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right or is there somebody else you think would be perhaps better able to give us an accurate figure?
Mr. MAHONEY. I spend most of my waking hours worrying about this.
$4 TO $6 BILLION FANTASTIC SPREAD
Chairman PROXMIRE. You gave us an estimate before of between $4 and $6 billion, that is a fantastic spread. We ought to have some notion whether it is $4, $42, $5, or $512 billion-what it is? As a matter of fact, we ought to know it to the nearest hundred million. Now we don't even know it to the nearest billion. So can you give us a little more accurate figure as to how much the Government spends in this area? Mr. MAHONEY. No, sir; we certainly agree with your concept that there ought to be better information on it.
Chairman PROXMIRE. Why isn't there? Why doesn't anybody know? Why doesn't the Bureau of the Budget know?
GOVERNMENT CONTRACTORS NOT REQUIRED TO FURNISH COSTS ON GOVERNMENT-OWNED ADPE
Mr. MAHONEY. Well, for some of the reasons I mentioned, Mr. Chairman, the fact that Government contractors are not required to report this kind of information. People use this equipment in grant'in-aid programs, universities, State programs, and so on, and are not required to report this directly.
Chairman PROXMIRE. Let me get this straight. That means that we hire a contractor to do a particular job and then he doesn't break down his component costs to include the amount that he spends for automatic data processing.
Mr. MAHONEY. Yes, sir; I believe the Department of Defense and the Bureau of the Budget are prepared to address this question further with you.
Chairman PROXMIRE. Well, you see they can't give us an overall picture. They can tell us perhaps what they spend, but they can't very well give us an overall picture which I was hoping you could give us. Mr. MAHONEY. This, basically, is the responsibility of the Bureau of the Budget to direct the agencies to report spending under this program.
ADPE COST BREAKDOWN FOR DOD, AEC, AND NASA
Chairman PROXMIRE. Have you asked the Bureau of the Budget for this figure? They are coming up later. All right, we will ask the Bureau of the Budget when they come up.
Can you give us a breakdown as to how much of the total can be attributed to the Department of Defense, and to Atomic Energy, to Space, and how much to general purpose?
DOD COSTS ARE 62 PERCENT OF IN-HOUSE TOTAL
Mr. MAHONEY. Yes; these figures are available, again as I say, with regard to the in-house Government equipment or equipment operated by Government contractors, GOCO type contractors, and the Bureau of the Budget is again prepared to address this. As I understand it, the Department of Defense is about 62 percent of the overall in-house total.
Chairman PROXMIRE. Space is about how much?
Mr. MAHONEY. Space would be probably the third highest user, think Atomic Energy is second and Space third.
Chairman PROXMIRE. Sixty-two percent for Defense. Do you have any figures at all, to break it down for Atomic Energy?
Mr. MAHONEY. We have that figure, Mr. Chairman.
Chairman PROXMIRE. We will defer to the Bureau of the Budget. Representative GRIFFITHS. May I ask a question? Do you mean that with Government contractors, Mr. Mahoney?
Mr. MAHONEY. Yes.
ADPE PURCHASE BY CONTRACTORS
Representative GRIFFITHS. We have contracts with the contractor to buy this equipment under the contract. Do we know whether he has used it for our work exclusively or partially for some other work, or are we paying rent for his own piece of equipment during the hours that he uses it? Which is the case?
Mr. MAHONEY. We have a whole range of activities on this where contractors acquire the equipment, where they are principally Government contractors; where they are partially Government contractors; and so on.
Now, the Department of Defense regulations address primarily those contractors that are 100 percent negotiated defense contractors. The Bureau of the Budget regulations call for 100 percent Government contractors to report their equipment for this annual inventory publication that comes out which does break it out by agency and by percentages. It also breaks out the purchase versus lease, and so on.
This inventory report that was mentioned earlier, in Mr. Staats' testimony is the Bureau of the Budget report which covers the size of the inventory for in-house Government agencies and it also covers what is included in the inventory, as far as the contractors go, however, the problem is that our reporting requirements in Government do not make provision to include all of the contractors reporting all of the equipment they use.
Representative GRIFFITHS. Yes; I found that out some years ago. Mr. MAHONEY. Yes.
Representative GRIFFITHS. And I found out, secondly, that the contractors were buying equipment and we were buying equipment for them. And they were using it for commercial work within 3 months of the time it was purchased, and we were not getting anything. Do you mean this is also true of computers? We don't know whether they bought the computer with our money, whether they are using it for us or whether they are using it for somebody else or whether they are renting it.
Mr. STAATS. Mr. James Hammond of our Defense Division.
CONTRACTORS PAY RENT FOR IPE USED COMMERCIALLY
Mr. HAMMOND. The Department of Defense for equipment that is in the industrial property area does provide for the contractors to pay rent for commercial use.
If a contractor buys the equipment himself and depreciates it against a Government contract, then it is considered to be his equipment.
Representative GRIFFITHS. What about the ones we buy?
Mr. HAMMOND. If we buy the equipment and furnish it to the contractor, then the Government maintains an inventory of it, and then if he uses that on commercial work, the company pays rent to the Government.
Representative GRIFFITHS. What about our having sense enough in the first place to negotiate a contract where we know what it is going to cost, and actually either let them use our computers or put money in especially for depreciation. The idea of permiting them to depreciate a computer against our money is about like letting Schreiber 15 years ago buy that Thompson-Ramo-Woolridge plant for $20 million that he had already paid for.
Mr. HAMMOND. I think where the Government can predict the use they have for it and the total cost is going to be charged to the Government, certainly the Government should take action to buy rather than pay full rental for it and then have it owned by someone else.
WHEN DOES CONTRACTOR TAKE TITLE ON PURCHASE-RENTAL EQUIPMENT?
Representative GRIFFITHS. How many times are we doing this anyhow in contracts? We are letting them own the equipment in their name when in reality we are buying the equipment. How much of this is done?
Mr. HAMMOND. I don't believe I could answer that. Although this is a real important question when it is pretty much a hundred percent Government contractor. When it is split between Government and commercial work, then both pay for the computer.
Representative GRIFFITHS. Well, I would think certainly with Defense, with Atomic Energy, and with Space we ought to know. I would really think we should ask the question how many billions of dollars have these people invested in computers that we are paying for and don't own. It is a big expense, isn't it?
Mr. HAMMOND. I believe it is.
ADPE PROCURED UNDER VARIOUS TYPES OF CONTRACTS
Mr. STAATS. I think we have to look at this though, Mrs. Griffiths, in terms of the overall policy of Government as it relates to cost-type contracts and other negotiated contracts. As of now, there are three ways this equipment can be furnished, not just computers but any type of equipment, as you know, can be Government furnished, in which case the contractor has to pay the Government rental if he uses it for something other than on that contract. It can also be a cost-type contract where the contractor either elects to rent a computer or rent any other piece of equipment or buy it himself. We have done a very comprehensive study on the advantages of purchase as against lease under these circumstances, and the Defense Department now has a regulation which says that in computing the cost of computers and other equipment, you will take the lesser of the cost of lease as against purchase, you see; so from the Government's standpoint the Government does not pay for any disadvantage that accrues from the fact that the contractor decides to lease rather than buying equipment where it would be to everybody's advantage to buy that equipment instead of leasing it.
Then you get other situations where the contractor is doing substantial amounts of work in the commercial field, where the Government contract may be only a small part of it, and here you get down to the question purely of being able to price out what it should be, the proper charge on a negotiated or cost-type contract against that piece of equipment. This is a matter of procurement negotiation on a case-bycase basis. But the standard of the lesser of the cost of lease versus purchase price is pretty well established.
Representative GRIFFITHS. But, Mr. Staats, none of these things have worked well. You know very well that the greatest blockbuster report you people made in a long time was the report that answered the question I asked of how much property is in defense plants that we have paid for, that we don't own. We are not even getting anything back for it, and I would assume that this is also true in these computers. These people don't know where the computers are, nor who has paid for them, nor how much use we are getting out of them. I am trying to find out.
Mr. STAATS. Of course, the study you referred to is of governmentowned equipment placed in contractors' plants.
Representative GRIFFITHS. That is correct. From my understanding of many of the places where these computers are being placed, I would say, in general, that the Government is the main contractor, and that the work being done otherwise is very limited.
BOB AND GSA INVENTORY OF GOVERNMENT ADPE
Mr. STAATS. It is my understanding that the inventory that the Budget Bureau and GSA now have does include all the Governmentowned and furnished computers that are in the hands of contractors. It is the contractor-leased or the contractor-owned computers that represent the uncertainty as to the total numbers that the Government is partially financing.
Representative GRIFFITHS. I would like to find out where they are and how much we are paying.
ADPE INVENTORIES OF DOD, AEC, AND NASA
Mr. MAHONEY. Mr. Chairman, with regard to the inventory I mentioned before, who has the equipment and so on, there is a complete listing as of last year as published by the Bureau of the Budget, which shows the Department of Defense has 2,772 computers including the Government-owned inventory, Atomic Energy, 731, and NASA, 650. And there is a complete list if you want that for the record.
Chairman PROXMIRE. Well, that is a list but does that tell us about our expenditure, which was the question that we are aiming at?
Mr. MAHONEY. Yes, total dollars are also included in this.
Chairman PROXMIRE. Fine. At any rate you say the Bureau of the Budget is the agency that can give us the answers on that?
Mr. MAHONEY. Yes, this is their document.
Chairman PROXMIRE. You said that 62 percent of the computers
were owned or used by Defense. Is that your figure?
Mr. MAHONEY. Yes. Government-owned.
Chairman PROXMIRE. Of Government-owned computers used by
Mr. MAHONEY. Or used in-house by Government. This is as contrasted-these figures included in-house computers, and also computers that are used by GOCO-type contractors.
Chairman PROXMIRE. So what the percent refers to is the total number of computers and the number that are used by the Defense Department?
Mr. MAHONEY. Yes, sir.
USE OF ADPE FOR COMMERCIAL WORK
Chairman PROXMIRE. All right. Do we know how those are used, how much of the time they are used for commercial work and how much for defense work?
Mr. MAHONEY. These numbers that I have been talking about are used almost exclusively, about 100 percent, toward Government effort. Chairman PROXMIRE. How about those that are used part-time for Government and part-time for commercial?
ADPE USED PART TIME GOVERNMENT AND COMMERCIAL NOT IN INVENTORY
Mr. MAHONEY. These are not covered in the numbers we have been talking about here this morning. As far as I know, there is no exact inventory of those kinds of computers.
Chairman PROXMIRE. Why isn't there? Why shouldn't we know that? I am talking about Government-owned computers
Mr. MAHONEY. Government-owned, all right, we do have these computers in the Government inventory, they are included in these figures. Chairman PROXMIRE. Are you telling me Government-owned computers are not used to any significant degree for commercial work?
Mr. MAHONEY. Where they are Government-owned they are used principally, almost 100 percent, on Government work; yes, where they are Government owned.
Chairman PROXMIRE. Is that based on studies; do you say that with assurance?
Mr. MAHONEY. Where they are Government-furnished equipment: yes. There was a study made about 4 or 5 years ago by Assistant Secretary Moot which went into this whole area to quite a degree and that information I am sure the Department of Defense will be happy to furnish to you.
REGULATIONS CONTROLLING USE OF ADPE
Chairman PROXMIRE. You see my question is, Does the Government ADP in the hands of contractors come under regulations which give you control so you will be able to so you can-answer that question with complete confidence? Is it under the control of the Government; can they insist that they monitor this?
Mr. STAATS. I think the answer, to the best of our knowledge, Mr. Chairman, it is subject to the same type of controls as any other Government-furnished equipment.
ADPE IN HANDS OF CONTRACTORS NOT COVERED BY DEP REG. 8555.1
Chairman PROXMIRE. Well, the staff tells me that it doesn't come under OEP regulation 8555.1, which is the controlling regulation.