Committee Prints

5. To afford an opportunity to any individual, group, or organization to come before the subcommittee and discuss procurement problems in connection with H.R. 474 from the standpoint of special knowledge and experience or economic interest. Among the organizations which endorsed H.R. 474 are the American Bar Association (Public Contracts Law Section); National Institute. of Governmental Purchasing, Inc.; Federal Executives Institute; American Institute of Architects; National Association of Wholesalers; National Tool Die & Precision Machinery Association; Aerospace Industries Association; and Electronic Industries Association. The subcommittee also heard individuals in Government, industry, academic, and legal circles who have had many years of experience in dealing with Government procurement

matters.

2. "Procurement of 2.75-Inch Aircraft Rocket Launchers." House Report No. 91-774, December 19, 1969. Eighteenth Report by the Committee on Government Operations.

(a) Summary.-This report represents a case study in sole-source procurement of an important military item. The situation for the Government was made more awkward and painful by the fact that it had to rely on the sole-source producer for major production after the company and several of its principals were indicted for fraud. Convictions were obtained on selected counts and the company has changed hands. It's no longer proscribed from doing business with the Government. In the meantime, efforts were made by the Government procuring agencies to develop alternative production sources.

Since 1961, of 42 basic contracts for 2.75-inch rocket launchers, worth about $124 million, 28 contracts accounting for $102.3 million or 82 percent of the total dollar volume were channeled to this one company. For the most part this was done on seemingly routine justifications that there was no time to attract competitors or develop alternative production sources. Why and how did the Government get so heavily locked in? What should have been done to broaden the procurement base? What lessons are there for Government procurement as a whole? These are some of the questions the Military Operations Subcommittee pursued in its inquiry.

(b) Benefits.-A subcommittee report, prepared in November 1968, made findings and recommendations which were submitted to the military departments for comment and action. The recommendations were pointed toward (1) more competition on a broader production base, (2) the Government taking steps to obtain control of technical data for competitive reprocurement, (3) improved procurement planning, (4) more careful justifications when exceptions are taken to advertise competitive bidding, (5) promoting standardization in designs, components, inventories, and service distribution methods, (6) closer scrutiny of sole-source contractors in terms of cost and performance data, (7) wider dissemination of audit information which indicates weak spots or irregularities in company accounts or practices.

The military departments have reported beneficial actions in several ways. Competitive sources have been canvassed and new producers brought into production. The Army estimated savings of $2,397,000 as

a result of recent competitive pricing, although production difficulties were extensive. Shortly before the subcommittee announced its 1968 hearings, the Department of Defense designated the Army as the single agency for procurement of launcher requirements of all military services. These responsibilities commenced at the beginning of the 1970 fiscal year. A configuration committee has been established in the interest of promoting standardization. Other actions taken are described in the committee report.

3. "Military Supply Systems: Lessons From the Vietnam Experience. House Report No. 91-1586, October 8, 1970. ThirtySeventh Report by the Committee on Government Operations. (a) Summary.-This report reviews the basic organizations for military supply and logistics, the important supply management concepts, the problems of processing logistics data, and support to Vietnam as a test case for application of logistics and supply concepts. Attention is directed mainly to the Army, which has the biggest and most complex supply job of all the services and is, in some respects, less advanced than the others in the application of management methods. Among the problems identified and considered are lack of accurate inventory knowledge, important equipments not being returned for repair, compromising of supply systems through excessive use of highpriority requisitions, and uncoordinated development of computer networks, with resultant duplication and supply ineffectiveness.

The report also describes and assesses the report of the Joint Logistics Review Board, the so-called Besson Board headed by Gen. Frank Besson, U.S. Army (ret.), and emphasizes the importance of that report and the necessity for swift implementation of its findings and recommendations.

(b) Benefits.-Military depots worldwide receive each year approximately $35 billion worth of supplies and equipment. The size and scope of the supply effort is so vast that even modest improvements can result in the savings of millions of dollars, especially if inventories can be reduced through better management. We estimate conservatively that the subcommittee's activities in this area will lead to savings of $350 million a year, which require only a 1-percent improvement in supply management efficiency. The subcommittee directs attention to improvements and potential savings in supply management as a logical counterpart to its investigations in Government procurement and contracting, which led to the establishment of the Commission on Government Procurement (see II. below).

The subcommittee hearings already have led to beneficial results. The Department of Defense has begun to develop a long-range blueprint for integrated logistics systems. The Army is developing a master plan, and has established a Computer Systems Command with responsibility to provide central direction for development of all multicommand computer networks. New regulations have been issued governing the control of high priorities on requisitions, knowledge of high-value assets, and the taking of physical inventory. Excesses

of equipment and supplies in Vietnam have been dramatically reduced through concentrated effort without impairing the ability of supply echelons to provide support to using units.

(c) Hearings.-Hearings were held on June 24, 25, 26, 27, July 1, 2, 18, 1968, and November 25 and December 8, 1969. The hearings have been printed.

4. "Military Supply Systems: Cataloging, Standardization, and Provisioning of Spare Parts." House Report No. 91-1718, December 10, 1970. Forty-First Report by the Committee on Government Operations.

(a) Summary.-This report discusses basic processes of the military supply systems-cataloging, standardization, and the provisioning of spare parts for weapon systems and major equipment. The committee had reviewed this subject matter in past years. It finds that new technologies have added problems in the direction of raising costs and reducing efficiency.

In its most recent report (H. Rept. 91-1586, the committee had suggested the target: Cut the 4 million items in the catalog inventory 50 percent. This report examines the interrelationships of many separate processes necessary to meet that target.

The report includes 12 findings, specifying the failure of Defense Supply Programs to meet goals in reduction of items, cutting weapon system cost, preventing item growth from spare parts, full identification of manufacturer part-numbered items, and the development of adequate data systems.

Eight recommendations are also made in the report as follows:

The committee recommends to the Secretary of Defense and other appropriate authorities the following actions:

1. Direct intensive high-level attention, comparable to that for weapon systems procurement, to the important technical programs which reduce lifetime support costs of military equipment-cataloging, standardization, and provisioning.

2. Develop a stronger organizational base, clearer lines of authority, and more precise responsibilities to closely integrate cataloging, standardization and provisioning activities. 3. Identify high pay-off areas in cataloging, standardization and provisioning and direct resources accordingly.

4. As a specific example, redirect the Federal Item Identification Guide Program to the items more actively used in catalog screening and other supply management operations. 5. Give more attention and emphasis to design standardization to limit the varieties of new technical items required for support of weapon systems.

6. Develop defense-wide concepts and techniques for weapons systems provisioning which will reduce inventory costs by relating stockage more directly to frequency of usage, reducing provisioning leadtimes, and purchasing more specialized support parts requirements, when needed, directly from the prime contractor or vendor.

7. Clarify contract provisions and monitor contractual performance more carefully to insure that manufacturers' part

numbers and other identification data are supplied as required and specified.

8. Însure that interim computerization of catalog data is pursued, pending the development of a single data bank and acquisition of a new large computer for the Defense Integrated Data System.

(b) Benefits. While a formal Department of Defense response to the report has not been received, the committee believes the direct monetary benefits derived from execution of the recommendations will be considerable. The basic aim of reducing the catalog by one-half involves a per-item saving of from $200 to $2,000, according to various studies; or potential savings of $400 million to $4 billion. All of the recommendations would bear not only upon those potential savings, but in savings derived from simplified management of major weapons systems and equipment.

(c) Hearings.-The report was based upon the military supply hearings of 1968, 1969, and 1970, all of which were printed, and upon other staff study and inquiries subsequent to the August 1970 hearings.

5. "Policy Changes in Weapon System Procurement." House Report No. 91-1719, December 10, 1970. Forty-Second Report by the Committee on Government Operations.

(a) Summary. The report evaluates procurement policy changes under Secretary Laird against the background of procurement expe rience in the 1950's and 1960's. The most significant change, the report notes, is a return to cost-plus (in place of fixed-price) contracting for development work. Secretary McNamara earlier had promoted fixedprice contracting and incentives in an attempt to "harness the profit motive for cost reduction."

Describing the decade of the 1950's as the "panic" years, when the United States no longer had an atomic monopoly, was engaged in a desperate ICBM race with Soviet Russia, and was confronted with the Sputnik event, the report says that saving time, not money, was the dominating concern in weapon systems acquisition.

Then Secretary McNamara in the 1960's tried to "reduce urgency to order, to put costs on a par with time." According to the report, Secretary McNamara

**moved in a strong and determined way to bring the sprawling defense establishment under firmer control, dampen interservice rivalries, check the proliferation of missile and other weapon systems, link force planning with budgets through a programing system, consolidate administrative and technical functions common to the several services, and promote cost reduction in Government and among defense contractors.

Certain procurement reforms sought by Secretary McNamara, such as strong program management organizations and elimination of "goldplating," are being proposed again today, the report says.

But the belief now is that there were basic deficiencies in method, if not in concept, during the 1960's. Looking back, the critics say there was too much centralization at the OSD level, too many official directives, too many management forms and reports required from con

tractors, undue reliance on "paper studies" in place of hardware demonstrations and testing, and, above all, a fallacious assumption that fixed-price contracting could successfully steer engineering development.

Tight budgets are forcing a renewed search for management efficiencies, the report says, expressed in a new procurement philosophy of "realism and pragmatism." Quoting Deputy Secretary Packard to the effect that cost now is "more important than schedule," the report states: "The primacy of time in the 1950's, and the parity of time and cost in the 1960's, finally had yielded to the primacy of cost in the 1970's."

Referring to Mr. Packard's testimony that the military services have too few experts and too many interfering generals in weapon system procurement and management, the committee report says that he "painted a bleak picture and criticized rather harshly the management capabilities and organizations of the military services." The military services in turn are described in the report as "not quite ready to agree that things are as bad as represented."

The report recommends the establishment of a Procurement Research Laboratory in the Department of Defense. Such a Procurement Research Laboratory is needed, the report states, because the Department of Defense needs a better means "for developing new procurement ideas, testing them, and applying lessons learned." The committee notes that the laboratory idea was first suggested publicly by Secretary of Defense Clark Clifford.

The committee took note of testimony by Deputy Secretary of Defense David Packard and military service representatives that the primary problem in procurement today is "getting the good people." The report asks the Pentagon to prepare and submit draft legislation providing for higher paid civilian experts in defense procurement. The legislation would be similar to special legislation developed earlier for the appointment of scientific personnel.

Also, the report recommends that the Department develop a special competence in making "should cost" surveys to arm Government negotiators and managers with better cost information. Such surveys require specially trained Government teams which go into contractors' plants and evaluate work processes and procedures. According to the report, several such surveys have been made with promising results in the form of substantial savings to the Government in awarding large contracts.

(b) Benefits.-No estimate of direct monetary benefits is feasible at this time.

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