to 100
73. 4
- 74. 2
72. 3
73. 9
73.4
68. 9
63. 8
PAGENO="0035"
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
Total, 1951-67
$30, 823 $3, 720 12. 1 $27, 103 87.~9
41, 482 4, 479 10. 8 37, 003 89. 2
27,822 3,089 11.1 24,733 88.9
11,448 1,789 15.6 9,659 84.4
14, 930 2, 386 16. 0 12, 544 84. 0
17,750 2,815 15.9 14,935 84.1
19,133 3,321 17.4 15,812 82.6
21,827 3,115 14.3 18,712 85.7
22, 744 3, 089 13. 6 19, 655 86. 4
21,302 2,978 14.0 18,324 86.0
22,992 2,770 12.0 20,222 88.0
26,147 3,412 13.1 22,735 86.9
27, 143 3, 538 13. 0 23, 605 87. 0
26, 221 3, 889 14. 8 22, 332 85. 2
25, 281 4, 660 18. 4 20, 621 81. 6
34, 026 5, 147 15. 1 28, 879 84. 9
39, 809 5, 621 14. 1 34, 188 85. 9
430,880 59,817 13.9 371,062 86.1
Source: "Military Prime Contract Awards and Subcontract Payments or Commitments, July 1966-June 1967," Office
of the Secretary of Defense.
Three types of negotiation authority account for 44 percent of all
procurement in fiscal 1967, the same as in fiscal 1966. The results for
fiscal years 1965, 1966, and 1967 follow:
CONTRACT AWARDS BY STATUTORY AUTHORITY
[Excerpt from table 11J
Percent
1965 1966 1967
Impracticable to secure competition by formal advertising
Experimental, developmental, test, or research
Technical or specialized supplies requiring substantial initial investment or
extended period of preparation for manufacture
14. 4
16. 6
23. 0
15. 5
12. 1
16. 2
17. 3
11. 2
15. 0
Total
54. 0
43. 8
43. 5
ECONOMY IN GOVERNMENT-i 967 29.
NEGOTIATED AND ADVERTISED PROCuREMENT ACTIONS
Negotiated procurements for fiscal year 1967 were 86 percent of
total awards with business firms in the United States, up 1 percent
from the previous year.
TABLE 10.-NET VALUE OF MILITARY PROCUREMENT ACTIONS, WITH BUSINESS FIRMS FOR WORK IN THE UNITED
STATES, CLASSIFIED BY METHOD OF PROCUREMENT, FISCAL YEARS 1951-67
(Dollar amounts in millions]
Fiscal year
Formally advertised Negotiated procurement
Total procurement
net valse
Amount Percent Amount Percent
PAGENO="0036"
TABLE 11.-AWARDS BY STATUTORY AUTHORITY
[Dollar amounts in thousandsi
JULY 1964-JUNE 1965
Statutory authority (10 U.S.C. 2304(a))
Total Air Force Defense Supply
Army amount Navy amount amount Agency amount
Amount Percent
Total
Intragovernmental
Total, except intragovernmental
$27,997,037
612470
27, 384, 567
100. 0
17.6
$6,327,460
111,620
6, 215, 840
1,563,378
$8,968,550
278,303
8, 690, 247
1,709,438
$9,658,648
199,478
9, 459, 170
431, 132
$3,042,379
23,069
3, 019, 310
1,113,266
Formally advertised
Other authority (subtotal)
4,817,214
22, 567, 353
82. 4
0
4,652, 462
512, 500
6, 980, 809
332, 857
9, 028, 038
306, 864
1, 906, 044
486,709
(1) National emergency (subtotal)
1, 638, 930
.6
36, 110
26, 127
24, 595
71, 334
(a) Labor surplus area and industry set-asides
(b) Small business set-asides (subtotal)
158, 166
1, 464, 146
5. 3
.2
471, 778
30,351
306,626
24,479
273, 780
6,053
411,962
1,332
1. Unilateral
2. Joint
62,215
1,401,931
16,618
5.1
1
441,427
4,612
282,147
104
267,727
8,489
410,630
3,413
(c) Balance-of-payments program
.
4.0
415,316
238,673
364,870
85,439
(2) Pubic exigency
(3) Purchases not more than $2,500
(4) Personal or professional services
(5) Services of educational institutions
(6) Fur hases outside Unied States
(7) Me4icines or medical suppliss
(8) Supilies purchased for authorized resole
(9~ Perishable or nonperishable subsistunce
(10) Impractical to secure competition by formal advertising
1,104,298
1,392,953
78,820
431,284
1,036,916
s7, 353
170,674
801,857
3,929,339
5.1
.3
1.6
3.8
.2
.6
2.9
14.4
378, 499
35,023
99, 178
486, 086
1,114
49,795
56,464
729,401
443, 970
31,051
150,391
104, 293
1,556
25,662
50,759
1,470,132
344, 145
12,746
181,715
185, 474
1,836
76,879
141,305
1,552,010
226, 339
0
0
162, 063
62,847
18,338
553,329
177,796
0
C
z
C
C
C
JULY 1965-JUNE 1966
(11) Experimental, developmental test, or research $4,556,792 16.6 $932,697 $834,971 $2,789,104 $20
(12) Classified purchases~ 115,000 .4 78,409 35,801 790 0
(13) Technical equipment requiring standardization and interchangeability of parts 52, 400 .2 6,109 30, 315 15, 976 0
(14) Technical or specialized supplies requiring substantial initial investment or extended period of 0
preparation for manufacturing 6, 284, 334 23. 0 672, 178 2,977, 359 2, 634, 797 0
(15) Negotiation after advertising 1,616 (`) 0 793 806 17
(16) Purchases to keep facilities available in the interest of national defense or industrial mobilization 337, 241 1.2 47, 430 56, 301 233, 494 16
(17) Otherwise authorized by law 567, 546 2. 1 152, 263 195, 925 185, 227 34, 131
~
PAGENO="0037"
JULY 1965-JUNE 1966
Total $38,243,107 $11,298,202 $10,464,257 $10,740,754 $5,739,894
lntragovernmental 1,014,603 158,799 448,909 363,531 43,364
Total, except intragovernmental 37,228,504 100.0 11,139,403 10,015,348 10,377,223 5,696,530
Formally advertised 5,283,158 14.2 1,792,440 1,417,196 455,292 1,618,230
Other authority (subtotal) 31,945,346 85.8 9,346,963 8,598,152 9,921,931 4,078,300
(1) National emergency (subtotal) 1,856,600 5.0 484,759 328,946 255,909 786,986
(a) Labor surplus area and industry set-asides - 156, 672 .4 37, 375 23, 264 7,690 88, 343 ~
(b) Small business set-asides (subtotal) 1,594,571 4.3 444,897 304,912 240,938 603,824 ~
C
1. Unilateral 1,398,904 3.8 406,559 273,285 142,737 576,323 Z
2. Joint ~195 667 .5 38338 31,627 98,201 27,501 C
(c) Balance-of-payments program 105,357 .3 2,487 770 7,281 94,819 ~
(2) Public exigency 5,081,593 13.7 2,461,358 582,858 827,784 1,209,593 ~
(3) Purchases not more thad $2,500 1,704,868 4.6 461, 560 513, 610 378,776 350,922 Z
(4) Personal or professional services 92,431 .3 34,843 41,959 15,629 0
(5) Services of educational institutions 383,649 1.0 107,819 159,384 116,446 0 ~
(6) Purchases outside United States 1,934,316 5.2 659, 179 694,779 230,799 349, 559 C
(7) Medicines or medical supplins 126,742 .3 2,227 2,455 1,403 120, 657 -~
(8) Supplies purchased for authorized resale 230, 439 .6 56, 487 49, 261 102, 541 22, 150 ~
(9) Perishable or nonperishable subsistence 1,088,222 2.9 61, 865 44, 951 135, 207 816, 199 ~
(10) Impractical to secure competition by formal advertising 5,746,988 15.5 1,386,531 1,842,956 2, 194, 627 322, 874 4
(11) Experimental, developmental test, or research 4,495,669 12. 1 1,084,911 961, 576 2,449, 149 33
(12) Classified purchases 122, 571 .3 74, 284 44, 736 3,551 0 ~
(13) Technical equipment requiring standardization and interchangeability of parts 105, 630 .3 2,461 43, 119 53, 769 6,281 ~
(14) Technical or specialized supplies requiring substantial initial investment or extended period of -4
preparation for manufacturing 6,039,207 16.2 831,676 2,613,892 2,593,639 0
(15) Negotiation after advertising 9,889 (1) 6,225 3,530 108 26
(16) Purchases to keep facilities avilable in the interest of national defense or industrial mobilization.. 2, 171, 779 5. 8 1,455, 618 349, 458 364, 256 2,447
(17) Otherwise authorized by law 754, 753 2.0 175, 160 320, 682 198, 338 60, 573 c~
Cs
JULY 1966-JUNE 19671
Total $44,632,600 $12,390,578 $13,998,335 $12,065,423 $6,178,264
lntragovernmental 1,251,540 227,387 667,771 315,786 40,596
Total, except intragovernmental 43,381,060 100.0 12,163,191 13,330,564 11,749,637 6,137,668
Formally advertised 5,791,979 13.4 1,588,342 2,112,261 409,701 1,681,675
Other authority (subtotal) 37,589, 081 86.6 10, 574,849 11,218,303 11,339,936 4,455, 993
See footnotes at end of table, p. 32.
PAGENO="0038"
TABLE 11.-AWARDS BY STATUTORY AUTHORITY-Continued
[Dollar amounts in thousands]
Total Air Force
Statutory authority (10 U.S.C. 2304(a)) Army amount Navy amount amount
Amount Percent
Defense Supply
Agency amount
(1) National emergency (subtotal) $2, 113, 651
4. 9
$514, 494
$375, 061
$251, 232 $972, 864
108,025
1,827,987
.3
4.2
4,835
506,969
17,109
357,565
8,409
239,875
77,672
723,578
1, 800, 371
27,616
4. 1
.1
496,784
10,185
355, 860
1,705
224, 084
15,791
723, 643
-65
177,639
.4
2,690
387
2,948
171,614
6, 028, 574
1,841,300
90,549
453,955
2, 263, 460
144,514
218,741
1,178,015
7,521,549
4,848,162
129,148
132, 084
13. 9
4.2
.2
1.1
5. 2
.3
.5
2.7
17.3
11.2
.3
. 3
2,319,437
493,488
51,159
102,660
798, 833
3,476
68,559
80,241
1,564,265
1,080,291
106,378
22, 997
1, 640, 269
597,523
27,846
188,452
805, 862
1,250
19,190
59,806
2,147,709
1,292,607
19,931
31, 789
1, 052, 505
381,909
11,544
162,842
253, 345
1,384
109,882
160,754
3,253,154
2,475,246
2,839
65, 062
1, 016, 363
368,380
0
1
405,420
138,404
21,110
877,214
556,421
18
0
12,236
(2) Public exigency
(3)' Purchases not more than $2,500
(4) Personal or professional services
(5) Services of educational institutions
(6) Purchases outside Uni~ed States
(7) Medicines or medical supplies
(8) Supplies purchased for authorized resale
(9) Perishable or nonperishable subsistence
(10) Impractical to secure competition by formal advertising
(11) Experimental, developmental, test, or research
(12) Classified purchases
(13) Technical equipment requiring standardization and interchangeability of parts
(14) Technical or specialized supplies requiring substantial initial investment or extended period of
preparation for manufacturing
(15) Negotiation after advertising
(16) Purchases to keep facilities available in the interest of national defense or industrial mobilization_
(17) Otherwise authorized by law
JULY 1966-JUNE 19671
(a) Labor surplus area and industry set-asides
(b) Small business set-asides (subtotal)
1. Unilateral
2. Joint
Cc) Balance-of-payments program
6, 500, 576 15. 0 976, 180 3, 189, 760 2, 334, 636
2,230 (1) 1,090 789 401
3, 292, 966 7. 6 2, 184,424 455, 979 650, 227
829, 557 1. 9 206, 877 364, 480 172, 974
0~
2,33~
85, 226
1 Less than 0.05 percent.
PAGENO="0039"
ECONOMY IN GOVERNMENT-1967
FIXED PRICE VERSUS COST REIMBURSEMENT CONTRACTS
83
Fixed price contracts decreased slightly to 78.9 percent in fiscal
year 1967. Notable progress has been made in the use of fixed price
~ontracts during the past several fiscal years. Since fiscal year 1961
the increase has been 21 percent.
TABLE 12.-NET VALUE OF MILITARY PROCUREMENT ACTIONS, BY TYPE OF CONTRACT PRICING PROVISIONS, 1
FISCAL YEARS 1952-67
[Dollar amounts in millions]
Fiscal year
Total net
value of
actions
Type of contract
Fixed
price
Cost reimbursement
Dollars
Percent of
Dollars
~-
Percent of
total
total
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
$34, 028
29, 285
10, 942
13, 661
16,101
17,997
22,162
22, 873
21,182
22, 857
25,780
26, 225
25, 328
24,331
33,515
39,249
$27, 954
23, 358
7,708
10,366
11,221
11,995
13,389
13, 520
12,160
13,243
15,667
17, 013
18, 029
18,619
26,551
30,974
811
79. 8
70. 4
75. 9
69.7
66.6
60.4
59. 1
57.4
57. 9
60.8
64. 9
71. 2
76.5
79.2
78.9
$6, 074
5, 927
3,234
3, 295
4,881
6,002
8,773
9, 353
9,022
9,614
10,113
9, 212
7, 299
5,711
6,964
8,275
17.9
20. 2
29. 6
24. 1
30.3
33.4
39.6
40. 9
42.6
42. 1
39.2
35. 1
28. 8
23.5
20.8
21.1
I Includes Army, Navy, and Air Force, but excludes Armed Services Petroleum Purchasing Agency. Beginning Jan. 1,
1957, data for the Military Petroleum Supply Agency, the successor to ASPPA, are included. Includes oversea procurement
except for Army prior to fiscal year 1958. Excludes intragovernmeotal procurement. Excludes procurement actions less than
$10,000 in value. Also excludes some Navy letters of intent (on which pricing provisions had not been determined) during
fiscal year 1952.
Source: "Military Prime Contract Awards and Subcontract Payments or Commitments, July 1966-June 1967," Office
of the Secretary of Defense.
UTILIZATION OF MILITARY STOCKS
I~rom fiscal year 1958 through fiscal year 1966 the amount of
intraservice and interservice utilization rose steadily from $213 to
$1,859 million. During fiscal year 1967, the total was $1,540 million,
a reduction of approximately $300 million, which is attributed to
the fiscal year 1966 reutilization of spares from the Air Force missile
phaseout programs.
TABLE 13.-UTILIZATION OF DOD ASSETS, FISCAL YEARS 1958-67
[In m
illions]
Utilization of DOD assets
Fiscal year
1958
1959
1960
1961
1962
1963
1964
1965
1966
-
1967
DOD interservice supply support pro.
gram (wholesale)
Intraservice utilization of military serv-
ice declared excess property
Interservice utilization of military serv-
ice declared excess property
$32
117
64
$119
232
134
$141
408
117
$228
616
131
$353
637
122
$420
626
111
$396
769
160
$357
1799
304
$231
`1, 240
388
$348
812
380
Total
213
485
666
975
1,112
1,157
1,325
1,460
1,859
1,540
1 Includes reutilization of supply system inventories.
Source: Office of the Secretary of Defense.
PAGENO="0040"
34
ECONOMY IN GOVERNMENT-1967
DISPOSITION OF DOD SURPLUS STOCKS
The volume of disposal of surplus DOD personal property has
declined about 32 percent from fiscal year 1958 to fiscal year 1967
(table 14) while the percent of total gross proceeds to the total acquisi-
tion cost has declined from 3.38 to 2.88 percent and the percent of
proceeds to acquisition cost (other than scrap and salvage) has in-
creased almost l~ percent (table 15). Meanwhile the cost of sales
have more than trebled as a percent of gross proceeds from fiscal year
1958 to fiscal year 1967 (table 16).
TABLE 14-TOTAL DISPOSITIONS 1 (AT ACQUISITION COST) OF DOD SURPLUS PERSONAL PROPERTY, FISCAL
YEARS 1958-67
[In millions of dollars]
Fiscal year
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
Utilized by other Govern-
ment agencies and MAP_
Abandoned or destroyed_ --
Authorized donations
168. 0
62. 0
221. 0
361. 0
99. 0
314.0
141. 0
118. 0
347. 0
349. 0
44. 0
275.0
271. 0
50. 0
258.0
188. 0
74. 0
233.0
194
117
273
395
129
282
604
114
285
628
64
231
Sales (other than scrap and
salvage)
Expended to scrap
2, 465. 8
2, 993. 7
2, 789. 2
4, 576. 8
2, 356. 4
3, 626. 7
1, 771. 3
4, 331. 8
1, 236. 2
2, 233. 1
891. 6
2, 537. 8
980
3, 818
975
2, 983
2 804
2, 614
3 917
2, 146
Total dispositions
5, 911. 0
8, 141. 0
6, 589. 0
6, 791. 0
4, 061. 0
3, 941. 0
5, 399
4, 769
4, 421
3, 986
1 Exclusive of DOD interservice transfers.
2 Includes sale of $86,000,000 of missile phasesut property.
Includes sale of $290,000,000 of missile phaseout property.
TABLE 15-PROCEEDS FROM DISPOSAL SALES OF SURPLUS PERSONAL PROPERTY BY THE MILITARY
DEPARTMENTS, FISCAL YEARS 1958-67
[In
millions]
Proceeds from disposal
1958 1959
Fisca
I year
1960 1961 1962
1963 1964 1965 1966 1967
1 Includes proceeds realized from sale of missile phaseout property.
[In
millions]
Costs of disposal sales of surplus property -
1958 1959
Fisca
I year
1960 1961 1962
1963 1964 1965 1966 1967
Coot for demilitarization $24. 0 $20. 5 $26. 6 $19. 1 $9. 1 $9. 5 $12. 7 $13. 2 $13. 5
Costs for preparation and selling 18. 5 37. 8 51. 8 65. 5 69. 0 62.6 64. 6 65. 1 62. 9
Total 42. 5 58. 3 78. 4 84. 6 78. 1 71. 8 77. 3 78. 3 76. 4
Gross proceeds 183. 0 212. 0 194. 0 167. 0 135. 0 90. 0 103. 0 108. 0 99. 0
Percentofsalescoststogrossproceeds__ 23.0 27.5 40.4 50.6 58.0 75.2 75.0 72.5 77.2
From sale (other than scrap and sal-
vage) $128 $140 $124 $106
From sale of other property 55 72 70 61
Total 183 212 - 194 167
Acquisition cost (total) 5, 460 7, 366 5, 983 6, 123
$87 $59 $61 $55 $47
48 40 42 53 152
135 99 103 108 99
3,482 3,446 4, 815 3,958 3,418
Percent of total gross proceeds to total
acquisition cost 3.38 2.88 3.24 2.71 3.87 2.87 2.14 2.72 2.90 2.88
Percent of proceeds to acquisition cost
(other than scrap and salvage) 5. 18 5. 2 5. 25 5. 98 7. 02 6. 66 6. 22 5. 64 6. 52 5. 42
$34
1 54
88
3,063
TABLE 16.-COSTS OF DISPOSAL SALES OF SURPLUS PROPERTY BY THE MILITARY DEPARTMENTS, FISCAL YEARS
1958-67
$8.9
60. 7
69.6
88. 0
79.0
PAGENO="0041"
APPENDIX I
DEPARTMENT OF DEFENSE
COST REDUCTION PROGRAM-YEAREND
FISCAL ~TEAR 1967 REPORT
[Memorandum for the Secretary of Defense]
WASHINGTON, D.C., October 11, 1967.
Subject: DOD cost reduction program, fiscal year 1967 yearend status
report.
The DOD cost reduction program entered a new phase in fiscal
year 1967. Upon completion of the intially established 5-year cost
reduction program at the end of fiscal year 1966, the program was
revised to report and measure the effects of new, improved, or intensi-
fied management actions on an annual basis. This change resulted
in the establishment of new criteria for determining what type of
actions qualify for reporting and in the decision to measure all sav-
ings on the basis of a "before" and "after" cost comparison of the
effect of an individual management improvement action. Although
these decisions simplified the basic system they have placed added
emphasis on the importance of having good cost data available a~
the level where an action is initiated. The ability to react quickly
to these and other changes have proven to be true tests of the substance
of the program.
As in the past years, yearend results have exceeded original expec-
tations. Savings realized in fiscal year 1967 exceeded the goal of $872
million by $180 million for a total of $1,052 million. The 3-year
effects of fiscal year 1967 actions amount to $2,059 million, well in
excess of the goal of $1,502 million. In view of the revised system
and the expected learning curve associated with its implementation
these results are indeed surprising.
It is apparent that the DOD cost reduction program remains a
live, dynamic influence on the management practices utilized in the
Department of Defense today.
THOMAS D. MORRIS,
Assistant Secretary of Defense (Installations and Logistics).
35
PAGENO="0042"
PAGENO="0043"
Department of Defense-Cost Reduction Program: Yearend
CONTENTS
Page
Summary of savings from fiscal year 1967 actions 39
COST REDUCTION AREAS
BUYING ONLY WHAT WE NEED
T.A.1. Major items of equipment 40
1.A.2. Initial provisioning 41
I.A.3. Secondary items 42
I.A.4. Technical manuals 44
I.A.5. Technical data and reports 45
I.A.6. Industrial production base 45
I.B.1. Utilization of long supply and excess inventory-equipment and
supplies 4&
I.B.2. Utilization of idle industrial plant equipment 48
I.B.3. Utilization of excess contractor inventory 48
IC. Value engineering 49
ID. Inventory item reduction 50
BUYING AT THE LOWEST SOUND PRICE
ILA. Shift from noncompetitive to competitive procurement 51
ILB. Direct purchase breakout 52'
II.C. Multiyear procurement 53.
REDUCING OPERATING COSTS
IIT.A. Terminating unnecessary operations 54
TuB. Reducing operating expenses 54
ITI.C.1. Improving telecommunication management 56
III.C.2. Transportation and traffic management 57
11I.C.3. Equipment maintenance management 58
ITI.C.4. Noncombat vehicles management 60
TTI.C.5. Decreasing use of contractor services 60
III.C.6. Military housing management 61
III.C.7. Real property management 61
TI.[.C.8. Packaging, preserving, and packing 62
MILITARY ASSISTANCE PROGRAM
IV. Military assistance program (MAP) 63
Summary of savings from 1967 actions by DOD component 64
Summary by realized savings by appropriation 67
Disposition of realized savings 69
Summary of authorized manpower Savings eliminated/transferred 69
Audit opinion 70
37
PAGENO="0044"
PAGENO="0045"
DEPARTMENT OF DEFENSE COST REDUCTION PROGRAM-SUMMARY OF SAVINGS FROM FISCAL YEAR 1967
ACTI ONS
In millionsi
Realized Estimated Total
savings savings savings
Fiscal Fiscal Fiscal Fiscal
Goal year year year year Goal
1967 1968 1969 1967-69
SUMMARY BY AREA
I. Buying only what we need:
A. Refining req uirements calculations:
1. Major items of equipment $110 $136 $58 $2 $196 $203
2. Initial provisioning 20 31 21 9 61 40
3. Secondary items 45 110 7 6 123 56
4. Technical manuals 4 2 1 3 6
5. Technical data and reports 7 10 2 3 15 10
6. Industrial production base 4 4 4 4
B. Utilization of long supply and excess inventory:
1. Equipment and supplies 37 49 11 2 62 51
2. Idle production plant equipment 1 1
3. Excnss contractor inventory 2 1 1 2
C. Eliminating goldplatisg 300 339 161 109 609 419
D. Inventory item reduction 4 3 3 4
Total, buying only what we need 534 685 260 132 1,077 796
II. Buying at the lowest sound price:
A. Shift from 000compntitive to compntitivn procure-
ment 54 30 21 28 79 130
B. Direct parchase breakout 10 11 4 4 19 15
C. Multiyear procurement 40 20 20 14 63 100
Total, buying at lowest sound price. 104 70 45 46 161 245
III. Reducing operating costs:
A. Terminating unnecessary operations 149 7 23 34 64 49
B. Reducing operating expense 63 135 117 108 360 147
C. Increasing efficiency of operations:
1. Improving telecommunication management - 13 11 15 14 40 31
2. Improving transportation and traffic manage-
ment 39 53 57 30 140 73
3. Improving equipment maintenance manage-
ment 25 32 34 27 93 64
4. Improving noncombat vehicle management... 3 2 2 4 8 6
5. Decreasing use of contractor services 1 4 2 1 7 5
6. Improving military housing management 5 5 3 2 10 11
7. Improving real property management 17 14 9 8 31 42
8. Packaging, preserving, and packing 9 18 10 9 37 18
Total, reducing operating costs 224 281 272 237 790 446
IV. Military assistance program (MAP):
ISA 9 15 6 8 29 14
Air Force 1 1 1 2 1
Total, military assistance program 10 16 7 8 31 15
Total program 872 1,052 584 423 2,059 1,502
SUMMARY BY MAJOR CATEGORY
I. Bsying only what we need 534 685 260 132 1,077 796
II. Buying at the lowest sound price 104 70 45 46 161 245
III. Reducing operating costs 224 281 272 237 790 446
IV. Military assistance program 10 16 7 8 31 15
Tstal program 872 1,052 584 423 2,059 1,502
SUMMARY BY DEPARTMENT/AGENCY
Army 224 221 136 105 462 374
Navy 272 318 158 101 577 474
Air Force 332 464 267 192 923 583
DSA 31 33 14 14 61 51
DCA 4 1 3 3 7 6
ISA 9 15 6 8 29 14
Total program 872 1,052 584 423 2,059 1,502
1 Represents the annual rate of savings expected to be realized from fiscal year 1967 decisions to consolidate, reduce,
or close Defense installations and activities.
39
PAGENO="0046"
40 ECONOMY IN GOVERNMENT-i 967
I. BUYING ONLY WHAT WE NEED
I.A.i. MAJOR ITEMS OF EQUIPMENT
I. Scope and objective
A. Major items of equipment encompass end items such as ships,
aircraft, missiles, ammunition, tactical vehicles, noncombat vehicles,
and other items which are controlled on a line item basis by the
headquarters level of DOD components.
B. The primary objective of this area is to initiate management
improvement actions which will reduce the amount of appropriated
or revolving funds expended for major items of equipment. This
objective can be achieved by taking actions which: (1) decrease the
quantity of major items procured; or (2) reduce the cost of major
items procured even though the quantity purchased is not reduced.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to
be realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
[In millionsj
Fiscal year 1967 Fiscal year Fiscal year Fiscal years 1967-69
1968 1969
Goal Realized Estimated Estimated Total Goal
Army
Navy
Air Force
$17
58
35
$1
76
59
$2
37
19
$2
$3
113
80
$33
105
65
Total
110
136
58
2
196
203
B. Achievements in this area substantially exceeded expectations
during fiscal year 1967, particularly for Navy and Air Force. Army
savings were disappointing, whereas Navy achieved realized savings
of 131 percent and Air Force 170 percent of their respective goals.
Overall DOD achievements amounted to 120 percent of the fiscal
year 1967 goal.
III. Examples
There were more than 40 significant actions taken in this area during
fiscal year 1967. The following examples are typical:
A. Gancellatiom of Little John warhead procurement-The Army
canceled procurement of 146 Little John warheads, FL/Smoke M8A1,
based upon a special review conducted by the Army Materiel Com-
mand. This action saved $353,000 in fiscal year 1967.
B. Reduction in Polaris A-3 missile procurement.-The Navy, in
conjunction with the development contractor, conducted intensive
studies and reviews of progress during the development of the Poseidon
missile. As a result, a decision was made to reduce the number of pilot
test missiles and advance the operational availability date of the
Poseidon missile system by 1 year. This action produced two benefits.
It saved $46 million in Poseidon missile development and testing
costs (reported in Area I.C. Value Engineering) and $43.9 million in
major item procurement of the Polaris A-3 missile. The fiscal year
PAGENO="0047"
ECONOMY IN GOVERNMENT-i 967 41
1967 programed procurement of the Polaris A-3 was canceled as a
result of the advance in the operational availability date of the
Poseidon missile system scheduled to replace the Polaris.
C. Reduction in T-28 trainer aircraft procurement.-A Navy internal
audit report disclosed low utilization of T-28 aircraft assigned for
proficiency flying at some installations. This report triggered a Navy-
wide review of aircraft requirements for proficiency flying. The Navy-
wide review disclosed that a quantity of the T-28 aircraft being used
for proficiency flying could be transferred to the Basic Training
Command and used to satisfy a procurement requirement for pilot
training aircraft. Planned procurement of T-28 prop trainers in the
amount of $18.2 million was canceled as a result of this action.
D. Reduction in procurement of BLU-32/B and Napalm B (fire
bombs) -The Air Force, through an intensive review of requirements,
asset positions and use data, was able to cancel a programed fiscal year
1967 procurement of 29,400 fire bombs and 11,300,200 pounds of
Napalm B. This action produced savings of $5.2 million in fiscal
year 1967.
E. Termination of contract for power sharing gear box.-The Air
Force conducted a complete reanalysis and cost-effectiveness reevalua-
tion of the requirement for a power sharing gear box which had been
contracted for a cost of $1,500,000. As a result, the Air Force concluded
that the benefits to be gained did not warrant the expenditure of
$1.5 million. The contract was terminated at a cost of $54,126 and
funds amounting to $1,350,373 were released for use on higher priority
requirements.
I.A.2. INITIAL PROVISIONING
I. Scope and objective
A. Initial provisioning is the process of determining the range and
quantity of items required to support and maintain end items of
equipment for an initial period of time. Follow-on provisioning (a
subsequent provisioning of the same equipment from the same con-
tractor) and reprovisioning (a subsequent provisioning of the same
equipment from a different contractor) are refinements of initial
provisioning which are included in the scope of this area.
B. The primary objective of this area is to initiate management
improvement actions which will reduce the amount of appropriated or
revolving funds required during the initial provisioning phase. This
objective can be achieved from two types of actions: (1) Those which
decrease the quantity or range of items procured during initial pro-
visioning phases; and (2) those which reduce the cost of items procured
during initial provisioning even though flO reductions are made in the
quantities procured.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
PAGENO="0048"
42 ECONOMY IN GOVERNMENT-i 967
[In millionsj
Fiscal year 1967 Fiscal year Fiscal year Fiscal year 1967-69
1968 1969
Goal Realized Estimated Estimated Total Goal
Army
Navy
Air Force
$10
10
$16
15
$16
5
$7
2
$39
22
$20
20
Total
20
31
21
9
61
40
B. Savings reported by the Navy and Air Force exceeded their
fiscal year 1967 goal by more than 50 percent. However, as in past
years, the Army failed to achieve significant savings in this area.
III. Examples
There were more than 30 actions reported in this area during fiscal
year 1967, 13 of which produced savings of over $100,000 each. A few
representative examples follow:
A. Fleet logistics support improvement program (FLSIP) .-Savings of
$13.3 million were achieved in fiscal year 1967 by a change in the
method of calculating initial on-board ship requirements for ships
scheduled for conversion. The change, effective in August 1966,
resulted from studies and analysis made under the FLSIP.
B. Phased provisioning.-Savings of more than $3.4 million in
initial provisioning were achieved by the Air Force through the applica-
tion of phased provisioning on the C-141 aircraft program. Reductions
of varying quantities on 27 selected high-cost items were made without
adverse effect on mission support.
C. Reduction in aircraft engine procurement .-T he Air Force re-
evaluated the methodology for computing spare engine requirements.
As a result, selected factors were changed and a reduction of 11 TF
33-P9 engines, costing approximately $2.7 million, was made in fiscal
year 1967.
I.A.3. SECONDARY ITEMS
I. Scope and objective
A. Secondary items consist of equipment and materiel not included
in the scope of area I.A.1. major items of equipment. Secondary items
include: (1) Spare components, subsystems and assemblies; (2) repair
parts; (3) bulk items and material such as sheet aluminum, welding
rods, gasket material, etc.; and (4) minor end items such as furniture,
office equipment, shop equipment, etc.
B. The primary objective of this area is to initiate management
improvement actions which will reduce the amount of apprOl)riated or
revolving funds expended for secondary items. To achieve this objec-
tive, actions must be taken to: (1) Decrease the quantity of items
procured; or (2) reduce their cost.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions taken
during fiscal year 1967 is as follows:
PAGENO="0049"
ECONOMY IN GOVERNMENT-i 967 43
[In millions[
Fiscal
Fiscal
Fiscal y
ear 1967
year
1968
year
1969
Fiscal ye
ars 1967-69
Goal
Realized
Estimated
Estimated
Total
Goal
Army
$11
$67
$1
$1
$69
$14
Navy
Air Force
11
20
11
29
2
4
1
4
14
37
13
25
DSA
3
3
3
4
Total
45
110
7
6
123
56
B. In view of the increasing requirement (both dollars and items)
for secondary items this area will continue to receive toj) management
attention at all levels of the DOD. Each DOD component was able
to achieve savings eqaul to or greater than their fiscal year 1967 goal.
A substantial portion ($45.4 million) of the savings resulted from a
change by Army in the supply pipeline from the continental United
States to the Republic of Vietnam (RVN).
III. Examples
A. Cancellation of excessive quantity requisitions.-A special program
to validate back orders and requisitions was initiated by the Army
Tank Automotive Center. Items managers were directed to contact
requisitioners and reconfirm req uirernents prior to procurement. While
the original program involved only SEA, the program was subse-
quently expanded to include all customer requisitions. Customer
requisitions totaling more than $30 million were canceled during
fiscal year 1967. Savings of more than $18 million were reported from
this action.
B. Repair of center wing units of F-4 aircraft-Prior to development
and implementation of this repair technique the center section wing
units with damaged skins were surveyed. No Navy or commercial
procedure existed for the repair of these wing units. The repair is
now accomplished by removing the damaged skin and replacing it
with new "Chem-Mill" machined torque box skins obtained from the
manufacturer. The skins are individually form fitted to the wing
section. All special tooling, support equipment, and procedures for
reskinning were designed by the Navy. Savings of almost $0.4 million
were realized in fiscal year 1967; fiscal year 1968 and fiscal year 1969
savings are estimated at $1 million for each year.
C. Reduced stock levels for tenders and repa r ships.-New tender
and repair shipload lists were developed and placed in effect during
fiscal year 1967. The range and depth of stock was reduced from a
1-year requirement to a 90-percent availability level for a 90-day
period. Savings of $7.3 million were realized from this action in
fiscal year 1967.
D. Intensified review of TAC requirements-As a result of the
Presidential memo of September 16, 1966, directing improved pro-
curement and management of property, the Tactical Air Command
directed each TAC to conduct a special step-by-step review of local
funded requirements. Savings of $1.2 million in fiscal year 1967
resulted from this special review.
S5-G98-67--------4
PAGENO="0050"
44 ECONOMY IN GOVERNMENT-i 967
I.A.4. TECHNICAL MANUALS
I. Scope and objective
A. This area deals with requirements for new technical manuals
and revision to existing manuals, whether procured commercially or
prepared in-house.
B. The area objective is to initiate management improvement ac-
tions which will (1) reduce quantitative requirements or (2) lower
qualitative requirements without adversely affecting mission
accomplishments.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions taken
during fiscal year 1967 is as follows:
[In millionsj
Fiscal
Fiscal
Fiscal year 1967
year
1968
year
1969
Fiscal year 1967-69
Goal Realized
Estimated
Estimated
Total Goal
Army
$1
$1
Navy
1
2
Air Force
2 $2
$1
$3 3
Total
4 2
1
3 6
B. The Army and Navy achievements ($0.3 million each) for fiscal
year 1967 are disappointing. These results tend to indicate a lessening
of emphasis when compared to accomplishments of prior years.
III. Examples
The following two Air Force examples are indicative of the actions
which are possible in this area:
A. Red'uction in manuals for G-141 aircraft.-Representatives of the
Air Force, the prime contractor and various subcontractors cooperated
in an intensive review of manual requirements for the C-141 air-
craft. As a result, some manuals were combined and others were
deleted upon disclosure that existing manuals for similar systems
could be adapted for use in the C-141 program. This action reduced
the cost of manuals by more than $0.7 million.
B. Air Force ground wire communications requirements--In the
past the Air Force has procured technical manuals from the equip-
ment prime contractor in sets configured for each individual system;
i.e., 500 line system, 1,000 line system, 2,500 line system, etc. During
fiscal year 1967, communications equipment specialists and technical
data control officers explored the advantages of buying basic manuals
on a typical XY telephone central office system which contained data
applicable to all varying line system configurations. It was concluded
that this approach would eliminate duplications of basic common
data contained in individual system technical manuals and would
reduce the cost of revisions to upgrade for future system configura-
tions. Application of this new approach produced savings of over
$0.2 million in fiscal year 1967.
PAGENO="0051"
ECONOMY IN GOVERNMENT-i 967 45
I.A.5. TECHNICAL DATA AND REPORTS
I. Scope and objective
This area deals with the determination of technical data and report
requirements, and the acquisition and distribution of technical data
and reports. Savings result from new, improved, or intensified manage-
ment actions that eliminate or reduce requirements, reduce the scope
of content, reduce the frequency of submissions, or otherwise produce
economies without adversely affecting mission obj ectives.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year: 1967 is as follows:
tin miilionsj
Fiscal year 1967 Fiscal Fiscal Fiscal years 1967-69
year 1968 year 1969 -
Goal Realized estimated estimated Total Goal
Army
Navy
Air Force
$1
2
4
$2
1
7
$1
1
$1
1
1
$4
2
9
$1
3
6
Total
7
10
2
3
15
10
B. Total savings for fiscal year 1967 exceeded expectations by
approximately $3 million, ~r 40 percent. The Air Force achievements
are particularly noteworthy since they represented 70 percent of the
total savings reported for fiscal year 1967.
III. Examples
There were more than 800 validated actions reported during fiscal
year 1967, of which 19 produced savings of more than $100,000 each.
TIme following two examples set forth the types of actions reported in
this area:
A. Utilization of contractor format and deletion of data requirements.-
The cost of technical data requirements on an Army contract for the
T64-GE-16 engine was estimated at $1,141,750. Through an in-
tensified review of the Army requirements, which required conform-
amice to specific format and content, this cost was reduced by $583,000
by accepting certain data in contractor ~oimn.at and deletion of some
data items of questionable necessity.
B. Deletion of equii~~ment faiioee reports.------An average of 30 unit
failure reports were being prepared weekly under an Air Force con-
tract at a cost of $250 each. A subsequent revi~\v of this report
requirement revealed that unit failure information was being recorded
by the contractor for his own use and could be used in lieu of the unit
failure reports. The unit failure reporting requirement was deleted
from the contract with a net savings of $0.2 million accruing to the
Government.
I.A.6. INDUSTRIAL PRODUCTION BASE
I. Scope and objective
This area encompasses the acquisition, construction, expansion,
replacment, modernization, and utilization of industrial facilities and.
equipment. It includes facilities and equipment made available to
PAGENO="0052"
46 ECONOMY IN GOVERNMENT-i 967
both commercial contractors and Government-owned plants. The
primary objective of this area is to encourage the initiation of manage-
ment improvement actions which will decrease the amount of funds
required for acquisition, expansion, or modernization of industrial
facilities and production equipment.
II. Goals and a~complishments
A. A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
[In millionsj
Fiscal year 1967 Fiscal Fiscal Fiscalyear 1967-69
year 1968, year 1969,
Goa I Realized estimated estimated Total Goal
Army
Navy $1 $1
Air Force 3 $4 $4 3
Total 4 4 4 4
B. The Air Force was the only DOD component which realized
savings of any significance in this area. All but a few thousand dollars
of the Air Force saving resulted from the combined management
efforts of many parties on the CBTJ-24/29 munitions program. As a
result of these efforts, a reduction of over $3.7 million in projected
facilities expansion was achieved.
I.B.1. UTILIZATION OF LONG SUPPLY AND EXCESS INVENTORY-
EQUIPMENT AND SUPPLIES
I. Scope and objective
This area encompasses long supply, excess and surplus equipment
and supplies. It includes all types of end items (aircraft, ships, missiles,
etc.), spares and repair parts, and other items of equipment and sup-
plies which are stratified as long supply, excess, or surplus within the
Department of Defense. The primary objective is to initiate manage-
ment mprovement actions which will result in the utilization of this
material in lieu of new procurement.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
In millionsj
Fiscal year 1967 Fiscal year Fiscal year Fiscal years 1967-69
1968 1969
Goal Realized estimated estimated Total Goal
Army $17 $11 $2 $13 $22
Navy 4 7 5 $2 14 5
Air Force 12 28 4 32 18
DSA 4 3 3 6
Total 37 - 49 11 2 62 51
PAGENO="0053"
ECONOMY IN GOVERNMENT-i 967 47
B. The criteria for reporting savings in this area were changed
significantly commencing with fiscal year 1967 reporting. In prior
years savings were reported to the extent that the gross utilization
of long supply and excess inventory in the current year exceeded the
gross utilization in the base year. Beginning in fiscal year 1967, savings
are reported only when it can be demonstrated that the utilization
occurred as a result of a new, improved, or intensified management
action taken in the current year. The actual utilization of long supply
and excess stocks within the DOD in fiscal year 1967 was over $1.5
billion. This is approximately the same level of gross utilization
achieved in fiscal year 1966.
III. Examples
rfhe following examples are typjcal of the innovations reported in
this area:
A. Rebuiid/retvofit of cuvburetor- to fuel injection-type engines-The
Army satisfied a fiscal year 1967 requirement for 700 each 895-S fuel
inj ection engines by instituting a program involving the rebuild/
retrofit of a like number of 895-3 carburetor-type engines which were
in an excess status. This action resulted in a saving of $1,292,611
after deducting the costs of the rebuild/retrofit program and the
salvage value which would have been realized from the sale of the
excess 895-3 engines. It is estimated that an additional 150 carburetor-
type engines will be rebuilt/retrofited during fiscal year 1968 and during
fiscal year 1969, with an additional savings of $276,897 in each year.
B. Use of excess axle assemblies-After extensive field tests, the
Army determined that 1,950 excess axle assemblies used on gasoline
trucks could be used, after modification, on multifuel trucks. This
action saved $378,605 in fiscal year 1967 and will save another $567,906
in fiscal year 1968.
C. Mod~fication of excess MK-52 mod. 0 detonating fuses.-The
Navy satisfied a requirement for MK-52 mod. 3 auxiliary detonating
fuses (ADF) and saved $974,842 in fiscal year 1967 by devising a way
of modifying excess MK-52 mod. 0 detonating fuses. Previously, the
excess fuses had limited usage as point detonating fuses with projec-
tiles of 8 inches or more.
D. Replacement of an obsolete powerplant.-A requirement at Pearl
Harbor for replacing an obsolete battery I)oWerplaflt was satisfied by
the Navy through the use of an excess modern diesel generator plant
scheduled for disposal from an offshore location of the Naval Mine
Defense Labo~atory, Panama City, Fla. This action resulted in a net
saving of $884,000 after deduction of the cost of removal, estimated
salvage value of the equipment, and the estimated cost of alterations.
E. Use of Navy surplas aircraft engines-The Air Force realized a
net saving of $777,500 through the modification and use of Navy sur-
pins aircraft engines. rfhese engines, originally procured for use on
Navy SP-5B aircraft, will support, after modification, the Air Force
AT-37 aircraft.
F. Use of Navy excess fact tanks-The Air Force canceled the pro-
curement of 337 new auxiliary fuel tanks for A-i.E aircraft by modify-
ing and using Navy excess MR-Vu tanks. This action resulted in a
fiscal year 1967 saving of $306,100 and an estimated saving in fiscal
year 1968 of $465,900.
G. Use of excess large sizes of Army overcoats.-The Defense Supply
Agency modified 77,802 excess large sizes of CG-107 Army overcoats
PAGENO="0054"
48 ECONOMY IN GOVERNMENT-i 967
to regular and medium sizes, thus precluding size shortage buys for
this overcoat which was being phased out and replaced by the new
AG-44 overcoat. The modification resulted in a net saving of
$1,074,000.
I.B.2. UTILIZATION OF IDLE INDUSTRIAL PLANT EQUIPMENT
I. Scope and objective
This area relates to the utilization of industrial plant equipment.
The basic objective of the area is to initiate management improvement
actions which will result in the use of idle industrial plant equipment.
II. Goals and accomplishments
A. A summary of results follow:
[In millionsj
Fiscal year 1967 Fiscal year Fiscal year Fiscal years 1967-69
1968 1969
Goal Realized estimated estimated Total Goal
Army
Navy ~1 $1
Air Force
Total 1 1
B. Extensive procedures have been implemented in prior years to
control, account for, and insure maximum utilization of industrial
plant equipment under the central control of the Defense Industrial
Plant Equipment Center (DIPEC). This area is, therefore, being
dropped as a separate area in the cost reduction program in fiscal year
1968. Identifiable savings which result from new, improved and inten-
sified management actions will be reportable in area III.B. 1. General
Management ImpTovements.
I.B.3. UTILIZATION OF EXCESS CONTRACTOR INVENTORY
I. Scope of objective
A. This area applies to Government-owned personal property in the
hands of commercial contractors (raw material, parts, supplies, and
plant equipment, special tooling and test equipment which is not
centrally reportable to the Defense Industrial Plant Equipment
Center).
B. The basic objective of this area is to initiate management im-
provement actions that will permit the use of Government-owned
personal property which becomes excess to the requirements of current
contracts or which is residual to terminated or completed Government
contracts with commercial contractors.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
PAGENO="0055"
ECONOMY IN GOVERNMENT-i 967 49
[In millions]
Fiscal Fiscal
Fiscal year 1967 year year Fiscal years 1967-69
1968, 1969,
Goal Realized Esti- Esti- Total Goal
mated mated
Army
Navy
AirForce
$1
1
$1
$1
$1
1
Total
2
1
1
2
B. The total savings for fiscal year 1967 resulted from 11 actions,
10 of which amounted to less than $100,000 each. The other action
produced a saving of $165,000, and it involved the acquisition by the
Navy Underwater Sound Laboratory (USL) of RCA long-range ocean
surveillance equipment residual to the terminated "Project Trident"
contract. This equipment was refurbished and modified by RCA,
under contract to USL, to provide USL with optical beam forming
and frequency analyzing equipment.
C. Effective with fiscal year 1968 reporting, this area will be dropped
as a separate cost reduction area. Savings resulting from future actions
will be reportable in area I.B., Use of Long Supply, Excess and Surplus
Inventory.
I.C. VALUE ENGINEERING
I. Scope and objective
Value engineering (VE) is a systematic effort directed at analyzing
the functions of Defense systems, equipment, facilities, procedures,
methods and supplies to achieve necessary functions at the lowest
overall cost, consistent with requirements for performance, reliability,
quality and maintainability. All savings to the DOD which result
from VE actions taken by DOD personnel and certain VE actions
taken by Defense contractors are reportable in this area.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to
be realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
[In millions]
Fiscal
Fiscal
Fiscal year 1967
Goal Realized
year
1968,
esti-
year
1969,
esti-
Fiscal year 1967-69
-
Total Goal
mated
mated
Army
Navy
Air Force
$120 $78
69 113
117 134
$68
24
60
$36
14
51
$182 $142
151 97
245 164
DSA
12 14
9
8
31 16
Total
300 339
161
109
609 419
B. This area continues to be one of the most fruitful areas in the
cost reduction program. Although Army failed to achieve their goal
for fiscal year 1967, the total DOD goal was exceeded by more than
10 percent.
PAGENO="0056"
50 ECONOMY IN GOVERNMENT-1967
III. Examples
During fiscal year 1967 there were approximately 550 individual YE
actions which produced savings of more than $100,000 each. There
were several thousand actions of lesser amounts with the Air Force
reporting about 800 in the fourth quarter. The following examples are
set forth to illustrate the actions which are being taken in the area
of value engineering:
A. Aircraft acceptance tests-A saving of $226,000 was achieved by
a YE review which recommended elimination of certain acceptance
test requirements for the CH-47 aircraft. Two major tests were found
unnecessary based upon the electronic configuration of the delivered
model. (Army.)
B. Missile support-The support plan for the Pershing guidance
and control section was subjected to a YE study team analysis.
Implementation of the team recommendations for reduction of life-
time buys on select high dollar spare parts, increased general support
capability for rework, reduced maintenance turnaround, and produced
savings of $5.98 million. (Army.)
C. Barracks.-A YE review of engineering plans for new living
quarters at a training station indicated that a reduction of over~iead
space was feasible without sacrifice of function. The final design
reflected a reduction of 2 feet 8)~ inches in the height of the building
which cut construction costs by $141,000 in fiscal year 1967. (Navy.)
D. Bomb fuse.-Through a YE analysis on the EX 332 fuse,
alternate manufacturing methods were suggested. Design changes were
made which decreased production costs and saved $152,000. (Navy.)
E. Strike cameras-Over $2.1 million was saved as the result of a
YE design review of the KA-71A low-altitude aircraft panoramic
camera. The required functions in the redesigned camera, designated
KB-18A, were maintained, performance improved, and unit cost
reduced by about 40 percent. (Air Force.)
F. Minuteman test procedures.-IViethods, procedures, and test data
from the service test laboratory responsible for LGM-30 propulsion
subsystem certification, was subjected to a YE study. Results indicated
that contractor performance of a similar test for comparative analysis
was an unnecessary duplication of test effort. Dual conduct of non-
ballistic tests was eliminated, cutting costs by $250,000. (Air Force.)
G. Oil drum adapter-Revision of detail drawings for the hose
connection adapter to fuel drums was approved based upon a YE
study. This change produced a saving of $139,000. (DSA.)
I.D. INVENTORY ITEM REDUCTION
I. Scope a;nd o&jective
A. This area applies to the total number of items in the DOD supply
system. It includes all types, kinds, and sizes of items managed
by the military departments, the Defen~e Supply Agency, and other
DOD components.
B. rfhe basic objective of the area is to initiate management im-
provement actions which will reduce the number of items carried in the
DOD supply system. This objective can be achieved by: (1) identifying
interchangeable and substitute items; (2) improving and developing
more complete item identification data; and (3) applying standardiza-
tion studies to additional classes of items.
PAGENO="0057"
ECONOMY IN GOVERNMENT-i 967
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
[In millions[
Fiscal
year 1967
Fiscal
Fiscal
Fiscal years
1967-69
-~-
year
1968
year
19)9
-
-
Gaal
Realized
estimated
estimated
Total
Goal
Army
$1 $3
$3
$1
Navy
Air Force
1
1
DSA
2
2
Total
4 3
3
4
B. Savings occur in this area when an item of supply is eliminated
from the Federal catalog as the result of a new, improved, or intensified
management action. Unfortunately, the actual elimination of the item.
usually occurs some years after the action is tak~en and the decision is
made to eliminate the item. This is because it is prudent to keep most
items in the system as either substitutes for standard items or, in some
cases, to fill MAP or other non-DOD requirements, until stocks are
depleted. This necessary delay between the decision to eliminate and
the actual elimination results in very few item reduction actions which
qualify for reporting in an annual-type program. Also, due to the char-
acter of the system for funding for the operation of the overall depart-
mental/agency supply systems, of which item reduction is one of many
parts, it is very difficult to establish the realized savings effects of
qualifying item reduction actions and provide the required documenta-
tion. For these reasons, inventory item reduction will not be included
as an area for reporting dollar savings in the cost reduction program in
fiscal year 1968.
II. BUYING AT THE LOWEST SOUND PRICE
hA. SHIFT FROM NONCOMPETITIVE TO COMPETITIVE PROCUREMENT
I. Scope and objective
Significant reductions are usually achieved in the cost of end items,
spares, and services when they are procured competitively. Therefore,
the objective of this area is to encourage maximum competition in
procurement of end items, spares, and services.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions taken
during fiscal year 1967 is as follows:
[In milliansj
Fiscal ye
ar 1967
Fiscal
Fiscal
Fiscal yea
rs 1967-69
year
1968
year
1969
-~---
Goal
Realized
estimated
estimated
Total
Goal
.
Army
Navy
Air Force
$10
25
15
$10
3
16
$11
2
7
$17
3
7
$38
8
30
$25
60
35
DSA
4
1
1
1
3
10
Total
54
30
21
28
79
130
PAGENO="0058"
52 ECONOMY IN GOVERNMENT-i 967
B. During fiscal year 1967, 42.9 percent of the total procurement
dollars was awarded on a price competitive basis. This is an outstand-
ing achievement in view of the increased procurement volume and the
urgency associated with many procurements as a result of Southeast
Asia activity.
III. Examples
A few examples of the savings achieved from price competition
are as follows:
Items
Noncompeti.
tive unit price
Competitive
unit price
Percent
reduction
Savings
Electron tube
Radio set
Night vision sight
Cluster bomb dispenser and container
l5ultiplexereq'iipment
Energy absorbers
$2, 538
15, 123
1, 573
710
4,806
24,557
$1,745
7,260
984
310
2,808
9,926
31. 25
52. 00
37. 45
56. 34
41.58
59.58
$396, 400
3, 985, 162
884, 130
7, 276, 056
272,700
1,020,459
II.B. DIRECT PURCHASE BREAKOUT
I. Scope and objective
Spare parts or components of major end items and systems can often
be purchased at substantial savings direct from item manufacturers
rather than from prime contractors for major equipments and systems
in which the spares or components are used. The objective of this
area is to encourage direct purchase from the item manufacturer when
appropriate.
II. Goals and accomplishments
A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions taken
during fiscal year 1967 is as follows:
Un millionsi
Fisca' year Fiscal year Fiscal year Fiscal years
1967 1968 1969 1967-69
Goal Realized Estimated Estimated Total Goal
Army
Navy
Air Force
$1
6
3
$1
6
4
$4
$4
$1
6
12
$1
6
8
Total
10
11
4
4
19
15
III. Examples
The following examples are illustrative of the savings realized from
direct purchase breakout:
Items Prime's price Manufacturers'
price
Percent Savings
reduction
90 spare parts $8, 500, 000 $5, 000, 000 41 $3, 500, 000
Compensator, machine trim 2, 500 I, 801 28 244, 500
Modification kit, radar scope 624 177 72 116, 900
PAGENO="0059"
ECONOMY IN GOVERNMENT-i 967 53
11.0. MULTIYEAR PROCUREMENT
I. Scope and objective
Multiyear procurement is the awarding of a contract which covers
two or more program years' requirements in lieu of awarding a separate
contract each year. Experience has shown that lower contract prices
can be obtained by awarding contracts on a competitive multiyear
basis versus repetitive single-year contracts. The basic obj ective of
this area is to insure maximum utilization of the multiyear technique
in the procurement of DOD material.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
[In millionsi
Fiscal year 1967 Fiscal year Fiscal year Fiscal year 1967-69
1968 1969
estimated estimated -
Goal Realized Total Goal
Army
Navy
Air Force
$10
20
10
$4
23
2
$9
6
5
$9
3
2
$22
32
9
$25
50
25
Total
40
29
20
14
63
100
B. Significant actions have been taken to increase the use of the
multiyear procurement procedure (MYP): (1) the criteria for use of
the MYP was broadened in October 1966 to cover a wider range of
procurement circumstances and (2) legislation is now pending in
Congress to permit the use of 1-year funds.
III. Examples
More than 60 inultiyear contracts awarded iii fiscal year 1967
produced reportable cost reduction savings in fiscal year 1967. The
following examples are indicative of the potential for savings which can
be realized by using the multiyear procurement technique:
Unit price Fiscal
year 1967
Single year Multiyear net savings
Army:
Image intensifier assembly $2, 060. 00 $1, 795. 00 $795, 000
Radio set AN/PRC-77 985. 00 937. 16 258, 336
Radio set AN/GRC-106 7, 119.46 6,897. 00 166, 955
Rocket motors-M30A2 1,755. 00 1,703. 00 113, 672
Navy:
Navigational sets (AN/ARN-52(V)) 6,531. 00 5,060.00 287, 000
Three coordinate radar 1, 415, 029. 00 1, 188, 977. 00 1, 808, 416
Mechanical time fuze-MK349 Mod 0 31.31 30. 01 262, 970
Air operation centrals (w/support equip) 8,696,800. 00 8, 000, 000. 00 1, 393, 600
Air Force: Aircraft engines, TF-41 354,090.00 342, 904. 00 973, 182
PAGENO="0060"
54 ECONOMY IN GOVERNMENT-i 967
III. REDUCING OPERATING COSTS
III.A. TERMINATING UNNECESSARY OPERATIONS
I. Scope and objective
All military installations and bases throughout the world are in-
cluded in the scope of this area. The primary objective is to c]ose
completely or partially, by excessing, inactivating, or placing in a
standby status, all facilities not required by the Department of
Defense.
II. Goals and accomplishments
A. During fiscal year 1967 a total of 48 decisions was made to close
or reduce the operations of military installations and bases. These
actions are expected to produce annual savings of approximately
$48 million upon final completion of the actions. A summary of savings
already achieved and those expected to be realized during fiscal year
1968 and fiscal year 1969, as a result of the decisions made in fiscal
year 1967, is as follows:
[In millionsj
Fiscal year Fiscal year Fiscal year Fiscal year
1967 realized 1961 estimated 1969 estimated 1967-69 total
Army
Navy
Air Force
$6
1
$1
20
2
$7
21
5
$8
47
8
DSA
1
1
Total
7
23
34
64
B. Some effects of the fiscal year 1967 decision are as follows:
[Dollar amounts in millions[
Army
Navy
Air Force
DSA
Total
(1) Number of actions
(2) Acres released (thousands)
(3) Acquisition cost
(4) Personnel space reduction:
(a) Military
(b) Civilian
Total
(5) Annual savings
29
57
$18
683
1, 789
2,472
$14
10
2
$6
297
587
884
$28
7
7
$9
689
183
802
$5
2
17
46
63
$1
4
66
$33
~
1,686
2, 535
4,221
$48
III.B. REDUCING OPERATING EXPENSES
I. Scope and objective
Savings from all valid actions which do not fall within the scope of
any other area are reportable in this area of the cost reduction pro-
gram. The primary objective is to initiate management improvement
actions which will reduce operating expenses throughout the Depart-
ment of Defense.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
PAGENO="0061"
ECONOMY IN GOYERNMENT-1967 55
[In millionsj
Fiscal year 1967 Fiscal year Fiscal year Fiscal year 1967-69
1968 1969 -
Goal Realized estimated estimated Total Goal
Army
Navy
Air Force
$15
14
30
$22
34
69
$20
18
75
$20
24
61
$62
76
205
$35
32
70
DSA
4
10
4
3
17
10
Total
63
135
117
108
360
147
(In addition to the above savings, the Defense Atomic Support
Agency (DASA) took actions in fiscal year 1967 which produced savings
of $156,109 in this area DASA also reported savings totalling approxi-
mately $92,000 in several of the other cost reduction program areas.)
B. The fiscal year 1967 goal of $63 miion was exceeded by more than
100 percent. This high rate of achievement is indicative of the aggres-
sive actions taken in the field to produce savings in a broad range of
areas. It also appears to indicate a need for a more realistic goal in this
area for fiscal year 1968.
C. Operating expense savings achieved by the Defense Supply
Agency are now reported in this area. Prior to fiscal year 1967 they
were reported as a separate area of the cost reduction program. DSA
has been most successful in handling a tremendous increase in workload
with a relatively small increase in personnel. Such accomplishments
have been possible only through the continuing aggressive management
actions taken by DSA personnel.
III. Examples
More than 3,000 individual cost reduction actions were validated in
this area during fiscal year 1967. Approximately 125 of these produced
savings of over $100,000 each. Examples of some of the actions taken
in this area follow:
A. Purchase of ADP eçjuipment.-Over $2.2 million will be saved by
the Army during the period fiscal year 1967-69 through the purchase
of eight pieces of ADP equipment which was previously rented.
B. Change in school courses.-The Army eliminated duplicate
instruction, nonessential and nice to know information and consoli-
dated several blocks of instruction. As a result of these actions, a well-
balanced training program and necessary instruction is provided in
a 2-week course which previously required 6 weeks. Savings of $13.8
million will be realized over the next 3 years.
C. Ship construction economies.-A longstanding Navy practice on
ship construction was changed with resulting savings of more than $40
million. In the past large ship construction programs have been spread
among several of the lowest competitive bidders. This practice was
changed and the Navy awarded a single contract to the lowest compet-
itive bidder on tank landing ships and destroyer escorts.
D. Ghange in practice for repair of damaged cowis.-In the past
damaged magnesium cowls on Navy TALOS missiles were shipped to
a contractor for repair and then returned to the Navy. During fiscal
year 1967, the Navy developed a new repair procedure which permits
the repair of damaged cowls on the spot at naval weapons stations.
Savings of approximately $177,000 are estimated for the next 3 years.
PAGENO="0062"
56 ECONOMY IN GOVERNMENT-i 967
E. Consolidation of salvage operations.-TheAirForce Redistribution
and Marketing Section responsible for salvage operations in the Wash-
ington area assumed responsibility for Navy salvage in the area while
consolidating its own operations at one location. A reduction in Air
Force personnel was achieved by this action with savings estimated at
$229,000 for the next 3 years.
F. Increasing capacity of recording devices.-The Air Force uses con-
tinuous film recorders to obtain data on satellites passing through its
radar sensor coverage. An investigation into the use of these film
recorders revealed that the film could be run at half the former speed
and still obtain the same data. Costs will be reduced by approximately
$0.8 million as a result of this change.
G. Increased pilot training productivity.-Savings of more than $17
million were realized in fiscal year 1967 through management improve-
ments in the undergraduate pilot training program of the Air Force.
Development of a maximum capability study which (1) disclosed
maximum limits of pilot training possible at each base; (2) maximum
sortie saturation limits; (3) maximum airspace saturation limits; and
(4) sorties losses caused by inclement weather, was a major contribut-
ing action to this saving. Other changes such as (1) introduction of
new instructional material to supplement classroom instruction; (2)
expanded use of radar for monitoring, controlling, and providing
aircraft separation; (3) redivision of training airspace to provide opti-
mum use of available working areas; and (4) reduction in the mission
abort rate through intensified surveillance, are typical of the actions
which made this saving possible.
III. C. 1. IMPROVING TELECOMMuNICATION MANAGEMENT
I. Scope and objective
All telecommunication systems, networks, facilities, and equipments
fall within the scope of this area. The cost reduction program objective
is to initiate management improvement actions which will reduce com-
munication operating costs and funds required for capital investment
items.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
Lb millionsj
Fiscal
year 1967
Fiscal year
1968
estimated
Fiscal year
1969
realized
Fiscal yea
rs 1967-69
--
Total
Goal
Goal
Realized
Army
Navy
Air Force
$2
2
5
$1
9
$2
10
$2
9
$5
28
$8
~
12
DCA
4
1
3
3
7
6
Total
13
11
- 15
14
40
31
-
B. The overall DOD goal for this area was not achieved primarily
because of shortfalls in the Navy and the Defense Communications
Agency. Based upon the lack of current achievements and similar
experience in past years there appears to be a basic telecommunication
PAGENO="0063"
ECONOMY IN GOVERNMENT-i 967 57
management problem within the Navy. This situation has been
brought to the attention of Navy telecommunication personnel on
numerous occasions.
III. Examples
During fiscal year 1967 there were more than 3,000 individual man-
agement actions reported in this area. However, only 10 of these
actions resulted in savings of more than $100,000 each. A few examples
follow:
A. Consolidation of communications facilities.-Two physically sep-
arated communication centers were consolidated during fiscal year.
1967. A reduction in space, equipment, and manpower resulted from
this action. Savings of $342,200 have been realized by the Air Force.
B. Discontinuance of leased teletype circuits.-Cancellation of the
SAC teletype net was made possible a year earlier than planned as a
result of intensified management reviews. Savings of $0.6 million were
realized in fiscal year 1967.
C. Reduction in operating costs of the DEW line and the TVOR-
Barter Island and NARS-Thule ~J-E complex-Savings of $3.9 million
a year will be realized in the 3-year period, fiscal years 1967-69, as a
result of innovations which permitted competitive bidding on a con-
tract awarded for operation of the DEW line, TVOR, and NARS
complexes. Previously the contract has been awarded on a noncom-
petitive basis.
III. C. 2. TRANSPORTATION AND TRAFFIC MANAGEMENT
I. Scope and objective
This area encompasses the movement of persons and things by in-
house or commercial land, sea, and air resources. It also includes the
operational aspects of transportation systems and facilities throughout
the DOD. The primary objective of the area is to initiate management
improvement actions which will reduce transportation costs.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
[In millions[
Fiscal year
Fiscal year
1968
estimated
Fiscal year
1969
estimated
Fisc
-~
al year 1967-69
--
Goal
Realized
Total
Goal
Army
Navy
Air Force
$4
5
30
$5
5
43
$4
5
48
$1
15
24
$10
15
115
$8
5
60
Total
39
53
57
30
140
73
B. The results for fiscal year 1967 have been most encouraging.
In view of the ever increasing transportation requirements, con-
tinued emphasis will be necessary to insure that transportation costs
are kept at a minimum consistent with DOD requirements.
III. Examples
Over 700 validated actions were reported in fiscal year 1967. All
except 45 produced savings of less than $100,000 each. This is not
PAGENO="0064"
58 ECONOMY IN GOVERNMENT-i 967
surprising since most actions are taken by personnel located at field
installations and activities. The following examples are representa-
tive of the many actions reported:
A. Napalm bombs.-The Army obtained permission to insert the
explosive components in the bombs after they had been placed aboard
ship. This permitted the loading of bombs over general cargo facilities
at Long Beach, Calif., rather than at ammunition terminals. Lower
ocean terminals costs and reduced ship loading time resulted. Fiscal
year 1967 savings of $207,243 were realized.
B. Stevedoring rates-Lower rates were obtained at NSD, Seattle,
through use of a 2-year negotiated contract. Previously stevedoring
was obtained on a "spot bid" vessel-by-vessel method under terms
and conditions of the master agreement. This action saved $185,223
in fiscal year 1967.
C. Change `in negotiating technique.-Savings of $3.7 million were
realized on four routes as a result of Military Sea Transportation
Service negotiations of ocean cargo rates with individual ocean carriers
instead of negotiating with ocean carrier associations as was the pre-
vious practice.
D. Q UI6~KTRANS.-Institution of exclusive use truck service
between Quonset Point and the Boston Naval Shipyard permitted
elimination of QUICKTRANS flights into Boston's Logan Inter-
national Airport and NAS, Quonset Point. Savings totaling $97,674
were realized in fiscal year 1967 from this action.
E. Reduction in airlift costs.-Commercial airlift costs for fiscal
year 1967 were reduced approximately $24 million as a result of an
intensified management action by the Military Airlift Command
pricing team. Based upon a comprehensive cost analysis, significant
turbojet rate reductions were obtained for commercial airlift procured
by the DOD.
iii. C .3. EQUIPMENT MAINTENANCE MANAGEMENT
I. Scope and objective
This area includes the maintenance of all types of end items of
equipment except noncombat vehicles which are included in area
III.C.4. The primary objective of the area is to initiate management
improvement actions which will reduce the cost of maintenance per-
formed on equipment and items owned by the DOD.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
In millions]
Fiscal year 1967 Fiscal year Fiscal year Fiscal year 1967-69
1968 1969
Goal Realized estimated estimated Total Goal
Army ~1O $6 $7 $5 $18 $25
Navy 7 11 17 15 43 25
Air Force 8 15 10 7 32 14
Total 25 32 34 27 93 64
PAGENO="0065"
ECONOMY IN GOVERNMENT-i 967 59
B. This area should receive increased emphasis in fiscal year 1968.
Although the total DOD goal for fiscal year 1967 was exceeded by
approximately 28 percent, the Army goal was not achieved. Also, the
fiscal year 1967 goals for Navy and Air Force were of a minimum
nature. In view of the total dollars expended on equipment mainte-
nance throughout the DOD each year, it appears that more substan-
tive objectives should be established for fiscal year 1968.
III. Examples
Many hundreds of individual actions were reported in this area
during fiscal year 1967. Several produced significant savings. Most
actions, however, produced savings of less than $100,000 each A ~few
examples follow:
A. Improved methods procedures and work ftow.-Many improve-
ments and reductions in costs are being achieved at Army depots,
naval air rework facilities, and Air Force depots through changes
resulting from the defense integrated management engineering system
(DIMES). Costs of individual jobs are reduced in practically every
instance when realistic engineered standards are established. In
addition, bottlenecks are eliminated, smoother workfiow is achieved,
and improved parts supply is accomplished through the DIMES pro-
gram. However, until more uniform measurement, documentation,
and reporting techniques are prescribed for the DIMES program, a
large portion of the resultant savings will be lost to cost reduction
program. More than $3 million was saved during fiscal year 1967 at
two Navy activities.
B. B-58 aircraft pods.-The Air Force saved over $0.9 million in
fiscal year 1967 by a change in the method of contracting for overhaul
of B-58 aircraft pods. The pods were previously overhauled (at a cost
of $8,000 each) by the contractor performing the IRAN (inspect and
repair as necessary) of the B-58 weapons systems. Based upon a special
study, the Air Force concluded that the IRAN of pods could possibly
be performed by a different contractor. The breakout was accom-
plished and a contract awarded for the IRAN of pods separate from
the IRAN of the B-58 aircraft. The average cost of the pod IRAN
was $1,955 each under the new contract.
C. Maintenance of rigid and air-supported radomes.-For the past
several years the maintenance and overhaul of all radomes has been
contracted for by general categories of work such as refurbishing of
air-supported radomes, reconditioning of rigid radomes, etc. In fiscal
year 1967, the Air Force requested price quotations by size within
each general category of work to be accomplished. As a result of this
breakout by size, the Air Force reduced costs by $144,000 in fiscal
year 1967.
D. Maintenance of 0-i aircraft.-.The Air Force saved about $2
million in fiscal year 1967 by a change in maintenance concept for the
0-1 aircraft. Previously each airbase was manned to be self-sufficient
in organization/field maintenance for all 0-1 aircraft operating from
each base. Early in fiscal year 1967 a delayed operating concept was
implemented. Under this method, maintenance support was provided
from central support locations.
85-698-67-----5
PAGENO="0066"
ECONOMY IN GOVERNMENT-i 967
III.C.4. NONCOMBAT VEHICLES MANAGEMENT
I. Scope and objective
This area includes the maintenance and operational function of
Vehicles and mobile equipment used in administrative and logistic
support of military installations. The major objective is to initiate
management improvement actions which will reduce maintenance,
administrative, and operational costs of noncombat vehicles.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to
be realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
[In millionsJ
Fiscal year 1967 Fiscal Fiscal Fiscal years 1967-69
year 1968 year 1969
Goal Realized estimated estimated Total Goal
Army $1 $1 $1 $1 $3 $2
Navy 1 1 1 2
AirForce 1 1 1 2 4 2
Total 3 2 2 4 8 6
III. Examples
Most savings in this area resulted from actions which produced
savings of less than $100,000. Two of the larger savings actions follow:
A. Consolidation of motor pools.-The Army saved $112,000 in fiscal
year 1967 by consolidating two motor pools.
B. Installation of hard rubber tires.-Savings of over $300,000 are
expected to be realized during fiscal years 1967-69 by using hard
rubber tires in lieu of pneumatic tires on forkiifts.
III.C.5. DECREASING USE OF CONTRACTOR SERVICES
I. Scope and objective
This area encompasses all Contract Engineering and Technical
Services (CETS) personnel provided to DOD components either by
specific contractual agreements or as a part of the overhead or per-
centage of end item cost in a procurement contract. The objective
of this area is to initiate management improvement actions which will
reduce the number of GETS personnel or otherwise reduce CETS
personnel costs.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to
be realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
[In millionsi
Fiscal year 1967 Fiscal Fiscal Fiscal years 1967-69
year 1968 year 1969
Goal Realized estimated estimated Total Goal
Army
Navy $1 $2 $1 $4 $1
Air Force $1 3 3 4
Total 1 4 2 1 7 5
PAGENO="0067"
RCONOMY IN GOVERNMENT-1967 61
B. The potential for savings in this area has been greatly reduced
during the past several years as a result of the program to replace
contract personnel with civil service or military personnel. All savings
resulted from the elimination of individual CETS position and the
establishment of civil service or military positions at a lower overall
cost to the Government.
111.0.6. MILITARY HOUSING MANAGEMENT
I. Scope and objective
All aspects of the military family housing program including ad-
ministration, maintenance, and repair of buildings and furnishings,
and alterations and improvements to housing units are within the
scope of this cost reduction area. The primary objective is to initiate
management improvement actions which will lower family housing
costs within~ the Department of Defense.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
[In millionsj
Fiscal year 1967 Fiscal year Fiscal year Fiscal years 1967-69
1968 1969
Goal Realized estimated estimated Total Goal
Army
Navy
AirForce
$1
1
3
$1
1
3
$1
$1
2 1
$2
2
6
$3
2
6
Total
5
5
3
2
10
11
B. Savings in this area were achieved from many actions taken at
installation level. Ninety percent of these actions were in the less
than $5,000 category and resulted in two-thirds of the total savings.
One significant action, implementation of a major command civil
engineer evaluation system, produced saving of $166,400 in fiscal
year 1967. This system is designed to measure the performance and
progress of major command civil engineer mission effectiveness. It
provides a uniform method of evaluating performance in the manage-
ment of civil engineering resources, and serves as a basis for isolating
problem areas.
III.C~7. REAL PROPERTY MANAGEMENT
I. Scope and objective
This area encompasses the maintenance and repair aspects of all
real property except that included in the military family housing
program. The objective is to initiate management: improvement
actions which will lower maintenance and repair costs of real property
owned or maintained by the DOD.
PAGENO="0068"
62 ECONOMY IN GOVERNMENT-i 967
II. Goals and accomplishments
A summary of savings already realized and those expected to be
realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
[In millions]
Fiscal year 1967 Fiscal year Fiscal year Fiscal years 1967-69
1968 1969 -
Goal Realized estimated estimated Total Goal
Army
Navy
Air Force
$5
3
9
$3
2
9
$2
3
4
$2
2
4
$7
7
17
$12
7
23
Total
17
14
9
8
31
42
III. Examples
There were more than 1,000 individual actions reported in this
area during fiscal year 1967. Eight of the actions produced savings
of more than $100,000 each. A few of the actions were as follows:
A. The Army saved approximately $135,000 based on an action
initiated by a post engineer. The action resulted in the shipment of
repair and utilities type items (for use in Okinawa) in level "C" pack
instead of a level "A" pack. The GSA surcharge on the level "C"
pack is only 7 percent whereas a 25-percent surcharge was being paid
on the level "A" pack.
B. The Navy saved $63,000 in the second half of fiscal year 1967
through intensified management in negotiating rates for water and
sewage at one location. The lower rates were obtained by a study
which showed that some rates were discriminatory against large water
consumers.
C. The Air Force~saved $604,200 by redesigning approved plans
and specifications for the repair of steam heat mains at one Air Force
installation. The original plans had been developed by a local architect-
engineer and were approved by the Headquarters USAF. A subse-
quent review by Air Force civil engineering staff personnel disclosed
that a significant reduction in cost could be achieved by changes to
the plans and specification.
iiI.C.8. PACKAGING, PRESERVING, AND PACKING
I. Scope and objective
This area encompasses the various methods and techniques used
to protect equipment and supplies during shipment, handling, and
storage. The area objective is to initiate management improvement
actions which will reduce packaging, preserving and packing costs.
II. Goals and accomplishments
A summary of savings already realized and those expected to be
realized during fiscal years 1968 and 1969 from actions taken during
fiscal year 1967 is as follows:
PAGENO="0069"
ECONOMY IN GOVERNMENT-1 967 63
[In millions
Fiscal year 1967 Fiscal year Fiscal year Fiscal years 1967-69
1968 1969
Goal Realized estimated estimated Total Goal
Army
Navy
$1
1
$5
1
$4
1
$3
$12
2
$2
2
Air Force
6
10
5
5
20
12
DSA
1
2
1
3
2
Total
9
18
10
9
37
18
III. Examples
More than 600 actions were reported during fiscal year 1967, 23 of
which produced savings of more than $100,000 each. A few of the
significant actions follow:
A. Containers for engines.-The Army saved $308,000 in fiscal year
1967 by using plastic bags and wooden boxes in lieu of metal con-
tainers for shipping engines.
B. Improved procedure.-The Navy saved $260,000 in fiscal year
1967 by developing an improved procedure for packing and loading
500 pound low-drag bombs on railroad cars.
C. Change in shipment of 2.75 rocket motors and warheads.-Previ-
ously, rocket motors and warheads were shipped separately in wooden
boxes; six motors to a box and four warheads to a box. Now four
unassembled motors and four warheads are shipped together in the
same wooden box. This change produced savings of $260,900 in fiscal
year 1967.
IV. MILITARY ASSISTANCE PROGRAM (MAP)
I. Scope and objective
This area encompasses the military assistance grant aid program.
The primary objective is to initiate management improvement
actions in its administration and operation.
II. Goals and accomplishments
A. A summary of savings already realized and those expected to
be realized during fiscal year 1968 and fiscal year 1969 from actions
taken during fiscal year 1967 is as follows:
[In millions]
Fiscal
year 1967
Fiscal year
1968
estimated
Fiscal year
1959
estimated
Fiscal year
1967-69
Goal
Realized
Total
Goal
ISA
Air Force
$9
1
$15
1
$6 $8
1
$29
2
$14
1
Total
10
16
7
8
31
15
B. Effective with fiscal year 1968, the Laos and Thailand program
will be transferred to the military departments appropriations. Also,
Congress is currently considering the transfer of the infrastructure
program to the Army military construction appropriation. These
actions will decrease the potential for cost reduction savings in future
years.
PAGENO="0070"
64 ECONOMY IN GOVERNMENT-i 967
III. Examples
Approximately 90 individual actions were reported in fiscal year
1967. Some examples follow:
A. The 1967 military assistance program for Thailand included 32
PRO 65 radios to provide the Royal Thai Air Force (RTAF) with
sufficient VHF/AM radio backup. Based on an in-depth review by
personnel of the communications and electronics division of the Air
Force Advisory Group, it was determined that the RTAF had im-
proved their in-country maintenance capacity to the point where the
PRO 65 radios were no longer needed. Planned procurement was
cancelled for a total saving of $161,200. (OINCPAO)
B. Savings of $125,136 resulted from a change in the single side-
band radio configurations programed for the Brazilian Army's use at
brigade and division level. Each set, as originally programed, consisted
of a truck, trailer, shelter, and power unit. The reconfiguration con-
sisted only of a truck with appropriate alternator as an integral part.
(SOUTHCOM)
C. Headquarters USAF approved, funded, and directed imple-
mentation to provide two F-104 flight simulators and necessary logis-
tic support for two MAP countries under grant aid. The original sup-
port package included land mass plates and slides for each supporting
country at two different geographical areas. A subsequent study dis-
closed that a saving of $264,500 could be realized and that the require-
ments of both countries could be satisfied by utilizing one common
geographical area.
DEPARTMENT OF DEFENSE COST REDUCTION PROGRAM-SUMMARY OFSAVINGS FROM FISCAL YEAR 1967 ACTIONS
BY DOD COMPONENT
[In Millionsj
Realized
savings
Estimated
savings
Total savings
Fiscal
Fiscal
Fiscal
Fiscal
Goal
.
year
1967
year
1968
year
1969
year
1967-69
Goal
SUMMARY BY AREA
Total
.2. Initial provisioning:
Army
Navy
Air Force
Total
3. Secondary items:
Army
Navy
Air Force
DSA
Total
11 67
11 11
20 29
3 3
45 110
$33
105
65
203
20
20
40
2
3
6
I. Buying only what we need:
A. Refining requirements calculations:
1. Major items of equipment:
Army
Navy
Air Force
$17
58
35
$1
76
59
$2
37
19
$2
$3
113
80
110
136
58
2
196
10
10
16
15
16
5
7
2
39
22
20
31
21
9
61
4. Technical manuals:
Army
Navy
Air Force
Total
1
1
69
14
2
1
14
13
4
4
37
25
3
4
7
6
123
56
2
2
1
3
4
2
=
1
3
PAGENO="0071"
ECONOMY IN GOVERNMENT-i 967 65
DEPARTMENT OF DEFENSECOSTLREDUCTION PROGRAM-SUMMARY OF SAVINGS FROM FISCAL YEAR 1967 ACTIONS
BY DOD COMPONENT-Continued
(In Millionsj
Realized
savings
Estimated
savings
Total savings
Fiscal
Fiscal
Fiscal
Fiscal
Goal
year
1967
year
1968
year
1969
year
1967-69
Goal
$1 $1 $4 $1
1 2 3
1 9 6
2
3
15
4
4
10
3
4
2
5
4
11
13
2 14
32
3
2 62
22
18
6
51
$1
2
4
3
4
17
4
12
4
37
2
102
69
117
12
300
2
4
534
$2
7
10
4
4
11
7
28
3
49
78
113
134
14
339
3
3
685
SUMMARY BY AREA-Continued
I. Buying only what we need-Continued
A. Refining requirements calculations-
Continued
5. Technical data and reports:
Army
Navy
Air Force
Total
6. Industrial production base:
Army
Navy
Air Force
Total
B. Utilization of long supply and excess in-
ventory:
1. Equipment and supplies:
Army -
Navy
Air Force
DSA
Total
2.~Redistribution of idle production
equipment:
Army
Navy
Air Force
Total
3. Excess contractor inventory:
Army
Navy
Air Force
Total
C. Eliminating goldplating:
Army
Navy
Air Force
DSA
Total
D. Inventory item reduction:
Army
Navy
Air Force
DSA
Total
4
Total, buying only what we need ~_
796
II. Buying at the lowest sound price:
A. Shift from noncompetitive to competitive
procurement:
Army
Navy
Air Force
DSA
Total
10
25
15
4
54
10
3
16
1
30
11
2
7
1
21
17
3
7
1
28
38
8
30
3
79
25
60
35
10
130
B. Direct purchase breakout:
Army
Navy
Air Force
1
6
3
1
6
4
68
24
60
9
161
36
14
51
8
109
182
151
245
31
609
3
1.
2
142
97
164
16
419
2
260 132
3
1077
4 4
11 4 4
1 1
6 6
12 8
19 15
Total 10
PAGENO="0072"
66 ECONOMY IN GOVERNMENT~-l 967
DEPARTMENT OF DEFENSE COST REDUCTION PROGRAM-SUMMARY OF SAVINGS FROM FISCAL YEAR 1967 ACTIONS
BY DOD COMPONENT-Continued
[In Millionsj
Realized savings Estimated savings Total savings
Fiscal Fiscal Fiscal Fiscal
Goal year year year year Goal
1967 1968 1969 1967-69
SUMMARY BY AREA-Continued
II. Buying at the lowest sound price-Continued
C. Multiyear procurement:
Army $10 $4 $9 $9 $22 $25
Navy 20 23 6 3 32 50
Air Force 10 2 5 2 9 25
Total 40 29 20 14 63 100
Total, buying at lowest sound
prices 104 70 45 46 161 245
Ill. Reducing operating costs:
A. Terminating unnecessary operations:
Army 14 1 7 8 14
Navy 29 6 20 21 47 29
AirForce 5 1 2 5 8 5
DSA 1 1 1 1
Total 149 7 23 34 64 49
B. Reducing operating expense:
Army 15 22 20 20 62 35
Navy 14 34 18 24 76 32
Air Force 30 69 75 61 205 70
DSA 4 10 4 3 17 10
Total 63 135 117 108 360 147
C. Increasing efficiency of operation:
1 Improving telecommunication
management:
Army 2 1 2 2 5 8
Navy 2 5
Air Force 5 9 10 9 28 12
DCA 4 1 3 3 7 6
Total 13 11 15 14 40 31
2. Improving transportation and
traffic management:
Army 4 5 4 1 10 8
Navy 5 5 5 5 15 5
Air Force 30 43 48 24 115 60
Total 39 53 57 30 140 73
3. Improving equipment maintenance
management:
Army 10 6 7 5 18 25
Navy 7 11 17 15 43 25
Air Force 8 15 10 7 32 14
Total 25 32 34 27 93 64
4. Improving noncombat vehicle
management:
Army 1 1 1 1 3 2
Navy 1 1 1 2
AirForce 1 1 1 2 4 2
Total 3 2 2 4 8 6
5. Decreasing use of contractor serv-
ices:
Army
Navy 1 2 1 4 1
AirForce 1 3 3 I"
Total 1 4 2 1 7 5
1 Represents the annual rate of savings expected to be realized from fiscal year 1967 decisions to consolidate close
Defense installations and activities.
PAGENO="0073"
ECONOMY IN GOVERNMENT-i 967
DEPARTMENT OF DEFENSE COST REDUCTION PROGRAM-SUMMARY OF SAVINGS FROM FISCAL YEAR 1967 ACTIONS
BY DOD COMPONENT-Continued
[In Millions[
Realized savings Estimated savings Total savings
Fiscal Fiscal Fiscal Fiscal
Goal year year year year Goal
1967 1968 1969 1967-69
SUMMARY BY AREA-Continued
Ill. Reducing operating costs-Continued
C. Increasing efficiency of operation-Con.
6. Improving military housing man-
agement:
Army $1 $1 $1 $2 $3
Navy 1 1 $1 2 2
AirFurce 3 3 2 1 6 6
Total 5 5 3 2 10 11
7. Improving real property manage-
ment:
Army 5 3 2 2 7 12
Navy 3 2 3 2 7 7
Air Force 9 9 4 4 17 23
Total 17 14 9 8 31 42
8. Packaging, preservation and pack-
ing:
Army 1 5 4 3 12 2
Navy 1 1 1 2 2
Air Force 6 10 5 5 20 12
DSA 1 2 1 3 2
Total 9 18 10 9 37 18
Total, reducing operating
costs 224 281 272 237 790 446
IV. Military assistance program (MAP):
ISA 9 15 6 8 29 14
Air Force 1 1 1 2 1
Total MAP 10 16 7 8 31 15
Total program 872 1, 052 584 423 2, 059 1,502
SUMMARY BY MAJOR CATEGORY
I. Buying only what we need 534 685 260 132 1, 077 796
II. Buying at the lowest sound price 104 70 45 46 161 245
Ill. Reducing opersting costs 224 281 272 237 790 446
IV. Military assistance program 10 16 7 8 31 15
Total program 872 1,052 584 423 2,059 1,502
SUMMARY BY DEPARTMENT/AGENCY
Army 224 221 136 105 462 374
Navy 272 318 158 101 577 474
Air Force 332 464 267 192 923 583
DSA 31 33 14 14 61 51
DCA 4 1 3 3 7 6
ISA 9 15 6 8 29 14
Total program 872 1, 052 584 423 2, 059 1,502
DEPARTMENT OF DEFENSE COST REDUCTION PROGRAM
Summary of realized savings by appropriation for fiscal year 1967
[In millions of dollarsl
Appropriation Realized
Procurement: savings
Procurement of equipment and missiles, Army 74
Procurement aircraft and missiles, Navy 54
Ship construction, Navy 44
Other procurement, Navy and Marine Corps 45
Aircraft procurement, Air Force 121
PAGENO="0074"
68 ECONOMY IN GOVERNMENT-i 967
Summary of realized savings by appropriation for fiscal year 1967-Continued
[In millions of dollars]
Appropriation Realized
Procurement-Continued savings
Missile procurement, Air Force 29
Other procurement, Air Force 99
+ Total, procurement 466
Operations and maintenance (0. & M.):
Army 41
Navy and Marine Corps 21
Air Force 70
Defense Supply Agency 9
Total, 0. & M 141
Military personnel (MPA):
Army 3
Navy and Marine Corps 4
Air Force 34
Total, MPA 41
Research, development, test, and evaluation (E.D.T. & E.):
Army 15
Navy 6
Air Force 62
Total, R.D.T. & E 83
Military construction (MC):
Army 9
Navy 7
Air Force 13
Total, MC 29
Industrial fund (IF):
Army 5
Navy 28
Air Force 27
DCA 1
Total, IF 61
Stock funds (SF) and management funds (MF):
Army 73
Navy and Marine Corps 108
Air Force 6
Defense Supply Agency 24
Total, SF and MF 211
Family housing:
Army 1
Navy 1
Air Force 2
Total, family housing 4
Military assistance program (MAP):
ISA 15
Air Force 1
Total, MAP
Total, program 1, 052
PAGENO="0075"
ECONOMY IN GOVERNMENT-1967
Disposition of realized savings for fiscal year 1967
[In mifilons of dollars]
Type of disposition
Used within the same appropriation and budget activity to finance in-
creased costs, apply to production of more items or units of work, or to
increase service: Amount
Army 194
Navy 240
Air Force 450
DSA 33
DCA 1
MAP 15
Total 933
Transferred to another budget activity within the same appropriation to
finance increased costs, apply to production of more items or units of
work, or to increase service:
Army 1
Navy 78
Air Force 7
Total 86
Reprogramed to another appropriation to finance increased costs, apply
to production of more items or units of work, or to increase service:
Army (total) 11
Returned to OSD for disposition: Air Force (total) 1
Other:
Army 15
Air Force 6
Total 21
Total, program 1, 052
DEPARTMENT OF DEFENSE COST REDUCTION PROGRAM-SUMMARY OF AUTHORIZED MANPOWER SPARES
ELI MI NATED/TRANSFERRED DURING FISCAL YEAR 1967
Department or agency
Military
Civilian
Total
Army
Navy
Air Force
DSA
288
750
4,423
15
5,476 -
843
411
1,003
141
1,131
1,161
5,426
156
Total
2,398
7,874
PAGENO="0076"
70 ECONOMY IN GOVERNMENT-i 967
DEPARTMENT OF DEFENSE COST REDUCTION PROGRAM-YEAREND
FISCAL YEAR 1967 STATUS REPORT
AUDIT OPINION
We have reviewed the Cost Reduction Program Status Report for
fiscal year 1967, under the provisions of DOD Directive 5010.6,
February 17, 1967; DOD Instruction 7720.6, November 2, 1966; and,
where applicable, DOD Instruction 7720.6, May 19, 1967. Our review
included selective evaluation of pertinent documents, records, and
data and such other auditing procedures deemed appropriate and took
into consideration the cost reduction program audits made by the
Defense audit organizations. We did not make a detailed examination
of all savings actions reported.
Based on this examination, it is our opinion that the realized and
estimated savings reported are reasonable in amount and result from
management actions which meet the criteria of the cost reduction
program.
K. K. KILGORE,
Deputy Comptroller for Audit Systems.
PAGENO="0077"
APPENDIX 2
PROGRESS REPORT OF THE DEFENSE SUPPLY AGENCY
OF THE DEPARTMENT OF DEFENSE*
THE DEFENSE SUPPLY AGENCY
The Defense Supply Agency has been in operation since January
1962 and is performing effectively all assigned missions and functions.
As a major element of the Defense logistics establishment, the Agency
provides responsive and efficient supply support and logistics services
to its customers at less cost and thereby has fully justified its estab-
lishment.
HISTORY, MISSION, AND ORGANIZATION
PRE-DSA ORGANIZATION
Prior to the establishment of the Defense Supply Agency, the
Secretaries of the military departments were designated single man-
agers of selected supply and service activities for all components
of the Department of Defense (fig. 1). Their responsibilities were
carried out by separately organized operating agencies within their
respective military departments. These agencies achieved an enviable
record of effective support~ to the military services with significant
reductions in operating costs and inventories. Their experience
demonstrated the merits of a single agency furnishing common
supplies and services to all military departments.
*Material in this report was prepared Apr. 5, 1967, for the Subcommittee on
Economy in Government; however, all tables and figures 3, 4, and 5, reprinted
herein have been updated to Oct. 20, 1967.
71
PAGENO="0078"
SEC/ARMY
III
C/S
:iii
DC~LOG
CHIEFS
TECH SVCS
_____________ [ICGAFLC
MANAGER AGENCIES
[CLOTH & TEXT1
SUBSISTENCE
GENERAL
AUTOMOTIVE
CONSTRUCTIONI
L~RAFFIC I
Prior to the time DSA was organized, three commodity managers
were assigned to the Navy, of which one, industrial, was still in the
process of assuming management of assigned commodity classes. Five
commodity managers and one service manager were assigned to the
Army. TWO of these commodity managers, automotive and construc-
tion, were still in the early phases of activation. Electronics manage-
ment is shown in dashed lines under the Secretary of the Air Force
because this commodity had already been studied and recommended
for integrated management; and the present DSA electronics center,
developed from the Air Force control center for electronics materiel,
\vas turned over to DSA at the time of DSA's establishment. The
Armed Forces Supply Support Center (AFSSC) administered the
Defense-wide cataloging, standardization, and materiel utilization
programs and conducted integrated management studies. Also
transferred to the Defense Supply Agency, but not shown in figure
(1), are the surplus property sales activities of the military depart-
ments. The Military Air and Military Sea Transport Services, shown
in figure (1) as single-manager agencies, have remained in the depart-
ments of the Air Force and Navy.
72 ECONOMY IN GOVERNMENT-i 967
FIGURE 1
SINGLE MANAGER SYSTEM
AFSS CENTER
DEFENSE
SINGLE
MSTS
I ELECTRONICS I
L~_ ____-J
PAGENO="0079"
ECONOMY IN GOVERNMENT-i 967
73
MISSION
The DSA mission consists basically of three major elements:
Providing wholesale supply support to the military services and
other Defense activities with assigned supply commodities.
Administering logistics services and programs.
Providing field contract administration services to the Defense
Establishment and the National Aeronautics and Space
Administration.
DSA ORGANIZATION
Figure (2) depicts the changes in the Defense supply and logistics
service organization, authorized by the end of 1962. The departmental
single managers were taken over in place, as field activities of the
Defense Supply Agency, with assigned personnel, funds, equipment,
and facilities. Their operations continued without interruption under
a new and shortened chain of command. This was also true of the op-
erational elements of the former Armed Forces Supply Support Cen-
ter and the military surplus property sales activities, which were
assigned to the Defense Logistics Services Center, a DSA field activ-
ity. Figure (3) depicts the DSA organization today and reflects the
assignment in June 1964 of contract administration functions pre-
viously performed by some 165 contract management offices of the
military services and DSA.
FIGURE 2
DoD LOGISTICAL SYSTEM 1962
P COUNCIL-SECRETARY OF DEFENSE
PAGENO="0080"
FIGURE 3
t~!i
C
C
C
C
C
Co
DEFENSE SUPPLY AGENCY
PAGENO="0081"
ECONOMY IN GOVERNMENT-1967 7~5
During the first 3 months of the Defense Supply Agency's existence,
the headquarters staff consisted of a planning group, most of whom
were on loan from the military departments and the Office of the
Secretary of Defense. Selection and assembly of a permanent staff
began after the initial organization and staffing plan was approved in
December 1962. The present headquarters staff, as depicted in figure
(4), assists the Director in the direction and control of the Agency and
is concerned with broad planning and management of the total DSA
mission and the establishment of long- and short-range objectives
and standards of performance. Its key personnel exemplify the joint
military staffing principle, with each of the military services repre-
sented at the Directorate or immediately subordinate level. The
Assistant Director, Plans, Programs, and Systems, is principal staff
adviser and assistant to the Director for development and application
of policies, plans, programs, and systems affecting multiple DSA
functional activities. The Comptroller assists the Director as principal
financial management and manpower staff adviser. The Deputy
Director for Contract Administration Services acts for the Director,
DSA, in exercising management and operating control over CAS
missions, operating programs and supporting field activities; he is
assisted by Executive Directors for Contract Administration, Quality
Assurance, Production, and by the Chief of Industrial Security. The
Executive Directors for Supply Operations, Procurement and Pro-
duction, and Technical and Logistics Services are principal staff
advisers and assistants to the Director, DSA, in the development and
application of policies, plans, programs, and systems for their respec-
tive functional areas. The Counsel, the Inspector General, the Special
Assistant for Public Affairs, and the Staff Directors for Installations
and Services, Administration, Military Personnel, and Civilian Per-
sonnel perform staff support functions of a major headquarters.
85-698-67-----G
PAGENO="0082"
FIGURE 4 (20 October 67)
DIRECTOR
Lt Con Earl C Bedlund USAF
OFFICE OF MOT
CONTROL
Col
C A Sanford USA
OFFICE OF
II~OUSTRIAL
SECURITY
Col
B C ~arshall USAF
OFFICE OF~]
[~O?ITRACTCOMP.(
DEFENSE SUPPLY AGENCY
DEPUTY DIRECTOR ~
Maj Con U W Vaughan USA ]
_______ I
II PROGRA?IS & I
COil F INSPECTOR I [ASST DIR,PLNS 1
R H Lenki~~ R I Ciraldo USA ii I F Haddock USN
I SYSTEMS I
Col IIRAdn I
DEPUTY DIRECTOR
(CONTRACT AUMIN SVCS)
Maj Ceo JA Coshorn USA
I I
SPECIAL.
COMPTROLlER PUBLIC AFFAIRS
R Brazier E F Hart
[ STAFF ~IRECTOR1 ISTAFF OIRECTOR I
-1
INSTALLATIONS &I I ADMUIISTRATION
SERVICES
Cot
J C Crabtroe Usd1] ~ ceo~io USA~
~~ICE OF MGT1
I REVIEW I
Cot
C A Sanford USA
OFFICE OF PLAU
L~...itAGEME4T1
[~AFF DIRECTOR STAFF DIRECTOi1
MILITARY CIVILIAN
PERSONNEL PERSONNEL
Capt
C T Pollich USN W C Iogerski
1~CUflVE RITECTOR I EXECUUVE BITECTOR EXECUTIVE RI~1 fEXECUUVEU~ECTOR
& COUTRACT II
OPERATIUNS I & PROOUCTIO~ LOGISTICS SERVICES AET~1IIUSTRATIOU II ASSURMICE
R Adn I Brig Ceo Brig Con CoB ~ Capt
U. Bnttosis USN R E Lee USd1 J A Brooks USAF E H Robertson USAFJ 1~G Scarborough USN
- EXECUTIVE DITECTORJ
PTTTUCTION
J S
PAGENO="0083"
ECONOMY IN GOVERNMENT-1967 77
FIGURE 5
MAIOR FIELD ACTIVITIES AND COMMANDERS
Defense Construction Supply Center: Maj. Gen. Emmett M. Tally,
Jr., TJSAF.
Defense Electronics Supply Center: Brig. Gen. Glen J. McClernon,
USAF.
Defense Fuel Supply Center: R. Adm. Fowler W. Martin, SC, USN.
Defense General Supply Center: Brig. Gen. John D. Hines, USA.
Defense Industrial Supply Center: B. Adm. Grover C. Heffner, SC,
USN.
Defense Logistics Services Center: Capt. Ross A. Porter, SC, USN.
Defense Personnel Support Center: Brig. Gen. John M. Kenderdine,
USA.
Defense Documentation Center: Dr. Robert B. Stegmaier, Jr.
Defense Depot, Mechanicsburg: Col. William H. Herndon, USA.
Defense Depot, Memphis: Col. T. I. Martin, USA.
Defense Depot, Ogden: Col. Robert B. Ladd, USAF.
Defense Depot, Tracy: Capt. Robert C. Dexter, Jr., SC, USN.
Defense Industrial Plant Equipment Center: Col. Fred H. Sitler,
USAF.
DSA Administrative Support Center: Col. Stuart A. MacKenzie,
USA.
Defense Contract Administration Services Region, Atlanta: Col.
Loren P. Murray, Jr., USAF.
Defense Contract Administration Services Region, Boston: Col.
Frank A. Bogart, USA.
Defense Contract Administration Services Region, Chicago: Col.
J. P. Gibbons, USAF.
Defense Contract Administration Services Region, Cleveland: Col.
Norman T. Dennis, USA.
Defense Contract Administration Services Region, Dallas: Capt.
Walter G. Normile, SC, USN.
Defense Contract Administration Services Region, Detroit: Col.
Kenneth R. Johnson, USA.
Defense Contract Administration Services Region, Los Angeles:
Brig. Gen. Arthur E. Exon, USAF.
Defense Contract Administration Services Region, New York: Brig.
Gen. Walter M. Vann, USA.
Defense Contract Administration Services Region, Philadelphia: Col.
Gerald Johnson, Jr., USA.
Defense Contract Administration Services Region, San Francisco:
Col. William K. Ashby USAF.
Defense Contract Administration Services Region, St. Louis: Capt.
Raymond S. Sullivan, SC, USN.
[as of 20 October 1967J
The field establishment is comprised of 25 major activities, identi-
fied in figure (5) by name and activity head. The military command
positions are staffed on the basis of balanced military representation
and are rotated among the military services. The geographical lo-
cations of the 25 major DSA field activities are depicted in figure (6).
PAGENO="0084"
FIGuRE 6
0
0
0
t~rj
CO
-1
DSA MAJOR FIELD ACTIVITIES
Logistics
SAN
* SUPPLY CENTERS
A SERVICE CENTERS
* DEPOTS
~ DEFENSE CONTRACT ADMINtSTRATION SERVICES
REGIONAL HEADQUARTERS
PAGENO="0085"
ECONOMY IN GOVERNMENT-1967 79
DSA OBJECTIVES
When Secretary McNamara established the Defense Supply Agency,
lie established two primary obj ectives for the Agency:
First, to insure effective and timely support of the military services
in the event of mobilization, war, or other national emergency, as
well as in peacetime.
Second, to furnish this support at the lowest feasible cost.
The order in which these objectives are stated is not accidental; it
reflects the priority which governs all DSA programs. This priority and
these objectives also govern the criteria against which DSA's achieve-
ments will be measured.
GROWTH OF DSA
DSA made rapid progress in the assumption of assigned functions,
as indicated in table below In January 1962, DSA took over wholesale
management of 87,000 items with an inventory value of more than
$1.58 billion. By the end of fiscal year 1966, the number of items
centrally managed (excluding items designated for local purchase)
exceeded 1.33 million, with a value of over $1.99 billion, and will
approximate 1.51 million items by the end of fiscal year 1967. At that
time, the inventory value is expected to be over $2.27 billion, and the
annual rate of procurement will increase to over $6.25 billion.
INDICATORS OF DSA GROWTH
End of
End of
End of
End of
End of
End of
End of
January
1962
fiscal
year
1963
fiscal
year
1964
fiscal
year
1965
fiscal year
1966
fiscal year
1967
fiscal year
1968 plan
Items centrally managed_thousands
Inventory millisns_
Procurement do
Personnel
87
$1,588
9, 500
1,029
$2,412
$2, 670
25, 970
1,328
$2,232
$2, 701
31, 141
1,369
$1,977
$3, 042
34, 128
1,335
$1,994
$5, 740
1 53, 554
1,538
$2,896
$6, 178
2 62, 063
1,729
$2,613
$5, 403
3 58, 369
1 Excludes 3,426 temporary civilian personnel.
2 Excludes 3,510 temporary civilian personnel.
3 Current OSD Allocation (June 30, 1968) full-time permanent civilian and military personnel.
The increase of personnel, both headquarters and field, has pro-
ceeded in phase with the assumption of management tasks and the
increased workload as a result of Vietnam. As of tne end of January
1962, over 9,500 military and civilian personnel iiad been transferred
to DSA. At the end of fiscal year 1965, full-time DSA personnel num-
bered 34,128. By the end of fiscal year 1966, DSA personnel had in-
creased to 53,554, principally due to assumption of contract adminis-
tration services functions; and based on OSD allocation, full-time
personnel can reach 56,683 by the end of fiscal year 1967. (End fiscal
year 1967 data shown in Fig. 7 above.)
By the end of fiscal year 1965, DSA had taken over management of
all assigned commodities and services, except for 45 selected Federal
supply classes. Items in these 45 classes, along with service-retained
items in other DSA classes, are being reviewed again st DOD-approved
item management coding criteria. This review will be completed in
December 1967.
PAGENO="0086"
80 ECONOMY IN GOVERNMENT-i 967
SUPPLY SUPPORT
INVENTORY CONTROL POINTS -
DSA manages six Supply Centers (fig. 6) as follows:
Defense Construction Supply Center, Columbus, Ohio.
Defense Electronics Supply Center, Dayton, Ohio.
Defense Fuel Supply Center, Alexandria, Va.
Defense General Supply Center, Richmond, Va.
Defense Industrial Supply Center, Philadelphia, Pa.
Defense Personnel Support Center, Philadelphia, Pa.
The Fuel Supply Center procures bulk and solid fuels but does not
control inventories. Management of DSA inventories is currently
distributed among the remaining five inventory control points, which
compute replenishment requirements for assigned items, maintain
inventory and transaction records, receive and edit requisitions, pro-
cure materiel, and direct shipment or procurement action, as appro-
priate. More than 8,000 personnel are employed in these ftmctions.
Other Center personnel are engaged in related activities, such as
cataloging, standardization, and installation management. Assign-
ments of commodities to Centers were determined through separate
commodity studies conducted over a 6-year period. Among Centers,
wide variations existed in the numbers of items managed and in th~
mix of technical, personnel-related, and bulk materiel items. Func-
tional and commodity assignments, as well as location of Centers at
specified military installations, have been influenced by the avail-
ability of space and facilities and by considerations of improved.
customer service and reductions in operating costs. During 1965,.
DSA consolidated the functions of the Medical Supply Center,.
Brooklyn, the Subsistence Supply Center, Chicago, and the Clothing
and Textile Supply Center, Philadelphia, into the Defense PersonneL
Support Center at Philadelphia.
Early in 1966, the Supply Centers assumed the purchasing re~
sponsibiities for decentralized and nonstandard items in DSA-
managed classes of materiel required for support of Army and Air
Force activities overseas; except for support of Air Force activities
in the Pacific area which was assumed in January 1967.
DISTRIBUTION SYSTEM
For assigned commodities, the Defense Supply Agency determines
requirements for wholesale storage space; manages, controls, and
operates assigned warehouses and depots; and arranges for the use
of storage space and related services and facilities of the Department
of Defense, other Government agencies, and commercial warehouses
as required. The Defense Supply Agency also arranges transporta-
tion for initial distribution of stocks from supplier to point of storage,
from point of wholesale storage or the supplier direct to the customer,
and for redistribution as required between wholesale storage points.
On January 1, 1962, items assigned to DSA or to be assigned to
DSA were stored in 77 locations. On January 1, 1963, the DSA
distribution system was implemented with 11 of the 77 becoming
permanent DSA distribution activities and 18 becoming direct supply
support points for support of the Navy.
PAGENO="0087"
ECONOMY IN GOVERNMEW1~-1967 81
The objectives of the distribution system were-
The establishment of a storage pattern based on the concept
of positioning stocks close to the concentrations of military
posts and ports of embarkation in the United States;
Centralization of all requisitioning procedures and stock con-
trol functions in the Defense Supply Centers, effective Ju.ly 1,
1963.
The DSA distribution system consists of seven principal depots
and four specialized support depots (fig. 8).
FIGuRE 8
DSA DISTRIBUTION SYSTEM
0 Full Management by DSA
Principal depots.-These depots are responsible for the receipt,.
storage, stock readiness, inventory, and issue of DSA items of supply,
including general mobilization reserve stocks for the support of
specific areas, activities, and/or forces designated by Headquarters,.
Defense Supply Agency. These depots are-
Defense Construction Supply Center, Columbus, Ohio
Defense Depot, Mechanicsburg, Pa.
Defense Depot, Tracy, Calif.
Defense Depot, Ogden, Utah.
Defense Depot, Memphis, Tenn.
Defense General Supply Center, Richmond, Va.
Atlanta Army Depot, Forest Park, Ga.
Specialized support depots.-These depots have functions similar to.
those of the principal depots, except that their missions are specialized
as to type of materiel or scope of support. The specialized support.
depots are-
Defense Electronics Supply Center, Dayton, Ohio.
Defense Personnel Support Center, Philadelphia, Pa.
Naval Supply Center, Norfolk, Va.
Naval Supply Center, Oakland, Calif.
PAGENO="0088"
82 ECONOMY IN GOVERNMENT-i 967
The two Navy-operated specialized support depots support the
fleet, Navy overseas activities, and selected Navy activities within a
25-mile radius. In addition, they support all military service require-
ments in emergency situations (priorities 1-8) when such support
is not available elsewhere in the DSA system.
Direct supply support points.-The DSA distribution system also
includes 10 direct supply support points (not included in fig. 8) which
have been established in support of large volume users, such as Navy
shipyards, repair facilities, and recruit training centers These points
are under military service management. The supply mission for DSA
commodities at these points is restricted to the stocking of FSG 95
(metals, bars, and shapes) for the support of on-base industrial and
maintenance requirements and clothing for recruit~ training centers.
Attrition sites.-As of December 31, 1966, DSA materiel was stored
at 20 temporary storage locations, or attrition sites However, the
number of attrition sites at any given time will fluctuate because of
continuous capitalization of items as a result of item management cod-
ing and DSA assumption of new missions and item assignments. Until
supply missions become stabilized, and until the current critical short-
age of DSA-managed storage space is alleviated, a target date for
complete elimination of attrition sites cannot be projected. DSA policy
for evacuation of stocks from attrition sites is disposition in place of
excesses, redistribution of replenishment stocks from attrition sites
into permanent depots in lieu of replenishment from procurement,
attrition to satisfy customer demands, and bulk relocation into per-
manent depots when economically justified.
PROCUREMENT AND PRODUCTION
DSA's procurement program objectives are generally being met as
indicated below:
SMALL BUSINESS
Awards to small business during the first 6 months of fiscal year
1967 amounted to $1.37 billion or 43.5 percent of total awards to U.S.
firms. This is 2.8 percent below the goal of 46.3 percent, however, it
exceeds the accomplishment for the same period in fiscal year 1966 by
$388 million or 0.8 percent. It is expected that the yearend goal will
be met.
LABOR SURPLUS AREA AWARDS
Awards ($10,000 and above) to labor surplus areas during the first
6-month period of fiscal year 1967 amounted to $343 million-12.6
percent of total dollar awards within the United States and possessions.
This is 1.6 percent in excess of the established fiscal year .1967 goal
of 11 percent.
COMPETITIVE AWARDS
Competition remained at a high level of 93.1 percent of total awards
subject to competition during the first 6-month period of fiscal year
1967. This is 1 percent above the established goal.
FORMAL ADVERTISING
Formal advertising has suffered somewhat due to the necessity to
meet high-priority requirements from Southeast Asia by negotiated
PAGENO="0089"
ECONOMY IN GOVERNMENT-i 967 83
procurements. The percentage of the value of all DSA procurements
made through formal advertising was 27.4 percent in the first 8 months
of fiscal year 1967, compared to 31.9 percent during a corresponding
period in fiscal year 1966. However, since there has been a 33-percent
increase in the value of total procurements during the same period,
the value of the formally advertised portion actually increased by
$153.3 million. It should be noted that although the formal advertising
rate declined, the percentage of competition was actually higher.
During the first 8 months of fiscal year 1967, our competitive rate was
92.8 percent compared to 92.6 percent for the same period in fiscal
year 1966. In some commodity areas, the more attractive civilian
demand during the past year has made it difficult to attract suppliers
with sufficient productive capacity to meet defense needs, and the
Agency has had to resort to "rated" orders to obtain supplies. Any
improvement in the formal advertising rate is believed to be contingent
on changes in the Southeast Asia situation and a softening of the
civilian economy.'
The Southeast Asia situation has had significant impact on pro-
curement and production activity. During the first 6 months of fiscal
year 1967, 447,000 contracts, aggregating $3.6 billion, were awarded.
This represents an increase of 65,000 awards and $1 billion over the
comparable period of fiscal year 1966. It is anticipated that procure-
ment volume for fiscal year 1967 will exceed $6.2 billion compared
with actual fiscal year 1966 volume of $5.74 billion and fiscal year
1965 volume of $3.04 billion.
To obtain military supplies for Vietnam in the quantities reflected
by this increased procurement volume in the face of heavy civilian
demand, special measures had to be taken. Included among these
measures were-
(a) Changing, with service concurrence, Government specifi-
cations to permit procurement of acceptable commercial products,
wherever possible, to broaden the production base.
(b) Procuring substitutes on an interim basis to meet urgent
requirements when specification changes were inappropriate.
(c) Increasing production of short supply items at Govern-
ment-operated facilities.
(d) Furnishing industry advance information of anticipated
quantitative and delivery requirements.
(e) Limiting accelerated delivery procurement to immediate
operational support needs.
(f) Avoiding payment of premium prices for accelerated de-
liveries wherever possible by reevaluation of such require-
ments with the services.
(g) Giving increased management attention to using more real-
istic production leadtimes and scheduling deliveries in con-
sonance with industry conditions.
(h) Securing assistance of the Business and Defense Services
Administration (BDSA) of the Commerce Department in invok-
ing mandatory production provisions of the Defense Production
Act of 1950, as amended. A total of 581 rated orders were issued
by DSA from mid-December 1965 to 30 January 1967, and as of
30 January, no rated orders were pending.
I For end fiscal year 1967 data see table "Procurement and Production," following.
PAGENO="0090"
ECONOMY IN GOVERNMENT-i 967
PROCUREMENT AND PRODUCTION
Fiscal year 1966
Fiscal year 1967
Small business:
Awards (in billions)
Percent total awards
$2. 44
46. 3
$2. 59
45. 8
Competitive procurement:
Awards (in billions)
Percent total awards
Labor surplus area:
Awards 1 (in millions)
Percent total awards
Formal advertising:
Awards (in billions)
Percent total awards
$5. 25
92. 1
$709. 1
15.8
$1. 62
28. 4
$5. 62
91. 5
$587.4
12.3
$1. 68
27. 4
1 Actions valued at $10,000 or more
SuPPLY EFFECTIVENESS
In November 1962, DSA implemented a uniform system for the
measurement of suppiy effectiveness. This system employs stand-
ardized reporting by all suppiy centers and uses two key indicators
to measure effectiveness.
The first indicator, stock availability, measures the performance of
centers as inventory managers by the percentage of requisitioned
items supplied from available stocks. The number of requisitions
received in the period July-December 1966 rose to 10.38 million,
10 percent over the number received during the same period in 1965.
Overall availability for the DSA system averaged 84.2 percent for the
period July-December 1966 compared to 88.2 percent for the com-
parable period in 1965. This drop is attributed to the surge in demands
from Vietnam, exhausting available supplies, and our inability to
`obtain replenishment from industry in time to meet required delivery
dates. (For end fiscal year 1967 data see table "Supply Effectiveness"
~following.)
The second indicator of system effectiveness, on-time fill, measures
`supply system effectiveness by the percentage of items processed for
shipment by the DSA supply system within the time frames specified
in the DOD Uniform Materiel Movement Issue Priority System
(TJMMIPS). On-time fill during the period July-December 1966
averaged 73.7 percent compared to the 80.9 percent for the same
period in 1965. This decrease in on-time fill was due in part to the
large number of backorders released when materiel was received
from producers plus the effect of heavy depot-level workload stem-
-ming from the increase in requisition volume, noted above.
SUPPLY EFFECTIVENESS
Fiscal year 1965
Fiscal year 1966
Fiscal year 1967
`Requisitions processed (in thousands)
`Stock availability (percent)
:Systemwide shipments (thousand line items)
On-time shipments (percent)
High-priority shipments 1 (percent)
15,357
91. 4
15, 081
85. 7
81. 6
19,360
87. 8
18,774
80. 2
78.2
19,696
86. 5
19,339
75. 3
73. 6
`1 Priority issue groups I and II.
PAGENO="0091"
ECONOMY IN GOVERNMENT-1967 85
TECHNICAL AND LOGISTICS SERVICES AND PROGRAMS
ITEM ENTRY CONTROL
The expanded defense item entry control technical review program
is being implemented in accordance with the planned schedule. T his
expanded program has absorbed Project Shakedown and has assigned
to all of the defense technical review activities (DTRAs) additional
responsibilities for catalog purification and item reduction studies
for all assigned Federal supply classes. As of December 31, 1966, 54
Federal supply classes, accounting for approximately 63 percent of
all new item gTowth, have been brought under the program. Nine
military department and four Defense Supply Agency field activities
have been designated as DTRAs. Full implementation of 67 Federal
supply classes, accounting for approximately 75 percent of all new
item entry into the DOD supply system, is scheduled for completion
by July 1, 1967.
Through December 31, 1966, DTRAs have reviewed 282,089 pro-
posed new items of which 95,586, or 33.8 percent,were determined to
be exact duplicates or possible duplicates of items already in the
DOD supply system. An additional 25,414, or 9 percent, were returned
for various errors in item identifications.
Item entry control embraces a composite of many separate manage-
ment programs and proj ects aimed at reducing item proliferation
during the complete life cycle of an equipment or weapon system.
The development of an optimum IEC system must assure the required
compatibility between projects being developed by separate func-
tional managers, and provide the means for their assimilation and
integration into an overall DOD IEC system. This system develop-
ment is being pursued in close coordination with the military depart-
ments, Defense agencies, and staff elements within OSD, and is under
continuous refinement and revision as individual elements of the over-
all system progress. In this connection, emphasis is being placed on
acceleration of the DOD standardization program. Supply standardi-
zation policies and procedures governing item reduction studies are
being revised to provide more comprehensive and effective DOD-
wide supply standardization. Increased emphasis is also being directed
to the attainment of optimum military standard coverage for FSG-53
(hardware) and FSG-59 (electronics) during the next 3-year period
and coverage for other high growth Federal supply classes within
5 years.
DSA, at its Defense Logistics Services Center (DLSC), continues
to provide a mechanical screen of manufacturers' part numbers. This
service is made available to all DOD provisioning activities to ascer-
tain whether an item has previously been assigned a Federal stock
number.
STANDARDIZATION AND CATALOGING
The Defense Supply Agency now has standardization management
responsibility for approximately 2.4 million items or 62 percent of the
3.9 million DOD items in the Federal supply system.
DSA is continuing to give major attention to the reduction in the
number of items in assigned commodity classes. In fiscal year 1966, as
a result of identification of duplicate or similar items and of standard-
PAGENO="0092"
86
ECONOMY IN GOVERNMENT-i 967
ization actions, decisions were made and concurred in by the military
departments to eliminate 116,274 items. (Fig. 9.) These decisions were
based on a review of 283,445 items during the 12-month period. The
goal for fiscal year 1967 is a total of 96,500 decisions, to be based on a
review of approximately 328,000 items. At the end of the second
quarter of fiscal year 1967, DSA had completed review and coordina-
tion of 118,587 items, and the military services had concurred in the
elimination of 50,793 items from the supply system. This represented
36 percent of the fiscal year 1967 item review goal of 328,000 items and
53 percent of the reduction decision goal of 96,500 items. (For end
fiscal year 1967 data see table "Standardization" following.)
STANDARDIZATION
Fiscal year Fiscal year Percent of
1966 1967 fiscal year
1967 goal
Items reviewed
Items eliminated
283, 445
116,274
290, 703
97,015 101
FIGuRE 9
STANDARDIZATION
THOUSANDS
ITEM REDUCTION DECISIONS
120
80
40
0
FT 1966 FT 1967
A net increase of 128,377 DOD items was recorded in the Federal
catalog during calendar year 1966. This increase reflects a significant
reversal of the reduction reported for calendar year 1965. In the first
half of 1966, 199,631 items were added to the Defense catalog and
132,871 items deleted-a net increase of 66,760 items. This trend con-
tinued during the second half of the year. In the period July-December
1966, 175,019 items were added and 113,402 items deleted-an increase
of 61,617 items. As of December 31, 1966, there were 3,907,703 DOD
items in the Federal catalog, as compared to 3,779,326 on December 31,
1965. (For end fiscal year 1967 data see table "DOD Portion of
Federal Catalog" following.)
PAGENO="0093"
ECONOMY IN GOYERNMENT-1967 87
DOD PORTION OF FEDERAL CATALOG
Fiscal year Fiscal year Fiscal year
1965 1966 1967
Cataloged items (beginning fiscal year) 3, 950,651 3, 838, 767 3, 846, 086
Netchange -111,884 +7,319 +117,602
Cataloged items (end fiscal year) 3,838, 767 3,846, 086 3, 963, 699
The net increase in catalog items can be attributed in part to the
introduction of rej)air parts for new major end items, and fewer dele-
tions due to retention of older equipments for possible use in Southeast
Asia. Extended use of these older equipments in the unfavorable ter-
rain of Southeast Asia has created repair parts demands not previously
experienced.
MATERIEL UTILIZATION
Efforts are continuing toward improvement and refinement of
mechanized procedures for screening releasable assets of military
service inventory control points against military service inventory
control point requirements. Interservice and intraservice reutilization
resulting from this process, conducted centrally at the Defense Logis-
tics Service Center, and from direct interrogations between inventory
control points, totaled $403 million for fiscal year 1966 ($231 million
interservice reutilization and $172 million intraservice reutilization).
(For end fiscal year 1967 data see table "Materiel Utilization"
following.)
Utilization of military service declared excess, which is screened
primarily through manual rather than mechanized procedures,
amounted to $1456 billion in fiscal year 1966. However, progress has
been made in the establishment of mechanized procedures to the ex-
tent that the need for detailed description by reporting activities of
items having a Federal stock number has, to a considerable extent,
been eliminated. Mechanized processes now provide the means for
the Defense Logistics Services Center to develop descriptions of the
property for utilization screening within DOD, as well as for screen-
ing by the General Services Administration.
A program providing for special handling of excess and potential
excess items of comparatively high value (exceeding $10,000) was fully
operational in fiscal year 1966. The program centers around the publi-
cation of special utilization "flyers" containing full data on an item,
including photographs, tailoring the description of these "flyers" to
selected potential users, and making a special effort toward utilization
through telephone contact, as well as through research, to determine
substitute and interchangeable uses for an item. In fiscal year 1966,
$57.4 million in utilization was realized from this program. (See tables.)
MATERIEL UTILIZATION
[In millionsJ
Fiscal year
1966
Fiscal year
1967
DOD reutilization of releasable assets
I nterservice reutilization
I ntraservice reutilization
$403
(231)
(172)
$434
(348)
(86)
PAGENO="0094"
88 ECONOMY IN GOVERNMENT-i 967
WEAPON SYSTEMS MATERIEL UTILIZATION PROGRAM
Administered by the Defense Supply Agency in cooperation with
the military services, the weapon systems materiel utilization pro-
gram promotes defensewide redistribution and utilization of military
weapon systems assets and other large aggregations of special high-
cost materiel generating from phaseouts, tactical withdrawals, and
program terminations.
The major objective of this DOD program is the achievement of
maximum reutilization of materiel by the military services and other
Federal agencies through: close working relationships and liaison~
between DSA and all echelons of the military, defense agencies, and~
other Federal agencies; the development of early planning intelligenc&
regarding military systems to be phased out or otherwise discon-
tinued; the development of new or alternate uses and applications
of the materiel; the distribution of illustrated brochures; and other
promotional efforts by DSA personnel.
DOD reutilization of phased out weapon systems assets through.
intraservice and interservice transfers has been substantially im-
proved under the weapon systems utilization program. Total utiliza-
tion during fiscal year 1966 from the pub1ic~tion of brochures on the
missile phaseout program amounted to $127 million.
INDUSTRIAL PLANT EQUIPMENT (IPE)
As a follow-on action to a 1961 GAO review of the management of
idle production equipment within the Department of Defense, OSD
approved a joint study project, chaired by DSA, which resulted in the
1962 Report on the Management of Capital Plant Equipment. OSD
approval of this report early in 1963 led directly to the establishment
of the Defense Industrial Plant Equipment Center (DIPEC). DIPEC
maintains a comprehensive record of service-owned, high-value items
of plant equipment and provides a variety of reports to meet service
needs such as equipment by type, who made it, and when it was made,
its present location by military or contractor activity, and other
details necessary to such functions as production planning. As of
December 31, 1966, 365,729 units of equipment with an acquisition
cost of $3.68 billion were recorded in the central inventory. The
Center also receives reports on idle equipment which it may allocate
to fill an immediate need in lieu of new procurement; it may direct
the equipment to be held in storage against an anticipated need; or
it may direct disposal if the equipment does not warrant retention.
In fiscal year 1966, equipment with an acquisition cost of $185.8
million was allocated to meet defense needs. During the first half of
fiscal year 1967, this effort amounted to $94.8 million, with the largest
part going to defense contractors jn support of high urgency Southeast
Asia requirements. Substantial improvement has been made in IPE
management since DIPEC was established and progress is being made
toward accomplishment of the actions required by the 1966 GAO
survey on the adequacy of controls over Government-owned property
in possession of contractors. (See table following.)
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ECONOMY IN GOVERNMENT-i 967 89
INDUSTRIAL PLANT EQUIPMENT (IPE)
EDollar amounts in thousandsi
Fiscal year 1966
Fiscal year 1967
Items of IPE in DIPEC inventory
Value of IPE in DIPEC inventory
Value of IPE reutilized for defense needs
347, 125
394, 140
$3,560,000
185,800
$4,030,000
192,700
SUBSIDIAR~Y PROGRAMS
Subsidiary materiel utilization programs, operated in addition to
the basic mechanized and manual screening programs, include:
A final asset screening of surplus items immediately prior to these
items being offered for final disposal by sale. $3.2 million of utilization
was realized from this effort in fiscal year 1966.
The identification of interchangeable and substitutable items to
permit use of materiel for other than the purpose originally intended.
An additional quantity of items worth $143.5 million were offered as a
result of this procedure.
A program to mechanically screen releasable assets and requirements
of conventional ammunition throughout the Department of Defense..
The program became operational July 1, 1966, providing asset avail-
ability listings for review by requiring departments.
Retail interservice logistic support to promote greater exchange of
supplies and services at the local level through development of inter-.
service support agreements. Growth of the program is reflected in
the reported dollar value of retail interservicing on a worldwide DOD
basis which increased from $229 million in fiscal year 1965 to $335
million in fiscal year 1966. In the same period, support agreements
increased some 200 to 3,199.
SUBSIDIARY MATERIEL UTILIZATION PROGRAMS
Fiscal year Fiscal year
1966 1967
Final asset screening $3, 200, 000 $8,700, 000
MATERIEL DiSPOSAL
DSA is responsible for the administration of the DOD disposal
program worldwide. This responsibility includes the development of
systems, techniques, and procedures for disposable personal property
in accordance with OSD policy guidance, supervision of resource
programs for DOD disposal activities, elimination of disposal holding
activities when practical and economical, and operation of Defense
surplus sales offices in Conus. The disposal program involves several
subprograms, i.e., utilization of DOD excess, donation, sales, de-
militarization, and scrap preparation. Under authority of the annual
Department of Defense Appropriations Act, the costs incurred by
all DOD elements engaged in the disposal of excess, surplus, and
foreign excess personal property are reimbursed from the proceeds
derived from the sale of surplus and foreign excess personal property.
The remainder is transferred to the U.S. rrreasury
The dollar value of property processed for disposal during fiscal
year 1966 totaled $6.035 billion, of which $2.345 billion was reutilized
PAGENO="0096"
ECONOMY IN GOVERNMENT-i 967
90
within DOD, transferred to other Federal agencies and MAP, or
donated to authorized recipients. Value of property sold, scrapped,
abandoned or destroyed during fiscal year 1966 was $3.690 billion.
Gross proceeds received from sales during fiscal year 1966 were
$118.5 million. A return of 6.5 percent; of acquisition value was realized
for property sold, other than scrap. Disposal expenses for fiscal year
1966. were $80.2 million. Expenses include costs incurred in excess
and surplus inventory accountability, utilization screening of DOD
excess, handling of excess and surplus property at holding activities,
preparation of sales descriptions and displays, demilitarization,
reclamation, scrap preparation, lumber and timber operations, and
support costs related thereto. (See table following.)
MATERIEL DISPOSAL
[Dollar amounts in millionsj
Fiscal year 1966
Fiscal year 1967
Property processed for disposal
Reutilized within Department of Defense, transferred to other
Federal agencies or donated
Sold, scrapped, abandoned, or destroyed
Gross proceeds from sales
Percent return on sales (excluding scrap)
Disposal expenses
$6, 035. 0
$2, 345. 0
$3, 690. 0
$118. 5
6. 5
$80. 2
$5, 745. 0
$2, 168. 0
$3, 577. 0
$101. 2
5. 4
$72. 4
Efforts toward improvement of the management and operation of
the DOD disposal program are continuing. Some of the major im-
provements completed or in process are as follows:
(a) When DSA was established, the 34 consolidated surplus
sales offices (CSSO's) of the military departments and four
regional sales offices became field elements of the Defense Logis-
tics Services Center (DLSC). The CSSO's were redesignated as
defense surplus sales offices (DSSO's). On January 29, 1965, the
four DLSC regional sales offices were eliminated; and the num-
ber of DSSO's has been progressively reduced from the original
34 to 12. Annual recurring savings from these reduction actions
are $2.7 million.
(b) DSA, in coordination with the military services, has been
engaged in a program to eliminate holding activities of DOD
wherever practical and economical. As of January 1, 1967,
decisions were made to consolidate disposal functions at 79
holding activities. Sixty-five consolidations have been completed
with a resultant savings of $2.6 million. Four planned consolida-
tions were canceled due to announced base closure actions
(three) and redetermination that consolidation was not practical
(one). The remaining 10 consolidations are in process.
(c) A program to reduce costs incident to printing and distri-
bution of sales catalogs. This has resulted in savings of $5.9
million through fiscal year 1966.
(d) Programs have been developed for conservation or sale of
special materials; e.g., silver recovery, special processes for
handling copper and copper-base alloy scrap, centralization of
certain commodity sales such as jeeps and bearings, and segre-
gation of high-temperature alloy scrap.
(e) DSA has developed a proposed program system which will
provide meaningful and uniform operational data for managing
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ECONOMY IN GOVERNMENT-i 967 91
and controlling the disposal program. The proposed system
prescribes development and use of time standards, valid work-
load data, a uniform cost accounting structure and a selective
cost and performance reporting system.
WAREHOUSING GROSS PERFORMANCE MEASUREMENT SYSTEM
On February 1, 1965, DSA was assigned responsibility for managing
the warehousing gross performance measurement system, in coordi-
nation with the military departments and in accordance with in-
structions provided by the Assistant Secretary of Defense (Installa-
tions and Logistics). The Department of Defense `Warehousing Gross
Performance Measurement Office has been established within DSA
to develop, monitor, analyze, and maintain the system. The objective
of the system is to provide a uniform method of evaluating the
effectiveness of warehouse operations and resource utilization in
DOD storage activities.
VALUE ENGINEERING
Elimination of "goldplating" in specifications for commodities
managed by DSA continues to make progress. The fiscal year 1967
goal for cost reductions from value, engineering analysis actions has
been established at $12 million; and $16 million from fiscal year 1967
actions for the period fiscal years 1967-69. While additional oppor-
tunities are presented as new commodities are assigned, a plateau is
being reached as more and more of the assigned commOdities have
been subjected to value analysis. However, value engineering analysis
actions taken during the first half of fiscal year 1967 are expected to
result in validated, savings of $6.5 million in the fiscal years 1967-69
period. It is anticipated. that ac.tions in the second half of the fiscal
year will result in additional savings of $9 million in fiscal years 1967-
69 for a total of approximately $15.5 million for the 3-year period.
DEFENSE DOCUMENTATION
In November 1963 DSA assumed, from the Air Force, operational
control of the Defense Documentation Center (DDC) which had
replaced the Armed Services TeOhnical Information Agency. Policy
guidance for DDC is exercised by the Director of Technical Infor-
mation, Office of the Director of Defense iResearcli and Engineering.
DDC provides classified and unclassified management information
services, without charge, to Government organizations and con-
tractors engaged in Government research and development programs.
DDC maintains and operates the research and technology work
unit data bank and related banks of management information;
acquires technical reports, announces them, and furnishes copies to
authorized users; makes technical report searches for DDC users;
maintains a centralized system for registration and certification for
access to DOD scientific and technical information; maintains the
DOD Thesaurus of Technical Terminology; provides primary distribu-
tion of technical reports obtained from selected foreign countries and
the NATO advisory group for aerospace research and development;
and provides referral service to additional DOD sources of specialized
scientific and technical information.
55-698-67-----7
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92 ECONOMY IN GOVERNMENT-i 967
The DDC mission includes development of new and improved
concepts, processes, techniques, services, products, and integrated
systems for management information and technical docmnentation
in support of the DOD scientific and technical information program.
As continuing additional requirements have been imposed for serv-
ices to the research and development and logistics communities,
DDC has developed from an R. & D. document supply activity to a
major repository and retrieval activity for technical management
informa ~ion.
DOD/GSA SUPPLY RELATIONSHIPSCIVIL AGENCY SUPPORT
Under terms of the DOD/GSA agreement reached at the end of
1964, a joint DSA/Federal supply service Materiel Management
Review Committee was formed in 1965 to determine appropriate
supply management assignments to DSA and GSA of Federal supply
class (FSC) groups, classes and items under DOD integrated man-
agement. Agency heads have approved initial management assign-
ments of 99 FSC's to DSA and 52 to the General Services Administra-
tion. Transfer to GSA of items in these 52 "Primary Federal Supply
Service Classes" is scheduled for July 1967. An additional FSC has
been assigned to GSA but has not yet been scheduled for transfer.
The DOD/GSA agreement further provided for DSA to consider
support of all civil agencies for the commodities of fuel, electronics,
clothing and textiles, medical and subsistence supplies, provided
conditions of economies and support effectiveness are met. A DSA/
GSA committee has completed its evaluation of the feasibility and
economy of DSA support of all Federal civil agencies for fuel, elec-
tronics, and clothing and textiles and determined that:
Support for fuels involving procurement, but little workload
impact on inventory management and distribution, will produce
cost savings of approximately $2.5 million annually and will not
adversely affect military service support.
There is a high degree of commonality in electronics supplies
used by civil agencies and DSA. DSA already supports approximately
one-half of the civil agencies' annual $10 million electronics require-
ment. Savings from expansion of DSA support for all civil agency
common item electronics requirements will approximate $0.6 million,
in addition to the $0.6 million now being saved under current DSA
support.
in the clothing and textiles area, there is substantially less com-
monality of civil agency and DSA items; therefore, savings are less
significant and workload impact greater. In view of already heavy
commitments, DSA has proposed, and the Secretary of Defense has
approved, limiting expansion of civil agency support to those specific
instances where clear savings can be made without degrading military
support capability. The clothing and textile area will be reexamined
from time to time to identify any support which DSA might provide
to civil agencies on a case-by-case basis; but at this time there is no
plan for DSA to assume overall support.
The Secretary of Defense has approved the DSA proposal to support
civil agencies for fuel and electronics. Phase-in of fuel support over
a 10-month period is scheduled to begin 6 months from the final
Burean of the Budget decision authorizing such support. The tentative
scheduling for support of civil agencies for electronics provides for
PAGENO="0099"
ECONOMY IN GOVERNMENT-i 967 93
phase-in over a 12-month period, beginning July 1, 1968, to assure
civil agency support without adverse impact on DSA present heavy
workload in the electronics area.
Studies of medical and nonperishable subsistence are in process.
While final conclusions and recommendations have not been developed,
the relatively heavy workload involved, without evidence of sub-j
stantial economy, indicates that DSA support should be limited,
similar to that approved for clothing and textiles, with provisions
for future reconsideration.
Progress is being made in perishable subsistence support of Veterans'
Administration and Department of Health, Education, and Welfare
hospitals by the regional subsistence offices of DSA. Sales have totaled
$654,000 for the period April-December 1966.
In conjunction with the Department of the Interior, consideration is
being given to the extension of perishable subsistence support to the
$2 million school program of the Bureau of Indian Affairs.
Support of the Post Office Department for electronics, general and
industrial supplies is also under review. Annual sales of these commodi-
ties to the Post Office Department would approximate $2 million.
Under separate interagency arrangements currently in effect, DSA
supports the Coast Guard with a full range of materiel; Veterans'
Administration and Public Health Service with selected medical items;
the National Aeronautics and Space Administration and the Federal
Aviation Agency with electronics materiel; the Maritime Administra-
tion with fuel, and clothing and textiles; and the Office of Economic
Opportunity with clothing and textiles and subsistence items.
CIVIL DEFENSE LOGISTICS
DSA is responsible for logistics support of the national civil defense
program under the policy control and direction of the Office of Civil
Defense, Office of the Secretary of the Army.
In providing civil defense logistics support, DSA operates a na-
tional distribution system which issues survival supplies for the stock-
ing of public fallout shelters. During the past fiscal year, supplies
for 7.5 million persons were issued. The total supplies issued since
the program began in fiscal year 1962 are sufficient for 45.8 million
persons in more than 81,000 shelter facilities.
DSA has begun evaluation of the condition of survival supplies in
shelters by utilizing the Veterinary Services of the Army and Air
Force to inspect supplies on a scientific sampling basis. Certain samples
will also be subjected to laboratory analysis. A pilot inspection has
been successfully conducted to test basic procedures and inspection
techniques. Through a phased programn, the condition and readiness
of survival supplies at military installations, in Federal buildings, and
in public fallout shelters everywhere will be evaluated.
Since the establishment of the DSA civil defense materiel distribu-
tion system, 54 percent of the warehouses initially participating in
the storage and issue of survival supplies have been consolidated.
During fiscal year 1966 civil defense-owned engineering equipment,
which is managed by DSA, was loaned to State governments to allevi-
ate local community suffering and hardships from drought and flood
damage. This included the loan of approximately 114 miles of pipe,
158 pumps and related items to 24 States for use in 91 communities.
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94 ECONOMY IN GOVERNMENT-i 967
CONTRACT ADMINISTRATION SERVICES
The Defense Contract Administration Services (DCAS) mission was
assigned to DSA after extensive study and represents one of the most
significant efforts of the Defense Department to improve logistics
management. The consolidation does not embrace, or affect, the procure-
ment function itself, but rather the administration of contracts in the
field after they have been executed by the contracting offices of the
military departments and DSA. A prime objective of the merger was to
provide a "single face to industry."
During 1962 and part of 1963, a study known as Project 60 was
conducted under the policy guidance of high level Department of
Defense military and civilian personnel. The study indicated the ex-
istence of considerable overlap and duplication in contract administra-
tion services functions among the military services under the Army
Materiel Command, the Office of Naval Material, and the Air Force
Systems Command; and further indicated the feasibility of consolidat-
ing. the functions for centralized management. A pilot test region
established at Philadelphia, Pennsylvania, in April 1964, demonstrated
the feasibility and potential advantages of consolidating contract
administration services functions on a nationwide basis. On the basis
of the success of the pilot test, the Secretary of Defense, on June 4,
1964, assigned responsibility for these functions to DSA.
A national planning group, composed of temporary duty personnel
from the military services and DSA, developed a national implementa-
tion plan (NIP) which was approved by the Secretary on December
28, 1964. The planning group formed the nucleus of the headquarters
element of the DCAS organization. During the development of the
NIP, a memorandum of understanding was developed with the
National Aeronautics and Space Administration concerning CAS
performance on NASA contracts.
The NIP provided for gradual permanent staffing of the DCAS
headquarters element and for a time-phased schedule for consolidating
and merging the contract administration services components of the
military services and DSA into 11 Defense Contract Administration
Services regions (DCASR's), responsible for administering contracts
under the centralized management concept. The headquarters
element was established on a permanent basis on February 1, 1965,
and is now staffed w ith the 329 military and civilian personnel
authorized. The current organizational structure of the headquarters
eh~ment of DCAS is shown in figure (3). Provision was made for
required augmentation of the DSA common staff in areas where
support. services are furnished to DCAS. Conversion and organization
of the DCAS field structure was completed on December 1, 1965,
with the activation of the last two of the DCASR's at Los Angeles
and San Francisco. The geographical alinement of the Defense Con-
tract Administration Services regions is depicted in figure 10,
which also shows the districts and service offices within each region.
The directors of the regions are identified in figure 5.
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FIGURE 10
0 D fense ~ act Act mist atmon ervices Reg ons
4 -` Defense Contract Administr~tion Services Districts
Def nse r a ract Adcjnistrition Service Offices (D s n ten s fa s ogra ucal n~m
Defen e Cont act Acinmni tratmon Scivices `iant5 orese&atjve Offices
(D signat d wit a clant nane)
PAGENO="0102"
96 ECONOMY IN GOVERNMENT-I 967
Consolidation of contract administration services functions within
DSA involved the merging of 165 military service and DSA contract
management offices into approximately 100 offices. Despite the many
problems associated with a conversion effort of such magnitude, the
transition was made with full consideration of the functional transfer
rights and interests of the approximately 20,000 employees identified
by the military services and DSA as performing contract administra-
tion services functions. During this period, contract administration
functions and operations were continued without interruption or
impairment of the Government's interest.
DCAS is responsible for providing a wide variety of support services
to the purchasing offices of the military services, NASA, and other
Federal agencies and certain foreign governments. These services
include preaward surveys, review of contractor purchasing systems,
quality assurance and inspection, property administration, production
surveillance and reporting, transportation, payments to contractors,
industrial, security and other functions required in connection with
industry performance on defense contracts. Responsibility for initial
award of contracts and for all decisions with respect to the nature
and quantity of items and services to be purchased remains with the
military service, DSA and NASA buying offices; JJCAS performs
those contract administration functions that can best be handled at
or in close proximity to the contractor's plant. In addition to retaining
responsibility for contract awards, the military services are respon-
sible for the administration of those categories of contracts not in-
cluded in the mission assignment to DCAS; for example,. contracts
involving perishable subsistence items, basic research studies, military
and civilian construction, repair, and overhaul of naval vessels.
Military services are also responsible for administration of those
contracts in specific plants assigned by DOD under the plant cog-
nizance program.
The defense industrial security program is unique in the field of
contract administration services in that its responsibility includes not
only those facilities in which DCAS has contract administration
responsibility, but also all facilities where the military departments
have retained plant cognizance responsibility. In addition to having
responsibility for security administration of all DoD classified con-
tracts, the Defense industrial security program provides the same
service for classified contracts awarded by eight other departments
and agencies of the government; namely, the Departments of State,
Commerce, and Treasury, the National Aeronautics and Space Ad-
ministration, Federal Aviation Agency, General Services Adminis-
tration,. Small Business Administration, and the National Science
Foundation.
In the consolidation of the Defense industrial security program,
procedures for processing personnel security clearances were central-
ized from approximately 110 cognizant security offices into the Defense
Industrial Security Clearance Office (DISCO). Centralization of the
personnel clearance function has resulted in improved management
efficiency and the ability to insure greater uniformity in clearance
determinations. Moreover, the centralized operation lends itself to
future adaptation to automatic data processing.
In consolidating CAS functions, it was anticipated that savings
would accrue from three factors: (1) the merging of offices, (2) the
PAGENO="0103"
ECONOMY IN GOVERNMENT-i 967
97
use of computers, and (3) increased standardization and uniformity
of operation. Realization of savings was to be achieved by a time-
phased reduction in personnel over a 5-year period. Utilizing pre-
consolidation workload and manpower as a base, the objective was
a reduction of approximately 10 percent in personnel by fiscal year
1968 to reflect a recurring reduction in personnel costs of $19 million
by fiscal year 1969.
In December 1965, the first month of full DCAS nationwide oper-
ation, the level of workload had already increased 20 percent above
the level prevailing when the savings estimates were made, when, for
example, the number of primary and secondary contracts being ad-
ministered was 138,000. By December 1966, the number was 219,000,
an increase of 60 percent. A further increase to 220,000 is expected
by June 30, 1967. During the same period the number of invoices
completed had changed from an annual rate of 1.07 to 1.71 million,
also an increase of 60 percent. By June 30, 1967, the annual rate is
expected to reach 1.96 mil1ion~ Still another example is the dollar
value of material inspected and released for shipment, which rose
from an annual rate of $13.729 billion in December 1965 to $16.672
billion in December 1966, a 20 percent increase. The projected annual
rate as of June 30, 1967, is $17.726 billion. (See table following.)
CONTRACT ADMINISTRATION SERVICES WORKLaAD
un thousandsj
*
Fiscal year
1965
Fiscal year
1966
Fiscal year
1967
Fiscal year
1968 estimate
Contracts administered
114
195
272
276
Invoices processed
Contracts requiring production processing
Value of material inspected and released for shipment
825
84
1,109
112
1,945
198
$19, 352,000
2,311
229
$21, 781 ,000
These examples, together with other primary workload indicators,
show an overall workload increase ranging from 37 to 63 percent
during the past year. To accomplish this increased workload, man-
power was increased by 20 percent. These increases are for the most
part attributed to the impact of the SEA buildup, added NASA
requirements, and the transfer to DCAS of the administration of
some contracts previously assigned to the military departments under
the DOD plant cognizance program.
The workload increase compared with the work force increase
demonstrates a reduction in cost per work unit performed. Accordingly,
the original estimate of anticipated savings appears to have been
exceeded. However, a more precise computation of savings for com-
parison with the original estimate is not feasible because of the
significant but immeasurable influence of several factors. These include
changes that have occurred in the contract administration mission
where the net effects on workload and resources are not clearly
identifiable; the impact of SEA requirements which, on a postfacto
basis, are not fully separable from the otherwise normal workload;
and the effects of the learning curve on operation during the first
year. These factors notwithstanding, current workload and resource
data indicate that the full savings originally anticipated were being
realized earlier than scheduled and will continue to recur through
fiscal years 1967 and 1968.
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98 ECONOMY IN GOVERNMENT-1967
Beginning with fiscal year 1967, DSA budgeted and funded for CAS
functions. During fiscal year 1965, DCAS operations were financed
through reimbursement to DSA from military appropriations. Fiscal
year 1966 financing was accomplished through transfers of funds from
the military departments. Si~port of NASA and other non-DOD
agencies will continue to be financed through reimbursement.
Some of the areas of major effort during the first year of operations
were as follows:
(a) Quality assurance.-The SEA build up created a significant
workload in suppliers' plants, particularly in the ammunition, weap-
ons, clothing, and medical commodities. Through extensive training
and some recruitment, the challenge has been successfully met. To
meet changing industrial and defense technologies, and other factors
impinging upon readiness to perform, DSA CAS is pursuing a quality
assurance skills acquisition program. DSA CAS is currently training
approximately 1,000 quality assurance personnel who are performing
on NASA contracts. in addition, quality assurance. personnel are
attending service schools, non-Government schools, and colleges to
become better equipped to accomplish the assigned mission.
(b) Plant safety.-Included in the initial CAS functional assignment
from the military departments was responsibility for monitoring safety
in contractors' facilities pertaining to nonhazardous materials and proc-
esses involved in Government contracts. Early in 1966 DCAS was
assigned, for contracts administered, the additional responsibility for
maintaining surveillance of flight safety and safety matters on hazardous
and dangerous materials and processes. Since assignment of the func-
tion, a DSArepresentative has chaired a DOD committee to develop
ASPR guidance on hazardous and otherwise dangerous material
safety, uniform contract safety clauses, and a Department of Defense
manual prescribing, standards to be followed by manufacturers of
hazardous and dangerous materials.
(c) Delinquent contracts.-Due to the urgency of the Southeast
Asia situation, special management attention had to be given to the
problem of reducing the number of contracts in a delinquent delivery
status. Increased leadtimes for materials and overloaded plant condi-
tions contributed to a rising trend in contract delinquencies. Top
management personnel of selected delinquent contractors were visited
by DCASIR personnel to emphasize the importance of timely deliveries
and to assist the contractors in attempting to reduce their delin-
quencies.
(d) Defense materials and priorities assistance.-Special emphasis
was placed on accomplishment of the objectives of the Defense ma-
terials and priorities assistance program, which necessitated the
reorienting, training, and indoctrination of Government employees and
Defense contractors. DCAS participated with the Business Defense
Services Administration, Department of Commerce, in nationwide
briefings attended by approximately 25,000 Defense contractor
representatives in 30 U.S. cities. Additionally, vigorous in-house
training was conducted and a continuing program was developed for
providing technical assistance to both Government and contractor
personnel.
(e) Industrial security.-Immediately following consolidation of
the industrial security function, action was taken to identify cleared
facilities which had not been engaged in classified procurement for
18 or more months. Administrative termination of these "dormant"
PAGENO="0105"
ECONOMY IN GOVERNMENT-i 967 99
facilities resulted in a reduction of cleared facilities from approxi-
mately 22,000 to approximately 15,000. This has contributed to the
efficiency of the program in that resources can be expended at facilities
actually engaged in classified procurement.
(f) Small busivess.-A vigorous small business and economic
utilization program was pursued; 1,378 small business/labor surplus
area subcontracting programs have been established in prime con-
tractor plants and are being revised quarterly by CAS field force of
48 small business/labor surplus area specialists located in 11 regions
and in 15 of the 26 district offices.
(g) Management of property-Significant improvements have been
made in the management of property. New programs provide for
more thorough analyses and qualitative evaluations, better identi-
fications of conditions, and sounder bases for conclusions and actions.
(1) Contractor property control systems: IProvided for greater
depth and scope of reviews and evaluations of each system
periodically, established minimum frequency of surveillance
visits, and provided a statistical sampling technique with guid-
ance for the sizes of samples and the limits of acceptability.
(2) Contractor use of industrial plant equipment: Fixed
initial responsibility for performance of usage analysis by the
best qualified DCAS specialist available during production;
established firm requirements for timely reviews; provided
improved criteria for determining when equipment may be
considered idle by equating with procuring activity plans, pro-
grams, and intentions, respecting original authorization for
acquisition and use; and specified a reporting procedure to
support decisionmaking and necessary action.
(3) Centralized management of functions, skills, and reports:
Identified other specific functions within the overall management
of government property for performance by quality assurance,
industrial specialist, transportation, and safety personnel in such
areas as condition, maintenance, shipping, and loss or damage,
with reports to the property administrator making the total
story on the quality of the contractor's management, and es-
tablishing bases for compliance actions.
(4) Revised job standards for property administrators: Under-
took a study which disclosed the need to revise antiquated and
obsolete notions of property administration. These standards
are now being rewritten to more closely approximate a manager
of assets in the light of prevailing industrial and economic con-
ditions and designed to attract higher caliber personnel by
creating a career progression as a recruiting incentive, all to the
end of upgrading the quality of performance.
(5) Training: Conducted seminars in the 11 DCASR's,
bringing to property administrators and their supervisors current
doctrine, such as emphasis on proper utilization of equipment by
contractors and timely and accurate preparation of records and
reporting.
(6) Regulatory coverage: Participated in distinguishing re-
ponsibilities of the contractor and the Government; eliminating
nonessential reporting; standardizing required reports as manage-
ment tools and for other governmental purposes; developing
contract provisions requiring maintenance of utilization records;
PAGENO="0106"
ECONOMY IN GOVERNMENT-1967
and furnishing new guidance in disposition of inventory and
prompt plant clearance, preparation of inventory schedules,
reporting for screening, and responsibilities of the plant clearance
officer.
(7) Reconciliation of industrial plant equipment records:
Recognized the need for purification of the system from an eco-
nomic and practical viewpoint and arranged for a 2-year program
of reconciliation of the records of the national inventory of
industrial plant equipment with the property in possession of
contractors by an orderly, no-additional cost operation during
the contractor's normal inventory taking.
To summarize, the Defense Contract Administration Services
mission has been implemented and successfully incorporated into the
DSA organization. Contract administration services functions are
being performed effectively and efficiently, and with savings in costs
over the previous methods. More significant benefits and improved
performance are expected to be achieved as the DCAS organization
stabilizes and gains additional experience and performance data in
operations under the Project 60 concept. Conversion to the current
DCAS organization was achieved without any significant adverse
impact upon the Government organizations and personnel involved.
DSA ACHIEVEMENTS IN REDUCING COSTS OF
OPERATIONS
The Defense Supply Agency has continued support to the military
services without interruption or impairment, during major organiza-
tional change. This has involved the extension of central control over a
group of heterogeneous agencies and the development of uniform
policy, standards, and procedures with a view toward providing the
military services with better support at less cost.
The President's budget for fiscal year 1963 was based on the expecta-
tion that the functions transferred to DSA would be performed at a
cost of $27.7 million less than the budgeted cost of performing the same
functions within the military departments. The Congress assessed an
additional reduction of $2.7 million, making a total budget cut of
$30.4 million, related principally to a reduction of 3,329 civilian per-
sonnel spaces. Consolidation of the Army and Marine clothing fac-
tories produced an additional saving of $0.9 million, resulting from a
reduction of 146 personnel spaces, for a total fiscal year 1963 operating
expense saving of $31.3 million. During fiscal year 1964, this $31.3
million was augmented by additional savings, realized from reorganiza-
tion of the distribution system, improved use of automatic data proc-
essing equipment, consolidation of the Defense Automotive and Con-
struction Supply Centers, and closing of certain Defense Surplus Sales
Offices, for a total of $39.6 million. Consolidation of the Medical, Sub-
sistence, and Clothing and Textile Supply Centers into the Defense
Personnel Support Center resulted in a reduction of 483 civilian and 38
military spaces, with a net saving during fiscal year 1966 of approxi-
mately $4.2 million exclusive of one-time costs. By the end of fiscal
year 1966 total savings from reduced cost of operations had reached
$58.3 million.
PAGENO="0107"
ECONOMY IN GOVERNMENT-i 967 101
SUMMARY
In the 5 years since its establishment, it has become apparent that
DSA has not, and will not, solve all military supply and logistics serv-
ices problems. Some of these are bound up in the complex relation-
ships of military strategy and national economics and the rapid obso-
lescence of military materiel caused by the forward sweep of technology.
DSA has in this 5-year period, however, demonstrated that it can
support the military services effectively and efficiently in the major
military commitment in Vietnam. In so doing, the Agency has proven
the soundness of the concept of integrated management of common
supplies and logistics services in Defense and that it can be made to
work in time of war, mobilization, or peace.
PAGENO="0108"
Potential Savings Obtainable Through Increased Use
of the Government's Interagency Motor Pool
System, Department of Defense.
Review of Costs of Bidding and Related Technical
Efforts Charged to Government Contracts, Depart-
ment of Defense and National Aeronautics and
Space Administration.
Management of Hi-Valu Aeronautical Parts by Pacific Air Force.
Air Forces Bases, Department of the Air Force.
Review of Availability of Selected Stocks of the U.S. Army.
Army in Europe for Requirements of Other Com-
mands, Department of the Army.
Savings Available to the Government through revi- GSA.
sion of the method of supplying Commercial
Rental Cars-General Services Administration.
Procurement of Critically Needed Missile Fuel Air Force.
Under Adverse Conditions from a Sole-Source
Supplier, Department of the Air Force.
Review of the Management of Aircraft Repair Parts Army.
Reserved for Maintenance Activities at Depots
in the Continental United States, Department of
the Army.
S B-160417 Apr. 28, 1967 Review of the Acquisition and Installation of Com- Do.
puters by the U.S. Army, Pacific, Department of
the Army.
Savings Available Through the Use of Formal Adver- GSA.
tising in Contracting for Automotive Tires and
Tubes, General Services Administration.
___do Review of the Pricing Methods Used by the Various HEW.
States in the Purchase of Prescribed Drugs Under
Federally Aided Public Assistance Programs, Wel-
fare Administration, Department of Health, Edu-
cation, and Welfare.
Examination Into the Transfer of Handtool and
Paint Stocks From the Department of Defense to
the GSA.
Review of Inspection Controls Over Concrete Place-
ments in Building Construction Projects-Public
Buildings Service, GSA.
Review of Subsurface Exploration for and Design and GSA.
Construction of Foundations of Public Buildings-
Public Buildings Service, GSA.
May 31, 1967 Savings Possible by Consolidating Mamagement of VA and lIUD.
Acquired Residential Properties, Department of
Housing and Urban Development and Veterans'
Administration.
Need for Improvements in Supply and Maintenance Navy.
Support for F-4 Aircraft, Department of the Navy.
Potential Savings Available Through Use of Civil NASA.
Service Rather Than Contractor-Furnished Em-
ployees for Certain Support Services, National
Aeronautics and Space Administration.
June 19, 1957 Need for Compliance With the Truth-in-Negotiations Defense.
Act of 1962 in Award of Construction Contracts,
Department of Defense.
July 18, 1967 New Procedures Adopted To Improve Management Do.
of Contractor-Operated Messing and Merchandis-
ing Services at Kwajalein Missile Test Site,
Department of Defense.
19 B-118779 July 27, 1967 Potential Savings in Financing Operation of Govern- Commerce.
mont-Owned VesselsSupporting Military Activities
in Southeast Asia, Maritime Administration,
Department of Commerce.
20 B-161415 Review of Policies and Procedures for Rebuilding
Used Motor Vehicle Tires by Selected Civil
Agencies.
21 B-146772 Transfer of Excess Materials Between the Army and Navy.
Marine Corps Expedited by Improved Procedures.
102
APPENDIX 3
U.S. GENERAL ACCOUNTING OFFICE INDEX OF SELECTED REPORTS ISSUED TO THE CONGRESS DURING THE PERIOD
MAR. 8, 1967, THROUGH OCT. 12, 1967
1 B-158712
2 B-133386
Index
No.
Report Date Title of report Department
file No.
Mar. 8, 1967
Mar. 17, 1967
Defense.
Defense and
3 B-160581 Mar. 28, 1967
4 B-160632 Apr. 10, 1967
5 B-160781 Apr. 17,1967
6 B-157445 Apr. 24, 1967
7 B-157373 Apr. 25, 1967
9 [B-160900
10 B-114836
NASA.
Defense and GSA.
GSA.
11 B-161319 May 8,1967
12 0-161027 May 25, 1967
13 B-161027 do
14 B-156010
15 B-152600 June 5,1967
16 B-133394 June 9,1967
17 B-39995
18 B-152598
July 31, 1967
July 31,1967
Selected civil agencies.
PAGENO="0109"
ECONOMY IN GOVERNMENT-i 967 103
U.S. GENERAL ACCOUNTING OFFICE INDEX OFSELECTED REPORTS ISSUED TO THE CONGRESS DURING THE PERIOD
MAR 8, 1967, THROUGH OCT. 12, 1967-Continued]
Index
No.
Report
file No.
Date
Title of report
Department
22
23
24
B-118634
B-161330
B-139011
Aug. 3,1967
Aug. 7,1967
Aug. 30, 1967
Need for Improved Reviews of Quantity Estimates
Prepared by Architect- Engineers for Solicitation
of Construction Bids, Corps of Engineers (Civil
Functions), Department of the Army.
Need for Improving Policies and Procedures for
Estimating Costs, Evaluating Bids, and Awarding
Contracts for Dredging, Corps of Engineers (Civil
Functions), Department of the Army.
Savings From More Economical Use of Communica.
tion Facilities Between Alaska and the U.S.
Army.
Do.
Air Force.
25
26
27
B-156313
B-114824
B-161992
Aug. 31, 1967
Sept. 21, 1967
Sept. 22, 1967
Mainland, Department of the Air Force, Alaska
Communication System.
Procurement of Nuclear Submarine Propulsion
Equipment Under Public Law 87-653, Department
of the Navy.
Savings Available if the Commodity Credit Corpora-
tion Recovers Interest Costs on Repaid Price.
Support Loans and on Storage Facility and Equip-
ment Loans, Commodity Credit Corporation, Do.
partment of Agriculture.
Opportunities for Savings Through Use of Spare
Government-Owned Communications Circuits in
Navy.
~
Agriculture.
Defense.
28
29
B-133118
B-162106
Sept. 29, 1967
.do
Europe, Department of Defense.
Review of Inventory Accounting Systems for Aero.
nautical Equipment, Department of the Navy.
Need for Procedures to Preclude More Than Just
Compensation in Acquiring Oil interest, Corps of
Engineers (Civil Functions), Department of the
Navy.
Army.
30
6-161340
Oct. 12, 1967
Army.
Opportunity for Savings by Adopting Manufacturers'
Recommended Preventive Maintenance Programs
for Interagency Motor Pool Vehicles-General
Services Administration.
GSA.
PAGENO="0110"
APPENDIX 4
DIGESTS OF SELECTED U.S. GENERAL ACCOUNTING OFFICE
REPORTS ISSUED TO THE CONGRESS DURING THE PERIOD
MARCH 8, 1967, THROUGH OCTOBER 12, 1967
[Index No. 1-B-158712, March 8, 1967]
POTENTIAL SAVINGS OBTAINABLE THROUGH INCREASED USE OF THE
GOVERNMENT'S INTERAGENCY MOTOR POOL SYSTEM, DEPARTMENT
OF DEFENSE
During our review at six military installations in the Washington,
D.C., area, we found that employees who required automobiles in
connection with travel while on temporary duty assignments cus-
tomarily rented automobiles from commercial firms even though
vehicles were generally available from the Government's interagency
motor pool system at a 10- to 50-percent reduction in cost and at
little inconvenience to the traveler.
The use of the interagency motor pool system, whenever feasible,
is a stated policy of the Department of Defense. We found, however,
that although the military services have issued instructions which
call attention to the existence of the interagency motor pooi and
provide pool locations, addresses, and telephone numbers, the regu-
lations did not specifically require personnel to use the motor pool
system. Consequently, we found that travelers needing vehicles
generally did not attempt to obtain them from the motor pool system,
but, instead, rented cars from commercial car rental firms.
From our review, we estimated that the annual cost of car rentals
at the six military activities included in our review amounted to
approximately $214,000. Assuming these activities to be typical, it
appeared that substantial savings could be achieved each year by
the Department of Defense if greater use was made of the existing
services of the interagency motor pool system.
The Director, Transportation and Warehousing Policy, Office of the
Assistant Secretary of Defense (Installations and Logistics) advised
us in a letter dated September 28, 1966, that the Department of
Defense concurred in our findings and conclusions, lie stated that the
military services have been requested to review and modify pertinent
directives or regulations as necessary to ensure that the requirement
for the use of interagency motor pool facilities is explicitly stated.
In addition, we have been advised by the Administrator, General
Services Administration that agreement has been reached with the
Department of Defense whereby the General Services Administra-
tion will (1) increase the size of the motor pool fleet if necessary at
locations designated by the Department of Defense where vehicle
requirements of department personnel are relatively stable, and (2)
assist in the development of internal regulations and publicity to
insure the effective implementation of such regulations by personnel
authorizing and performing travel.
104
PAGENO="0111"
ECONOMY IN GOVERNMENT-1967 105
{Index No. 2-B---133386, Mar. 17, 1967]
REVIEW OF COSTS OF BIDrnNG AND RELATED TECHNICAL EFFORTS
CHARGED TO GOVERNMENT CONTRACTS, DEPARTMENT OF DEFENSE
AND NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
The General Accounting Office made a review of the costs of bidding
and related technical efforts charged to Department of Defense and
National Aeronautics and Space Administration contracts.
We found a need for improved control over the costs of contractors'
bidding and other related technical efforts absorbed by the Govern-
ment. Our findings were based on our review at Lockheed Missiles &
Space Co., Division of Lockheed Aircraft Corp., Sunnyvale, Calif.
However, auditors of the Departments of the Army and Air Force
have noted similar problems during their audits of numerous other
Government contractors.
In our opinion, the need for improved control resulted principally
because the armed services procurement regulation, which provides
the basis for limiting charges to contracts for contractors' bidding
costs and other technical effort costs, was not sufficiently clear and was
subject to varying interpretations. We, as well as agency auditors, had
noted that, where the procurement regulations do not clearly define
the types of costs allowable under Government contracts or do not
clearly establish the extent of allowability, the interpretations made
by contractors most often prevail.
This situation is best illustrated where contractors, such as Lockheed
Missiles & Space Co., are engaged simultaneously in the preparation
of bids and proposals and the conduct of independent research and
development. These two activities involve similar technical efforts.
For the larger contractors, including Lockheed Missiles & Space Co.,
agreements are negotiated in advance covering the extent of the
contractors' independent research and development programs, that
will be absorbed by the Government but advance agreements gen-
erally are not made limiting the amount of bid and proposal expenses
to be absorbed by Government contracts.
Thus, technical effort designated by the contractor as pertaining to
its independent research and development program is subject to
reduced reimbursement by the Government, whereas similar effort
designated as bid and proposal expense may be accepted without
limitation.
Our review indicated that at least half of the $3.8 million of bidding
and related costs claimed by Lockheed Missiles & Space Co. for 1962
either were similar to independent research and development costs or
were not, in our opinion, clearly necessary to support the contractor's
bids and proposals. The items in question were costs incurred (1)
after the Government indicated that it was not interested in a
proposal, (2) before the time a request for proposal was received,
(3) after a bid or proposal had been presented to the potential cus-
tomer, and (4) to develop capability to respond to future anticipated
requests for proposals.
The Lockheed Aircraft Corp., in commenting on our draft report,
disagreed with our position with respect to these items.
The Department of Defense and other Government agencies, in-
cluding the National Aeronautics and Space Administration, have
PAGENO="0112"
106 ECONOMY IN GOVERNMENT-i 967
recognized the problem of determining allowabiity of bidding and
related costs when such determination is based on a subjective review
of the reasonableness of the contractor's classification of the technical
effort for which he is claiming reimbursement. For the past several
years, the Department of Defense had been in the process of amending
the procurement regulations to deal with all types of contractor's
independent technical efforts as a package and to provide certain
limitations on the charging of such costs to Government contracts.
The Department of Defense informed us that a study would be made
to develop an appropriate remedy for effective management of bid
and proposal costs charged to Government contracts. Both the De-
partment of Defense and the National Aeronautics and Space Ad-
ministration stated that it would not be feasible to issue interim
guidance, as we had proposed, with respect to allowabiity of bid and
proposal costs.
`We recognize that~ the many facets of the bid and proposal problem
deserve intensive consideration before revised procedures are estab-
lished. However, we are concerned that, in the meantime, contracting
and auditing officials will continue to be faced with the need to in-
terpret the procurement regulations in the areas covered by this report.
In our opinion, the planned study should be expedited.
We therefore recommended that the Secretary of Defense give the
proposed study of bidding and related costs a high priority and that he
establish goals to insure the earliest possible completion of required
revisions to the procurement regulations.
[Index No. 3.-B-16058i, March 28, 1967]
MANAGEMENT OF HI-VALU AERONAUTICAL PARTS BY PACIFIC AIR
FORCES BASES, DEPARTMENT OF THE AIR FORCE
The General Accounting Office has made a review of the manage-
ment by Pacific Air Forces bases of certain high-cost aeronautical
parts included in the Air Force hi-valu program, a program which
provides close control over significant items through selective manage-
ment techniques.
We found that the five Pacific Air Forces bases covered by our
review had accumulated hi-valu aeronautical parts and components
valued at about $16 mifiion, which were excess to the bases' require-
ments. Additional unneeded hi-valu parts valued at about $19.9
million were on order from depots in the United States. For a selected
number of the excess items on hand, we estimated that transportation
costs of about $381,000 were incurred to ship the unneeded materiel
to Pacific bases. Also, much of this unneeded materiel was shipped by
air transportation at a time when there was a shortage of such trans-
portation to handle high-priority cargo shipments to the Pacific.
The excess parts and components were accumulated or ordered
because base supply personnel did not effectively implement or follow
established Department of the Air Force supply-management pro-
c~ciures. We found that these personnel (1) circumvented the controls
that had been established t~o prevent ordering unneeded parts, (2) did
not follow presèribed Air~ Force supply procedures that had been
designed to identify unneeded orders which should be canceled, (3)
PAGENO="0113"
ECONOMY IN GOVERNMENT-i 967 107
did not identify all interchangeable items on hand in base stocks, and
(4) in some instances, did not adequately consider the need for estab-
lishmen~ or continuance of special stock levels. Also, base supply
personnel did not report excess assets on hand to inventory managers
and thus precluded the effective redistribution of such assets to bases
which might have had a need for them.
We brought otu~ findings to the attention of the Department of
Defense and the Department of the Air Force on October 6, 1966.
The Deputy for Supply and Maintenance, Office of the Assistant
Secretary of the Air Force (Installations and Logistics), in commenting
on our draft report, stated that the Air Force, in general, agreed with
our findings and recommendations. He pointed out, however, that,
at the time of our review, the five bases we visited were supporting
forward bases in Southeast Asia where operations were rapidly
expanding and that difficulties experienced as a result of this rapid
expansion, coupled with eagerness of supply-management personnel
to support the war effort, undoubtedly contributed to the temporary
overstockage of hi-valu items.
The Deputy for Supply and Maintenance stated that, as a result of
our review, the five bases have, as of October 15, 1966, taken action
to cancel unneeded hi-valu items on order valued at about $8 million
and to redistribute unneeded hi-valu items on hand valued at over $5
million. He said that, in accordance with our recommendation that
increased surveillance over base activities be exercised by Head-
quarters, Pacific Air Forces, a new supply improvement program had
been initiated for the purpose of ensuring that base supply problems
were brought to the attention of the appropriate level of command and
that projects had been established to review major areas of supply
operations.
We believe that the actions taken by Headquarters, Pacific Air
Forces, if effectively pursued on a continuing basis, should help
prevent recurrence of the deficiencies.
[Index No. 4-B---160632, Apr. 10, 19671
REVIEW OF AVAILABILITY OF SELECTED STOCKS OF THE UNITED
STATES ARMY IN EUROPE FOR REQUIREMENTS OF OTHER COM-
MANDS, DEPARTMENT OF THE ARMY
The General Accounting Office has made a review of the availability
of selected stocks in Europe to meet the requirements of other com-
mands within the Department of the Army.
Repair parts and electronic components which exceeded require-
ments in Europe were not redistributed to meet urgent needs in other
areas because of weaknesses in the Army's inventory reporting pro-
cedures and practices. Our limited review identified combat vehicle
repair parts and electronic components, valued at about $3.2 million,
that could have been used to satisfy urgent requirements in the United
States and in the Pacific area. The availability of these items, however,
had not been reported to the appropriate national inventory control
points in the United States, and, in the absence of such information,
procurements and repair programs were initiated to meet knowu
requirements.
S5-698-67------S
PAGENO="0114"
108 ECONOMY IN GOVERNMENT-i 967
After these items were called to the attention of management
officials, assets valued at about $2.1 million were transferred to other
commands, programs for repairs costing about $100,000 were canceled,
and procurements valued at about $180,000 were deferred. The re-
maining assets, valued at about $1.1 million, were scheduled for redis-
tribution subsequent to the completion of our review.
We found that the Army Tank-Automotive Center did not consider
the stocks in Europe available for redistribution because (1) contrary
to Army regulations, the various commands in Europe had not re-
ported certain excess stocks to the Center, (2) those commands had
not included the inventory of the 7th Army in computations to deter-
mine the inventory quantities and excesses to be reported to the
Center, and (3) the Center had not required the overseas commands
to submit depot asset reports for high-dollar-value items and second-
ary end-items during the fiscal year 1965.
The Army Electronics Command could not consider certain excess
radio components in Europe available for redistribution to satisfy
urgent requirements for these items in the continental United States
because the various commands in Europe had not reviewed and
evaluated their requirements for these components and therefore did
not report the excess stocks to the electronics command.
The Department of the Army concurred in our findings but did
not concur that certain inventories, referred to as permissive over-
stockage inventories, should be reported to inventory control points
in the United States. Permissive overstockage inventories exceed
operating and reserve needs but can be retained by the overseas
commands for contingencies. We believe, however, that all existing
items considered to be in short supply by the inventory control point,
which exceed current operating and reserve requirements of the over-
seas command should be routinely reported to such inventory control
points. Thus, the inventory control point would have current and
complete data on extra stockage of items and would be in a position to
consider such items in filling urgent requirements of other commands.
We recommended to the Secretary of Defense that the Army's
existing system for reporting stock status be revised to include a
requirement for reporting to national inventory control points of all
stocks of items considered to be in short supply by such inventory
control points, which exceed operating and reserve requirements of
the overseas commands, including those stocks in the permissive
overstockage inventories. Although our review was related to pro-
cedures and management controls for selected items being procured
by the Army Tank-Automotive Center and the Army Electronics
Command, the same procedures and management controls generally
apply on an Army-wide basis. Therefore, our observations may be
equally applicable to other items in the Army supply system.
[Index No. 5-B-160781, Apr. 17, 1967]
SAVINGS AVAILABLE TO THE GOVERNMENT THROUGH REVISION OF
THE METHOD OF SUPPLYING COMMERCIAL RENTAL CARS-GENERAL
SERVICES ADMINISTRATION
The Government incurs an estimated $1.9 mfflion in costs each
year for short-term rental of cars under informal arrangements made
PAGENO="0115"
ECONOMY IN GOVERNMENT-i 967 109
by Government agencies and their contractors with commercial
rental firms. Similar cars are rented by the Government under con-
tracts entered into by the General Services Administration to supple-
ment the cars in its motor poois.
Our review showed that rental rates under the General Services
Administration contracts are substantially lower than the rental
rates obtained under informal arrangements. It appears that more
favorable rates are obtained under the General Services Administra-
tion contracts primarily because such contracts are usually awarded
through formal advertising and provide for a larger volume of po-
tential rental business. We estimate that a savings of as much as
$350,000 annually could be realized if cars being rented under in-
formal arrangements were rented, by the using agencies and con-
tractors, directly from the commercial firms at General Services
Administration contract rates.
The Deputy Administrator of General Services, in commenting
on our draft report, stated that the General Services Administration
concurred with our proposals to-
1. Reexamine, in consultation with major using agencies, its
present role in the rental of commercial cars for Government
use, with a view to making a better response to agency needs.
2. Increase the relative share of such rentals made under its
contracts.
The Deputy Administrator advised us also that, although the
General Services Administration had some reservation with respect
to our proposal that rentals be made directly from commercial firms,
this matter would be included in a full-scale in-depth study that
would be made of ways and means to achieve greater economy and
efficiency in supplying rental cars to Government agencies.
He advised us also that the General Services Administration is in
agreement with our proposal that it expand its present contractimig
for car rentals to cover all areas where such action would result in
savings or benefits to the Government.
[Index No. 6-B-157445, April 24, 1967]
PROCUREMENT OF CRITICALLY NEEDED MISSILE FUEL UNDER ADVERSE
CONDITIONS FROM A SOLE-SOURCE SUPPLIER, DEPARTMENT OF
THE AIR FORCE
We made a review of contracts for the procurement of critically
needed missile fuel under adverse conditions from a sole-source
supplier-Olin Mathieson Chemical Corp.
The Air Force acquired a $15.6 million production plant that is
completely surrounded by Olin property on which the Government
has certain easement rights for access roads, utilities, and disposal
facilities. Although this location of the fuel production plant resulted
in economies in initial construction costs, it also strengthened the
contractor's position as the sole-source supplier.
Because certain supporting facilities for the plant were integrated
with those of the contractor, the Air Force recognized that it would
be impractical for any contractor other than Olin to operate the
plant. Moreover, should it become appropriate for the Government
PAGENO="0116"
ECONOMY IN GOVERNME~T-l 967
to dispose of this plant; under the terms of the deed, all easement
rights and privileges except the easement covering the access road
to a public highway would then terminate. This would adversely
affect the value of the property to anyone other than Olin and,under
the terms of the agreement, in the event of disposition of the property
Olin has the option to purchase the property at the highest price
offered by any other prospective buyer.
The contractor requested a fee of $720,000 for the production process
"know-how" and experience which it, in effect, was giving to the
Air Force in constructing the plant. The Air Force did not permit
this fee under the facility construction contract but included it in the
price for the production contract.
Olin would not accept a cost-plus-a-fixed-fee contract for the pro-
duction of fuel, but stated that it would accept a fixed-price redeter-
minable contract subject to certain conditions, the principal condition
being the explicit provisions for a 20-percent profit on selling price.
The Air Force would not agree to the inclusion of such a provision in
the contract. In our opinion, the form of contract proposed would not
have been acceptable from a legal standpoint.
A fixed-price production contract was negotiated. However, we
found that certain of the contractor's costs were estimated primarily
on its production experience at another Olin plant where only limited
quantities of the fuel were produced. Other costs were estimated on
the basis of anticipated performance at the new Government plant
even though Olin had no prior experience with the new production
processes or the equipment to be used. Thus, in our opinion, there
was no sound basis at the time for establishing a fixed price and the
Air Force had no assurance that the price proposed was reasonable.
Officials of the Air Force agreed to this arrangement because they
considered it imperative to establish promptly a source for volume
production of this fuel and because they believed Olin to be the only
contractor capable of satisfying the requirements in the time available.
In the performance of this production contract which eventually
totaled $28 million during 1961, 1962, and 1963, Olin realized a profit
of $9.2 million, or the equivalent of about 49 percent on the total
costs of $19 million. This profit does not include an additional profit
of $1.8 million which, we estimate, the contractor realized in the
price of raw materials supplied by its own chemical plant.
In our opinion, the lower costs incurred and the resulting substantial
increase in profit beyond the rate estimated stemmed, in part, from
(1) the uncertainty as to the costs that would be incurred and (2)
the contractor's refusal to accept a form of contract more appro-
priate to the circumstances.
Olin's contribution to the timely success of the missile program
must be acknowleded. The contractor performed creditably and, in so
doing, successfully met the Air Force's required delivery schedule
even though no missile fuel plant of this size had ever been build and
this fuel had never been produced in such large quantities before.
In view of the important considerations of national security and
urgency that were involved in negotiating the facility and production
contracts covered by this report, it appears that the Air Force could
not hai e taken an alteinative action and met its critical requirements
PAGENO="0117"
ECONOMY IN GOVERNMENT-1967 111
[Index No. 7-B-157373, Apr. 25, 1967]
REVIEW OF THE MANAGEMENT OF AIRCRAFT REPAIR PARTS RESERVED
FOR MAINTENANCE ACTIVITIES AT DEPOTS IN THE CONTINENTAL
UNITED STATES, DEPARTMENT OF THE ARMY
Our review at Department of the Army depots in the continental
United States showed that more effective management of inven-
tories maintained for aircraft overhaul could result in savings through
the reduction of investment in inventories and the prevention of
premature or unnecessary procurements. At four maintenance activ-
ities, we found that those activities were not complying with then
current Army regulations relating to the establishment of stock
levels for direct exchange and mission essential items. As a result, the
value of inventories was about $1.5 million in excess of the value of
quantities authorized and additional procurement of identical parts
had been made in the amount of $447,000.
Utilizing the criteria outlined in Army regulations, we reviewed
the computation of stock levels for items maintained for the direct
exchange programs and the justification for retention of stocks desig-
nated as mission essential and found that, of total inventories valued
at over $3 million, $1.5 million worth were excess. In general, the
excess inventories had been accumulated because (1) officials of the
maintenance activities were not aware of the provisions of Army reg-
ulations, (2) shortages of personnel precluded computations of stock
levels as prescribed by the regulations, and (3) justifications for
retention of mission essential stocks were not periodically reviewed.
In commenting on our report in a letter dated July 21, 1966, the
Acting Assistant Secretary of the Army (Installations and Logistics)
agreed with our proposal that local controls be provided to ensure
that direct exchange stock levels are established on the basis of
anticipated issues, based on past experience and experienced repair
times, and that mission essential stock is held to a minimum as
required by Army regulations.
The Army did not agree that significant savings in the procurement
of repair parts could have been realized, because the involved excess
parts were subsequently returned to the supply system and were
used to satisfy other requirements. We believe, however, that the
premature procurement of parts in excess of prescribed stock levels
is not an economical practice. In this instance, the excess repair parts
were used; but premature buying results in unnecessary storage,
handling, and preservation costs. In addition, there is always the
possibility that parts purchased prematurely wi]l not be used because
technological changes occur frequently in military equipment and
parts become obsolete.
[Index No. 8-B-160417, Apr. 28, 1967]
REVIEW OF THE ACQUISITION AND INSTALLATION OF COMPUTERS BY
THE U.S. ARMY, PACIFIC, DEPARTMENT OF THE ARMY
The General Accounting Office has made a review of the acquisition
and use of computers in supply operation by the U.S. Army, Pacific, a
subject of special interest to the Congress.
PAGENO="0118"
ECONOMY IN GOVE'RNMEWf-1967
The situation may be summarized as follows:
During 1965 and 1966, the U.S. Army, Pacific, replaced data process-
ing equipment used in supply and related transactions at important
command depots with large-scale computer systems. Benefits ex-
pected to be derived from these computers could not be fully realized,
we concluded, because improvements and corrections of supply
management problems had not been completed prior to their
installation.
Because of many continuing problems, a large percentage of U.S.
Army, Pacific, supply transactions cannot be processed routinely by
the computers. Transactions must be manually researched, edited,
and reprocessed as in the past. The volume of manual handling of
supply documents by the Army slows the processing and limits
significantly the advantages of a computer system.
These difficulties are due primarily to longstanding problems
disclosed in numerous previous reports by this Office. In general, we
reported that-
1. Inventory procedures were not adequate to insure accuracy
of inventory and warehouse, location records.
2. Management practices led to excesses o some supply
items and critical shortages of others.
On April 14, 1966, we brought the findings contained in this report
to the attention of the Secretary of Defense. We proposed that
implementation of the plan to install large-scale computers at com-
mand depots be delayed until an effective program had been instituted
to correct problems inherent in the supply system.
The Assistant Secretary of the Army (Installations and Logistics).
commenting on our draft report, stated on July 7, 1966, that the
Army concurred in the findings generally but disagreed with our
recommendation. He said that a standard supply system, supported
by computers, was essential to correct the problems identified.
The Assistant Secretary has stated also that the Army's objective
is to achieve an efficient and automated supply system in the Pacific
and that, since the ecjuipment has been installed, withdrawal would
be retrogressive, costly, and disruptive of supply operations during
a critical period. He advised that the results presently achieved at
subordinate command depots indicate that substantial improvement
has been made.
On completion of planned improvements, the Assistant Secretary
added, inventory control activities and installations in the four Pacific
commands will be reassessed and necessary additional improvements
initiated.
We agree that computer equipment is essential for effective manage-
ment of large inventories and great numbers of supply transactions;
however, we do not believe that the full benefits of this costly equip-
ment can be realized until the underlying system and data are
improved.
Current information shows that Pacific theater supply operations
under the new automated system are characterized by problems simi-
lar to those discussed in this report: Out-of-stock positions have
substantially increased; stock balances and related records are inac-
curate; requisition processing is delayed; and numerous errors in
customer requisitions continue.
PAGENO="0119"
ECONOMY IN GOVERNMENT-1 967 113
In view of the problems that would accompany withdrawal of the
computers, we did not recommend that course of action. We recom-
mended that the Secretary of Defense bring our report to the attention
of all military agencies to illustrate the need for correcting basic weak-
nesses in operating systems if the most effective utilization of auto-
matic data processing equipment is to be realized.
[Index No. 9-B--160900, Apr. 28, 19671
SAVINGS AVAILABLE THROUGH THE USE OF FORMAL ADVERTISING IN
CONTRACTING FOR AUTOMOTIVE TIRES AND TUBES-GENERAL
SERVICES ADMINISTRATION
Schedule contracts for automobile tire and tube items are let by
GSA on a multiple-award basis; that is, contracts are generally
awarded to more than one supplier for the same or comparable item.
In establishing the schedule contracts, GSA first obtains price offers
for each tire and tube item from suppliers. The requests for price
offers provide that the items will be ordered by Federal agencies from
time to time in such quantities as needed.
After the receipt of the price offers, GSA compares the prices on an
item-by--item basis and generally accepts the lowest price offered.
The suppliers which have submitted higher priced offers are then
afforded an opportunity to meet the lowest price accepted by GSA
for those items for which they had originally submitted offers. If the
suppliers agree to meet the lowest price, they are then included on the
schedule. Thereafter, agencies may procure their requirements for an
item at the same cost from any supplier of that item listed in the
schedule.
Under the above method of establishing contract prices for auto-
motive tires and tubes, there is no real incentive for a supplier to
initially submit the lowest price at which he is willing to sell because
making the lowest offer will not assure him of a certain amount of
sales or a favorable position over other suppliers. When GSA gives
the suppliers a second opportunity to submit price offers, a supplier
is asked only to match the lowest price offer in order to participate
under the schedule. Hence, the second solicitation of offers results
only in additional suppliers and not in more favorable prices to the
Government.
Our review has shown that the use of the negotiated contracting
for the Government's tire and tube requirements is not necessary
since the essential elements for advertised contracts exist-Federal
specifications have been established, items meeting such specifications
are widely sold on the commercial market, and there are a sufficient
number of supplies to permit effective competition for the bulk of the
Government's requirements.
We compared the prices obtained by four State and two city
governments through formally advertised contracts with the prices
obtained by GSA through the negotiated method of contracting. On
the basis of the price comparisons we estimated that the Government
may realize annual savings in excess of $1 million through use of
formal advertising.
PAGENO="0120"
ECONOMY IN GOVERNMENT-i 967
We suggested to the General Services Administration that it give
consideration to adopting the formal advertising method of contracting
for the bulk of the Government's tire and tube requirements.
The Administrator of General Services, in commenting on the
matters discussed in this report, has advised that the administration
plans to procure through formal advertising 87 high-volume tire and
tube items to be stocked and to give continuing attention to the use
of formal advertising where that method is determined to be feasible.
We believe that these proposed actions constitute essential agreement
with our suggestions. _______
[Index No. 10-B-114836, Apr. 28, 1967]
REVIEW OF THE PRICING METHODS USED BY THE VARIOUS STATES
IN THE PURCHASE OF PRESCRIBED DRUGS UNDER FEDERALLY
AIDED PUBLIC ASSISTANCE PROGRAMS, WELFARE ADMINISTRATION,
DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE
On the basis of our review, we concluded that, if the Department of
Health, Education, and Welfare would provide the States with appro-
priate guidance and requirements pertaining to the establishment or
revision of the pricing methods for drugs purchased for use by welfare
recipients, the drug programs in many States would be significantly
improved with resulting economies to both the States and the Federal
Government.
Although prescription drug programs under which payments are
made directly to vendors have been in existence in many States for
several years, the Department has not provided the States with guid-
ance in the establishment or revision of pricing methods for welfare
prescriptions. In fiscal year 1966 theseprograms involved expenditures
of about $144 million of which the Federal share was estimated at
about $81 million.
We believe that this lack of guidance has been a significant factor
contributing to a diversity of welfare prescription drug pricing methods
in use and to the use in many States of pricing methods which do not
result in equitable prescription drug pricing. Also, many of the pricing
methods are not conducive to economical prescription drug procure-
ment because they include features which provide an incentive to
pharmacies to dispense higher cost drug products where suitable lower
cost products meeting the prescription requirements are available.
We proposed that the Secretary of Health, Education, and Welfare
establish a policy governing methods of pricing welfare prescription
drugs, which would prohibit the use of methods based on cost plus a
percentage of cost or methods otherwise providing an incentive for
the dispensing of higher cost products where suitable lower cost prod-
ucts meeting the prescription requirements are available. We proposed
also that the Department's policy encourage the use of methods based
on the cost of the product dispensed plus a fixed professional fee.
Concerning these proposals, the Department stated that it was in
general agreement that it should develop a policy for pricing phar-
maceutical products obtained under prescription, which would
prohibit a cost~plus_a_percentage_of-cost basis of reimbursement but
which, in contrast to our view that the use of a cost-plus-a-fixed-
PAGENO="0121"
ECONOMY IN GOVERNMENT-i 967 115
professional-fee method should be encouraged, would incorporate
encouragement to the States to move toward a cost-plus-a-flexible-
professional-fee basis. A cost-plus-a-flexible-fee pricing method pro-
vides a fee, increasing with the cost of the product, for each of two or
more defined ranges of drug cost-for example, a 50-cent fee for a
drug which cost the pharmacy less than $1, a 75-cent fee for a drug
which cost from $1 to $2, and so on.
The Department acknowledged that, under the flexible-fee pricing
method, pharmacies would still have some incentive to stock and
dispense higher cost products but expressed the view that such incentive
would be less than that under a cost-plus-a-percentage-of-cost method.
The Department also described certain considerations which it believed
warranted the encouragement of a flexible-fee rather than a fixed-fee
pricing method.
The Department stated further that, because of the need to estab-
lish certain related controls in consonance with the policy statement
to be developed and because of the need to further define and explore
certain questions concerning the proper composition of a professional
fee, it believed that the development of any policy should be deferred
for a reasonable period of time.
We believe that the Department's principal reason for proposing to
encourage the use of a flexible-fee pricing method is the effect of the
fixed fee on low-cost prescription items. However, we believe that,
because the fixed-fee method will remove an incentive to dispense
higher cost products, it will tend to reduce the overall cost of drugs
to the program.
We therefore recommended in a report issued to the Congress on
April 28, 1967, that the Secretary of Health, Education, and Welfare
take action as early as practicable to establish a policy governing
methods of pricing welfare prescription drugs under federally aided
public assistance programs, which would he acceptable for the pur-
poses of Federal financial participation. We recommended also that
such a policy prohibit not only the use of methods of welfare pre-
scription drug pricing based on cost plus a percentage of cost but
also the use of any methods which provide an incentive to dispense
higher cost products where suitable lower cost products meeting the
prescription requirements are available. We recommended further
that the policy urge the use of methods based on the cost of the
product dispensed plus a fixed professional fee.
By letter dated August 16, 1967, the Assistant Secretary, Coinp-
troller, Department of Health, Education, and Welfare furnished us
with a copy of the Department's statement to the chairman of the
House Committee on Government Operations pertaining to this
matter. The Department expressed the view that sufficient informa-
tion does not exist to determine the full effects of a cost-plus-fixed-fee
method or a cost-plus-a-flexible-fee method and proposed the estab-
lishment of a policy which will allow the States the option to select
either method. The policy would include a requirement for the De-
partment to periodically evaluate and make adjustments as appro-
priate regardless of the method employed.
PAGENO="0122"
ECONOMY IN GOVERNMENT-1 967
[Index No. 11-B-161319, May 8, 1967]
EXAMINATION INTO THE TRANSFER OF HANDTOOL AND PAINT STOCKS
FROM THE DEPARTMENT OF DEFENSE TO THE GENERAL SERVICES
ADMINISTRATION
An important step toward the development of a national supply
system was taken with the transfer of about $65 million worth of
handtool and paint stocks from the Department of Defense (DOD)
to the General Services Administration (GSA). The transfer was
substantially completed in 1966.
The General Accounting Office reviewed handtool and paint
inventories at the Department's supply depots after management
responsibility had been assumed by GSA and found that there were
significant quantities of GSA-owned stocks on hand which were not
recorded on the administration's inventory records. Consequently,
these stocks were "lost" to the supply system.
After we brought this situation to the attention of Department
and administration officials, complete physical inventories were
taken at the Department's depots and about $4 mffiion worth of
stocks were found which were not recorded, but which should have
been recorded, on the Administration's inventory records. During
the period when the stocks were "lost," the Administration purchased
about $1.1 million worth of stocks that were identical to the unre-
corded stocks.
In our opinion, the transfer difficulties would have been largely
avoided if-
1. DOD inventory records had been accurate when the stocks
were transferred.
2. Effective controls had been maintained over GSA-owned
stocks in DOD depots after the transfers.
3. GSA and DOD had cooperated more closely in solving
their mutual problems.
In January 1967, we proposed to the Secretary of Defense and the
Administrator of General Services that certain steps be taken in
future stock transfers to eliminate these difficulties. We proposed
to the Secretary of Defense and the Administrator of General Services
that detailed physical inventories be taken of all stocks to be trans-
ferred, inventory records be reconciled to the physical co~mts, and
warehouse stock locator records be updated. We proposed also that
prior to the transfer of management responsibility, a joint committee
be made responsible for providing operating procedures to carry out
the transfers, acting as liaison and coordinators, and settling promptly
any problems relating to inventory shortages during the transfers.
The Department and the Administration have indicated agreement
with our proposals.
[Index No. 12-B-161027, May 25, 1967]
REVIEW OF INSPECTION CONTROLS OVER CONCRETE PLACEMENTS IN
BUILDING CONSTRUCTION PROJECTS-PUBLIC BUILDINGS SERV-
ICES ADMINISTRATION
During the period June 1965 to February 1966, we reviewed in-
spection controls over concrete placements for three projects con-
PAGENO="0123"
ECONOMY IN GOVERNMENT-i 967 117
sisting of four buildings being constructed in Washington. Contracts
for the three projects totaled about $75.7 million including about
$20.3 million for concrete placements at the sites.
The review disclosed that inspection procedures of the General
Services Administration did not insure compliance with contract
specifications in regard to water content of concrete delivered to one
of the construction sites. Yet, the water content of concrete has been
shown by authorities cited in our report to be one of the most critical
factors in obtaining quality concrete. Our report recognizes that,
although the concrete placed met strength requirements, the quality
of concrete included but was not limited to characteristics of strength.
The review at this site disclosed also discrepancies in the use of
curing compound and in the preformance of concrete testing.
Inspectors at the other two building construction sites appeared to
be exercising reasonable inspection practices to help insure that the
delivery and placement of concrete in the basement slab and founda-
tion footings met contract specifications.
We informed the Administrator of General Services that, on the
basis of our review, we believed that the quality of on-site inspection
varied between construction sites. We advised him of our belief that
the inspection weaknesses discussed in this report could have been
avoided had the agency's regional -headquarters officials exercised
greater supervision over inspectors at the site. We presented certain
policy and procedure matters which we believed would have applica-
bility to agency construction in general.
The Deputy Administrator agreed that vigorous and continual on-
site inspection is the primary means of control to help insure that
concrete in public buildings complies with prescribed design for all of
its qualities. He observed, however, that ordinary observance and the
use of the tests provided for in the specifications normally are adequate.
The Deputy Administrator concurred in our porposais that frequent,
systematic reviews and evaluations of on-site construction inspection
should be made and recorded standards for on-site construction in-
spectors should be improved. He advised that a project had been
started to improve recording standards and that greater emphasis
was being placed on evaluation of on-site construction inspection by
the regional and central office inspection and engineer groups.
The Deputy Administrator also concurred in our proposal that
laboratories engaged in testing concrete should be directly responsible
to the Government rather than to the contractor. He advised that
the requirements were being changed to provide for this.
[Index No. 13-B-161027, May 25, 1967J
REVIEW OF SUBSURFACE EXPLORATION FOR AND DESIGN AND CON-
STRUCTION OF FOUNDATIONS OF PUBLIC BUILDINGS-PUBLIC
BUILDINGS SERVICE, GENERAL SERVICES ADMINISTRATION
In a review of contracts awarded under provisions of the Public
Buildings Act of 1959 in amounts in excess of $2 million each for build-
ings under construction on June 30, 1963, we found that, in 15 out of
28 buildings, the Government had encountered construction difficulties
PAGENO="0124"
ECONOMY IN GOVERNMENT-1967
because of foundation design problems and unanticipated soils
conditions.
Settlements of contractors' claims in these cases ranged from a low
of $2,500 to a high of $4,100,000. The foundation problem which re-
sulted in settlement of a contractor's claim for $4.1 million resulted in
additional unexpected costs when its resolution eventually required
the purchase of adjoining lands at a cost of about $4 million.
In reviewing the present capability in soils and foundation matters
within the Public Buildings Service, we found that its staff of profes-
sional engineers did not include specialists in soil mechanics and
foundation engineering. We believe that, had such staff specialists
been available, certain of the soils and foundation difficulties experi-
enced by the Service could have been avoided and the costly effects
of others minimized.
We proposed to the Administrator of General Services that soil
mechanics and foundation engineering capability be developed within
the Public Buildings Service. The Administrator advised by letter of
January 18, 1967, that the Administration's in-house capability would
be expanded and certain other measures would be taken, to minimize
soils and foundation problems in the construction of public buildings.
~Index No. 14-B-15601O, May 31, 19671
SAVINGS POSSIBLE BY CONSOLIDATING MANAGEMENT OF ACQUIRED
RESIDENTIAL PROPERTIES, DEPARTMENT OF HOUSING AND URBAN
DEVELOPMENT AND VETERANS' ADMINISTRATION
In a report to the Congress in May 1967, we noted the possible
benefits of consOlidating within one agency the management and
disposition of all single-family residential properties acquired as a
result of default of loans under home financing programs of the I~ ed-
èral Housing Administration (~ HA), Department of Housing and
Urban Development (HUD), and the Veterans' Administration (VA).
We expressed the belief that the property management functions
are essentially the same in both agencies and that consolidation of
these functions was feasible and would provide a basis for lower costs
through a reduction in the overall size of the staffs performing these
functions separately. We stated further that consolidation would
provide opportunities for additional benefits, such as savings through
volume contracting for broker services, and for simpler and more
uniform procedures and terms in dealings with brokers and potential
buyers.
Officials of HUD, VA, and the Bureau of the Budget (BOB) com-
mented on our proposal. Although the VA believed that it was not
desirable to separate its home financing functions from its associated
property management functions, the other two agencies were of the
opinion that a study was warranted.
Subsequently, we were advised by the Assistant Secretary for Ad-
ministration, HUD, that a management consulting firm would be
engaged by BOB to make a study to determine what, if any, organiza-
tional and and other actions should be taken. We were informed that
the consulting firm has subsequently completed its study and is in the
process of preparing a report on their study.
PAGENO="0125"
ECONOMY IX GOVERNMENT-i 067
[Index No. 15-B-152600, June 5, 1967]
NEED FOR IMPROVEMENTS IN SUPPLY AND MAINTENANCE SUPPORT
FOR F-4 AIRCRAFT, DEPARTMENT OF THE NAVY
The General Accounting Office estimated, on the basis of review
work performed in 1965, that the Department of the Navy could have
maintained the equivalent of 23 additional F-4 aircraft in serviceable
condition during the fiscal year ended June 30, 1964, if certain mi-
provements had been effected in supply and maintenance support.
We so advised the Navy.
During 1966 we made a limited followup review of these matters
and found that many of the same management problems affecting the
readiness position of F-4 aircraft continued to exist, although air-
craft availability had increased.
We identified the following problems in the management of supplies
by the Navy's Aviation Supply Office, which led to shortages of spare
parts and components for F-4 aircraft.
1. Loss of control over inventory of certain parts.
2. Failure to promptly purchase needed parts.
3. Lack of prompt repositioning of stocks to areas where
needed.
4. Lack of timely repair of unserviceable components.
We identified also some administrative problems in scheduling F-4
aircraft for repair and rework.
We brought these matters to the attention of the Department of
Defense by letter dated July 13, 1966, proposing that the Navy
establish a weapons system management team for each type of first-
line aircraft for as long as the aircraft is so classified.
The Assistant Secretary of the Navy (Financial Management), in
his reply dated December 7, 1966, stated that the Navy agreed there
should be a weapons system management team as long as would be
necessary to cope with major difficulties in research, design, develop-
ment, production, and logistics support peculiar to the system.
It was stated, however, that such a team for every first-line aircraft
would require a substantial organization of technical, maintenance,
and supply personnel. The Navy stated also that the establishment of a
weapons system management team would not, in itself, insure improve-
ment of the conditions which our review noted. The Navy advised
that, to insure improvement, the aircraft supply support structure
had been reorganized and several new management disciplines had
been instituted.
We believe that these actions will contribute to improved mainte-
nance and supply support for all weapons systems and, therefore,
should improve the readiness I)osture of the F-4 aircraft. We plan to
evaluate the implementation and adequacy of the Navy's actions in
our continuing reviews of its supply and maintenance activities.
PAGENO="0126"
120 ECONOMY IN GOVERNMENT-i 967
[Index No. 16-B--133394, June 9, 1967]
POTENTIAL SAVINGS AVAILABLE THROUGH USE OF CIVIL SERVICE
RATHER THAN CONTRACTOR-FURNISHED EMPLOYEES FOR CERTAIN
SUPPORT SERVICES, NATIONAL AERONAUTICS AND SPACE
ADMINISTRATION
in a report to the Congress, issued in June 1967, we stated that
our review of the relative costs of using civil seryice personnel or
contractor-furnished personnel to perform engineering and related
technical support services at the National Aeronautics and Space
Administration's Goddard and Marshall Space Flight Centers showed
that estimated annual savings of as much as $5.3 million could be
achieved with respect to nine contracts we reviewed, on which annual
support service costs of about $31 million were incurred, if these
services were to be performed by civil service employees.
We pointed out that the indicated savings were attributable, for
the most part, to the elimination of many contractor supervisory and
administrative personnel, which would result from a conversion to
civil service staffing and the elimination of the fees paid to the
contractors.
We expressed the view that the Space Administration's policies
relating to the use of support service contracts were not sufficiently
clear as to the consideration which should have been accorded to rela-
tive costs in determining whether contractor-furnished or civil service
personnel should be used. In this regard, we were advised that the
Space Administration, while believing that contracting for the services
involved had been in the best interests of the Government, recognized
the need for more specific guidance on cost considerations than had
been provided and that such guidance would be part of any redefinition
of policy resulting from a current review of agency experience in the
use of support service contracts.
Because the action to fully correct the situation discussed in our
report would require a significant change in the Space Administration's
policy relating to the use of support service contracts and because of
the potential effect that a significant change may have on its civil
service personnel requirements, we stated that the Congress may wish
to consider the policy aspects of this matter in further detail wlth
agency officials.
In addition, we pointed out that the Congress may also wish to
explore with the Space Administration the impact that cost considera-
tions should have in determining whether to use contractor or civil
service personnel in those cases where either contractor or civil service
personnel could equally carry out the operation.
[Index No. 17-B-39995, June 19, 1967]
NEED FOR COMPLiANCE WITH THE TRUTH-IN-NEGOTIATIONS
ACT OF 1962 IN AWARD OF CONSTRUCTION CONTRACTS, DEPARTMENT
OF DEFENSE
The General Accounting Office has made an examination into the
practices of the construction agencies of the Department of Defense in
the negotiation of military construction contracts and modifications
PAGENO="0127"
ECONOMY IN GOVERNMENT-i 967
over $100,000 awarded during the period November 1964 through
June 1966 under the requirements of Public Law 87-653, the Truth-
in-Negotiations Act of 1962, and the implementing Armed Services
Procurement Regulation.
We found a need for the construction agencies-the Army Corps of
Engineers and the Naval Facilities Engineering Command-to im-
prove compliance with the cost or pricing data requirements of
Public Law 87-653 and the implementing Armed Services Procure-
ment Regulation in negotiating construction contracts and modifi-
cations.
We found generally that, in the negotiation of prices of construction
contracts and modifications, (1) sufficient cost or pricing data sup-
porting the contractors' proposals, as required by the law, were not
obtained, (2) cost analyses of contractors' proposals to determine
that the prices were fair and reasonable, as required by the regulation,
were not made, and (3) related prescribed procedures for utilizing
advisory audits were not followed.
Instead, the construction agencies placed primary reliance on
comparisons of the contractors' proposals with their own cost esti-
mates as a means of evaluating the reasonableness of prices.
A primary reason for the construction agencies' not complying with
Public Law 87-653 and the Armed Services Procurement Regulation
appeared to be their belief that the law (arid regulation) was not
applicable to construction contracts since contractors' proposals
were evaluated on the basis of comparisons with Government estimates.
Comparing a proposal with an estimate serves a useful purpose, but
such comparison is not an acceptable substitute for obtaining and
analyzing current and complete cost or pricing data of the- contractor
as required by law and regulation.
We brought these findings to the attention of the Secretary of
Defense and proposed that he emphasize to the Departments of the
Army and Navy the need for improvement of the construction
agencies' compliance with the requirements of Public Law 87-653
in the negotiation of construction contracts and modifications.
The Deputy Assistant Secretary of Defense (Procurement) in
letters dated February 1 and March 9, 1967, agreed in substance with
our proposals.
[Index No. 18-B-152598, July 18, 1967]
NEW PROCEDURES ADOPTED To IMPROVE MANAGEMENT OF CON-
TRACTOR-OPERATED MESSING AND MERCHANDISING SERVICES AT
KWAJALEIN MISSILE TEST SITE, DEPARTMENT OF DEFENSE
The General Accounting Office has reviewed records relating to
contractor-operated messing and merchandising activities at the
Army's missile test site at Kwajalein in the IN/f arshail Islands. The
review disclosed a loss of about $1.6 million during a 2-year period
ended in February 1966, chiefly because prices charged to customers
were too low.
The contractor operated, in addition to the messing facilities, a
commissary, retail store, laundry, barber shop, beauty shop, snack
bar, and liquor store and clubs at Kwajalein. Under the contract
PAGENO="0128"
122 Ecurco1'~'IY IN GOVERNMENT-i 967
terms, costs to the contractor-Global Associates of Oakland, Calif.-
in operating these facilities were to be reimbursed by the Government.
The Government would subsequently recover its cost through revenues
derived from charges to consumers.
The Department of Defense concurred with our findings and advised
us that the Army agreed that the contractor should take steps to
insure that losses in messing and merchandising would be recovered
by revised pricing; that the contractor should establish in its account-
ing records a reserve for losses on disposition of obsolete, damaged, or
spoiled merchandise; and that the Army should review the contractor's
buying and storage records to reduce future losses on merchandise.
In addition, the Department of Defense stated that our findings
would be furnished to the military departments calling attention to
the need for reviewing messing and merchandising at other similarly
remote locations.
We believe that the corrective actions taken or proposed by the
Department of Defense and the Department of the Army should, if
properly implemented, help to insure that costs incurred in this and
similar contractor operations of messing and merchandising activities
will be recovered in charges to customers.
[Index No. 19-B--118779, July 27, 19671
POTENTIAL SAVINGS IN FINANCING OPERATION OF GOVERNMENT-
OWNED VESSELS SUPPORTING MILITARY ACTIVITIES IN SOUTHEAST
ASIA, MARITIME ADMINISTRATION, DEPARTMENT OF COMMERCE
Our review of the policies and procedures followed by the Maritime
Administration, Department of Commerce, relating to the advancing
of funds to general agents for the operation of Government-owned
vessels used in support of military operations in Southeast Asia, indi-
cated that annual savings in interest cost of about $239,000 could be
realized if the Maritime Administration would time its cash advances
to meet the general agents anticipated current requirements rather
than to have the general agents continue to maintain prescribed cash
balances.
The Maritime Administration generally followed the practice of ad-
vancing funds to its general agents on the basis of their maintaining a
cash balance not in excess of $100,000 for each vessel assigned, subject
to a maximum of $500,000 per agent. It is established Government
policy to avoid premature advances of funds and thereby preclude
unnecessary borrowings and the related interest cost. Treasury Depart-
ment Circular 1075 provides that cash advances should be timed in
accordance with the actual cash requirements of the recipient in
carrying out the purposes of the program.
In a letter dated February 8, 1967, we proposed that Maritime
modify its procedures in a manner that would result in submission
and approval of general agents' requests for advances on the basis of
anticipated current operating requirements in order to avoid the
premature advancing of Government funds and to help prevent
unnecessary interest costs. The Acting Maritime Administrator informed
us by letter dated March 6, 1967, that in keeping with our proposal and
the announced policy of the Treasury Department, general agents
PAGENO="0129"
ECONOMY IN GOVERNMENT-1 967 123
were beill2 ostructed that funds would be made available only on
the basis of rrent cash needs.
In our opinion, the new procedures initiated by Maritime to make
funds available to the general agents only on the basis of adequately
supported current needs after agency review and approval, if properly
implemented, should achieve the objective of Treasury Department
Circular 1075 and result in significant savings in Government interest
costs.
[Index No. 20-B-161415, July 31, 1967]
REvIEw OF POLICIES AND PROCEDURES FOR REBUILDING USED
MOTOR VEHICLE TIRES BY SELECTED CIVIL AGENCIES
In July 1967, we reported to the Congress on our findings on the
policies and practices for rebuilding used motor vehicle tires by the
Soil Conservation Service, Department of Agriculture; the National
Park Service, Department of the Interior; the Post Office Department;
and the General Services Administration. We estimated that savings
of about $500,000 would have been realized by these four agencies
during fiscal year 1965 through more extensive rebuilding of used tires.
We found that the tire-rebuilding policies and practices of the four
agencies varied among the agencies and among installations within
certain of these agencies and that, with the exception of the Post
Office Department, these inconsistencies existed because of the lack
of specific tire removal and rebuilding criteria and of conclusive
determinations as to the reliability of rebuilt tires. GSA is responsible
for prescribing policies and procedures, in respect of rebuilt tires, for
implementation by the executive agencies.
Information obtained from tire manufacturers, tire rebuilders, users
of rebuilt tires, and various organizations representing the tire industry
indicated that, when tires are rebuilt according to recommended
criteria, they are safe, serviceable, and more economical than new tires.
Our review disclosed, however, that no adequate tests or studies had
been made and that available evidence was not sufficiently decisive
to permit a conclusive judgment as to the reliability or rebuilt tires
under all driving conditions.
We believe that, if rebuilt motor vehicle tires are considered unsafe
under certain specified conditions, they should not be used under such
conditions by any agency but that, to the extent that they are safe,
they should be used by all agencies to achieve maximum savings.
We proposed that GSA keep in close touch with the program of the
National Traffic Safety Agency for tire research, testing, and develop-
ment so that it may be in a position to promulgate standards for the
use of rebuilt tires on Government vehicles on the basis of the stand-
ards established for the driving public, pursuant to the requirements
of the National Traffic and Motor Vehicle Safety Act of 1966 (Public
Law 89-562). We proposed also that GSA provide specific guidance
for the removal and processing of used tires to prevent excessive wear
and damage that would make them unsuitable for rebuilding.
GSA agreed with our proposal to keep in close touch with the Na-
tional Traffic Safety Agency's program for tire research, testing, and
development and advised us of its own plans for testing rebuilt tires
and for issuing revised specifications for new tires, which will preclude
carcass damage from excess tread wear.
85-698--67-9
PAGENO="0130"
124 ECONOMY IN GOVERNMENT-i 967
We believe that the actions taken and proposed by GSA are ade-
quatë, pending developments from the tire research, testing, and
development program of the National Traffic Safety Agency.
The Post Office Department, whose practice is to rebuild all tires
that have sound casings, agreed with our proposals. The Soil Con-
servation Service and the National Park Service, however, indicated
that they would continue to discourage the use of rebuilt tires.
[Index No. 21-B-146772, July 31, 1967]
TRANSFER OF EXCESS MATERIALS BETWEEN THE ARMY AND MARINE
Cones EXPEDiTED BY IMPROVED PROCEDURES
The General Accounting Office has made a review of Army and
Marine Corps procedures for the transfer of excess material.
We found a need for improvement in the procedures of the Army
and the Marine Corps, relating .to the exchange and use of information
on stocks of excess material available for redistribution.
Our review showed that, during 1964 and 1965, the Marine Corps
had on hand significant quantities of excess tank-automotive rel)air
parts and other material which could have been used by the Army
for high-priority requirements, such as those in Vietnam. Because
there were no procedures for the regular exchange of information on
such excesses, notification by the Marine Corps that it had $9 million
worth of excess material available for transfer received no review by
the Army, and notification by the Army of its critical need for certain
items received no review by the Marine Corps.
When we brought these matters to the attention of Marine Corps
and Army officials, the Marine Corps transferred about $1.9 million
worth of excess material to the Army for use in meeting urgent require-
ments.
Commenting on our findings and proposals, the Deputy Assistant
Secretary of Defense (Supply and Services) informed us that closer
logistical coordination had been established between the Army and
Marine Corps through a realinernent of responsibilities within the
Marine Corps supply system and that audit coverage of the supply
system would be increased. Also, he advised us that the Marine Corps
was now operating under new guidelines which had resulted in large
quantities of excess material being transferred to the Department of
the Army. In future audit work, we will inquire into the effectiveness
and adequacy of the corrective actions taken.
[Index No. 22-B-118634, Aug. 3, 1967]
NEED FOR IMPROVED REVIEWS OF QUANTITY ESTIMATES PREPARED
BY ARCHITECT-ENGINEERS FOR SOLICITATION OF CONSTRUCTION
BIDS., CORPS OF ENGINEERS (CIVIL FUNCTIONS), DEPARTMENT OF
THE ARMY
In August 1967, we pointed omit to the Congress that although the
importance of accuracy in estimating quantities is stressed by the
Corps of Engineers (Civil Functions), Department of the Army, in
PAGENO="0131"
ECONOMY IN GOVERNMENT-i 967 125
their regulations, the Chief of Engineers had not, at the lime of oni
review, established corpswide procedures for the review of work per-
formed by architect-engineers. Consequently, we found that the con-
tract price of $15.4 million for the construction of the Summersville
dam, dikes, and spiliway was substantially increased primarily because
the quantity estimate prepared by an architect-engineer firm was in-
accurate and did not show the full scope and magnitude of the work
to be performed.
As a result, the Corps increased the contract price by $S.2 million
through negotiation, rather than through competitive bidding, and
thereby lost the benefits normally attained through formal advertising.
We estimate that about $5.3 million of this increase in costs could have
been subjected to competitive bidding. This portion of the increase
was directly associated with increase(1 work uhicli could. have been
foreseen prior to contract award. An adequate review of the quantity
estin~ate, in our opinion, would have disclosed (1) a substantial under-
estimate of the quantity of materials to be excavated for the dam
foundation, a sul)stantial overestimate of the available rock in desig-
nated sources, and (3) the need to locate sources of rock.
in addition to the loss of the benefit of full and free competition
from procurement through formal advertising, costs of about $348,500
were incurred which could have been avoided. TIee costs consisted
of about $276,000 for equipment which was idle because it could not
be used for some of the additional work and about $72,500 for addi-
tional administrative expenses.
In order to minimize the necessity for negotiated contract modifi-
cations, we proposed that (lie Chief of Engineers issue guidelines
requiring the (hstricts to review the work of architect engineers. We
further proposed that a statement of the nature and extent of the
review be made a part of the official files. The Department of the
Army concurred in our report, in general and advised us that the
Chief of Engineers was preparing instructions to the field offices in
accordance with our proposals. These instructions were issued on
Febtuary 17, 1967, and, if effectively implemented, they should ic-
duce the necessity for negotiated contract modifications.
[Index No. 23-B--161330, Aug. 7, 1967]
NEED FOR IMPROViNG POLICIES AND PROCEDURES FOR ESTIMATING
COSTS, EVALUATING BIDS, AND AWARDING CONTRACTS FOR DREDG-
1NG, CORPS OF ENGINEERS (CIVIL FUNCTIONS), DEPARTMENT OF
THE ARMY
In August 1967, we reported to the Congress that the Corps of
Engineers needed to improve its policies and procedures for estimating
contract costs, evaluating contract bids, and awarding contracts for
dredging.
Our review indicated that some corps dredging was not accomplished
as economically as possible and, in our opinion, the corps' practices
in awarding contracts for dredging did not comply with the law and
haVe resulted in some contracts being awarded at prices in excess of
statutory limitations.
PAGENO="0132"
126 ECONOMY IN GOVERNMENT-i 967
The law under which the corps awards contracts for dredging stipu-
lates that appropriated funds shall not be used to pay for any work
done by contract if the contract price is more than 25 percent in
excess of the estimated cost of the Government's doing the work with
its own equipment and crews (in-house). Our review disclosed that
the corps generally does not prepare in-house estimates, but rather
awards contracts for dredging to the contractor whose bid price is
low and is not more than 25 percent in excess of the corps' estimate of
fair and reasonable cost to a contractor, exclusive of profit.
We examined dredging costs incurred under 32 contracts for one
large dredging project and compared these with our estimates of the
costs that the corps would have incurred if it had done the same work
in-house. We believe that 11 of the contracts were awarded at prices
which were about $2.1 million in excess of the statutory limitation.
We believe also that these contract prices were about $4.4 million in
excess of the costs that would have been incurred if the work had
been done by the corps itself.
We recommended that the Secretary of the Army direct the Chief
of Engineers to revise the corps' regulations to require that the corps
award future dredging contracts in compliance with the law.
The Department of the Army has disagreed with our findings and
stated that present policies and practices of the corps are in accordance
with the policies and intentions of both the Congress and the admini-
stration, that civil works projects are being conducted in a manner
most economical and advantageous to the Government, and that the
longstanding practical interpretation and application by the corps
of the law should not now be overturned.
We brought our finding to the attention of the Congress in the event
that it wished to express its views regarding present policies followed
by the corps in awarding contracts for dredging. If the Congress should
determine that the corps' present policies and procedures applicable to
its dredging operations are to be continued, we suggest that considera-
tion be given to revising or repealing section 624 of title 33, United
States Code.
[Index No. 24-B--139011, Aug. 30, 19671
SAVINGS FROM MORE EcoNoi~IIcAL USE OF COMMuNICATION } ACIL-
ITIES BETWEEN ALASKA AND THE U.S. MAINLAND, DEPARTMENT
OF THE AIR FORCE, ALASKA COMMUNICATION SYSTEM
The General Accounting Office has made a review of the use of
submarine cable and microwave communication facilities leased by
the Alaska Communication System-a unit of the U.S. Air l~ orce-to
provide public and private telephone service between Alaska and the
48 States on the mainland.
Our review indicated that, as early as January 1961, the Alaska
Communication System was aware that a microwave facility, which
served Alaska, was more economical to use than the cable facility.
Savings could have been attained by using the cable facility in a dif-
ferent manner and, at the same time, by making greater use of the
microwave facility.
It was not until mid-1965, after we discussed this matter with Alaska
Communication System officials, that the necessary actions were taken
to attain these savings.
PAGENO="0133"
ECONOMY IN GOVERNMENT-1967 127
Our review indicated that savings of about $3.9 million could have
been realized had the Alaska Communication System taken action in a
more timely manner after it first became aware that the microwave
was less expensive than the cable.
We attempted to determine from officials of the Department of the
Air Force why the longstanding question on the use of communication
facilities serving Alaska was not resolved more promptly. They were
unable to provide us with any record to show why any decisive action
had not been taken to resolve this question prior to our review.
We brought our findings to the attention of the Secretary of Defense
in a draft report. We proposed that examinations be made into the
management of the Alaska Communication System with a view to
making changes needed to insure that, if similar situations should
arise, they be brought to the attention of appropriate officials for
timely action.
On March 28, 1967, the Department of the Air i[~ orce, commenting
for the Secretary of Defense, stated that it generally concurred with
the facts stated in our report.
The Air 1~ orce said that it plans to convert the Alaska Communica-
tion System operation to industrial funding. Also the Air Force will
monitor the cable contract at the highest possible level to insure the
most satisfactory combination of price and service for both the
Government and the Alaskan public.
Since the Alaska Communication System operation has not yet been
converted to industrial funding, action should be taken now to
strengthen management controls so that situations similar to that
discussed in our report are promptly brought to the attention of
appropriate management officials and resolved. With regard to the
cable contract, we are in full accord that continued monitoring of the
contract is essential and in the best interest of the Government.
[Index No. 25-B-156313, Aug. 31, 1967]
PROCUREMENT OF NUCLEAR SUBMARINE PROPULSION EQUIPMENT
UNDER PUBLIC LAW 87--653, DEPARTMENT OF THE NAVY
The General Accounting Office has examined into the pricing of
propulsion equipment for use in a nuclear submarine, which is being
purchased under a fixed-price subcontract from General Electric Co.
Our findings clearly show the additional costs which the Government
can incur when significant cost or pricing data is not disclosed during
contract price negotiations. They emphasize the need for full dis-
closure of all data pertinent to price negotiations, as required by
Public LaW 87-653.
A significant portion of the cost data which General Electric
furnished to the Navy and certified as being accurate, complete,
and current was based on the cost of processing certain castings in
its own plant. We noted, however, that, prior to the date the negotia-
tions were concluded, the Medium Steam Turbine, Generator, and
Gear Department of General Electric had requested and received
from suppliers price quotations for fully processed castings. These
quotations were not disclosed to the Navy during price negotiations,
even though the amounts quoted were substantially less than the
85-698-67-10
PAGENO="0134"
128 ECONOMY IN GOVERNMENT-i 967
amounts which the contractor had included for fully processed castings
in its price proposals.
Thus, in our opinion, the Government did not have an opportunity
to negotiate a reduction, which we estimate would have been about
$564,000. This amount represents about half of that portion of the
negotiated price related to the castings. Shortly after price negotia-
tions were concluded, the contractor purchased fully processed
castings from the suppliers at essentially the same prices as those
quoted to it earlier.
We brought this matter to the attention of the Secretary of Defense
and proposed that he consider having the contractmg officer take
appropriate action under the defective pricing clause included in
the subcontract.
The Navy, replying on behalf of the Secretary of Defense, stated
that General Electric's estimates for castings had been questioned
at great length during price negotiations and that the company ap-
parently had in its possession quotations which bore directly on the
reasonableness of these estimates but were not revealed. in view of
this fact, the Navy agreed that the quotations from suppliers for
processed castings were significant pricing data which should have
been submitted to the Navy for consideration in price negotiations.
The Navy stated that action would be taken for recovery of an
appropriate amount.
The Department of Defense has initiated a study of our reports
in order to improve its administration of the cost or pricing data
requirements of Public Law 87-653 and has developed a program
for scheduling postaward audits by the Defense Contract Audit
Agency.
We plan to work closely with the Department in determining
what action should be taken to properly implement the law and to
prevent recurrence of this and other cases disclosed by postaward
reviews.
[Index No. 26-B-114824, Sept. 21, 1967]
SAVINGS AVAILABLE IF THE COMMODITY CREDIT CORPORATION RE-
COVERS INTEREST COSTS ON REPAID PRICE-SUPPORT LOANS AND
ON STORAGE FACILITY AND EQUIPMENT LOANS, COMMODITY CREDIT
CORPORATiON, DEPARTMENT OF AGRICULTuRE
In a report submitted to the Congress in September 1967, we
expressed the belief that the Commodity Credit Corporation (CCC)
should revise its policies regarding the rates of interest to be charged
producers on repayments of price-support loans and on storage
facility and equipment loans to provide for recovery of CCC's cost
of financing the loans.
The price-support loan is one of the methods used by the CCC
to support the prices of agricultural commodities produced in the
United States. Price-support loans are nonrecourse. Under this type
of loan, producers are not obligated to make good any decline in the
market price of the commodities put up as collateral. If market
prices rise above the price-support loan level plus interest, producers
generally repay their loans, with interest, and market their commodities.
PAGENO="0135"
ECONOMY IN GOVERNMENT-1967 129
If market prices fail to rise above the loan level, producers generally
deliver the commodity to CCC and discharge their obligation. No
interest is charged on the loans that are not repaid.
Under the farm storage facility loan program, CCC makes loans to
eligible produce~s to finance the purchase of drying equipment for the
conditioning of farm-stored commodities, and to finance the purchase
or construction of farm storage facilities. The loans are made in
amounts of up to 85 percent of the net cost of the facilities, and are
repayable in not more than four equal annual installments over a
period of 5 years or less.
At December 31, 1966, the total amount outstanding on storage
facility and equipment loans was about $32.5 million. As of March 31,
1967, price-support loans totaling $1.3 billion had been made on 1966
crops.
On the basis of our review of these loan programs, we estimated
that the CorI)oration could incur interest costs on repaid price-support
loans for the 1966 crops amounting to about $7.6 million more than
it will collect from producers. We also estimated that CCC could incur
interest costs on storage facility and equipment loans during 1966
amounting to about $154,000 more than it will recover from the
producers. Such losses will result from the Corporation's policy of
charging producers interest on loans at a rate less than that which
the Corporation paid to obtain the loan funds from the U. S. Treasury
and from private lending institutions.
When the Corporation charges producers interest at a rate sub-
stantially less than its cost of financing the loans, the Corporation
is, in effect, granting the producers a subsidy in addition to price
support.
In commenting on our findings, the President, CCC, advised us
that the Department of Agriculture had studied the matter and
concluded that the Corporation's present policy was the best, con-
sidering the objectives of the piice-support program and the farm
storage facility loan program. He stated, however, that the Depart-
ment would again study the matter of interest rates before the new
crops were harvested.
We recommended that the CCC Board of Directors revise the
Corporation's policy on interest rates to require producers to pay
interest on future price-support loans which are repaid and on future
storage facility and equipment loans at a rate not less than that
which the Corporation must pay to finance the loans.
[Index No. 27-B-161992, Sept. 22, 1967]
OPPORTUNITIES FOR SAVINGS THROUGH USE OF SPARE GOVERNMENT-
OWNED COMMUNICATIONS CIRCUITS IN EUROPE, DEPARTMENT
OF DEFENSE
We examined into the use made of 228 communications circuits
leased from commercial carriers in and between Germany and the
United Kingdom. In our opinion, the traffic carried by 64 of these
leased circuits could have been routed over spare, and available, U.S.
Government-owned circuits at substantial savings.
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130 ECONOMY IN GOVERNMENT-i 967
We found that the failure of the Department to so route this traffic
had resulted from its policy of ascertaining the availability of Govern-
ment-owned circuits only before a commercial circuit was to be leased.
No reviews were made thereafter to periodically assess the availa-
bility of Government-owned circuits. The potential for these savings
may have been revealed had periodic reviews been made.
In commenting on our findings, the Deputy Assistant Secretary of
Defense (Supply and Services) agreed that the Department's controls
over the use of communications circuits in Europe had not been ade-
quate and that leasing costs might have been reduced if the identified
circuits had been canceled and the traffic otherwise routed.
We have been advised that a program has been initiated for annual
reviews of communications systems in Europe. Such reviews are to be
performed in all overseas areas where leased and Government-owned
circuits coexist.
We believe that the corrective actions planned by the Department of
Defense will, if properly implemented, improve its management of
communications in Europe. We plan, as part of our continuing review
of Department of Defense activities, to follow the actions taken.
Ten of the 64 circuits were canceled following discussion of our
finding with Department officials. The Department did not consider it
prudent to cancel the remaining 54 circuits until the circuit require-
ments of its planned worldwide Automatic Voice Network became
KflOWfl.
Since the first Automatic Voice NetworK switching centers are
scheduled for activation no earlier than November 1968, significant
savings can be realized by canceling, where possible, those leased cir-
cuits whose traffic can now be accommodated on the Government-
owned circuits. We recommended that the Department of Defense
study the remaining 54 circuits to determine which circuits can be
canceled rather than reserved for future possible use in the Automatic
Voice Network.
[Index No. 28-B--133118, Sept. 29, 19671
REVIEW OF INVENTORY ACCOUNTING SYSTEMS FOR AERONAUTICAL
EQUIPMENT, DEPARTMENT OF THE NAVY
The General Accounting Office has reviewed the Navy's inventory
accounting systems for approximately $2.2 billion worth of aero-
nautical spare parts and equipment. We found that the systems did
not provide management with the information necessary for efficient
and economical operations and management of its resources. The
Navy is implementing an immediate and comprehensive plan for
effecting necessary improvements in the inventory accounting systems.
Generally, the causes of the conditions which we found were-
The failure of operating personnel to follow written instructions
and procedures.
The lack of necessary internal controls in the systems.
The lack of effective identification and reporting to top manage-
mént of those matters requiring attention.
The Navy concurred, in general, with the results of our review and
acknowledged the need for improvement in the accuracy of inventory
data. The Navy stated that the General Accounting Office would be
kept fully informed of its progress in making improvements.
PAGENO="0137"
ECONOMY IN GOVERNMENT-i 967 131
We believe that the Navy's plans, if properly carried out, should
benefit the accuracy, timeliness, and completeness of inventory data
and, consequently, its usefulness to management.
[Index No. 29-11-162106, Sept. 29, 19671
NEED FOR PROCEDURES TO PRECLUDE MORE THAN JUST COMPEN-
SATION IN ACQUIRING OIL INTERESTS, CORPS OF ENGINEERS
(CIVIL FUNCTIONS), DEPARTMENT OF THE ARMY
In September 1967, we reported to the Congress that the Corps of
Engineers (Civil Functions), Department of the Army, in acquiring
land for two reservoir projects near Carlyle, Ill., and Tulsa, Okia.,
made payments of about $28 million to the land and mineral owners.
About $7.2 million of that amount represented the estimated cost
to the Government for acquiring the mineral interests.
Agreements entered into by the Corps provided for payment to
the owners for the full amount of the estimated oil reserves. Sub-
sequent to appraisal of the estimated 011 reserves, the owners were
permitted under the agreements to extract oil having a fair market
in-ground value of about $1.6 million, without an appropriate ad-
justment in the cost to the Government for acquiring the mineral
interests.
We suggested to the Secretary of the Army that the Corps' policies
and procedures be revised to prevent the owners of mineral interests
from receiving more than just compensation. We were advised that
the Corps would prepare and modify instructions which would be
designed to preclude owners from receiving windfall benefits.
[Index No. 30-B--161340, Oct. 12, 1967]
OPPORTUNITY FOR SAVINGS BY ADOPTING MANUFACTURERS' RECOM-
MENDED PREVENTIVE MAINTENANCE PROGRAMS FOR INTERAGENCY
MOTOR POOL VEHICLES-GENERAL SERVICES ADMINISTRATION
Our review showed that savings could be obtained by adopting
specific programs of preventive maintenance developed by auto-
mobile manufacturers for their vehicles as a means of achieving the
best performance, long life, and trouble-free operations in place of
the uniform General Services Administration requirements which
provide generally for mere frequent preventive maintenance.
Our review covered the costs of certain usual preventive mainte-
nance jobs at three interagency motor pools in one of the 10 General
Services Administration regions. We estimate that the General
Services Administration could have saved about $26,600 during the
year ended June 30, 1966, in the cost of preventive maintenance in
this region by adopting the manufacturers' programs for 1963 through
1965 models of vehicles.
We estimate that, if these potential savings were typical of the
savings that may have been available in the agency's other nine
regions, about $250,000 could have been saved by the Government
during the year ended June 30, 1966.
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132 ECONOMY IN GOVERNMENT-i 967
An opportunity for savings by adopting the manufacturers' recoIn-
mended preventive maintenance programs may be available to other
agencies of the Government.
We brought our findings to the attention of the General Services
Administration and proposed that it adopt the manufacturers'
recommended programs. In a letter dated August 30, 1966, the
Deputy Administrator advised us that his ageacy had been working
with manufacturers to revise the current guide for preventive
maintenance.
A revised guide was issued in April 1967. However, because it
retains uniform service intervals for some preventive maintenance
items, it must provide for overmaintenance of some vehicle makes
and models in order to provide adequate maintenance for all vehicle
makes and models. Also, there has been-and we believe that there
will continue to be-a considerable lag in time before General Services
Administration adopts the in anufacturers' program revisions made
possible by technological improvements.
Further, the revised guide is applicable only to 1966 and later
models of vehicles. We estimate that, if the manufacturers' recom-
mended programs for 1963 through 1965 vehicle models are adopted
promptly, savings of about $350,000 can still be realized on these
vehicles while they remain in inventory.
We therefore recommended that the Administrator of General
Services implement our proposals as specified in detail in our report.
PAGENO="0139"
APPENDIX 5
EXECLTTIVE OFFiCE OF THE PRESIDENT,
BUREAU OF THE BUDGET,
T47ashington, D.C., August 30, 1967.
CIRCULAR NO. A-IT, REVISED-TRANSMiTTAL MEMORANDUM NO. I
To: The heads of executive departments and establishments.
Subj ect: Policies for acquiring commercial or industrial products and
services for Government use.
Transmitted herewith is a revision of Bureau of the Budget Circular
A-76 dated March 3, 1966. It is issued to clarify some provisions Of
the earlier circular and to lessen the burden of work by the agencies
in implementing its provisions. A brief summary of the changes is
attached.
There is no change in the Government's general policy of relying
upon the private enterprise system to supply its needs, except where
it is in the national interest for the Government to provide directly
the products and services its uses.
We intend to keep the provisions of the circular under continuing
review. We anticipate that further changes will be desirable in light
of experience gained from implementing the circular's provisions,
including the required reviews of existing Government commercial or
industrial activities to be completed by June 30, 1968. We intend to
give special attention to the adequacy of the guidelines contained in
the circular for such matters as comparative cost analyses; the cir-
cumstances under which cost differentials in favor of private enter-
prise are appropriate; and the use of contracts involving support
services that require minimal capital investment.
We welcome your suggestions.
PI-IILLIP S. HUGHES,
Acting Director.
EXECUTIVE OFFICE OF THE PRESIDENT,
BUREAU OF THE BUDGET,
Washington, D.C., August 30, 1967.
CIRCULAR NO. A-76--REVISED
To: The heads of executive departments and establishments.
Subject: Policies for acquiring commercial or industrial products and
services for Government use.
1. Purpose
This circular replaces Bureau of the Budget Circular A-76 issued
March 3, 1966. It is issued to clarify some provisions of the earlier
circular and to lessen the burden of work by the agencies in imple-
menting its provisions. The basic policies to be applied by executive
133
PAGENO="0140"
134
ECONOMY IN GOVERNMENT-1967
a.gencies in determining whether commercial and industrial products
and services used by the Government are to be provided by private
suppliers or by the Government itself are the same as those contained
in Circular A-76 dated March 3, 1966.
2. Policy
The guidelines in this circular are in furtherance of the Govern-
ment's general policy of relying on the private enterprise system to
supply its needs.
In some instances, however, it is in the national interest for the
Government to provide directly the products and services it uses.
These circumstances are set forth in paragraph 5 of this circular.
No executive agency will initiate a "new start" or continue the op-
eration of an existing "Government commercial or industrial activity"
except as specifically required by law or as provided in this circular.
3. Definitions
For purposes of this circular:
a. A "new start" is a newly established Government commercial or
industrial activity involving additional capital investment of $25,000 or
more or additional annual costs of production of $50,000 or more. A
reactivation, expansion, modernization, or replacement of an activity
involving additional capital investment of $50,000 or more or addi-
tional annual costs of production of $100,000 or more are, for purposes
of this circular, also regarded as "new starts." Consolidation of two or
more activities without increasing the overall total amount of products
or services provided is not a "new start."
b. A "Government commercial or industrial activity" is one which
is operated and managed by an executive agency and which provides
for the Government's own use a product or service that is obtainable
from a private source. The term does not include a Government-
owned contractor-operated activity.
c. A "private commercial source" is a private business concern which
provides a commercial or industrial product or service required by
agencies and which is located in the United States, its territories and
possessions, the District of Columbia, or the Commonwealth of Puerto
Rico.
4. Scope
This circular is applicable to commercial and industrial products
and services used by executive agencies, except that it:
(a) Will not be used as authority to enter into contracts if such
authority does not otherwise exist nor will it be used to justify depar-
ture from any law or regulation, including regulations of the Civil
Service Commission or other appropriate authority, nor will it be used
for the purpose of avoiding established salary or personnel limitations.
(b) Does not alter the existing requirement that executive agencies
will perform for themselves those basic functions of management
which they must perform in order to retain essential control over the
conduct of their programs. These functions include selection and direc-
tion of Government employees, assignment of organizational responsi-
bilities, planning of programs, establishment of performance goals and
priorities, and evaluation of performance.
(c) Does not apply to managerial advisory services such as those
normally provided by an office of general counsel, a management and
PAGENO="0141"
ECONOMY IN GOVERNMENT-i 967 135
organization staff, or a systems analysis unit. Advisory assistance in
areas such as these may be provided either by Government staff
organizations or from private sources as deemed appropriate by
executive agencies.
(d) Does not apply to products or services which are provided to
the public. (But an executive agency which provides a product or
service to the public should apply the provisions of this circular with
respect to any commercial or industrial products or services which it
uses.)
(e) Does not apply to products or services obtained from other
Federal agencies which are authorized or required by law to furnish
them.
(f) Should not be applied, when its application would be inconsistent
with the terms of any treaty or international agreement.
5. Circumstances under which the Government may provide a commercial
or industrial product or service for its own rise
A Government commercial or industrial activity may be authorized
only under one or more of the following conditions:
(a) Procurement of a product or service from a commercial source
would disrupt or materially delay an ag:enc's program. The fact
that a commercial or industrial activity is classified or is related to
an agency's basic program is not an adequate reason for starting or
continuing a Government activity, but a Government agency may
provide a product or service for its own use if a review conducted and
documented as provided in paragraph 7 establishes that reliance upon
a commercial source will disrupt or materially delay the successful
accomplishment of its program.
(b) It is necessary for the Goveininent to conduct a commercial
or industrial activity for purposes of combat support or for individual
and unit retraining of military personnel or to maintain or strengthen
mobilization readiness.
(c) A satisfactory commercial source is not available and cannot be
developed in time to provide a product or service when it is needed.
Agencies' efforts to find satisfactory commercial sources should be
supplemented as appropriate by obtaining assistance from the
General Services and Small Business Administrations or the Business
andDefense Services Administration. Urgency of a requirement is not
an adequate reason for starting or continuing a Government com-
mercial or industrial activity unless there is evidence that commercial
sources are not able and the Government is able to provide a product
or service when needed.
(d) The product or service is available from another Federal agency.
Excess property available from other Federal agencies should be used
in preference to new procurement as provided by the Federal Property
and Administrative Services Act of 1949, and related regulations.
Property which has not been reported excess also may be provided
by other Federal agencies and unused plant and production capacity
of other agencies may be utilized. In such instances, the agency
supplying a product or service to another agency is respons~hie for
compliance with this circular. The fact that a product or service is
being provided to another agency does not by itself justify a Govern-
ment commercial or industrial activity.
(e) Procurement of the product or service from a commercial
source will result in higher cost to the Government. A Government
PAGENO="0142"
136 ECONOMY IN GOVERNMENT-i 967
commercial activity may be authorized if a comparative cost analysis
prepared as provided in this circular indicates that the Government
can provide or is providing a product or service at a cost lower than if
the product or service were obtained from commercial sources.
However, disadvantages of starting or continuing Government
activities must he carefully weighed. Government ownership and
operation of facilities usually involve removal or withholding of
property from tax rolls, reduction of revenues from income and other
taxes, and diversion of management attention from the Government's
primary program objectives. Losses also may occur due to such factors
as obsolescence of plant and equipment and unanticipated reductions
in the Government's requirements for a product or service. Govern-
ment commercial activities should not be started or continued for
reasons involving comparative costs unless savings are sufficient to
justify the assumption of these and similar risks and uncertainties.
6. Cost comparisons
A decision to rely upon a Government activity for reasons involving
relative costs must be supported by a comparative cost analysis which
will disclose as accurately as possible the difference between the cost
which the Government is incurring or will incur under each alternative.
Commercial sources should be relied upon without incurring the
delay and expense of conducting cost comparison studies for products
or services estimated to cost the Government less than $50,000 per
year. However, if there is reason to believe that inadequate compe-
tition or other factors are causing commercial prices to be unreason-
able, a cost comparison study will be directed by the agency head or
by his designee even if it is estimatedthat the Government will spend
less than $50,000 per year for the product or service. A Government
activity should not be authorized on the basis of such a comparison
study, however, unless reasonable efforts to obtain satisfactory prices
from existing commercial sources or to develop other commercial
sources are unsuccessful.
Cost comparison studies also should be made before deciding to rely
upon a commercial source when terms of contracts will cause the
Government to finance directly or indirectly more than $50,000 for
cost of facilities and equipment to be constructed to Government
specifications. Cost comparison studies should also be made in other
cases if there is reason to believe that savings can be realized by the
Government providing for its own needs. Such studies wi 1 not be
made, however, if in-house provision of the product or service, or
commercia procurement thereof, is clearly jus~ified in accordance
with other provisions of this circular.
The determination as to whether to purchase or to lease equipment
or to construct buildings or acquire their use under lease-construction
arrangements involves a determination of the difference in costs under
the alternatives, and the principles set forth in this circular should be
applied to the extent relevant in making such determinations.
(a.) Costs of obtaining products or services from commercial sources
should include amounts paid directly to suppliers, transportation
charges, and expenses of preparing bid invitations, evaluating bids,
and negotiating, awarding, and managing contracts. Costs of materials
furnished by the Government to contractors, appropriate charges for
Government-owned equipment and facilities used by contractors and
PAGENO="0143"
ECONOMY IN GOVERNMENT-1967 137
costs due to incentive or premium provisions in contracts also should
be included. If discontinuance of a Government commercial or in-
dustrial activity will cause a facility being retained by the Government
for mobilization or other reasons to be placed in a standby status, the
costs of preparing and maintaining the facility as standby also should
be included. Similarly, if such a discontinuance is expected to result in
premature retirement of Government employees which will cause a
significant increase in retirement costs to the Government, such
increased cost should be added to the cost of procurement from com-
mercial sources. Costs of obtaining products or services from commer-
cial sources should he documented and organized for comparison with
costs of obtaining the product or service from a Government activity.
(b.) For purposes of economy and simplicity in making cost com-
parison studies, generally agreed costs that would tend to be the same
under either alternative need not be measured and included (for exam-
ple, bid and award costs and operating costs under lease-purchase
alternatives).
(c) Costs of obtaining products or services from Government
activities should include all costs which would be incurred if a product
or service were provided by the Government and which would not be
incurred if the product or service were obtained from a commercial
source. The objectives should be to compute, as realistically as possible,
the incremental or additional cost that would be incurred by the Gov-
ernment under the alternatives under consideration. In making such
determinations it is important that recognition be given to the full
amount of additional or incremental direct and indirect cost to be
incurred in providing the products or services required. Under this
general principle, the following costs should be included, considering
the circumstances of each case:
(1) Personal services and benefits-Include costs of all elements of
compensation and allowances for both military and civilian personnel,
including the full cost to the Government of retirement systems, cal-
culated on a normal cost basis, social security taxes where applicable,
employees' insurance, health, and medical plans (including services
available from Government military or civilian medical facilities),
living allowances, uniforms, leave, termination and separation allow-
ances, travel and moving expenses, and claims paid through the Bureau
of Employees' Compensation.
(2) 214aterials, supplies, and utilities services .-Include costs of
supplies and materials used in providing a product or service and costs
of transportation, storage, handling, custody, and protection of prop-
erty, and costs of electric power, gas, water, and communications
services.
(3) Maintenance and repair-Include costs of maintaining and re-
pairmg structures and equipment which are used in providing a product
or service.
(4) Damage or loss of property.-Include costs of uninsured losses
due to fire or other hazard, costs of insurance premiums, and costs of
settling loss and damage claims.
(5) Federal taxes-Include income and other Federal tax revenues
(except social security taxes) received from corporations or other
business entities (but not from individual stockholders) if a product or
service is obtained through commercial channels. Estimates of cor-
1)orate incomes for these purposes should be based upon the earnings
PAGENO="0144"
138 ECONO~iY IN GOYERNMENT-1967
experience of the industry, if available, but if such data are not avail-
able, "The Quarterly Financial Report of Manufacturing Corpora-
tions," published by the Federal Trade Commission and the Securi-
ties and Exchange Commission, may be consulted. Assistance of the
appropriate Government regulatory agencies may be obtained in
estimating taxes for regulated industries.
(6) Depreciation.-Compute depreciation as a cost for any new or
additional facilities or equipment which will be required if a Govern-
ment activity is started or continued. Depreciation will not be allo-
cated for facilities and equipment acquired by the Government before
the cost comparison study is started. However, if reliance upon a
commercial source will cause Government-owned equipment or facili-
ties to become available for other Federal use or for disposal as surplus,
the cost comparison analysis should include as a cost of the Govern-
ment activity,, an appropriate amount based upon the estimated
current market value of such equipment or facilities. The Iiiternal
Revenue Service publication, "Depreciation Guidelines and Rules,"
may be used in computing depreciation. However, rates contained in
this publication are ~naximums to be used only for reference purposes
and only when more specific depreciation data are not available.
Accelerated depreciation rates permitted in some instances by the
Internal Revenue Service will not be used. In computing the deprecia-
tion cost of new or additional facilities or equipment to be acquired
if a Government activity is started or continued and in determining
comparative costs under lease-purchase alternatives, appropriate
recognition should be given to estimated residual or salvage values of
the facilities, or equipment.
(7) Imterest.--Compute interest for any new or additional capital
to be invested based upon the average i-ate of yield for long-term
Treasury bonds as shown in the current monthly Treasury Bulletin.
The method of computation should provide for reduction in the capital
investment to which interest is applied over the useful life of the asset
on a straight line basis.
(8) Indirect costs.- -Include any additional indirect costs incurred
resulting from a. Government activity for such activities as manage-
ment and supervision, budgeting, accounting, personnel, legal, and
other applicable services.
7. Administering the policy
(a) Inventor-y.-Each agency will compile and maintain an inventory
of its commercial or industrial activities having an annual output of
products or services costing $50,000 or more or a capital investment of
$25,000 or more. In addition to such general descriptive information
as may be appropriate, the inventory should include for each activity
the amount of the Government's capital investment, the amount
paid annually for the 1)rothlcts or services involved, and the, basis
upon which the activity is being continued under the provisions of
this circular. rrhe general descriptive information needed for identi-
fying each activity should have been included in the inventory by
June 30, 1966. Other information needed to complete the inventory
should be added as reviews required in paragraphs 7 (b) and (c) are
corn pleted.
* (b) "New starts."-
(1) A "new start" should not be initiated until possibilities of
obtaining the product or service from commercial sources have been
PAGENO="0145"
ECONOMY IN GOVERNMENT-1967 139
explored and not until it is approved by the agency head or by an
Assistant Secretary or officici of equivalent rank, on the basis of factual
justification for establishing the activity under the provisions of this
eirc ilar.
(2) If statutory authority and funds for construction are required
before a "new start" can be initiated, the actions to be taken under
this circular should be completed before the agency's budget request
is submitted to the Bureau of the Budget. Instructions concerning
data to be submitted in support of such budget requests will be in-
cluded in annual revisions of Bureau of the Budget Circular No. A-i 1.
(3) A "new start" should not be proposed for reasons involving
comparative costs unless savings are sufficient to outweight uncer-
tainties and risks of unanticipated losses involved in Government
activities.
The amount of savings required as justification for a "new start"
will vary depending on individual circumstances. Substantial savings
should be required as justification if a large new or additional capital
investment is involved or if there are possibilities of early obsolescence
or uncertainties regarding maintenance and production costs, prices
and future Government requirements. Justification may be based on
smaller anticipated savings if little or no capital investment is in-
volved, if chances for obsolescence are minimal, and if reliable infor-
mation is available concerning production costs, commercial prices
and Government requirements. While no precise standard is pre-
scribed in view of these varying circumstances a "new start" ordinarily
should not be approved unless costs of a Government activity will
be at least 10 percent less than costs of obtaining the product or
service from commercial sources. It is emphasized that 10 percent is
not intended to be a fixed figure.
A decision to reject a proposed "new start" for comparative cost
reasons should be reconsidered if actual bids or proposals indicate
that commercial prices will be higher than were estimated in the cost
comparison study.
(4) When a "new start" begins to operate it should be included in
an agency's inventory of commercial and industrial activities.
c. Existing Government activities.----
(1) A systematic review of existing commercial or industrial activi-
ties (including previously approved "new starts" which have been in
operation for at least 18 months) should be maintained in each agency
under the direction of the agency head or the person designated by
him as provided in paragraph 8. The agency head or his designee
may exempt designated activities if he decides that such reviews are
not warranted in specific instances, Activities not so exempted should
be reviewed at least once before June 30, 1968. More frequent reviews
of selected activities should be scheduled as deemed advisable. Activi-
ties remaining in the inventory after June 30, 1968, should be sched-
uled for at least one additional foliowup review during each 3-year
period but this requirement may be waived by the agency head or
his designee if he concludes that such further review is not warranted.
(2) Reviews should be organized in such a manner as to ascertain
whether continued operation of Government commercial activities is
in accordance with the provisions of this circular. Reviews should
include information concerning availability from commercial sources
PAGENO="0146"
140 ECONOMY IN GOVERNMENT-i 967
of products or services involved and feasibility of using commercial
sources in lieu of existing Government activities.
(3) An activity should be continued for reasons of comparative costs
only if a comparative cost analysis indicates that savings resulting from
continuation of the activity are at least sufficient to outweigh the
disadvantages of Government commercial and industrial activities.
No specific standard or guideline is prescribed for deciding whether
savings are sufficient to justify continuation of an existing Govern-
ment commercial activity and each activity should be evaluated on
the basis of the applicable circumstances.
(4) A report of each review should be prepared. A decision to
continue an activity should be approved by an assistant secretary or
official of equivalent rank and the basis for the decision should appear
in the inventory record for the activity. Activities not so approved
should he discontinued. Reasonable adjustments in the timing of such
actions may be made, however, in order to alleviate economic dis-
locations and personal hardships to affected career personnel.
8. Implementation
Each agency is responsible for making the proyisions of this circular
effective by issuing appropriate implementing instructions and by
providing adequate management support and procedures for review
and foliowup to assure that the instructions are placed in effect. A
copy of the implementing instructions issued by each agency will be
furnished to the Bureau of the Budget.
If overall responsibility for these actions is delegated by the agency
head, it should be assigned to a senior official reporting directly to the
agency head.
If legislation is needed in order to carry out the purposes of this
circular, agencies should prepare necessary legislative proposals for
review in accordance with Bureau of the Budget Circular No. A-19.
9. Effective date
This circular is effective on October 2, 1967.
PHILLIP S. HUGHES,
Acting Director.
SUMMARY OF CHANGES IN BUREAU OF THE BUDGET
CIRCULAR NO. A-76 AS REVISED AUGUST 1967
PARAGRAPH 3-DEFINITIONS
3.a. The definition for a "new start" has been split as between
(a) a newly established Government commercial or industrial activity
and (b) a reactivation, expansion, modernization, or replacement of
an activity. These separate definitions have been provided so that
different dollar limitations on capital investment and annual cost of
production may be applied. There is no change in the dollar limita-
tions applicable to newly established Government commercial or in-
dustrial activities. But the dollar limitations have been doubled for
the category of "new starts" that are a reactivation, expansion, mod-
ernization, or replacement of an activity. The change is necessary in
order to avoid applying the "new start" procedures to routine ad-
justments for handling existing workload. For example, the replace-
ment of a single machine tool at a shipyard may easily add capital
PAGENO="0147"
ECONOMY IN GOVERNMENT-i 967 141
cost of more than $25,000, or the addition of only 10 employees at
relatively low grades would add more than $50,000 per yeai to pro-
duction cost. This type of change occurs several times a year at a
large facility and, under the terms of the earlier Circular A-76, each
such change would have to be treated as a "new start" with a detailed
cost study and a special approval.
3.b. The definition of a Government commercial or industrial
activity has been clarified. The earlier circular, by definition, excluded
a Government-owned, contractor-operated activity but the wording
was not entirely clear. The change made clarifies the fact that a
Government-owned, contractor-operated activity is not to be re-
garded as a Government commercial or industrial activity for purposes
of the circular.
PARAGRAPH 4-SCOPE
4.c. The words "professional staff" that were contained in the
earlier circular have been eliminated. Paragraph 4.c. is intended to
exempt various kinds of staff advisory services which are so intimately
related to the processes of top management and control of Govern-
ment programs that the general provisions of A-76 favoring reliance
upon commercial sources should not be applicable. The term "pro-
fessional staff" was so broad that it could be interpreted to apply
to a large variety of services which are commercially available and
which are not necessarily related intimately to top management and
control of Government programs. The change will clarify the meaning
of this subparagraph.
PARAGRAPH 6-COST COMPARISONS
A change is made in the third unnumbered paragraph to make clear
that if there is reason to believe savings can be realized by the Govern-
ment providing for its own needs, cost comparison studies should be
made before deciding to rely upon a commercial source. However, the
changed wording also makes it clear that cost studies will not be re-
quired if in-house provision of the product or service, or commercial
procurement thereof, is clearly justified in accordance with other
provisions of the circular.
A new numbered paragraph has been added to provide guidelines
for applying provisions of the circular to purchase versus lease of
equipment, and to construction of buildiugs versus acquisition under
lease-construction arrangements. The paragraph requires a determina-
tion of the difference in costs under the alternatives, and application
of the principles set forth in the circular in making judgments in
these areas.
6.a. A sentence has been added providing that if discontinuance
of a Government commercial or industrial activity will result in pre-
mature retirement of Government employees, and will cause a sig-
nificant increase in retirement costs to the Government, such increased
costs should be added to the cost of procurement from commercial
sources.
6.b. This is a new subparagraph. It provides that costs which
would tend to be the same for both Government and iiidustry need
not be measured and included in comparative cost analyses (for exam-
ple, bid and award costs and operating costs under lease-purchase
PAGENO="0148"
142 ECONOMY IN GOVERNMENT-i 967
alternatives). The change is made in the interest of economy and
simplicity in making cost comparisons.
6.c. (Paragraph 6.b. in the earlier circular). A sentence has been
added to clarify the fact that the incremental method of costing is
to be employed and to emphasize the importance of a realistic recog-
nition of all such additional or incremental costs.
6.c.(l). (Paragraph 6.b.(l) in the earlier circular). Some additional
wording has been added to clarify, in connection with personal serv-
ices and benefits, that the full cost to the Government of retirement
systems should be included.
6.c. (6). (Paragraph 6.b. (6) in the earlier circular). A sentence has
been added to make clear that appropriate recognition should be
given to estimated residual or salvage value of facilities or equipment
in computing depreciation.
6.c.(7). (Paragraph 6.b.(7) in the earlier circular.) This paragraph
has been rewritten to provide that the computation of interest for a.ny
new or additional capital to be invested will be based upon the aver-
age rate of yield for long-term Treasury bonds as shown in the current
monthly Treasury Bulletin. Also, the method of computation sug-
gested would provide for reduction in the capital investment to which
interest is applied as the asset is depreciated. The purpose of the
change is to clarify the rate and source of interest to be charged and
to provide guidance as to the principal to which it is to be applied.
The suggested rate is a readily available measure of the current cost
of money to the Government and the provision for reducing the bal-
ance to which interest is applied is considered reasonable because the
interest cost should not go on indefinitely.
6.c.(8). (Paragraph 6.b.(8) in the earlier circular.) A change in
wording has been made to clarify that Government costs should in-
clude any additional indirect costs incurred for such activities as man-
agement and supervision, budgeting, accounting, personnel, legal, and
other applicable services.
PARAGRAPH 7-ADMINISTERING THE POLICY
7.b.(3). In the past there has been some misunderstanding about
the cost differential in favor of private enterprise due to uncertainties
relating to Government production costs, equipment obsolescence,
and other factors, including the amount of capital investment in-
volved. A sentence has been added to clarify the fact that the 10-
percent cost differential in favor of private enterprise, mentioned in
this subparagraph, is not intended to be a fixed figure. The differential
may be more or less than 10 percent, depending upon the circumstances
in each individual case.
PARAGRAPH 8-IMPLEMENTATION
A sentence has been added requiring agencies to furnish the Bureau
of the Budget with a copy of their implementing instructions.
C