The general benefit from this is going to be unbelievable, and this is the only way. It is a fallout to apply the whole systems approach to a great need. Next we have the question what to do about solid waste. All the technology and knowledge that is going to solve that problem will probably rise from I.R. & D., and that is just as big as pollution at the moment, because it is piling up to the place where we cannot look away from it any further; I would assume that 90 percent of the knowledge and scientific technology that will bring about the answer to this will be a fallout from some of the things that the Government has paid for in the past which you could not identify; but here comes the benefit. There are so many of them. There are many systems and procedures that are a part of the health fallout from the space program that are gradually being released, being evolved.

It points up, and I think my distinguished colleague and I are in agreement, that it is almost impossible, it is unsafe to harness this to too great a degree. It is almost impossible to separate these costs. I congratulate him on his statement. I think it is a very, very interesting and a very well thought out and planned statement.

I have no further questions.

Senator CRANSTON. I thank you, Senator Murphy. I would like to say that you cited another classic example in touching on medical care and hospitalization, and the savings that are needed there. We know that medical costs are runaway in America. They are depriving many Americans of the medical care they need. They are increasing at a fantastic rate, and I believe as you do that using systems engineering and computerization and dealing with hospital administration and appropriate delivery of medical care can make vast savings in this field that will be of benefit to every American citizen, and the people in our defense industries and in aerospace generally are the people who know how to do this, and who with adequate opportunity to use I.R. & D. in these fields can do it for all of us.

Senator MURPHY. I might say with regard to the Atomic Energy Commission my colleague and I were both most interested in the future. need for fresh water, and the scientists tell us by the year 2000 there just won't be any. We tried to get an atomic energy desalination plant built to use the scientific knowledge that is available at this time, to get it started.

Well, immediately there is the question of cost. That cost was always balanced as to the immediate product, but the long range was forgotten, and I am sure in the long range that we will be proved right in our approach that it should have gone forward, and I hope it will go forward some time soon, but sooner or later we are going to have to do it.

Senator CRANSTON. My only comment there would be I am not sure we have got to the year 2000 and I am not sure that if we do not start doing things right now we will have an irreversible situation that will either cause us to be without water that we need for the year 2000 or quite possibly well in advance of the year 2000. It is probable that we will face it, not that future generations will face it. Senator MURPHY. I agree.

Senator MCINTYRE. Senator Brooke?

RESULTS FROM LACK OF CONGRESSIONAL CONTROLS

Senator BROOKE. Senator Cranston, one other matter that has to do with control of the I.R. & D. program. You seemed to indicate that there should be no congressional control of these programs.

I have great respect for the scientific community, but take the case that Senator Proxmire raised as to production. Say the Congress rejects a weapons system and then that system is developed through R. & D. funds, sort of a back door approach as he referred to it. What protection would you say we would have?

Senator CRANSTON. That would be of no benefit to the Government, and the auditors, if they are doing a good job, will reject that claim. Senator BROOKE. How can you say it would be of no benefit to the Government?

Senator CRANSTON. If the Government has decided, it has reached a decision after careful analysis that a particular weapons system is not one they want, then they would be derelict if payments were permitted to continue in development of such a weapons system.

Senator BROOKE. The payments would not be specifically allocated for the development of this particular weapons system, but as I understand your proposal, funds would be made available for R. & D., and without any control as to where they were going, this very well may be the byproduct of their research, the very weapons system that the Congress has already decided should not be developed. We would have no control. We would have no way of really knowing, would we?

Senator CRANSTON. The control vou are seeking already exists because a corporation would have little incentive to continue research on a project rejected by Congress. A company does not engage in I.R. & D. as a charitable contribution to technology-it wants to sell further research or a product to the Government. If Congress is not in the market for further research or a product, what is the incentive to continue research in that area? The only possible incentive I can think of is that the company believes it can achieve some scientific breakthrough that will cause Congress to change its mind. In that case, I think that the company should be allowed to take the risk. It will suffer decreased future business if it is wrong. If it is right, Congress should know that it erred in rejecting the project.

Senator Proxmire has given you one example of a company that has continued research on a project rejected by the Congress. I seriously question whether the practice is widespread. The only way to eliminate such practices completely is to eliminate all I.R. & D. I don't think that the one example of such practice is sufficient cause to eliminate I.R. & D.

Senator BROOKE. That was Senator Proxmire's suggestion that it could be controlled, and that it would be related directly to a project which had been approved by the Federal Government.

Senator CRANSTON. I think that Senator Proxmire's solution is somewhat like cutting off your nose to spite your face. I mean that the disadvantages, in terms of decreasing technological innovation and precluding many firms from diversifying, would far outweight any benefits.

I have some reservations. I just do not know enough about it to know whether the data bank thing will work. I do not know whether you can put ideas that nobody really has developed yet into a data bank and get these ideas back out when you want. I think that for general broad purposes, you can define areas of research in a data bank, but whether you can get as precise as the Comptroller General and Senator Proxmire apparently feel would be achievable I just do not know, and that is why in my testimony I suggest that we explore this carefully and study it, investigate it without making a decision at this point on the validity of the data bank idea as it relates to I.R. & D.

RESTRICTION OF FUNDS TO PRESENT CONTRACTORS

Senator BROOKE. As of the present case do you believe that I.R. & D. funds should be limited to defense contractors whom the Federal Government has existing contracts with?

Senator CRANSTON. I think that I.R. & D. funds should be given to any firm which receives a negotiated contract from the Government. It is important to remember that the justification for giving I.R. & D. funds is not simply that it is good policy to encourage technological innovation. As Senator Proxmire points out, this could be done through NSF. I.R. & D. is an economic necessity from the contractors' perspective. A contractor must be able to meet future needs by improving its product or developing new products. Otherwise it will go out of business.

As I mentioned before, a company which does not engage in Government contracting finances product improvement and diversification out of profits. A company with negotiated contracts cannot do this because profits are controlled. Therefore if a contractor with negotiated contracts is to survive, it must get I.R. & D. funds from the Government. Contractors which sell their products in a competitive market have no need for this Government subsidy.

I would think it would come along with each contract as it is negotiated. Some companies have it now. Others will be seeking to enter into the field, and all should be eligible. Companies that do not now have such provisions in contracts cover their costs when they manage to sell a product that they have come up with to the Govern

ment.

Senator BROOKE. No further questions. Thank you.
Senator CRANSTON. Thank you.

ADVANCE AGREEMENTS

Senator MCINTYRE. Along that same line, the fact that many small companies do not participate in I.R. & D. is a point that is made by Senator Proxmire in his general attack on the program, and if at any time you have any ideas you can submit to the committee on how we can work in some of the smaller companies, please do so. And incidentally we probably may submit some questions to you and I am sure you will be willing to answer them for the record.

Senator CRANSTON. Of course. I would appreciate that.

Senator MCINTYRE. I have one last question. In responding to Senator Murphy, when he was asking a question about controls on I.R. & D. you went quickly to the advance agreements.

One of the things the GAO report points out, and which I think DOD is already cognizant of, is the delays in signing such agreements. Quoting from page 50 of the report, it says:

Advance agreements limit the government's liability for I.R. & D. costs. To be most effective, such agreements should be negotiated prior to cost incurrence. Then over on page 52 of the report is a discussion of what occurred in 1966:

We made an analysis of all the agreements enacted by DOD for 1966, and found that only 38 percent of them had been established in advance of cost incurrence.

About 9 percent of the agreements were established from 1 to 3 months after the start of the period, 17 percent were 3 to 6 months late, and 36 percent were more than 6 months late.

And then to add to that there is no penalty, so advance agreements just do not provide at present the control that you hopefully think we have.

Senator CRANSTON. I agree that it is deplorable that so few agreements are negotiated in advance. As I indicated previously, however, it is currently to a company's advantage not to negotiate such agreements. I think there is a relatively simple remedy to this problem. The policy on recovery of I.R. & D. expenses, in the absence of advance agreements, should be reversed. A company should not be allowed to recover any I.R. & D. expenditures unless it has entered into an advance agreement with the Department of Defense.

Senator MCINTYRE. I stand to be corrected on this, but there may be legitimate difficulties in getting some advance agreements signed prior to cost incurrence because of the practicalities involved. The corporation has got to sit down sometime you know and say, "What are we going to do in the R. & D. field?" Then it has to draw up a brochure and engage in negotiations which either side could hold up.

It is a real problem. I do not look forward to just arbitrarily saying that no I.R. & D. contracts can be made unless they are made prior to cost incurrence. There are so many little things in there that get in the way.

Senator CRANSTON. Senator McIntyre, you are absolutely right. Part of the problem in negotiating advance agreements is the attempt to exercise internal control over I.R. & D. programs. This is why I oppose S. 3003-because it seeks to develop an even more complicated system of internal control. As you point out, these controls have not been effective in the past because they are impossible to put into operation. They have, in fact, obstructed attempts to obtain cost control because they are made a prerequisite of impoing such cost control. I want to eliminate the impossible prerequisite and go directly to the cost control. There should be no difficulty in negotiating advance agreements if such agreements are simply based on what percentage of a contract price should the Government allocate for I.R. & D. If we want to negotiate cost-sharing agreements, in addition to advance agreements, these can be done at a later date if necessary. The important

thing is to put an absolute limit on the amount of Government participation in I.R. & D. activity in individual contracts. Then the competitive mechanism can be relied upon to control the internal use of İ.R. & D. funds. Of course, the Government always has auditing control to exclude expenditures which are not related to the Government's interest.

I am seeking to develop a philosophy of control that is not unduly costly. There is no question that the Government could control every aspect of I.R. & D. The question is whether the cost of such control would be worth the benefits. A more fundamental question is whether the controls would destroy the benefits of the controlled activity.

PREPARED QUESTIONS FROM SENATOR MURPHY

Senator MCINTYRE. Senator Murphy, any further questions? Senator MURPHY. I think that the practical approach is in oversight. In other words, there is continuing knowledge of what is happening.

Senator MCINTYRE. No, there is not.

Senator MURPHY. Well, there should be. One of the things that I found in my experience in R. & D. was that if there is not some careful control, it will go on forever. It is like certain innovative programs that we hear about in the Government. A year ago I asked six men from the Department of Education how long they kept an innovative program going before they decided that it should be permanent or should be scrubbed, and the six men looked at each other, and I got no answer, and this is one of the decisions of management that has to be. In the experience I have had with Government contracts, they have made it pretty difficult, and they watch very closely to see exactly what is going into the contract. I am certain that there is a great deal that needs looking at further, but it is a most complicated field, and you do not dare shut off that one great idea that may be the one that you need, and it is pretty hard to put a value on that, and you cannot always identify where it came from. It may come from several sources, a combination of ideas, so we are in a really delicate area that concens me greatly.

I would like to place in the record a number of questions I posed to Senator Proxmire, and his reply.

Senator MCINTYRE. Without objection it is so ordered.

(The information follows:)

U.S. SENATE,

COMMITTEE ON ARMED SERVICES,
Washington, D.C., March 2, 1970.

Hon. WILLIAM PROXMIRE,

U.S. Senate,

New Senate Office Building,
Washington, D.C.

DEAR SENATOR PROXMIRE: Pursuant to our agreement of March 2, 1970, I am submitting the below questions on your bill, S. 3003. It will be much appreciated if you will be so kind as to respond for the record at your early convenience: 1. If the system for controlling expenditures for IR&D, as outlined in S. 3003, is adopted, what would the costs for salaries for DOD administrators be? Would this truly be more efficient?