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Mr. STAATS. I believe that the Defense Department as well as other Government agencies follow BOB regulations on ADPE reporting. I could stand to be corrected on it, but I don't believe that the computer equipment is excepted from the general rules that apply to any other Government-furnished equipment.

ACQUISITION OF ADPE BY CONTRACTORS

Chairman PROXMIRE. How do the large corporations get ADP equipment, do they buy on a rental basis, does the Government pay the bill? Mr. STAATS. Are you thinking about contractors, Mr. Chairman? Chairman PROXMIRE. Yes.

Mr. STAATS. They are free now to either buy or lease. But as I indicated to Mrs. Griffiths, the rules now are that the Government, on a cost-type contract or on a negotiated contract, will only pay up to the amount that would be the lesser cost of either rental or purchase, and this is determined case by case. In general, our study would indicate that it is cheaper to buy, and this regulation was put into effect in part because of studies that we had made showing just that.

Chairman PROXMIRE. Well, I have here on page 216 of this subcommittee's hearings of 1967 a listing of the equipment the Department of Defense has that is covered under the provisions of the OEP regulation, and it does not list ADPE.

Mr. STAATS. We would be glad to check into that or perhaps others here today will be able to answer the question. I was not aware it was exempted but I am reasonably certain it is covered by DOD regulation. Chairman PROXMIRE. I note in your testimony in 1967 and that of Secretary Morris, we arrived at an estimate of the Government-owned property in contractors plants as follows: real property $2.6 billion; plant equipment $4.3 billion; materiel, $4.7 billion; special tooling and test equipment $3 billion, for a total of $14.6 billion. Automatic data processing equipment was not individually identified.

In what category would that fall or would that be in addition to this?

Mr. STAATS. It was included as far as I recall.

Chairman PROXMIRE. In what?

Mr. STAATS. It would be in equipment.

Chairman PROXMIRE. In equipment.

Mr. HAMMOND. I believe some of the ADP equipment for tape drive for machines would be in IPE. It would not be a large amount for equipment for operating automatic lathes and that type of equipment.

Mr. STAATS. Mr. Chairman, we do not have with us this morning the backup on the figures that you referred to in our previous testimony, but we would be glad to go back and see if we can break that out for you if you would like.

STATEMENT THAT CONTRACTORS GET TITLE TO GOVERNMENT COMPUTERS

Chairman PROXMIRE. Let me ask you to comment on this. I would like to read a statement and see if this statement in your view is incorrect and the extent to which it is or is not correct:

The defense contractors are using government money to acquire ownership of computers. The procurement regulations are purposely written so that the contractors consider any computer which is not used 100 percent of the time on

a government contract as their computer, even though the Government may be paying up to 95 percent of the rental for the computer. This means that the rental credits which accrue from 20 percent to 80 percent of the costs of the computer go to the contractor and he can purchase and later sell these computers at a handsome profit. Also, this means the contractor does not have to share excess time of these computers with other government contractors or other government agencies in the area.

Is that statement, in your view, not correct and if it isn't, in what sense is it not accurate?

Mr. STAATS. I am not in a position to say that is not still a correct statement. This was 1967.

Chairman PROXMIRE. No, this is a statement which I received in the last few days.

Mr. STAATS. I would hesitate to answer that categorically, Mr. Chairman. I think we are talking in this statement about two different kinds of situations though, if I understand it correctly.

Chairman PROXMIRE. All right.

Mr. STAATS. One is a situation where the contractor buys a computer for us in connection with a Government contract, that is his equipment, just as if it were a lathe or any other piece of equipment. The Government pays an appropriate charge against that based on the useful life of the piece of equipment. This would be the same as if he were, you know, competing in any kind of a market. I think that is one kind of situation.

The other kind of situation, which is much more difficult, which is where the Government-where he buys that piece of equipment just for a particular contract, and that contract runs out, then the question is who owns that piece of equipment. This is a much more difficult situation.

Chairman PROXMIRE. Who does?

Mr. STAATS. I believe as of now he does, the contractor owns it. Chairman PROXMIRE. Well, wouldn't this be a situation, No. 1, that might be quite common and, No. 2, would be inequitable and unfair? Many of these contracts do run for a very long time but most of them run for a period of perhaps a year or two or three, and certainly the computers last longer than that, much longer.

Mr. STAATS. The Defense Department can comment on this specifically as to computers but I do know that the regulations provide that this be a matter of agreement in the contract itself, so that when the contract is entered into this is a part of the consideration that goes into it as to ownership of the property on the termination of the contract.

Chairman PROXMIRE. All right.

Well, I would like to thank you very much for your testimony.

COST OF ADPE FOR DOD

Representative GRIFFITHS. I would like to ask some questions. How much are we spending for ADPE in the Department of Defense? Mr. MAHONEY. As of the latest report, the Department of Defense totals $1,354 million.

Representative GRIFFITHS. Per year?

Mr. MAHONEY. Per year.

Representative GRIFFITHS. How much do we spend for property management?

Mr. STAATS. For all property?
Representative GRIFFITHS. Yes.

Mr. STAATS. We would have to supply that. We do not have it with us.

(The information requested by Representative Griffiths of Mr. Staats was not available at the time of printing the hearings.)

Representative GRIFFITHS. Well how about inventory control? How much do we spend for inventory control?

Mr. STAATS. I couldn't answer that question. Representative GRIFFITHS. How much are accountants?

we spending for

Mr. STAATS. Well, this would be a matter of getting the number of personnel in the Defense Department?

Representative GRIFFITHS. Yes.

Mr. STAATS. We would have to supply that for you. This would be easy, this would be relatively easy, to supply.

OVER BUY AND USE OF COMPUTERS

Representative GRIFFITHS. It is my understanding that out of these computers come a million sheets of paper per month. What do you do with the paper? Where do you store it, how much does it cost to store it?

Mr. STAATS. Your question is certainly a good one from the standpoint of whether or not computers are being utilized

Representative GRIFFITHS. That is what I am getting at.

Mr. STAATS (continuing). To the optimum way because the criticism that we hear so frequently, and we are doing some work, by the way, in this field, is the extent to which you overbuy and then you use up your computer time simply because you have got so much overhead attached to it and this is a common problem in both government and industry. A report of the American Management Association indicates that roughly maybe 50 percent of the computers are being used in private industry today for noneconomic purposes because they did not do a good job in planning the acquisition of those computers. But once you get a computer in operation, you have to have the overhead, and the tendency is to fill up the time and use it even though the part of the use is marginal or submarginal.

NEED FOR GOOD PLANNING REFORE BUYING ADPE

Representative GRIFFITHS. It is actually costing you money if you are wasting time, storing the million sheets of paper that are useless, isn't it?

Mr. STAATS. This is one of the reasons that both, I think, the Budget Bureau and GSA have emphasized so much the importance of careful planning before you buy computer equipment, because it is a tremendous investment and it is a very difficult investment to displace or to get off the, off of your budget after you make your investment.

Representative GRIFFITHS. I believe it has just been pointed out recently you can't fire a computer.

Mr. STAATS. That is certainly true. It is pretty hard to dispose of it, too.

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QUALITY OF MANAGEMENT OF $47 BILLION STORES IN DOD

Representative GRIFFITHS. That is right. How good is the management of the $47 billion of stores in the DOD?

Mr. STAATS. I don't think I can answer that question.

Representative GRIFFITHS. Can any of the rest of you?

What kind of management improvement program do we have in these areas of extreme costs and high priority in the top agencies of Government?

Mr. STAATS. Well, I think the Budget Bureau can answer this question really better than I. There is a very active program centrally in the Budget and GSA. We have also been working closely with the Defense Department trying to improve the central management in the computer field in the Defense Department. We have made several reports in this area, and the Defense Department, I think, has, we would have to say, really made a strenuous effort to improve the control on this equipment in the last few years that I can speak of first-hand.

Representative GRIFFITHS. Have they ever gotten the prices of items on those cards out there in Battle Creek?

Mr. STAATS. You would have to ask them.
Representative GRIFFITHS. I am sure they haven't.

CHAIRMAN OF HOUSE APPROPRIATIONS COMMITTEE INTERESTED IN ADPE

COSTS

Mr. MAHONEY. I might just add a little bit to that, Mrs. Griffiths. The chairman of the House Appropriations Committee has been very actively interested and concerned about the management of cumputers in the Department of Defense, and a major effort on the part of GAO in the last 6 months or 8 months or maybe a little longer has been concerned with that exact question, that is, are computers centrally controlled and managed in the Department of Defense, or should the Department be organized somewhat differently to improve the management of computers in the Department of Defense. We have made several studies of major systems' use of computers in the Department of Defense, which we have made explicitly at the request of the Chairman of the Appropriations Committee. We are still working on these studies and there is a great concern on the part of the Appropriations Committee that there is need for improvement in the way that DOD is managing and directing this program.

Representative GRIFFITHS. I think it is quite interesting that we have all these billions of dollars worth of computers in other agencies of Government and that the House itself has spent months trying to decide whether they could pay a hundred million dollars, I think, for a computer, and would they get any information out of it and could they get useable information. Evidently, nobody is worried too much in the Defense Department whether the information was really useable

or not.

GAO AUTHORITY TO SET CONTROLS OVER GOVERNMENT PROPERTY

Mr. Staats, does the GAO have the authority to see that adeqaute controls are set up over Government property in the hands of contractors?

Mr. STAATS. We do not have any authority to issue directives. If we find that something, of course, is spent for illegal purposes or contrary to law, we have direct authority in those cases. But beyond that, our role is one of studies and reporting to the Congress and working with the agencies trying to get them to take action in line with our recommendations.

REMUNERATION TO GOVERNMENT BY CONTRACTORS

Representative GRIFFITHS. Are you satisfied that the Government is getting proper remuneration for equipment used by contractors on commercial work?

Mr. STAATS. We haven't done a follow-up on the rentals, and the inventory controls since the major study to which you referred a few minutes ago. I think this would probably be a good thing for us to do after we have had a reasonable period of time to see how effectively those controls-because there were a number of new controls established, as you will recall, after our report and after the hearings of this committee. Perhaps Mr. Hammond could comment on that further, but I do not believe we have made a follow-up study since we made a major report.

GAO FOLLOW-UP STUDY

Mr. HAMMOND. No, we haven't. As Mr. Staats indicated, there were several changes made at that time which should have improved it but we haven't made a follow-up. Possibly we should consider that

now.

MACHINE-BY-MACHINE USE RECORDS OPPOSED BY SOME COMPANIES

Representative GRIFFITHS. Are there adequate records now in use? Do we have machine-by-machine records?

Mr. HAMMOND. Not in all cases. Some of the companies contend that machine-by-machine records are impractical. Some companies have put in machine-by-machine records. We felt that it would be good to have, but in some cases the companies felt that it was just too expensive.

Representative GRIFFITHS. How do the companies take care of their own machines?

KIND OF RECORDS KEPT BY COMPANIES

Mr. HAMMOND. Some of the companies have records on each individual machine, some have them in pools by dollar or number of machines in one pool.

I think that, for the most part, they do not really follow very much different inventory procedure with respect to Government equipment than private equipment. Each case has to be considered as to what is reasonable based on the number of items that you have.

Representative GRIFFITHS. I find that very difficult to believe. I think the ones that have made money know what they own, and I think in general that they really haven't cared to know what the Government owns. I wouldn't pay any attention to what the company said. I would make up my own mind as to how it can be done. I don't think you can keep records any way except if it were in a pool. Perhaps every

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