The CHAIRMAN. So that you recovered twice the cost of your activities specifically dealing with defense on this one correction alone. Mr. CAMPBELL. I think that is a fair statement.

The CHAIRMAN. I want to commend you. I wish there were more Government departments who had the interest of the taxpayers at heart as you do.

Mr. CAMPBELL. Of course, I don't agree that you can measure the results of the efforts of the General Accounting Office.

The CHAIRMAN. There is a general influence, certainly. But here this is a specific influence.

Mr. CAMPBELL. Yes, sir.

$8 MILLION IN ORDERS CANCELED

In our review of an Army Supply Center in Japan, we found that requisitions were not being canceled for items in an excess position nor was adequate consideration given to the downward trend in requirements. For example, we found that stock on hand and on order greatly exceeded the amount authorized for a terminal radio (MRC69) and component parts being procured in support of the U.S. forces in Korea. When this was pointed out to supply officials, action was taken immediately to cancel requisitions amounting to over $4 million. Later additional requisitions amounting to $2.4 million for MRC-69 and MRC-54 components and other related items were also canceled. As a result of our findings, the management of this supply center took immediate corrective action and requisitions for overstocked items totaling over $8 million were canceled. This cancellation represented over half of the supplies on order at the time of our review.

The CHAIRMAN. In other words, this item also covers about the entire cost of your surveillance of the activities of the Defense Depart

ment.

Mr. CAMPBELL. Yes, sir.

$1 BILLION OF EXCESS SUPPLIES IN NAVY SHIPYARDS

We found that certain Navy shipyards have consistently overestimated their needs for material for ship overhaul and conversion. work. As a result, enormous quantities of surplus material have been accumulated which, experience shows, will ultimately be disposed of at a fraction of its cost. During the fiscal years 1956, 1957, and 1958, a sizable amount of Navy inventories have been classified as excess to its needs. This included nearly $850 million worth of those materials which are used almost exclusively for shipwork, that is, electronic and shipboard equipment and ship repair parts.

The CHAIRMAN. In other words, almost a billion dollars of excess supplies had been accumulated.

Mr. CAMPBELL. Yes, sir.

The CHAIRMAN. For ship overhaul and conversion work alone? Mr. CAMPBELL. Yes, sir.

51686-60- -2

IMPROPER REQUIREMENTS COMPUTATIONS

Improper requirements computations for peacetime operating stocks of the U.S. Army, Europe, have resulted in substantial quantities of material being requisitioned, shipped, and stored in excess of actual requirements. In other cases, computed stock requirements were lower than warranted. Reviews of stockage requirements computations by supply control agencies and the Army Communications Zone Command were inadequate to detect or prevent inaccuracies and to assure adjustments. Details of our findings in these areas involve classified information.

POOR USE OF VALUABLE WAREHOUSE SPACE

When excess stocks accumulate, valuable warehouse space is used and is not available for housing needed stocks. In some cases, we found that failure to dispose of excess stocks for extended periods of time has taken space critically needed. Also, we have found that failure to declare stocks excess had forestalled possible use of such stocks by other activities.

NET RETURN FROM EXCESS STOCKS, 2-2% PERCENT

The CHAIRMAN. Mr. Campbell, as I understand it the cost of storage is not deducted from the gross revenue obtained from the sale of surplus. The Department of Defense publishes figures showing the gross income from the sale of excess stocks and then deducts from that the specific cost of selling the excess stocks, and as a result they get a figure that the net return is approximately 2 to 2.5 percent of the original cost. But this does not include the cost connected with storing this material during the period that it is in excess and before it is sold?

UNWARRANTED NEW CONSTRUCTION

Mr. CAMPBELL. Not where it is in Government warehouses. Of course, you must also keep in mind, or we must keep in mind that this use of space in being requires new construction for further storage.

WORLDWIDE STORAGE SPACE 585 MILLION SQUARE FEET

The CHAIRMAN. Our very able staff, Mr. Ward and Mr. Newman, have computed figures which are shown on the chart that the worldwide storage comes to 585 million square feet, of which 463 million square feet are in the United States, with a total of 34,920 buildings, and at a cost of $1,636 million. These are staggering figures. What you are saying is that if greater effort had been made to reduce excess stocks, there would not only have been a saving on the stocks themselves, but great saving on storage space and construction costs which have run $1.6 billion.

Mr. CAMPBELL. Yes, sir.

COST OF STORING ONE-HALF PERCENT PER ANNUM OF COST

The CHAIRMAN. I believe the Department of Defense estimates that the annual cost of storing materials is approximately one-half of 1 percent of the original acquisition cost. The space costs from $3.50 to $4 per square foot to build.

Mr. CAMPBELL. I think that is a reasonable figure.

The CHAIRMAN. So that in 4 years of storage they eat up any profit that they may ultimately get for selling the excess at 2 percent of its original cost. So it becomes a complete loss. In fact, it is more than a complete loss. It is more than a 100-percent loss. We are not dealing with small figures here. We are dealing with billions upon billions of dollars.

Go ahead, Mr. Campbell.

Uneconomical management of overhaul programs

Mr. CAMPBELL. We have found that the failure to repair reusable items of equipment promptly and that other variations in requirements determinations have generated requirements for larger quantities of these items than are necessary to fill the needs of the using activities. Within the Navy aeronautical system, there are some 50,000 aircraft engines. Annual procurement of aircraft engines by the Navy involved hundreds of millions of dollars. Since engines on operating aircraft must be replaced after they reach a specified number of operating hours, spare engines must be on hand to use while others are being overhauled. The number of such engines for standby use is determined by a mathematical formula. One of the important factors in the formula is the length of time that the replaced engine remains out of service prior to reuse.

Our study of the physical movement of naval aircraft engines including (1) removal of unserviceable engines from the aircraft, (2) shipment to overhaul points, (3) overhaul processes, and (4) return of serviceable engines to actual service revealed a general lack of expeditious handling in almost every segment of the overhaul pipeline. A review of the physical movement of naval aircraft engines and comparison with the Department of the Air Force on similar engines suggested a reasonable pipeline time of 147 days as contrasted with the Navy's scheduled 210 days for computing requirements and current performance record of 275 days. Using the 147 day basis, we estimated that at July 31, 1958, 793 aircraft engines costing about $68 million were being procured in excess of the Navy's requirements.

The CHAIRMAN. Naval aviation take notice.

Mr. CAMPBELL. While the Department of the Navy did not at first concur with our recommendation concerning the use of a 147-day pipeline factor, it later informed us that its calculation of aircraft engines for the 1960 procurement program will be based on a 150-day pipeline procedure utilizing mobilization or limited war factors.

Other matters affecting the economy and efficiency of the services' overhaul programs follow:

In our review of ship overhaul contracting activties, we found that contracts for ship overhaul work were awarded at excessively high prices, largely because (1) the industrial managers' cost estimating was unsound and not sufficiently accurate to provide an effective basis for evaluation of the reasonableness of contractors' price proposals and (2) sufficient consideration was not given to alternative methods of getting the work done when contractors' proposals appeared unreasonably high.

The CHAIRMAN. These are the drydocks along the coast?

Mr. CAMPBELL. Yes, sir.

Our recommendations for corrective action to improve procedures in these two areas have been concurred in by the Department of the Navy. Our review further disclosed that laxity of controls over supplemental work increased ship overhaul costs. We found that additional repair work authorized after the award of contracts totaled about $16 million annually and that generally the prices negotiated for additional work were between 115 and 170 percent of competitive prices for similar work.

The CHAIRMAN. You mean the probable overcharge was from 15 to 70 percent on the total volume of work of $16 million?

Mr. CAMPBELL. Yes; that is correct.

The CHAIRMAN. The Bureau of Ships and Docks take notice.

Mr. CAMPBELL. In many cases we found that competition for ship overhaul work was unnecessarily restricted by limiting the field of potential bidders to the few contractors who have adequate drydocking facilities to do the entire job of ship overhaul instead of using split-bidding techniques. Obtaining separate bids on drydocking and topside work could, in our opinion, lead to more reasonable prices by increasing competition for the topside work which is normally the major portion of the overhaul.

INEFFICIENCIES IN AIR FORCE CONTRACTING

At a Department of the Air Force offshore aircraft maintenance activity, maintenance of aircraft was contracted for almost exclusively under time and material contracts. In our review of this activity we found unsatisfactory control of Government furnished parts, failure to require the contractor to maintain an adequate accounting system, inefficient planning for repair parts, and a lack of a positive program for verifying direct labor charges under the time and material contracts.

Review of certain aircraft overhaul activities of the Department of the Navy revealed instances of questionable effectiveness in planning and scheduling of workload, production control, material control, and cost accumulation and reporting. There were also delays in removing engines from aircraft and shipping to overhaul points, presumably increasing out-of-service time of the engines and possibly grounding aircraft in the fleet because of a lack of engines.

COMBINING SUPPLY ACTIVITIES RESULTS IN ECONOMIES

We have made a number of recommendations which, if properly implemented, should result in more effective and more economical supply service and other support activities. The military departments have adopted many of our recommendations and are considering the adoption of others. One notable example was the combining of certain activities of the Submarine Supply Office, Philadelphia, Pa., with the Ships Parts Control Center, Mechanicsburg, Pa. Although the Navy did not follow all of our recommendations for combining, under one inventory manager, the responsibility for all spare parts support for Navy ships, a move which we estimated would result in an annual savings in operating costs of approximately $1.1 million, it did effect significant economies contemplated in our recommendations. For example, the Submarine Supply Office has been moved to Government-owned quarters in the Navy Supply Center at Mechanicsburg, Pa., adjacent to the Ships Parts Control Center and the rented space in Philadelphia has been released. Automatic data processing already in use at the Ships Parts Control Center is now being used by both organizations and similar rented equipment in Philadelphia has been released. Further, through combining certain service operations, substantial savings in personnel spaces have been effected. We believe that, if the military services were to review their supply and service operations carefully and thoroughly, other consolidations might be made which would effect operating economies.

IMPLEMENTATION OF M'CORMACK AMENDMENT BELIEVED DESIRABLE

Although we have no specific legislative recommendation to make at this time, we believe that greater use of single agencies or other appropriate organizational entities to manage the procurement and delivery of items common to the needs of all military departments, as contemplated by the McCormack amendment of 1958 to the National Security Act, might alleviate some of the problems of interservice supply support mentioned earlier in this statement.

REVIEW OF ELECTRONICS SUPPLY INVENTORY

We are currently making a Defense wide review of the supply management of electronic supplies and equipment. The basic objective of this review is to ascertain if, within each service, electronic equipment, components, and spare parts required to accomplish designated military missions are being furnished (1) in required quantities and qualities, (2) at the places where and the times when needed, (3) without unnecessary duplication and overlapping of procurement, inventory, production, storage, and distribution practices, and (4) without duplication or overlapping of organizational elements. Particular emphasis is being placed on determining and evaluating the contribution to effective and economical supply management which could be made by single agencies or other appropriate organizational entities