7. Cooperation between auditors and procurement personnel. 8. Failure to consider comparative costs in phasing out second sources of supply. 9. Misuse of production funds for research and development work. 11. Errors in Air Force inventory records. 12. Chaotic records at Chateauroux. 13. Implementation of Armed Services procurement regulation. 14. Review and reduction of rates for communications services for the SAGE STATEMENT OF UNDER SECRETARY OF THE AIR FORCE JAMES H. DOUGLAS, BEFORE THE DEPARTMENT OF DEFENSE SUBCOMMITTEE, HOUSE COMMITTEE ON APPROPRIATIONS, ON FEBRUARY 21, 1956 Mr. Chairman, we have looked forward to the opportunity of discussing with you those portions of the report, prepared by your surveys and investigations staff, which pertain to the Air Force. In order to conserve the committee's time, I plan to avoid going over the ground already covered by Assistant Secretary Pike. Instead, we have prepared, and are submitting to your committee, detailed statements responsive to the more significant criticisms in the report directed at the Air Force. I believe you will find that these statements cover such areas adequately. I would like, however, to make a few brief comments. We sincerely regret that your staff feels its work was impeded through lack of assistance or cooperation by the Air Force. From the outset, we regarded this project as one which would be mutually beneficial. We set out with the firm intention of assisting your people wherever possible. To this end our personnel devoted tremendous amounts of time to digging out and collecting the material desired by the committee staff. We did not require advance notice of visits by the staff; we waived the requirement of written formal requests for documents; conferences were never refused; we permitted committee staff members to borrow files on a most informal basis. When the committee staff indicated a special need for certain documents, we worked weekends, including the Christmas and New Year weekends. We did not have our legislative liaison people accompany the committee staff on field visits, nor were our legal personnel present at interviews conducted by the committee staff. I can assure you that there was no intention to hamper the staff in its survey. On the other hand, we appreciated that the committee staff was confronted with an enormously complex job which was required to be completed in a relatively short time. Copies of thousands of documents had to be made and processed to the staff within time limits that could not at times be met. This did create frustrations in a few instances on both sides. Generally, I wish to confirm my early impression that a good cooperative attitude existed on both sides. It is gratifying to observe the extent to which your staff dug into the complex problems involved in military procurement. I know that the work of your people, summarized in their report, will be helpful to us. They have put their finger on a lot of our problems and have shown a real comprehension of the difficulties we face daily. In many areas we agree with their criticisms and are doing something about it. In others, we feel that time did not permit a full appreciation of the problems by the staff, and, we believe, we have good answers to the criticisms made. These are set out in the detailed comments being furnished to you. (227) I would like to touch briefly on the separate report on the SAGE and DEW projects prepared by your staff. We consider the report to be thorough and objective. I am sure your staff will agree that we went all out in helping them to better understand these important projects. All our people, files, and facilities were made available here in Washington as well as in our field project offices. In particular, I would like the committee to know that we have not been complacent on the question of communications rates relating to SAGE. We have taken affirmative action to see that the interests of the Government are adequately protected. The comment which we are submitting goes into this matter in some detail. I should like, however, to state that we have been discussing this matter with the telephone company for over a year. In September 1955 we wrote both the telephone company and the Federal Communications Commission urging that consideration of reduced rates appeared warranted. As you may know, the American Telephone & Telegraph Co. has filed with the FCC a new proposed tariff which would, in general, provide reduced rates for any user of multiple private line services and channels in excess of three units. This could mean a substantial reduction annually in our bill for communications services. The Department of Defense now has under consideration the question of the manner of intervention in the FCC proceedings. We are, of course, pleased with the conclusion reached by your staff that the selection of Western Electric Co. in connection with the SAGE project was a sound one. We are also pleased that there is no criticism in the report with respect to the fees negotiated with Western Electric for the SAGE and DEW contracts. I am sure the committee took note of the staff's conclusion, as did we, that in the case of subcontracts for construction the interests of the Government were adequately safeguarded with awards being made to well-qualified firms on a low-bid basis. On the other hand, we believe the staff properly suggested the need for maintaining close surveillance of profit rates allowed in the contracts for certain of the complex equipments and services which are being purchased for the SAGE and DEW projects, either directly by the Air Force or under subcontracts placed by Western Electric. We are in the process of negotiating many of the production contracts for these items. You can be assured that this advice of the staff will be kept in mind. Finally, I would like to touch upon the very important subject of personnel. At the policymaking level, we can set up wise procurement policies and precise procurement procedures. In the final analysis, however, we must stand or fall on the judgment exercised by our procurement people in the countless day-to-day decisions they must make. And there can be no question but that these daily decisions are very difficult and trying. On the one hand, the contracting officer is pressed with demands from operational activities to deliver the perfect weapon immediately. He is told that no delays can be tolerated. On the other hand, he is constantly hammered to exercise prudent business judgment, and to balance the operational need with considerations of economy. No matter what his decision, he can never hope to satisfy everybody. He is pressured before the act and criticized after it. Now how does the contracting officer perform in the face of all these difficulties? It seems to me that he performs very well indeed. The Air Force was faced with more than 1 million separate procurement actions in 1955. Some of these were easy; some were very difficult. Obviously, our personnel negotiating the tough ones were dealing with some pretty high-priced talent from industry. Yet it appears that very few of our procurement actions are open to serious criticism. It is my observation that our procurement and contracting personnel, both officer and civilian, perform difficult tasks conscientiously and generally with a high degree of competence. Let me conclude by saying that the Air Force desires to give the committee any details we can as to any of the matters dealt with in your staff's report. FAILURE TO COOPERATE WITH COMMITTEE INVESTIGATORS CRITICISM The committee staff states that it was hampered continuously by legislative liaison personnel in its examination of specific contracts and related files. It charges specifically that the Air Force: (a) required strict adherence to its regulations governing the supplying of information to congressional committees, (b) reluctantly made files available at Headquarters USAF, (c) took from 1 week to 3 months in Washington to "coordinate and clear" copies of documents requested by the committee, and (d) refused to make available special audit reports on the grounds that they were privileged documents. COMMENTS The fact is that our procedures governing the furnishing of information to congressional committees were substantially relaxed to accommodate the committee staff. We did not require advance notice of visits. We did not, in general, screen our raw files before making them available. We waived the requirement of written formal requests for documents. Conferences were never refused. On request, we permitted committee staff members to borrow files on a most informal basis. When the committee staff indicated a special need for certain documents, we worked weekends, including the Christmas and New Year weekends. In the Office of the Secretary we reversed practically all of the Air Staff's claims of privileged documents (at least 100) and made these documents available to the committee staff. We did not have our legislative liaison personnel accompany the committee staff on field visits or elsewhere. We did not have our legal personnel present at interviews conducted by the committee staff. While there was no delay caused by the actions of our legislative liaison personnel, there were some delays occasioned by the Air Staff review of documents requested from our field installations. These reviews were necessary, if we were to keep abreast of the matters the committee was investigating and to insure that no clearly privileged documents were involved. We are aware of only 1 case, arising through inadvertence, where a 3-month delay was occasioned in submitting documents to the committee staff. Considering the huge vol |