One hundred and sixty thousand dollars was paid out during 1969 for an I.R. & D. project to develop a system's approach to industrial control fields such as water resources control, water pollution, waste control and so forth.

These were being performed by a defense contractor and paid for through I.R. & D. by the DOD. While there may be worthy items they obviously give the contractor a leg-up on his competitor and should be performed under regular R. & D. contracts if some other Government department needs the work done.

A major DOD and NASA contractor working in space, satellite matters, communications, and ground systems wrote off $186,000 in 1968, $90,000 in 1969 for research "to provide systems and equipment for rapid transit train controls and to improve highway utilization." Senator SYMINGTON. Would you repeat that, please?

Senator PROXMIRE. A major DOD and NASA contractor working in space and satellite matters and communication and ground systems wrote off $186,000 in 1968 and $90,000 in 1969 for research "to provide systems and equipment for rapid transit train controls and to improve highway utilization."

Again his competitors suffer a distinct disadvantage when the Government picks up this research cost unrelated to his defense contracts and if the Government wants the work done, it should be funded under the R. & D. funds of the Department of Transportation. This is back door commercial financing at its worst.

ONGOING I.R. & D. COMPANY EXPENDITURES

Senator MCINTYRE. May I interrupt?

Senator PROXMIRE. Yes.

Senator MCINTYRE. These are examples, as I understand it, of what you consider to be types of expenditures grossly unrelated to Defense business, for which DOD picked up the tab?

Senator PROXMIRE. Let me say that I am sure that there are much better examples than I have here. We had a hard time getting any examples. We only got them a day or two ago although we have been trying for months to get them, and I think that these do demonstrate that. Here are examples which in general are not related to Defense at all. I pointed out that one of them might have some conceivable indirect peripheral relationship, but in general they are unrelated, and the DOD picks up the cost, in one case 98 percent of the cost.

Senator MCINTYRE. We will, of course, obtain the DOD answer to these allegations, but I do want to make it very clear that normally DOD and a contractor share the cost of a contractor's I.R. & D. program, with the contractor picking up a large share of the tab itself. So it is at least possible that some of the examples you give could represent the ongoing independent research and development expenditures of the company itself.

Senator PROXMIRE. That is a good point, and of course we are aware of the fact that a share of the costs are paid for by the company itself.

42-060-70-pt. 3- 2

Senator MCINTYRE. In your example, of course, it seems as though the DOD share of the company's I.R. & D. program was 98 percent, so you may have a pretty good example if in fact the work done was completely divorced from anything that we would consider defense effort. But I don't want to interrupt you any more at this time. Senator PROXMIRE. All right.

INADEQUACIES OF PRESENT SYSTEM

Any bonanza which is as lucrative and as unpoliced as this one soon attracts its supporters and apologists. Reasons for the practices are soon devised. In my judgment, the reasons are without merit. But the skies are black with the planes carrying the representatives of defense contractors flying into Washington to protect their bonanza.

I had a little trouble getting to the table this morning and as soon as we put down just a few of our statements they were picked up so fast we could hardly fight our way through. I can think of no redeeming argument in favor of the present method by which DOD and NASA pay for I.R. & D.

Let me be specific.

First, it is said that I.R. & D. is a legitimate overhead cost which should be paid for by the Government just as it would pay for any other overhead cost on a contract-rent, heat, light, maintenance,

et cetera.

This is not true. When plant space is charged as overhead to a contract, the Government pays for the use of space which is "allocable" to the contract. This is a definite, measurable item. If in -carrying out a Government contract, 5,000 square feet of floor space are used for the work, then the overhead charge for the space is a specific, proper charge, allocable to the contract which the Government should pay for as a part of the contract.

But, in the case of I.R. & D., the item is paid even when it is not allocable to the contract. Unless it is, it should not be paid.

Second, it is argued, as it was argued by the Defense Science Board Task Group, made up incidentally of six major Defense contractors, one research firm, and one university (hardly an unbiased group), in justifying I.R. & D. in its report of February 1967, that "I.R. & D. provides a way to develop and demonstrate complete prototypes of technologically advanced hardware before a formally recognized military requirement exists" (p. 10 GAO report).

That argument is precisely why this subject must be brought under control.

If we want the development of complete prototypes-and we often do prior to the production phase of a weapons system-that should be done under a specific R. & D. contract which is authorized by Congress in its annual procurement and R. & D. authorization.

The Task Group argues in favor of nonauthorized weapons systems. In fact, this is precisely what we should avoid. If we want a weapon, it should be authorized and funded under a regular research and development contract.

Third, the task force also argued for I.R. & D. on grounds that "It permits Defense contractors to develop the requisite technology for a known forthcoming military requirement."

That, too, is a redundant argument. A "known forthcoming military requirement" should be authorized and funded under regular R. & D. and procurement procedures. I.R. & D. is not needed for that.

CONGESSIONAL DECISION-MAKING LIMITED

The Constitution gives Congress the power to raise and support armies and to provide and maintain a navy. How the taxpayers' money is spent, what weapons systems we need, and what priorities we make, both military and civilian are subjects for Congress to decide.

It is constitutionally vital that these procurement decisions be made deliberately by the Congress and not usurped by the Pentagon and its allies. For the Pentagon and its contractors to spend large funds prior to authorization for a "forthcoming military requirement" is to usurp the proper authority of this committee and the Congress of the United States to develop, authorize and fund its weapons systems. This should be done by authorization. It should be through regular R. & D.

I am frankly outraged at the fact that the Pentagon and its contractors have taken over this proper congressional function.

SPECIFIC WEAPON SYSTEMS DEVELOPED

In previous testimony and in articles supporting I.R. & D., its apologists cite a number of weapons systems they claim were developed under the funds spent for I.R. & D. Among them are the Sikorsky S-64A Flying Crane, the missile site radar for the Nike Zeus, the technology for the shift from POLARIS to POSEIDON, and the integrated circuits for the MINUTEMAN Guidance System. These are the key examples of technology said to have been developed under I.R. & D. under the benefits summarized by the Defense Science Board Task Group.

But these are examples against, not for, I.R. & D.

(1) Each of them should have been and could have been developed under a regular R. & D. contract. Each should have been developed under a regular authorization, if they were not.

(2) The MINUTEMAN Guidance System and the shift from POLARIS to POSEIDON are both examples of systems where there are very grave technical difficulties and where there are huge cost overruns. If anything, our experience with these programs argues strongly against the system under which it is said they were developed. (3) Whether they should be developed and when they should be developed is clearly the responsibility of Congress and not of the Pentagon and its industrial allies.

If in fact, the examples really are weapons which were developed under I.R. & D. they point up one of the major abuses of I.R. & D.; namely, the usurpation by the military-industrial complex of congressional constitutional authority.

We can draw two general principles from this. To the degree that any specific weapons system or technology grows out of I.R. & D.— and the claims in this respect have either been grossly exaggerated or

they are terribly costly-they should have been developed under regular R. & D. programs, properly authorized by Congress.

On the other hand, I.R. & D. expenses which are taken and which bear no relationship to specific systems needed or desired by the Government, are an improper expenditure and should not be made at all.

In fact, if we continue on the present course, or if this situation becomes universal, we could actually reach a condition in which weapons systems turned down by Congress are developed through the back door by I.R. & D. expenditures.

One other point should be made here. I doubt very much if the research and development for these systems was done through I.R. & D. in any case. If that is true, why did we later spend such huge amounts on R. & D. in the contracts for these systems?

For example, the R. & D. element in the contract for the Flying Crane (the S-64-A) was $20,299,000 according to information given to me by the Army. The R. & D. element in the contract for transforming 31 POLARIS submarines in to the POSEIDON system was $1.5 billion as of June 30, 1969, according to information supplied to me by the General Accounting Office.

If I.R. & D. was so important in the development of this system, why did we have to spend another $1.5 billion on R.D.T. & E.? And incidentally, we have been having big delays and big overruns on this system.

The missile site radar for the SAFEGUARD is also given by some as a benefit from I. R. & D. But as we all know, one of the most vulnerble items in SAFEGUARD and one of the main reasons for such heavy opposition to it, is the fact that the missile site radar does not function adequately.

In addition, the R.D.T. & E. amounts for SAFEGUARD are estimated at $2,072 billion, of which about $180 million is for the missile site radar.

Why do we need such huge additional R. & D. amounts in the procurement itself if the funds spent for I.R. & D. were responsible for the SAFEGUARD development? The answer is that they were not responsible and that these are largely specious and irrelevant examples put forward at a late hour by the proponents of a system which is otherwise quite impossible to defend.

And, of course, the overwhelming proportion of I.R. & D. was paid out for overhead costs which proponents of the system do not even claim had any precise or specific military benefit to the country.

I.R. & D. AS MEANS FOR TECHNOLOGY BASE AND BUSINESS STABILIZER

Let me turn now to two other arguments used in support of I.R. & D. These are that I.R. & D. is necessary to keep an up-to-date and modern industrial technology base in place, and that it is important as a means of maintaining the profitability of business enterprises. Both of these arguments are specious. If it is argued that I.R. & D. is necessary to keep a modern and up-to-date, or advanced industrial technology in place, there are at least two major questions or replies.

At the present time, and I hope for the future as well, I.R. & D. goes only to those defense contractors who are given negotiated contracts.

Those industries which do not sell to the Pentagon, or do not sell under negotiated contracts, get no I.R. & D., and I think that is right.

Surely one does not argue that the way to keep a military-industrial base in place is by giving additional funds to those who already receive the big benefits. Let us take company X, which builds a tank or a plane or a ship. In addition to a billion dollars for R. & D. for the weapon, and $3 to $4 billion for the production models of the weapon, the supporters of I.R. & D. argue that company X should be paid for the R. & D. it does for its commercial business.

This is for funds spent by the company unrelated to defense needs or the R. & D. needs of this weapon. It is justified on the grounds that it is necessary in order to keep an industrial capability in place. The mere statement of that argument is enough to indicate its absurdity.

In the first place, a sizeable amount of negotiated contracts are given on the grounds that we need to keep intact a strong industrial capability. The negotiated contract itself is often given on this basis. Then the amount of I.R. & D. is paid for on the same basis. We are being asked to pay twice for this benefit. This should be called "All This and Heaven Too." In fiscal year 1969, for example, $4.8 billion in negotiated defense contracts or 11.7 percent of the total amount of negotiated procurement was awarded on this basis.

And another $4.8 billion and 11.7 percent of all Defense Department negotiated contracts was given on the grounds that it was necessary for experimental, development, test or research purposes. Thus, 23.4 percent, or almost one quarter of all negotiated contracts by the Pentagon, is already granted for the same or closely associated poses for which additional payments for I.R. & D. are given. Second, it would be a much stronger argument to argue that if anyone is to be subsidized it is those companies who do not receive military contracts. But these are precisely the firms who are left out.

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I do not advocate that the funds be shifted. I merely point out how absurd the argument is. We would be far stronger to take the I.R. & D. funds, determine precisely what R. & D. we needed, convert them into regular R. & D. contracts, and have them performed by companies not now doing defense business. That might indeed increase our industrial capability.

The argument that we should willy-nilly pay I.R. & D. amounts in order to maintain the "profitability" of business enterprises, of course goes against every principle on which the businesses of this country are supposedly founded. There is no more reason to keep an uneconomic and inefficient defense contractor in business than to provide a subsidy to keep an inefficient and uneconomic civilian industry in business. In fact, this country would be far stronger, and a good deal of the fat and waste in the Defense Department would be cut out, if we let a few of the uneconomic companies with huge cost overruns go down the drain.

Uneconomic and inefficient defense contractors weaken the country. They drain off resources which could be used much more efficiently elsewhere. We should not be required to pay them a subsidy to make them profitable.