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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

AVINGS FROM IMPROVED MANAGEMENT

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

Admiral PELTIER. Yes, sir.
Nír. 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 O. & 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 0. & M. Are there any instances which come to your mind where the Navy has used 0. & M. funds for major modification or overhaul or repair which might be considered essentially construction rather than Ö. & 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.

In each of these projects the Navy considered that the work performed increased the original scope of the facility. For this reason they were judged to require new authorization and funds through the military construction program.

Mr. Sikes. In view of the extreme tightness of O. & M. money, it would appear that the Navy would make a fight for projects in which there is dubious distinction, such as these, in the construction program rather than to take the money out of a tight 0. & M. budget. Would you comment on that?

Admiral SYLVESTER. Mr. Chairman, we find each of these budgets about equally tight.

Mr. FLOOD. Well, that takes care of that, Mr. Chairman.

BUDGET FORMULATION

Mr. Sikes. How do you determine the overall amount of 0. & M. money that is going to be available to the Navy? How is that allocated and by whom? Who decides the proper level of 0. & M. money for the Navy?

Admiral SYLVESTER. The budget planning cycle is a long one, sir, and it essentially commences by the establishment of program objectives and the basic Naval Establishment plan, which are approved.

Mr. Sikes. In which does the Navy have greater flexibility, in establishment of the requirement for O. & M. or the establishment of its requirement for construction?

Admiral SYLVESTER. They are done by essentially the same people within the Navy, sir. After the programs are formulated, that is, the initial budget programs by the managing activities, they are reviewed by the senior officers in the Office of the Chief of Naval Operations, who then provide the results of their review to the Secretary of the Navy. He, with his Under Secretary and the Assistant Secretaries and the Chief of Naval Operations, go over the whole budget, the entire set of appropriations, each considered against the other, sir, and we endeavor in doing that to formulate the best, well-rounded series of programs that can be financed in the budget.

In other words, the personnel, the O. & M., the procurement of all types, the military construction, are all balanced against each other.

CONSTRUCTION PROGRAMS FINANCED OUT OF O. & M. FUNDS

Mr. Sikes. I believe the committee will want a full continuity to show how these four projects found their way into the O. & M. program, the source of the authorization for placing them in the O. & M. program,

the source of the work orders, and the listing of the progress reports. We would like to know in detail how each of these four projects came to be listed in 0. & M. and the derivation of funds as opposed to placing them in construction projects. Will you attend to that and provide it for the record ?

Admiral SYLVESTER. Yes, we shall provide it, sir. (The information follows:)

NAVY REPAIR PROJECTS DISCUSSED IN GAO REPORT B-133316 DATED

JANUARY 1961 The four Navy repair projects in question are:

(1) Airfield pavements at Naval Air Station, Memphis, Tenn.

(2) Steam distribution system at Naval Underwater Ordnance Station, Newport, R.I.

(3) Ammunition loading pier at Naval Ammunition Depot, Concord, Calif.

(4) Bachelor officer quarters at Naval Submarine Base, New London, Conn. The first three of these repair projects are under the administrative direction of the Bureau of Naval Weapons, and the fourth is under the administrative cognizance of the Bureau of Ships. These projects are discussed separately, by Bureau, as follows:

BUREAU OF NAVAL WEAPONS The administrative system utilized for repair projects involves the annual preparation by each field activity, for budget development and execution purposes, of those projects which competent military and civilian engineers deem necessary preparation by each field activity for budget development and execution purposes, for effective operations and proper safeguarding of Government property. These projects are assigned command priority and are submitted to the Bureau for review and funding. Bureau review by qualified technical engineering and administrative personnel leads to the selection, out of a total of some 80-odd million dollars worth of projects, of that portion which can be funded within budgetary dollar considerations for the given year. These selected projects are then listed by line item and included in the annual budget submission to the Congress. By reason of the very nature of repair projects, controls cannot, and are not, maintained on a line item basis. A repair project which was needed but not critical at the time of budgeting might quickly thereafter become critical by reason of wind, rain, erosion, failure, use, or other reason and require imme diate funding, in which event this project is substituted for a less urgent one on the list.

After funds have been appropriated and apportioned, all of the repair projects to be accomplished are re-reviewed, the estimates are finalized, and an allocation of funds is made to the commanding officer of the shore station involved. This allocation generally takes the form of a single allotment providing total funds for all projects at the station, which while separately itemized with estimated costs, are not subject to rigid dollar control on the item basis. The projects are accomplished generally through contracts let by the civil engineering offices under the cognizance of the Bureau of Yards and Docks.

Two types of reports are submitted by the station to the Bureau regarding these projects-monthly allotment reports on the status of funding and monthly progress reports on the projects are submitted to the technical engineering office. In addition, these projects are subject to review by Bureau program officers, the Bureau Inspector General and his staff and by Navy auditors under the cognizance of the Navy Comptroller.

The specific projects in question, which are discussed hereinafter, were handled in accordance with the procedures described.

REPAIR AIRFIELD PAVEMENTS, NAVAL AIR STATION, MEMPHIS, TENN. A. Background and scope of project

This project, project identification No. 2–56, was submitted on the April 1956 repair and maintenance list as station priority No. 2. The purpose of the project was to restore the concrete pavement in the aircraft operations area to its intended effectiveness.

The then existing concrete pavment in the aircraft operations area had deteriorated rapidly within the previous 6 months to the point where approximately 10 percent required immediate replacement. The pavement was so badly broken in many places that handfuls of loose aggregate could be picked up and daily sweeping of the apron was required. Considerable damage to both jet aircraft engines and propeller-type aircraft was being experienced. Small pieces of loosened aggregate had been sucked into intakes of jet aircraft or had been blasted into propeller blades. Three jet engines had just required replacement from this cause and 35 percent of all jet engines passing routine inspections showed damage from this source.

The project consisted of the placement of 196,000 square yards of 11-inch overlay concrete with 1-inch asphalt leveling course on existing concrete pavement 6 inches thick with edge thickness of 8 inches; replacement of 28,000 square yards of existing concrete sections with 11-inch concrete; corresponding utility adjustments ; 24,000 tons of asphaltic conrete for 1- and 2-inch overlay on taxiways and parking area; and replacement of 3,000 square yards of 6-inch concrete.

The nature of this project and operational considerations were such that the project could be accomplished in four increments. Accordingly, it was submitted in four increments roughly approximating $500,000 each. B. Method of accomplishment

This project was accomplished in increments, by contract, over a 2-year period in accordance with the following funding schedule :

Year

Date

Allotment amendment

Increment

Amount

1957. 1957 1958 1958.

2 19

6
13

Aug. 1, 1956
June 26, 1957
Dec.

3, 1957
ne 2, 1958

1st. 20. 3d. 4th

$550.000 574.000 464.100 393, 000

The first increment was accomplished for $51,000 less than the estimated cost and allotment decreases in this amount were processed. The bid prices for the second and third increments exceeded the estimates and allotment adjustments in the amounts of $27,300 and $75,392, respectively, were processed,

RENOVATION/REPLACEMENT OF STEAM DISTRIBUTION SYSTEM, U.S. NAVAL UNDERWATER

ORDNANCE STATION, NEWPORT, R.I. A. Background and scope of project

A major part of the steam distribution system in the Coddington Cove area was composed of Ric-Wil preinsulated pipe buried in the ground. Due to wartime construction and speed when this system was installed and to the inherent characteristics of the insulation, many of the joints in the waterproof jacket were not completely watertight, thus allowing ground water to saturate the insulation and corrode the pipe. Leakage had become very extensive throughout the system since December 1950, and, because the pipe was buried, the leaks were not discovered until they became serious. To correct this continuing deficiency and avoid further high and increasing maintenance and heating costs, this project required accomplishment at the earliest possible date.

This project involved the replacement of 7,545 feet of steam lines, in sizes varying from 1 inch to 10 inches, 9,300 feet of gravity and forced condensate lines, from 1 inch to 4 inches in size, and the construction of 6,925 feet of waterproof concrete conduit, average size 2 to 3 feet, with removable covers. Some lines were not replaced in their existing location, but were rerouted for more economical construction. B. Method of accomplishment

Other higher priority projects prevented the funding of this project in the military construction program. The steam system, meanwhile, reached a condition where action toward replacement became mandatory to prevent a complete breakdown. The project was essentially a replacement of steam lines and condensate lines and was not a new requirement. It consisted solely of repairs and replacement and thus was considered properly fundable by O. & M. funds. It accordingly was determined that the station would be divided into three separate sections, each operable independently to provide for accomplishment in increments as the availability of O. & M. repair funds would permit. The method of accomplishment was to provide permanent repair of the most economical type, including the rerouting of portions of the lines to achieve this end. Funds have been allocated as follows: Fiscal year 1958 1st increment

$198, 853 Fiscal year 1959 2d increment_

139, 664 Total---

338, 517 There are no plans for accomplishing the third increment at the present time.

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