51,000 in 1954 to 41,300 in 1960. At the same time, the replacement value of our physical property plant increased from $15.1 billion to $20.07 billion.

Mr. FORD. Are these civilians, Captain?

Captain HUSBAND. Yes, sir. These are the civilian public works employees at these various activities. During the same period, the backlog of essential maintenance climbed from $160 million to $191 million but we invite your attention to the fact that adjusting for the 1955 dollar it has stayed essentially constant.

Mr. FLOOD. Wait a minute. What was that?

Admiral PELTIER. The dollar is not worth what is was in 1955. Mr. FLOOD. I know that. How do you apply it to this thing? Admiral PELTIER. This is the backlog of maintenance. We show $190 million worth of backlog. If you took that in the 1955 dollar that would only be $160 million.

Mr. FLOOD. I was thinking of the other term, "deferred maintenance."

Admiral PELTIER. This is deferred maintenance.

Captain HUSBAND. We have managed to reduce our transportation costs per mile. Today they are 95 percent for general purpose vehicles of what they were in 1954, in spite of the fact that during the same period the cost of labor and parts for these vehicles has increased 25 percent. Also, we are getting more miles per vehicle, shown in red, up from 6,500 to 9,543 miles per vehicle per year, while reducing our inventory, our fleet of vehicles from 40,852 to 34,233.

Mr. FLOOD. You are still within the jurisdiction of our national yardstick on use of Government vehicles, on mileage and age and everything, aren't you?

Captain HUSBAND. Yes, sir.

Mr. FLOOD. What is so wonderful about this?

Captain HUSBAND. We think we are doing a little better than most of the Government activities.

Admiral PELTIER. The increased usage, sir, is quite a significant factor.

Mr. FLOOD. How would that happen all of a sudden?

Admiral PELTIER. Better management, better dispatching, less down time, less waiting time.

Captain HUSBAND. These management improvements require continuing attention and support from all echelons of command and supervision. In addition, the Secretary of the Navy has directed that particular attention be paid on all inspections and audits for the maintenance and repair of real property.

In conclusion, while we have been discussing budgeting, engineering, accounting, and management in relation to maintenance, on this chart, as shown in red, our goal is the efficient integration of all of the processes of facility management into a single management system.

VEHICLE UTILIZATION

Mr. FORD. Captain, may I ask you to revert to that transportation chart, please? Is there any significance to the fact that if you multiplied miles in 1954 by the number of vehicles and you did the same thing fiscal year 1960, I suspect you would come to more miles in 1960 than you would in 1954. What does that mean?

Admiral PELTIER. It indicates we have not decreased the service in this particular area. We are still giving service, even though we reduced the number of vehicles.

Mr. FORD. Is it fair to say you did not need that much service, that much additional service? I think this is a good illustration. I think you should be commended for progress, but isn't there another point, that maybe you are still providing too much service?

Admiral PELTIER. Well, we have in our maintenance management program one area that we collect information on and that is waiting for transportation.

In other words, you can have so little transportation that you can have a $2.50 per hour man waiting a half hour on a job and if those accumulate to the point where it is cheaper to put on another pickup, which costs you maybe $90 a month, it would be cheaper to put on the additional pickup to get that man to the next job or to pick him up and bring him back than it is to go without transportation and wait for the lesser number of vehicles. You have to watch that area. You have to balance it out. It is a question of management, economics of which is the cheapest way to do it.

Mr. FORD. Should you not also relate to these facts and figures the total personnel and the number of establishments and bases?

Admiral PELTIER. Yes. We do not have that chart with us, but we do have a chart which shows the number of vehicles per shore station personnel and that is going down.

There are less vehicles per person today than there were in 1955. Mr. FORD. It would seem to me that that would be another important factor.

Admiral PELTIER. Yes. We have probably 50 charts but this takes too much time. It goes into this area.

Mr. FLOOD. You are not going to substitute the Navy opinion on the utilization of these motor vehicles beyond our national formula. In other words, I am not going to get this old business, the right way and the Navy way. You are not going to be so good that you will go beyond the formula on disposition of this hardware, will you, and getting rid of it?

Admiral PELTIER. No, sir. In fact, that is our problem now, and which I would like to bring out in my Other Procurement, Navy budget.

Mr. FLOOD. Let me tell you a story about that. A French clown had a great horse. He trained this horse to do everything. The horse could talk. It used to cost to feed the horse. He figured he would teach the horse not to eat, and he did, but it died.

Admiral PELTIER. This other chart which showed this cost per mile of operation would be considerably less if we could get more replacement of overage vehicles. We have a chart which shows that vehicles from the second to the ninth year practically double in cost just in maintenance, not in operation, but in maintenance, and if you can replace that at the sixth year, which is in the criteria, you do save considerable money and right now in our fleet of general purpose vehicles in the Navy, we are over 50 percent overage and we need more money in that particular pocket, but we are not getting it.

Mr. SIKES. All right, Captain Husband.

Captain HUSBAND. During 1960 and since the last hearings of this committee on this appropriation the Navy has taken the following

specific actions toward the goal of improved facilities management and accounting: First, we have continued to improve our management systems. Second, we have consolidated public works functions in public works centers at six major bases. Third, the management of Navy family housing has been centralized in the Bureau of Yards and Docks. Fourth, the accounting for maintenance and the reporting has been completely revised. Fifth, maintenance has been segregated in this maintenance and operations budget.

Thank you, sir.

Mr. SIKES. That is a very interesting and a very good report. This committee is glad to have it.

Admiral Peltier, do you have additional material for us or are you people ready for questions?

Admiral PELTIER. I think we are ready for questions.

Admiral SYLVESTER. We are ready for questions on the general part of the statement and the presentation which Admiral Peltier's people have made and I would suggest that after that we take each major activity in turn.

Mr. SIKES. That is very good. This has been well done. We are glad to have the information you provided for us.

Mr. FLOOD. You know they start picking these fellows out of the Academy to prepare them for this.

INCREASED PRODUCTION FROM MANAGEMENT IMPROVEMENT

Mr. SIKES. What additional costs or additional savings, as the case may be, can presently be attributed to the new system which you have just outlined to us?

Admiral PELTIER. Mr. Chairman, this matter in maintenance is pretty hard to determine because you get increased productivity, which is one of the ways that you can determine from your personnel but my estimate on this is somewhere between $60 and $90 million a year over that of 1955.

That includes transportation, utilities, and maintenance. We know in transportation, for instance, that we have actually taken off the rolls over 3,000 mechanics and we know that our equipment is in as good or better shape than it was in 1955. That in itself is about a $16 million annual savings.

Mr. SIKES. That is a big job and it is a terrific responsibility. I know it is one that requires the very best you can give to it. Now tell me how it is that we fail to find reductions at any point in your current budget.

Admiral SYLVESTER. Mr. Chairman, I think that there are two general reasons for that, the first being that we have, in general, taken on additional programs and there have been very few programs which have been dropped and the second has been the general rise in the cost of both things and wages, as indicated by some of the slides in the recent presentation. These mount up to quite high figures in a great hurry.

So much of the operations and maintenance appropriations goes to the pay of personnel, and I think that is the contributing factor, sir.

Admiral PELTIER. In addition to that, Mr. Chairman, you realize we have an annual increase of 3 to 5 percent in this maintenance area of cost.

We also have increased the plant value of the Navy. Yet our O. & M. funds has been a pretty level budget so keeping our heads above water has been one of the ways we have been able to do this, because we have improved the management of our maintenance dollar. Mr. SIKES. That is a good answer.

Mr. Ostertag?

Mr. OSTERTAG. I wanted to ask the admiral this question, which I think falls into place with regard to this general picture. Are we to understand that if it were not for these changes in management consolidations your budget would be considerably higher than it is now?

In other words, even though your budget calls for more money, these are costs that had to be met by virtue of new services, new developments, new conditions, and additional costs. On the other hand, you have effected certain economies which, if not put into effect, would have resulted in a budget how many million higher?

Admiral PELTIER. I would say somewhere between $60 and $90 million, Mr. Ostertag.

Mr. OSTERTAG. Is what I have said substantially correct?

Admiral PELTIER. Yes, sir. We have a gap chart which shows what we would have been requesting if it had not been for this improved management. This is a real thing. Industry is coming to us every day to get this system that we have developed. We feel we are at least 90 percent ahead of industry in this area.

Mr. OSTERTAG. I applaud you for it. It is a practical move, is it not, and makes a lot of sense?

Admiral PELTIER. Yes, sir.

As you know, in industry they are just beginning to wake up in the last 2 or 3 years that maintenance is really a place where they can. save money. In the Wall Street Journal of 2 days ago, there was a front page article on that very thing.

PERSONNEL SAVINGS FROM IMPROVED MANAGEMENT

Mr. OSTERTAG. You mentioned, a moment ago, that you have saved some 3,000 mechanics.

Admiral PELTIER. Yes, sir.

Mr. OSTERTAG. Do you mean military personnel?

Admiral PELTIER. No, sir, civilian mechanics that went off the rolls.

Mr. OSTERTAG. They went off the rolls entirely. They weren't transferred to something else?

Admiral PELTIER. A lot of this in transportation in particular comes into the inspection area. You have somebody who inspects this vehicle before the mechanic gets to it. He does not decide what is going to be done. An inspector well trained in this area writes up the job order. In some cases where you might have had an adjustment for brakes, in the old system, the mechanic might have decided to replace the brakes at $30 where the inspector could look at this with a little more knowledge and say, "A $2 adjustment is all you need here." That is where we have made a lot of savings. We also have

kept track of the time it has taken him to do this job and we have in particularly transportation, the flat rate manual that the garages use. That is our base for estimating the amount of time it will take to do this particular job. We collect that information and evaluate it, compared to a standard, the actual cost against a standard. That gives us the efficiency of the shop.

USE OF 0. & M. FUNDS FOR CONSTRUCTION

Mr. SIKES. There have been instances where O. & M. funds have been used in the other services for what the committee must construe as construction. For instance, the committee found that an airport was built at Fort Lee by the Army with O. & M. funds. The papers carried an account recently whereby the Air Force had to all intents and purposes rebuilt a house for its Chief of Staff out of O. & M. funds. These, in the mind of the committee, are essentially construction projects which were neither authorized nor funded as such.

Of course, the committee is concerned about this practice and very probably will write restrictive language into its bills in order to prerent a repetition of this practice. It is not a question of whether or not these items are needed. It is a question of procedure. There is a procedure for construction and a procedure for O. & M. Are there any instances which come to your mind where the Navy has used O. & M. funds for major modification or overhaul or repair which might be considered essentially construction rather than O. & M.?

Admiral SYLVESTER. Mr. Chairman, this has been the subject of a great deal of discussion within the Navy Department during the past year, ever since the GAO report came out. There are some questions as to just what should properly be termed military construction and what is essentially maintenance and repair. Within the last month the Department of Defense issued a new instruction on the subject.

In the GAO report they mentioned four Navy items which were considered as construction without specific congressional approval: The rehabilitation of the BOQ at the submarine base at New London, for $307,000; repairing the parking apron overlay at the Naval Air Station, Memphis, for $2,150,000; replacement of the steam distribution system at the Naval Underwater Ordnance Station, Newport, R.I., for $581,000; and rehabilitation of a pier at the Naval Ammunition Depot, Concord, Calif., at $830,000.

(EDITOR'S NOTE.-The full text of the report referred to appears on pp. 421 to 425.)

In each case we consider that the work performed simply restored the facility to a condition to perform its original intended purpose. Hence, we considered these to be repair-type projects, not a project which in essence requires authorization to commence. We have for that reason considered that these projects were properly presented to and approved by Congress in the operations and maintenance appropriations.

Now, the GAO commented that other comparable projects were financed by the military construction program: A runway overlay at the naval air station at Atsugi, Japan, for $1,640,000; replacement of steam boilers at submarine base, New London, for $877,000; and rehabilitation of a fuel pier at the supply depot at Newport.