"The military services will provide the Director, Defense Supply Agency such participation and assistance as may be required in the discharge of this responsibility.

"(S) PAUL H. RILEY, Deputy Assistant Secretary of Defense." Recommendation relating to centralized management of automatic data processing (ADP) (p. 11):

"The subcommittee noted from the testimony received during the April 1964 hearings that split responsibility exists in this area and should be clarified. This is another instance of long-deferred decisionmaking in an area of expenditures and investments amounting to hundreds of millions of dollars annually and steadily growing for the past decade."

Comment

The report refers to pending bills (H.R. 5171 and S. 1577) which relate to the centralized management of ADPE in Government; it acknowledges some progress during the past year and it notes that split responsibility in this area which still exists should be clarified.

The Department of Defense has opposed the enactment of legislation as proposed "To authorize the Administrator of the General Services Administration to coordinate and otherwise provide for the economic and efficient purchase, lease, maintenance, operation, and utilization of automatic data processing equipment by Federal departments and agencies." We have been particularly concerned with that aspect of the proposal which provides for dealing with ADPE in general terms, irrespective of the applicability or function to which it is applied. An additional major concern deals with the applicability of the proposal to ADPE employed by Government contractors, as evidenced by the language contained in the proposal.

The need for any legislation such as has been proposed in this area is yet to be demonstrated. Within current authorities and responsibilities, the Bureau of the Budget is charged with overall responsibility for the administration of the ADPE program in the Federal Government; the General Services Administration is responsible for procurement, excess property utilization, and surplus property disposal; and each of the departments and agencies is responsible for determination of individual ADPE requirements and the use to which ADPE shall be applied. There is an incontrovertible inconsistency in proposed legislation which attempts to recognize the responsibilities discussed above, yet, at the same time, attempts to provide a single central agency with the authority to control ADPE acquisition for the Federal Government as a whole.

Recommendations relating to commercial-industrial activities of Government

(p. 12):

*** all new activities proposed to be started should be carefully screened on the basis of essentiality. Second, those in existence should be identified, listed, and eliminated or curtailed in scope. Again, the basis for continuation should be essentiality. *** While the BOB has still not issued guidance of executive agencies, the subcommittee reaffirms its previous recommendations." Comment

Although BOB has not yet revised and reissued Bulletin 60-2, the Defense Department has taken positive action which is consistent with the recommendations of the subcommittee. Through publication in March 1963, of DOD Directive 4100.15 and DOD Instruction 4100.33, a program was established for effective control of the number and type of commercial-industrial activities operated in DOD. In addition to this, our declarations of excess covering 61 DOD industrial plants, plus the closure of NOP, York, and the announced inactivation of arsenals and shipyards, are major steps toward the transfer to private enterprise of production capacity which need no longer be owned by the Government. The feasibility of further releases of DOD in-house production capacity is now being examined under the current studies covering equipment maintenance activities and all remaining DOD industrial plants.

The effectiveness of these efforts was acknowledged in hearings which the subcommittee conducted, at which Mr. Shoemaker, Chairman of the Committee of Hoover Commission Task Force members, made the following statement concerning DOD efforts in reducing their commercial-industrial activities: "I must in fairness state that the Department of Defense has made substantial progress in this field and I so testified to you in the 1963 hearings."

Recommendation relating to review of common service activities pursuant to the McCormack-Curtis amendment (p. 13):

"The subcommittee renews its previous recommendation that, as a part of the cost reduction program, a systematic program be pushed in the DOD to establish priorities for the study and analysis of common service activities and determinations made as to the most appropriate way to manage each in terms of effectiveness, economy, and efficiency as contemplated by the McCormack-Curtis amendment."

Comment

There is a continuing effort to study various feasible possibilities for integration and consolidation of common service activities. The record of successful continued development of the Defense Supply Agency, and the plans that are progressing for integration of Contract Administration Services and Contract Audit Services, are important examples.

Senator DOUGLAS. At this point in the proceedings we will include the statement of Representative Charles S. Gubser, a Congressman from California and a minority member of the House Armed Services Committee.

STATEMENT OF HON. CHARLES S. GUBSER, A REPRESENTATIVE FROM CALIFORNIA, TO THE JOINT ECONOMIC COMMITTEE

Mr. GUBSER. Mr. Chairman, I deeply appreciate the opportunity of making this statement and to raise certain points regarding defense procurement policies which I think are harmful to both Government and industry.

I have carefully studied the report of your Subcommittee on Defense Procurement issued in September 1964 and believe it is an excellent piece of work. It dealt at length with the subjects of (1) cost reduction, (2) standardization, and (3) the increased use of advertised competitive bidding. But, Mr. Chairman, one subject was completely untouched which has a direct bearing upon these three subjects-I refer to the matter of buying standard commercial catalog products and the tendency of the Defense Department on increasingly frequent occasions to resist the purchase of such items.

The report appears to be concerned exclusively with products developed at Government expense and makes no mention of incentives for private development or technical contributions available from private industry. In fact, the report strongly suggests that the committee favors Government control of research and development by emphasizing data rights and the acquisition of engineering drawings and detailed specifications to the complete discouragement of independent effort. This emphasis has been interpreted by DOD to mean more Government design and greater concentration of defense buying with those industries already dependent on the Government for survival. How can this policy achieve greater competitive bidding when it narrows the field to defense-oriented industries exclusively? In stressing acquisition of data and extensive audit of all contracts, including firm fixed-price contracts involving standard commercial equipment, Congress is forcing management to either accept greater interference and control through Government procurement policy or a careful avoidance of Government contracts.

Commercial competition involves ingenuity to advance the state of the art. A better design merits recognition by those standard buying techniques which encourage new and better solutions to a problem.

A policy of greater price competition without incentives for technical advancement is limiting competition to one narrow area of refinement in production. The Defense Department procurement practices are freezing out the most important asset of the free commercial marketthe desire to be first with a new and better product.

Government engineers are being intimidated by their contracting officers to avoid sole source or brand name buying. They are being forced to write detailed specifications not limited to one manufacturer, thus avoiding the latest advancement, and often with inadequate technical information on available commercial products or practice. This condition is particularly prevalent in the purchase of very complicated equipment such as electronic systems and instruments.

For example, the Navy Purchasing Office has a policy of buying only on detailed specifications or qualified products lists. Standard commercial catalog electronic instruments, often meeting the Navy's requirements at less cost, are carefully avoided for fear of criticism on sole source or brand name procurement. Many products on the Navy QPL are obsolete by commercial standards. There is an undercurrent in DOD that is discrediting sole source and brand name or equal procurement because of the notion that these buying methods are noncompetitive.

Sole source or brand name or equal specifications are not without competition. There is a strong incentive to achieve the unique position of being first with a new and better product. Used properly, sole source buying is a powerful technique for improving reliability, performance, and efficiency. Brand name or equal procurement is an important technique for the Defense Department to obtain timely products. We should not so discredit this technquie that we restrict our DOD agencies to relatively old and outmoded technical gear.

Last year we saw a rash of protests to GAO because of awards to nonresponsive bidders on brand name or equal specifications. These awards were made to the lowest bidders without adequate consideration for their products being equal to the brand name. I refer to GAO decisions, B-153531 (March 20, 1964), B-154560 (July 24, 1964), B155034 (November 24, 1964), and B-155283 (December 14, 1964).

These cases are only representative of the trend to discredit brand name or equal procurement. The difficulty stems from excessive emphasis on increasing competition when there is inadequate technical information within the procurement agency to prepare detailed specifications or to fairly evaluate "or equal" bids without bid samples. This undue emphasis places a higher priority on low price than meeting specifications. The contracting officer is persuaded that the likelihood of internal criticism for failure to award to the lowest bidder is greater than vendor criticism for failure of a competitor to meet specifications. Vendors don't like to file protests for fear of blacklisting. Hence, abuse of the "or equal" award is increasing.

Utilizing the best products that private industry can develop needs to be placed in its proper perspective. The Defense Department should be encouraged to improve and strengthen those buying techniques which will insure maximum use of appropriate commercial catalog products and the avoidance of duplicating by special design that which is already available.

It should be kept in mind, too, that small business is best supported by incentives to protect its own ingenuity of offering technically ad

vanced products. The importance of proprietary rights and catalog products was emphasized at hearings of the House Small Business Subcommittee in July 1964.

These trends are not healthy for the future of privately financed technical advancement. If they continue the Government will be forcing private industry to acknowledge Government dominance of technical advancement through absolute control of technical data and the determination of product requirements.

Thank you again, Mr. Chairman, for including my statement in the official record.

Mr. DOUGLAS. We conclude the morning session at this point and will meet here this afternoon to hear Vice Adm. Joseph M. Lyle, Director of the Defense Supply Agency.

(Whereupon, at 12:25 p.m., a recess was taken until 2 p.m. of the same day.)

AFTER RECESS

(Whereupon, the subcommittee reconvened at 2:30 p.m., Senator William Proxmire presiding.)

Senator PROXMIRE. The subcommittee will resume.

Our witness, as I understand, is Admiral Lyle, who favored us last year with a short visit with his predecessor, General McNamara.

Admiral Lyle has had a long and notable experience as an expert in logistics in the Navy. We are pleased to know that the DSA continues its important mission under such fine direction.

Admiral Lyle, you may introduce your associate, if you wish, and proceed.

STATEMENT OF VICE ADM. J. M. LYLE, U.S. NAVY, DIRECTOR, DEFENSE SUPPLY AGENCY; ACCOMPANIED BY DR. WILFRED GARVIN, COMPTROLLER

Admiral LYLE. Thank you, Mr. Chairman.

On my left is Dr. Wilfred Garvin, our Comptroller. In the event that the cold I have overcomes my vocal cords, he will take up the reading of my statement. But I will go as long as I can.

Mr. Chairman and members of the committee, I am pleased to report to you today on the principal changes which have occurred in the missions of the Defense Supply Agency over the past year, the current status of its major programs, and its record of accomplishment in the performance of assigned missions.

At the outset, I want to pay tribute to the extremely valuable contribution made to the development of the Agency by the first Director, and my predecessor, Gen. Andrew McNamara of the Army. Whatever success the Agency has enjoyed is due in significant measure to his leadership, vision, strength, and vigor.

I wish also to express my appreciation for the support which this committee has consistently given to the advancement of a sound concept of integrated management within the Department of Defense. The Defense Supply Agency represents an intelligent application of that concept, and it owes much to the committee's continued interest and support.

MISSION CHANGES

Since our appearance before you last April, significant changes have occurred in each of our primary mission areas. Some of these were envisioned before last year's hearings; others have been initiated since that time.

Changes in our materiel management mission include:

Assumption of all functions related to integrated materiel management of lighting fixtures and lamps, Federal Supply Group 62, involving approximately 25,000 items with wholesale inventories valued at $10 million;

Assumption of materiel management of engineer supplies for Army users, involving some 35,000 items with inventories valued at $24 million; and

Assumption of procurement support for Army oversea users of noncataloged and decentralized items in DSA-managed classes. Similar support for all Air Force decentralized and noncataloged items will be initiated upon disestablishment of Air Force logistic control groups, effective July 1, 1965.

Two major changes were made in our service mission during the past year. The first, and most significant, was the assignment of responsibility for centralized management of contract administration services.

This assignment stemmed from a study directed in early June, 1962, by the Secretary of Defense. The study concluded that improved administration and significant economies could be realized through the consolidation of certain contract administration services field offices of the military departments and DSA which dealt separately with Defense contractors. Concepts developed in the study were subjected to an operational test in the Philadelphia region, comprising a fiveState area. In June 1964, the Secreatary of Defense assigned central management of the contract administration services mission to the Defense Supply Agency.

The purchase function, that is, the initial placement of contracts, is excluded from this assignment and will remain with the procurement agencies of the military departments. Also excluded are designated major weapons systems producing facilities, construction contracts, shipbuilding contracts, and contracts for perishable subsistence items. The assignment includes, however, a wide range of functions such as preaward surveys of contractors' facilities, quality assurance and inspection, and payments to contractors. The assignment also encompasses the administration of the Defense industrial security program which includes the functions of central clearance of contractor personnel and clearance of contractor physical plant facilities.