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year 1961. Modernizing shipboard electronic equipments, purchased with prior year procurement funds, must be installed at an increased cost of $14 million. The Navy is taking over the facilities at Keflavik, Iceland, from the Air Force, and this will add $10 million to the Navy 0. & M. account in 1962. More ships will have nuclear powerplants, and replacement cores for some of the first of them will add $14 million to the fuel account. The Navy's space surveillance stations, hav. ing become operational, were transferred from the "Research and development” appropriation to this one at a cost of $4 million. The Military Industrial Supply Agency, a new single-manager assignment to the Navy, will be in its second year of buildup providing industrial supplies to the entire Defense Establishment at an additional cost to this appropriation of just under $6 million. The new Naval Air Station at Lemoore, Calif., and the new Naval Auxiliary Air Station at Meridian, Miss., will both be operational in 1962 and will require funds amounting to approximately $6 million. The Fleet Computer Programing Center at San Diego, Calif., will require funds amounting to $1.7 million. This activity represents an important advance in our ability to cope with current complex tactical warfare problems that manual methods can no longer handle. There is also a small but important increase requested in the operation of the naval petroleum reserves, principally to prevent oil drainage from reserve No. 3 by independent wells along its outside boundary. As in previous years, it is expected that the operation of the reserves will return much more money directly to the U.S. Treasury than is expended on their operation. The new expanded programs just mentioned and other necessary increases which did not appear in the comparable fiscal year 1961 O. & M. appropriation amount to a total of $83 million. Îhe previously mentioned $47 million increase in NOA will fund approximately half of these required new programs in fiscal 1962.

We must continue to maintain a dynamic Navy which will meet the demands of changing conditions in the methods and means of warfare, in the international situation, and within our national environment here at home. It is quite natural to expect numerous shifts of emphasis within the dollar totals of an appropriation from 1 year to the next. Accordingly, certain programs have received increased support totaling $18 million. For example, increased funding of $4.6 million is requested to provide communication facilities necessary for command control of fleet units and weapons systems designed for missile warfare. Increased emphasis of $1 million has been placed upon equipment and instructors for our midshipmen at the Naval Academy to meet the needs of the exploding naval technology. This is in keeping with increasing demands for education and training in general throughout the Naval Establishment. An increase in funds of $2.8 million is requested for medical services to provide for additional personnel and for the greater number of dependents. It is a matter of considerable pride that our naval medical facilities, among those of the military services are operated with the lowest ratio of hospital staff personnel per patient; however, it is a matter of concern to us that Navy hospital corpsmen and women and Navy nurses have been working 50 and even 55 hours week after week. A few additional civilian jobs will be set up in hospitals partially to correct this undesirable situation. Vigorous efforts are continuing to re

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duce travel expenses; however, we request that these funds be freed of the restrictions of the current fiscal year. Admiral Smedberg has already spoken to this subject in the military personnel appropriation hearing, and the major activity sponsors also will speak to it.

The complete budget story can't even be told in a recital of the programs that it covers. The worth of items in the budget can be realized best by looking at some of the “all wool, yard wide” items that could not be squeezed in. It has been necessary for us to omit some programs and to accept a lower level in the operation of others. Examples of this are—in spite of increasing funds devoted to the maintenance and repair of real property, the backlog of essential maintenance will remain substantially unchanged. Although this budget provides for an increase in flying hours for our Naval Reserve pilots, our famous “weekend warriors," we feel that their optimum training limit will not yet be achieved. Our estimated backlog of about 750 aircraft flying on an extension beyond their normal rework period in 1961 will increase to a level of about 1,200 to 1,300 in fiscal 1962. Thirty-seven regular ship's overhauls scheduled for the latter part of fiscal 1962 will have to be deferred until early fiscal 1963. Also, this fiscal year there are 27 ships which will be put through our fleet rehabilitation and modernization program known as FRAM II; in fiscal 1962 we will put 21 ships through the FRAM II program under this appropriation. We are constantly reviewing the need for our shore stations and take action to close or reduce any that can possibly be spared and for which we cannot assign sufficient funds.

These facts have been cited to illustrate the degree of competition among programs for places in the budget and to give an indication of the importance of the programs which have been included in the budget. First consideration has been given to support of 625,000 naval personnel, an active fleet of 817 ships and 6,280 1 average operating aircraft, to training our Naval Reserves personnel with 88 ships and 715 average operating aircraft, and to that portion of the Shore Establishment engaged in direct support of the fleet. In the O. & M. trident of fleet operations, fleet maintenance, and direct fleet support these are our priority programs. I reiterate, this apppropriation funds today's readiness of our ships, our aircraft, and our personnel. It's a hard budget, perhaps too hard. I have been with it step by step from the beginning and I assure you that this budget is completely justified.

Mindful of the need to conserve public funds to the maximum extent possible, the past year has been one of "soul searching” for the Navy. You will be told of many steps taken by our technical directors and you may note that many of these have been responsive to suggestions from this committee and other Members of the Congress. You will learn from other witnesses of some dramatic technical results already experienced, but this is by no means the end of our efforts. For example, we have set in motion a comprehensive planning system for our Shore Establishment and it is already evident that future savings of significant proportions are possible. We are taking a hard look at every function we perform in order to satisfy ourselves that each is really needed and worth the price we pay. We have greatly increased our disposal program. In real property holdings, $390 million in land and structures alone were disposed of last year, and throughout the Navy we continue to press for smaller inventories and for the use of better business methods. It can be truthfully said that good business management has received more attention within the Navy during the past year than any other administrative task. The maximum results from this program can be obtained only if we pursue an orderly course toward its complete fruition, and apply these savings to reduce our deficiencies.

1 The 6,280 average operating aircraft includes 82 drone aircraft, but excludes the 715 average operating aircraft for Reserve training.

Supporting witnesses for each of the major activities of “Operation and maintenance, Navy," are present and also have prepared statements for either oral presentation or submission for the record, as you may desire. These gentlemen and I now await your questions.

Mr. Sikes. Now we will proceed with the statement from Admiral Peltier.

You have it to present in this way, do you not, before we begin questions?

Admiral PELTIER. Yes, sir.


The Bureau of Yards and Docks has technical responsibility for development and installation of improved maintenance management programs for the entire Navy. It would, therefore, appear appropriate to apprise you of the efforts and progress being made relative to improving the management and accounting for maintenance. At the request of the Navy Comptroller, a short presentation has been prepared. Capt. A. C. Husband, Assistant Chief for Administration and Comptroller of the Bureau of Yards and Docks, is here with me today to give the presentation at this time.


Captain HUSBAND. Mr. Chairman, members of the committee, I appreciate this opportunity to present to you the actions which the Navy Department has taken to comply with the congressional desire for improved maintenance accounting and management.

Last year this committee commented in connection with housing maintenance:

One of the most disturbing features of this growing program has been the complete lack of data on true maintenance costs.

Since last year's hearings on this appropriation, a number of important steps have been taken by the Secretary of the Navy, the Navy Comptroller, the Chief of the Bureau of Yards and Docks, and the various management bureaus and offices which I will summarize briefly.

The Navy program for improved maintenance management is called Project BÈĀM, or the first letters of the key elements, budgeting, engineering, accounting, and management.

Project BEAM is designed to integrate these elements into a single management system.

BEAM bridges the gap between financial management on the one hand and the day-to-day problems of operating management on the

other. In order to deal with these four topics I would like to first take up accounting

Our real property inventory is based on Department of Defense category codes and it is the foundation for our maintenance accounting system.

The basic document is the plant account card. This tells us 41 things about any one piece of real property. For instance, it tells its location, its age, its acquisition cost, the type of construction, whether permanent or temporary, the materials of construction, the physical condition, the size, or the number of units, and the use to which it is being put.

Provision has been made to summarize all of this information by electronic data processing methods.

One place where this plant account information is used is the justification of military construction items; the facilities requirements minus the usable plant assets equals the shore station development program.

For example, in the justification of new barracks construction at Charleston, S.C., the chart shows a deficiency of 1,118 personnel spaces at this particular location.

Last March the Navy Comptroller completely revised the Navy accounting system for public works functions so that it would provide more detailed costs, especially for areas like family housing, and be compatible with plant inventory and construction.

Since our plant accounts and cost accounts are now expressed in the same terms, we can produce unit costs for maintenance of real property.

The new accounting system has been in operation for two fiscal quarters.

The returns are coming in from each activity, through our regional accounts offices to our computer at Port Hueneme, Calif., where they are combined with the corresponding units of real property inventory

An engineering analysis is made and the information returned to the activity through the Bureau of Yards and Docks. This brings us to our next topic, “Engineering."

It is not enough that we collect costs. We must have reliable yardsticks of value which relate our expenditures for any function to the proper standard of maintenance. Costs must be related to the unit of plant or the operation.

For example, vehicle costs per mile, barracks costs per square foot, steam cost per thousand pounds, electricity cost per kilowatt-hour. Cost trends are also important to the operating manager.

These unit costs, or "functional norms,” are affected by many variable factors, including such things as wage rates or prices in the locality.

Mr. FLOOD. When you make steam analysis costs do you base the cost per pound upon different types of fuel ?

Captain HUSBAND. Yes, sir. For whatever type of fuel is used at that installation, sir.

As well as for the type of construction, the condition of the facility at the beginning of the accounting period, the size or the number of units of that kind at that activity and finally, environmental factors such as the climate, or the degree of use to which the facility is being put.

Another important factor is the maintenance cycle. For instance, after we have resurfaced and resealed an airfield runway, our expenses for maintaining that runway should be minimum for the next several years.

Finally, the lifetime cost of a facility is often determined by what the designers put into the original blueprints and specifications.

We make every effort to design our facilities for minimum lifetime costs rather than lowest first cost.

The function of engineering, then, in Project Beam is to provide the operating manager with an engineered analysis of maintenance costs on which to base corrective action.


Mr. Flood. In your industrial funding on the item you just left do you figure in for any one of your airbases the cost of construction, maintenance, and operation of your runways and hangars and the whole field ? Do you figure in those components ?

The reason I ask you that is the MAÎS people tell me that it cannot be done and refuse to do it, or they say they cannot do it.

I think you do it and have been doing it for years.
Admiral PELTIER. We do not depreciate the original cost.

Mr. Flood. You have been doing industrial management funding for some time.

Admiral PELTIER. We have it in our public works centers, stateside.

Mr. Flood. We are still fighting to get these flyboys to do it. As I understand it, you are a classic example of how industrial funding at an air operation should be done. They say they cannot do it or won't do it, is better. You know the problem I mean. Do you know the problem we have had with MATS on industrial funding?

Admiral PELTIER. No. I am not familiar with that.
Mr. SIKES. Do you have the answer to Mr. Flood's question?

Mr. Flood. Do you know the quarrel we have had with MATS for the last hundred years?

Mr. COCHRANE. I am aware of it, yes.
I want to explain the Bureau of Yards and Docks-

Mr. Flood. I have been holding you up for the last 5 or 6 years as exhibit A, as to how the industrial funding jobs at an airbase should be done.

Mr. COCHRANE. We do not fund an airbase under this appropriation. We do maintain air stations at our public works centers, for instance, Norfolk. At our center there we do maintain the air station on a reimbursable full cost basis, for all costs of maintenance including overhead. We price in the military effort but of course it is appropriated in a different appropriation.

Mr. FLOOD. That is it. I want to remember that.

TECHNIQUE OF BUDGETING Captain HUSBAND. Turning to budgeting, for the first time in the fiscal year 1962 budget each management bureau provides a separate budget project for the "maintenance and repair of real property."

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