1 This program was canceled at the direction of Congress.
* This program was canceled since the initial procurement cost would be too high.

Question. In past years, DoD has stressed the potential benefits from the following principles: value engineering, cost avoidance, cost reduction, improved productivity, zero defects, and cost benefit analysis. Elaborate procedures were set up and a great amount of effort has been expended in furthering these programs. Address each of these in turn and indicate where they stand in the DoD consideration of improving the management and operation of that department. Which of these have been continued or modified or terminated and for what reasons?

Answer. At present, the DoD is stressing decentralized management, competent people, clearly defined responsibilites, and the minimization of "paper." This stress is effective throughout the DoD. The points addressed in your question are the responsibilities of the Assistant Secretaries of Defense for Installations and Logistics and the Comptroller. I will touch on each briefly.

Value Engineering. The Value Engineering (VE) program is continuing, Policy on the use of VE methods and contract provisions is essentially unchanged. Adminstrative modifications in the form of directives consolidation and reduction of reports have been made to reduce needless overhead.

Cost Avoidance.-Cost avoidance was merely a term used in the early days of the cost-reduction program to indicate the amount of costs avoided as a result of new or improved management actions. It was never a separate program. The use of the term was discontinued at the end of FY 1966, when cost-reduction program procedures were revised and simplified.

Cost Reduction.-The cost-reduction program is operated in accordance with OMB Circular A-44. Within the DoD, responsibility for operating the costreduction program has been decentralized to the Military Departments and the Defense Supply Agency. Each year, an annual management-improvement report, of which cost reduction is one element, is submitted to the President through the Director, Office of Management and Budget.

During FY 1971, DoĎ Components reported cost-reduction savings totaling $2,057.1 million. These savings resulted from almost 39,000 individual actions. As a result of those actions, more than 18,000 manpower spaces were either eliminated or transferred to meet other authorized requirements.

Improved Productivity. The overall policy in this area remains essentially unchanged since the issuance of DoD Instruction 7045.11 on 17 December 1970. Since that time, the DoD has established a very active program in the productivity area known as DIMES, for Defense Integrated Management Engineering System. DIMES was designated as the principal DoD work- and productivity-measurement system in DoD Directive 5010.15, dated 13 January 1972. The objectives of the DIMES program are to (1) improve labor productivity through the application of management engineering principles and techniques and (2) provide a common base of work measurement and productivity data, for work planning and control, and the development of productivity performance indices relating output to input.

Zero Defects.-Policy with regard to programs of the zero-defect type has been modified to make such programs optional for the Military Departments and defense contractors. This policy permits local management to determine the need for such a program and to tailor the program employed to the individual circumstances prevailing. This change in policy is in line with the trend toward decentralized management in the DOD.

Cost Benefit Analysis.-The policy (as reflected in DOD Instruction 7041.3, dated 26 February 1969) has remained essentially unchanged. In 1970, the Defense Economic Analysis Council, a joint Service/DOD-Agency group, was formed to coordinate the application of economic analysis within the DOD. The head of each Military Department and Defense Agency is delegated the responsibility and authority for conducting cost benefit analysis.

Question. The National Oceanic and Atmospheric Agency has been in operation for a relatively short period of time. However, I have been advised that they are cooperat ing with the Navy in connection with ocean surveying. Is this arrangement working out satisfactorily to your knowledge and do you anticipate other areas of common interest with this agency which might be jointly pursued?

Answer. Navy-NOAA program coordination.-The position of Associate Administrator for Interagency Relations and Naval Deputy to the Administrator of NOAA has been established, and Vice Admiral W. W. Behrens, Jr., U.S. Navy, now serves in this capacity. This is an extension of the arrangement formalized on 16 June 1971, when the Oceanographer of the Navy was named the Federal Coordinator for Ocean Mapping and Prediction, reporting to the Administrator of NOAA for additional duty.

Navy-NOAA cooperation in ocean science, engineering, and technology.—Arrangements have been made for DOD research submersibles to be made available for NOAA's use on the basis of not interfering with DOD projects. The results of the Navy's effort in the unmanned buoy development have been made available to the National Buoy Development Project under NOAA. The National Oceanographic Instrumentation Center (NOIC) of NOAA conducts tests, calibrations, and evaluations of oceanographic instrumentation for the Navy. The results of the Navy's diving and biomedicine research project and some of the instrumentation have been made available to NOAA's Man-in-the-Sea Project. Navydeveloped computer programs have been provided to assist NOAA in developing surf-forecasting techniques.

Anticipation of other areas of common interest to NOAA and Navy.-It is anticipated that joint efforts similar to the foregoing examples will be expanded as Navy-NOAA efforts to coordinate programs become stronger and more effective. Question. Earlier this week the Senate approved the ban on the use of the Seabed for nuclear weapons. Is there anything in the FY 73 budget which relates to such application?

Answer. The FY 73 budget of the Department of Defense does not contain any funds which relate to any application covered by this treaty.

Question. In the event that the three preproduction prototypes of the Cheyenne helicopter for which $36.5 million is requested are not approved, would the remaining $17.1 million which is needed to complete development, including the advanced mechanical control system, be sufficient to carry Lockheed through FY 1973?

Answer. No. The $17.1 million includes $10 million for prime contractor development effort, and $7.1 million for government in-house testing and support. The estimated additional amount required to sustain the prime contractor at a minimum holding level through FY 73 is $12 million. The $36.5 million in the request, in addition to covering the cost of a minimum holding level, will provide three preproduction prototypes for expanded service test and continued operational testing.

Question. We have just received a copy of a GAO report dated February 14, 1972, covering a review of in-house laboratory Independent Research Program of DOD. The report is critical of DOD in its operation of this program because of a lack of guidance from DOD to the services so that the objectives of this program are not being realized.

I will place a copy of the letter of transmittal and the conclusions and recommendations contained in that report at this point in the record. Please comment on this report.

Answer. The in-house laboratories' Independent Research Program was es tablished as a budget element in FY 1962 following the Secretary of Defense's decision of 14 October 1961 as follows: Depending upon the mission and nature of work of the particular laboratory, a fraction of the annual laboratory budget shall be set aside for work judged by the laboratory director to be of promise and importance without need of prior review or review at higher levels. The results of this work shall be reviewed by the Assistant Secretaries for Research and Development of the Military Departments. Before this decision, the concept of an independent or discretionary research fund had been utilized within the Navy for more than a decade.

We have only recently had a chance to read the review prepared by the GAO. As I understand their main criticism, inconsistencies in the Military Departments'

use of these funds have been found that suggest the need for more centralized direction from the Office of the Secretary.

This program is now in its tenth year. There have been many changes within our laboratories and in their technical programs which the Independent Research Program was designed to supplement. I can agree with the GAO that it is time to take a new look at this program and to issue appropriate guidance to insure that the Independent Research Program properly serves its purpose of strengthening and improving the quality of our laboratories.

(The report follows:)

U.S. GENERAL ACCOUNTING OFFICE,

DEFENSE DIVISION,
Washington, D.C.

DEAR MR. SECRETARY: The General Accounting Office has made a review of the in-house laboratory independent research (ILIR) program of the Department of Defense. The purposes of our review were to determine whether (1) the objectives of the program, which was initiated Defense-wide in fiscal year 1963, still were valid, (2) the objectives of the program had been made clear to laboratory directors, and (3) the program as implemented was meeting these objectives.

In establishing the ILIR program the Secretary of Defense stated its broad objective to be the strengthening of in-house laboratories. In our review we could not identify any subsequent guidance from the Department of Defense on how the services were to achieve this broad objective. Similarly the services were not provided with guidance which would have enabled them to evaluate the program results in the framework of this objective. Each of the services implemented the program in accordance with its interpretation of how the objective should be achieved.

We found that there were inconsistencies in the uses made by the services of funds provided through the ILIR program. The differences in the practices followed by the three services were significant enough for us to question whether all three could be attaining the program objective.

We are recommending that you define the objectives of the ILIR program, after considering the needs for, and the purposes served by, the program. Subsequent guidance to the services should set forth the broad uses which can be made of ILIR funds to meet these objectives.

The results of our review and our recommendations are set forth in greater detail in the summary which follows.

Copies of this letter and summary are being sent today to the Chairman of the House and Senate Committees on Government Operations, the House and Senate Committees on Appropriations, and the House and Senate Committees on Armed Services. Copies are also being sent to the Director, Office of Management and Budget and to the Secretaries of the Army, Navy, and Air Force. Sincerely yours,

The Honorable

The Secretary of Defense

R. W. GUTMANN, Acting Director, Defense Division.

SUMMARY OF THE REVIEW BY THE GENERAL ACCOUNTING OFFICE OF INHOUSE LABORATORY INDEPENDENT RESEARCH PROGRAM OF THE DEPARTMENT OF DEFENSE

INTRODUCTION

An in-house laboratory independent research (ILIR) program, also known as Laboratory Directors Funds, is carried out by each of the three military services. In addition, the Department of the Navy has supported an independent exploratory development (IED) program which began in fiscal year 1966.

Funds provided for ILIR and IED programs in recent years have been as follows:

We examined into ILIR programs covering several years at selected laboratories in the three services. ILIR funds provided to these laboratories in fiscal year 1970 and 1971 were as follows:

[In millions]

Army Electronics Command Laboratories, Fort Monmouth, N.J..
Naval Air Development Center, Warminster, Pa...

Air Force Systems Command Laboratories, Wright-Patterson Air Force Base, Ohio..
Air Force Cambridge Research Laboratories Hanscom Field, Bedford, Mass.

ORIGIN OF ILIR PROGRAM

On October 14, 1961, the Secretary of Defense expressed his profound concern for the maintenance of a vigorous program and for the highest morale within the laboratories throughout the Department of Defense (DOD). He therefore instructed the Director of Defense Research and Engineering, in conjunction with the military departments, to formulate and carry out a program of strengthening the in-house laboratories. One of the principles to be observed in achieving this objective was: "Depending upon the mission and nature of the work of the particular laboratory, a fraction of the annual laboratory budget shall be set aside for work judged by the laboratory director to be of promise or importance without need of prior approval or review at higher levels. The results of this work shall be reviewed by the Assistant Secretaries for Research and Development of the Military Departments."

THE BELL REPORT

In July 1961 the President requested the Director of the Bureau of the Budget (now the Office of Management and Budget) to make a review of Government contracting for research and development (R&D). The Secretary of Defense was one of seven principal participants of the study group chaired by the then Budget Director, Mr. David E. Bell. In a report to the President on April 30, 1962 (commonly referred to as the Bell Report), the group noted that significant actions were taken to reverse the serious trend toward the reduction of the competence of Government research and development establishments. Particularly, attention was directed to the strong leadership being given within DOD in striving to raise the capabilities of the Department's Laboratories and other research and development facilities.

Nevertheless further major efforts were suggested to meet what the group saw as an important Government objective-maintaining first-class facilities and equipment to carry out in-house R&D work. The report stated that the Government should never lose a strong internal competence; the major steps to be taken should include ensuring that assignments to Government research facilities should be significant and challenging so as to attract and hold first-class personnel; managerial arrangements should be improved by delegating research laboratory directors more authority to make decisions relating to programs, personnel, funds, and other resources; and improvements should include: "*** providing the research laboratory director a discretionary allotment of funds, to be available for projects of his choosing, and for the results of which he is to be responsible."

IMPLEMENTATION OF ILIR PROGRAM

The three military departments were not furnished with further guidance by DOD regarding how they were to implement their ILIR programs. Each issued regulations on how it planned to carry out programs for strengthening its in-house laboratories by undertaking promising work of the laboratory directors' own choosing.

Army and Navy regulations followed the tenor of the Secretary's October 1961 memorandum and of the Bell Report by stating that the ILIR program provided flexibility through financial support to new work judged to be important or promising. The funds were to be used to attract and hold talented personnel and to strengthen the scientific and engineering competence of in-house laboratories. Air Force guidelines did not stress strengthening the laboratories or improving the working environment to attract and hold first-class scientists and technicians. Air Force regulations did emphasize the flexibility afforded to the laboratory director by having funds available without the usual justification, review, and delay associated with the annual budget cycle.

Statement by DOD official

In 1968 the Deputy Director for Research and Technology, Office of the Director of Defense Research and Engineering, explained the purposes and expectations of ILIR funds to the Subcommittee on Science, Research and Development of the House Committee on Science and Astronautics. He stated that the intent, very similar to the contractors' independent R&D concept, was to keep technical organizations at the forefront of technology so that the best technically conceived systems and weapons would be achievable on a timely basis. Both concepts were held to be predicated on maintaining a high degree of independence and freedom of action at the performing level.

DIFFERENCES IN SERVICES' ILIR POLICIES AND PRACTICES

The ILIR programs of the Army and Air Force are reviewed and evaluated each year at the assistant secretary (R&D) level of the service. The results of the Navy programs are reviewed by the Director of Navy Laboratories. Reviews in DOD generally are limited to budgetary amounts and allocations of funds in the Office of the Director of Defense Research and Engineering.

The Secretary's memorandum of October 1961 did not define how the program objectives were to be achieved or measured, and we were not able to locate subsequent guidance from DOD. The success of the program generally was evidenced by the fact that the majority of ILIR-supported projects were considered by the services to be technical achievements; i.e., research accomplishments of a high order of excellence. DOD guidance had not made it clear whether technical achievements alone were sufficient to satisfy the reasons for which the program was initiated.

Many ILIR projects undoubtedly are new and promising ideas, the performance of which can be said to have contributed in some way to strengthening in-house laboratories. The differences in the practices followed by the three services were significant enough for us to question whether all three could be attaining the program objective.

We found that differences in the practices of the services occurred in the use of ILIR funds in at least three ways: (1) to augment the regularly assigned research program, (2) to support long-term efforts, and (3) to contract for research and purchase equipment not in support of ILIR projects.

Army regulations state that ILIR funds are in addition to the regularly assigned program funds and are for support of original work in problem areas within the mission assigned to the laboratory. The Deputy Assistant Secretary of the Army (R&D), during his evaluation of the 1963 program, commented that the use of ILIR funds to augment the projects of other programs was not desired because it would reduce the effectiveness of the program. This statement was reflected in an Army Materiel Command regulation, issued in 1964, which directed that ILIR funds not be used to supplement, or compensate for deficiencies in, regular funded programs. This regulation, however, subsequently was rescinded.

The Army Audit Agency reviewed the Army Materiel Command's R&D pro