Role of I.R. & D. In this case, IR&D funding not only carried a new concept through demonstration, but continued development while the Army convinced itself that it had an official requirement, No other aircraft of this type is available in the free world Prior to the TITAN IIIC, the relative simplicity and economy of solid propellant rocket motors had never been applied to large booster systems. Aside from the uncertainties of producing solid rockets an order of magnitude larger than had ever been made before, the motors, weighing approximately 2 million pounds, could not be transported. UTC's solution to this was to segment the motor and assembly on site. Using IR&D type company funds, UTC explored the large segmented solid, making its first firing in August of 1961. Based on this demonstration, the TITAN IIIC program was launched. Result The first TITAN IIIC flight took place in January of 1965 and the solid motors have performed with 100% reliability in the subsequent 13 flights. This booster has proved to be the U.S.'s lowest unit cost booster. No other country has demonstrated a large solid booster capability. Role of I.R. & D. The concept of the large segmented solid booster was first demonstrated by UTC using IR&D type company funds. This demonstration enabled the Air Force to move quickly into an operational system. Central problem in terrain following radar is measurement of elevation (depression) angle to terrain. Can be done by mechanically measuring angle of "boresight" antenna or by electronically measuring (by interferometry) time difference of the return waves as received by two vertically displaced antennae. From 1958 until 1965, both approaches pursued, with installed interferometer systems being used in secondary roles. At this time, requirement expanded to include the more critical requirement of terrain avoidance. Several apparently authoritative studies into the relative merits concluded that boresight approach was superior. Norden doubted this conclusion and because of its better accuracy and display potentialities, launched an IR&D program which successfully proved the superiority of interferometry approach. Result As a consequence of this work, phased-interferometer systems were incorporated as primary systems into the A6E, the Integrated Helicopter Avionic System, the Advanced Aerial Fire Support System, and the C5. Role of I.R. & D. IR&D enabled Norden to demonstrate the superiority of the phased-interferometer approach in the face of circumstances which otherwise would probably have eliminated the concept. Conventional, inertial guidance systems employ a gyro stabilized reference platform on which are mounted accelerometers which yield the displacement signals. In the late 1950s, UAC initiated work on an alternative concept which involved three strapdown gyros, the outputs of which, in combination with those of fixed accelerometers, are fed into a simplified computer which generates a set of displacement signals equivalent to those derived from the stable platform. The elimination of the moving stable platform offered the potential of improved reliability and reduced system cost. In this period the stable platform approach was being extensively and successfully applied, and there was great authoritative resistance to any basically new concept. In this climate, UAC was unable to obtain any support for its strapdown system. It accordingly initiated an IR&D program in which it built the necessary special gyros and accelerometers and assembled complete breadboard systems which were demonstrated under progressively more demanding conditions in the 61-63 time period. Results As a result of this work, in 1963 NASA took the decision to utilize the strapdown inertial system in the LEM vehicle. This system has thus far functioned 100% successfully in the Apollo flights. In December 1969 the system was selected for use on future Thor-Delta vehicles at a price roughly 2 that of competitive platform systems. Role of I.R. & D. In this case, IR&D funding made it possible to demonstrate conclusively a more reliable and economical concept which otherwise would have been unable to overcome a deeply entrenched competitive approach. BID AND PROPOSAL EXPENSE This is an exense incurred by government contractors in the course of preparing bids and proposals in conformity to the procedures and requirements of the Government. The expense has grown enormously in recent years as the required content and complexity of bids and proposals have mushroomed. We often look back to the "good old days" of one-page proposals. We did not ask for a change in that procedure. We frankly question the necessity, or wisdom, for the type of gargantuan paper competitions which have become commonplace in government procurements. But that is the way it is, and we will continue to do our best to supply the information wants of the contracting agencies who are, we believe, attempting to respond to the desires of Congress. Our B&P expense charged to government products in CY 69 was $13 million, or 1% of sales to the Government. Moreover, the mere imposition of an arbitrary ceiling upon the amount of B&P expenses which a contractor can recover, as proposed in Sec. 2316 of Senate Bill 3003, will not solve the problem. It will not reduce the cost of responding to any invitation for bid or proposal. It might reduce the number of bids or proposals which any particular company can afford to prepare and submit. The net effect of this would be to reduce the degree and extent of competition for government business-a condition which hardly seems compatible with the oft expressed policy of Congress or the national interest generally. OTHER TECHNICAL EFFORT OTE is to us a nebulous term which apparently describes a collection of engineering expenses which would otherwise be chargeable to overhead under some other heading. United Aircraft Corporation's total OTE expense for CY 69 was less than one-tenth of one percent of sales to the Government. If our experience is typical, we doubt that this item deserves detailed attention. GAO REPORT We have found the GAO Report1 on IR&D to be helpful in collecting and setting forth the overall background, facts and figures with respect to IR&D. In general it reflects accurately the procedures and practices prevailing in the field of IR&D. However, we are moved to make two initial observations on the report, and then to examine its suggestions and alternatives with which we are in some disagreement. Probably the most serious deficiency of the GAO report is its failure throughout to recognize the amount and the importance of the nongovernmental funding of IR&D. We know that the GAO was aware of such nongovernmental funding and mentioned it at several points in the report, as for example on pages 7 and 8. Nevertheless, throughout the report as a whole, the attitudes, the analyses, and particularly the statement of issues and recommendations ignore the impact of commercial and private funding of IR&D. The problems are approached as though the Government were the only source of a contractor's IR&D funds. Obviously, this not so. As previously shown, United Aircraft Corporation obtained through government sources 44% of its IR&D money, although its sales to the Government were 57% of its total sales. We believe that the bulk of other government contractors are in a similar situation. The IR&D effort financed by nongovernmental sources clearly benefits the Government, as does the government-financed effort benefit commercial customers. It is erroneous in both principle and equity to treat IR&D as something which can or should be either [1] performed solely for and paid by the Government, or [2] divided into two separate efforts, one of which is exclusively governmental. This error has led the GAO to make suggestions and recommendations which are neither acceptable nor practicable. We are also disappointed in the failure of the GAO to investigate a number of aspects more fully. For example, they made no effort to determine what benefits the Government has obtained from the IR&D program. Based upon our own experience as outined earlier in this statement, as well as our general knowledge of our industry, we are certain the benefits accruing to the Government have been extremely valuable. Likewise, we regret that GAO did not make more of an effort to determine the causes underlying the reported increase in IR&D expenditures between 1963 and 1968.5 We believe there are good and sufficient reasons similar to those postulated by GAO" and would have welcomed their independent confirmation. GAO SUGGESTIONS AND ALTERNATIVES Under the heading of "Conclusions," the GAO Report lists a recommendation together with several suggestions and alternatives. We offer below our views thereon. 1 Report No. B-164912, "Allowances for Independent Research and Development Costs in Negotiated Contracts-Issues and Alternatives," Feb. 16, 1970. Herein referred to as "GAO Report." See the discussion of traditional practices at pages 11 and 12 of the AIA statement submitted to the House Armed Services Committee, Feb. 25, 1970. We endorse the testimony given by Dr. John S. Foster, Jr., to the House Armed Services Investigating Subcommittee on Mar. 2, 1970, at pages 1-5. 4 GAO Report, page 10. GAO Report, Appendix I. Inflation, DOD procurement policy changes, etc. "GAO Report, pages 30 and 31. 42-060 - 70 - pt.3 -25 An overall Government policy in IR&D-After examining the IR&D policies and practices prevalent in DOD, NASA, and AEC, as well as a number of policies suggested in the past,' the GAO recommended "that an overall Government policy should be developed providing guidance as to the extent to which and under what circumstances Government agencies should participate in contractors' IR&D costs." No precise policy was offered by GAO, apparently in deference to the current Congressional hearings on the subject. In the absence of specifics, one can hardly be for or against a policy. We are, however, concerned about the clear intention of GAO to prefer one policy to govern all agencies. There are marked differences between the policy followed by DOD and NASA on the one hand and that followed by AEC on the other. AEC is reported to spend only nominal amounts for IR&D ($2.1 million per year vs. $333 million for DOD and 60 million for NASA), and much of that only for projects which benefit, either directly or indirectly, existing AEC contract work. The great bulk of research work for AEC is done on direct contract by companies in government-owned, contractor-operated plants. Other differences are listed on pages 18 and 19 of the GAO Report. The "AEC industry," its background, its financing, its product, its legislative and contractual environment are all as different from the defense industry as night and day. Contractors cannot even perform work for AEC in the same plants which produce other defense or commercial products. Even the AEC recognizes the importance of these differences in that what little IR&D it does permit is limited to "contractors which perform the contract work in their own facilities and without advances of government funds" or to subcontractors who do the same. These contractors and subcontractors are also the same ones who do business with DOD and NASA as well as commercial customers. Representatives of AEC have testified at these hearings that the AEC operations and functions are unique and that such representatives are not sanguine about a single uniform national policy. No single uniform policy could be drafted which would incorporate all of the major features of the existing DOD and AEC policies on IR&D. One would have to yield in favor of the other, or both would have to yield to a third policy. We express no opinion on whether the present AEC policy is suitable for the peculiar needs and conditions of the "AEC industry," but we certain that its application to the defense industry would spell the end of IR&D and all the benefits accruing therefrom to the Government, industry, and defense product superiority. All of a contractor's independent technical efforts should be lumped together in determining the amount to be accepted.—This is the first of a number of “suggestions" by GAO for Congressional consideration in working out a policy. The reason for this suggestion is that "no clear distinction can be made between IR&D and other independent technical efforts *** and consequently any agreed ceilings on IR&D *** can be avoided (by contractor) through description of an IR&D project under terminology." 5 Exception is taken to the allegations of dishonesty on the part of contractors generally. It is not true that a distinction cannot be made between the different types of technical effort. Much IR&D is distinguishable from B&P effort by work content; and where that is not so, the two efforts are clearly distinguishable by the purpose for which they are instigated and performed. Until OTE is clarified by an official description or definition, we do not know whether it could be confused with either of the other categories. We see no objection to establishing a single amount to cover a contractor's IR&D and B&P; provided first, that the amount is sufficient to meet the reasonable requirements of IR&D and B&P, and second, that flexibility be afforded to expend funds for either category as needed or desired by the contractor. DOD be directed to identify separately in its appropriation requests the amount estimated to be required for contractors' independent technical effort. This suggestion applies to DOD, and DOD is best qualified to respond to it. We surmise that if adopted it would create a huge administrative headache for DOD, but it should not in theory impair contractors' operations. 1 GAO Report, pages 12 through 29. 2 GAO Report, Appendix 1. 3 GAO Report, page 18. GAO Report, page 17. 5 GAO Report, page 2. |