But studies conducted by the national chamber, following a highly critical September 1958 speech by former Deputy Assistant Defense Secretary (Supply and Logistics) Cecil Milne disclosed that there are now on the statute books 34 laws which establish a multitude of guidelines (some of them conflicting) and legal restrictions that every military contracting officer must abide by before he can award, or recommend the award, of each contract. These include the 1936 Walsh-Healey and 1931 Davis-Bacon Acts, fair share for distressed areas, conserve critical materials, etc. In addition, there are many executive orders and regulations issued by other executive departments that impose such requirements as maximum geographic dispersion of contracts, nondiscrimination in employment, and integration of current procurement with longrange industrial mobilization plans. As the procurement task force of the second Hoover Commission observed, on an individual basis, a reasonably good case can be made for absorbing some such objectives into the military procurement process. But the accumulative result of the ever-increasing number of such requirements is to seriously hamper military buying and the management of contracts and further increase the cost of our defense program. One of the best illustrations of this problem is the current action of the Department of Labor in seeking four Walsh-Healey Act minimum wage determinations for the major segments of the electronics industry, despite warnings by Electronic Industries Association President David Hull that any such action "would have a serious inflationary effect through the impact of higher defense program costs." Thirty-three percent of all major defense procurement is for electronics equipment or services. Late last month the Labor Department reluctantly discarded plans to seek a new and broader Walsh-Healey minimum wage determination for the aircraft industry. The action had been initiated in response to demands by the two major unions in the aircraft industry, but the unions withdrew their request after the Aerospace Industries Association produced documented estimates that the proposal would add at least $100 million annually to military aircraft procurement cost. DEFENSE APPROPRIATION STRUCTURE The fiscal 1960 budget, for the first time, included a single "Operations and maintenance" account for the Navy, broadened the definition of research and development, and regrouped all defense appropriations into functional or activity categories. These actions were in accord with 1958 and 1959 recommendations of the national chamber and were welcomed as steps in the right direction. On the other hand, the revised appropriations structure was deficient in that there was no actual consolidation of funds within each functional category and most of the new spending authority requested by the President still was to be appropriated to the military services, instead of to the Department of Defense. The budget was approved in the form in which it was submitted. The chamber still takes the position that the present method of appropriating most defense funds-particularly research and development and procurement funds to the military services is deficient in that it 1. Is not realistically related to our defense objectives. 2. Overstresses the separateness of land, sea, and air concepts in a defense pattern which requires complete coordination of all three to meet tactical and strategic military goals. 3. Vests in the military chiefs of the three services major control--plus considerable economic and political power-over funds approximating onehalf of the Federal budget. 4. Minimizes effective civilian control over the military. The current appropriation system is also partly to blame for the continuing interservice rivalry (as distinguished from healthy competition) for domination of various weapons programs, and, more important, the money that goes with them. This stems from the fact that each service has been appropriated its own funds to accomplish objectives which it feels are most important, and these objectives have generally included each being able to fight a war itself. Thus we still have--in spite of the Defense Reorganization Act of 1958 and stronger top-level control over research and development, in the person of a Director of Defense Research and Engineering-races in each of the services to develop and introduce into their inventories weapons designed to accomplish substantially the same military objectives. This, in turn, brings about undesirable competi tion for scarce manpower to do such work, and results in unnecessary triplication in the procurement and supply fields and in general overhead activities. RECOMMENDATIONS While the national chamber does not profess to have a complete solution for each of these problem areas, we do have some recommendations and suggestions that we believe would help eliminate unnecessary duplication and waste, permit improved organization and management of our defense program, and minimize its unfavorable impact upon our total economy. We believe Congress should take the following specific actions: 1. Spell out, in unmistakable terms, its insistence that the Defense Department utilize the McCormack amendment to the 1958 Defense Reorganization Act, including the establishment of target dates for the development and submission of a plan of implementation, the achievement of initial objectives, and the submission of regular progress reports. 2. Direct the Department of Defense to expedite its lagging decompetition program; to inaugurate at once studies of the need for all categories of activities not previously reviewed, and to submit a comprehensive report, to the appropriate congressional committee of the actions taken or planned to close or curtail activities in each of the 48 categories identified in the 1955 Hoover Commission Report on Business Enterprises. At the same time, repeal the requirement that disposal actions, other than those involving activities specifically established by law, be cleared with Congress or any of its committees. 3. Overhaul and modernize the Armed Services Procurement Act of 1947, along the lines proposed in S. 500 but amended as recommended by the national chamber in its July 31, 1959, testimony. 4. Conduct a comprehensive review, and repeal or amend as may be necessary, the 34 statutes that require or recommend the use of vital but limited defense dollars to achieve social and economic objectives unrelated to military requirements. At the same time, direct the Defense Department to conduct a similar study of the corresponding Executive orders and departmental regulations, and to submit a report on the study to the appropriate congressional committee. 5. Recommend to the President the consolidation of appropriations in each of the functional categories of the 1961 budget for military functions, Department of Defense, and make all such appropriations to the Department of Defense, instead of to the Departments of the Army, Navy, and Air Force and to the Marine Corps. The CHAIRMAN. The staff study entitled "Background Material on the Economic Aspects of Military Procurement and Supply" will be printed separately. I also ask permission to put letters which we have received, in the record, and statistical materials. Also, the analysis which has been prepared of the reports of the Comptroller General. I would suggest to the staff they be classified according to the type of abuse which has been disclosed. I want to thank again Mr. Ward and Mr. Newman for their very efficient work. (The material referred to follows:) Hon. JOSEPH CAMPBELL, Comptroller General of the United States, OCTOBER 2, 1959. DEAR MR. CAMPBELL: I have been interested in the excellent reports which the General Accounting Office has issued the last year or so concerning military supply and service activities. As a matter of fact, I have been somewhat shocked by the revelations of your investigators. Later this fall the Joint Committee on the Economic Report, of which I am the chairman, plans to take a broad look at the impact of the Government's supply and service programs upon the national economy. One of the facets of the investigation will involve the scope of military procurement, transportation, storage, disposal and other supply management activities. We also wish to consider the way these things are being conducted. That is to say, by negotiations, etc. We will also be interested in the progress made and planned as to implementation of existing legislation, particularly the McCormack amendment of 1958 to the National Security Act. I would very much appreciate it if you will analyze the various reports which have been made by the General Accounting Office during the last 2 years and summarize them as to what are the broad implications of your findings upon the economy. I shall also appreciate it if you will suggest to the Joint Economic Committee any administrative or legislative changes deemed necessary to bring about improvement in the existing supply and service systems and procedures. The committee may wish you and your staff to testify on this subject in the latter part of the calendar year. Mr. Ray Ward is working with our committee on this subject. Sincerely yours, PAUL H. DOUGLAS. OCTOBER 2, 1959. Hon. FRANKLIN FLOETE, Administrator, General Services Administration, DEAR MR. FLOETE: As you perhaps know, the Joint Committee on the Economic Report held some hearings some time ago and touched upon certain phases of Government supply management particularly with respect to surplus property disposal. Later this fall the Joint Committee on the Economic Report, of which I am the chairman. plans to take a broad look at the impact of the Government's supply and service programs upon the national economy. One of the facets of the investigation will involve the scope of the Government's procurement, transportation, storage, disposal and other supply management activities involving general administrative supplies. Another will deal with the Government's surplus and foreign excess property disposal activities and a third will deal with the procurement, storage, and disposition of stockpile materials. The committee will be interested in the way various materials are procured. That is to say, by negotiation, cost-plus contracts, open-end contracts, etc. We will be particularly interested in the progress that has been made and planned as to the implementation of the existing legislation particularly the McCormack amendment of 1958 to the National Security Act. I shall very much appreciate it if you will keep these matters in mind, make a review of the facts pertaining to these programs and be in a position to testify before the committee in the latter part of the calendar year. Mr. Ray Ward who will be on detail to the committee will be helping with this work. Sincerely yours, PAUL H. DOUGLAS. Hon. MAURICE STANS, Director, Bureau of the Budget, Washington, D.C. OCTOBER 2, 1959. DEAR MR. STANS: Later this fall the Joint Committee on the Economic Report, of which I am the chairman, plans to take a broad look at the impact of the Government's supply and service programs upon the national economy. One of the facets of the investigation will involve the scope of military procurement, transportation, storage, disposal and other supply management activities. We also wish to consider the way these things are being conducted. That is to say, by negotiation, etc. We will also be interested in the progress made and planned as to implementation of existing legislation particularly the McCormack amendment of 1958 to the National Security Act. I hope that you and your staff may keep this matter in mind and be in a position to report to the committee possibly in November or December as to suggestions you may have at that time for administrative and legislative changes deemed necessary to bring about improvement in supply and service systems and procedures. Mr. Ray Ward who will be on detail to the committee will be helping with this work. Sincerely yours, PAUL H. DOUGLAS. Hon. NEIL MCELROY, Secretary of Defense, the Pentagon, Washington, D.C. NOVEMBER 23, 1959. DEAR MR. SECRETARY: The Joint Economic Committee, of which I am chairman, is planning to take a broad look at the impact of the Government's supply and service programs upon the national economy. We hope to deal with the scope of the Government and Defense Department's procurement, transportation, storage, disposal, and other supply management activities. We are also interested in the procurement, storage, and disposition of stockpile materials. In addition, we are concerned with the various methods of procurement, i.e., costplus contracts, etc. Finally, we shall be particularly interested in the progress that has been made and planned as to the implementation of the existing legislation, particularly the McCormack amendment of 1958 to the National Security Act. As you know, the funds involved in these activities run into the billions of dollars. We are concerned about them not from the strategic or tactical military aspects, which of course are outside our interest or jurisdiction, but we are concerned about the impact on our economy of these vast sums and the methods which are used to procure, store, assign, and dispose of them. I shall very much appreciate it if you will keep these matters in mind and possibly be in a position to testify concerning them either late in December or at a time early in the new year. With best wishes, Faithfully, PAUL H. DOUGLAS. Mr. FRANK UPMAN, OCTOBER 2, 1959. Executive Secretary, Committee of Hoover Commission Task Force Members, Washington, D.C. DEAR MR. UPMAN: Later this fall the Joint Committee on the Economic Report, of which I am the chairman, plans to take a broad look at the impact of the Government's supply and service programs upon the national economy. One of the facets of the investigation will involve the scope of military procurement, transportation, storage, disposal, and other supply management activities. We will be very much interested in the progress made or plans underway to implement existing legislation and particularly the McCormack amendment of 1958 to the National Security Act which was endorsed by your group. I shall appreciate it if you will bring this matter to the attention of the members of your group who contributed to the work of the Second Hoover Commission. It is hoped that your group may be able to make recommendations as to administrative or legislative changes to bring about improvements in existing supply and service systems and procedures. It will also be helpful if one or more members of your group who are conversant with these matters will be prepared to testify later this calendar year. Mr. Ray Ward who will be on detail to the committee will be helping with this work. Sincerely yours, PAUL H. DOUGLAS. OCTOBER 2, 1959. Mr. ERWIN D. CANHAM, President, U.S. Chamber of Commerce, DEAR MR. CANHAM: Later this fall the Joint Committee on the Economic Report, of which I am the chairman, plans to take a broad look at the impact of the Government's supply and service programs upon the national economy. One of the most important facets of the investigation will involve military procurement, transportation, storage, surplus disposal, and other supply management activities. We will wish to consider the manner in which these activities are conducted. That is to say, by negotiation, competitive bids, cost-plus contracts, etc. We will also be interested in the progress made and planned as to implementation of existing legislation particularly the McCormack amendment of 1958 to the National Security Act. Since the chamber of commerce has taken an active interest in this subject matter and has from time to time made recommendations to the committees of Congress with respect thereto, I shall greatly appreciate it if you will review the matter and be in a position to suggest to the committee any administrative and legislative actions which you deem necessary and desirable to bring about improvements in the supply and service systems and procedures. We may hold hearings later on this subject. Mr. Ray Ward who will be on detail to the committee will be in charge of this work. Sincerely yours, PAUL H. DOUGLAS. [Excerpts from certain General Accounting Office Reports during 1958 and 1959] PROCUREMENT DEFICIENCIES B-118778 February 14, 1958 Examination of Insurance on Government-Owned Facilities in Possession of Chance Vought Aircraft, Inc., Dallas, Tex. The report pertains to the requirement of the Department of the Navy that the contractor carry property damage insurance on Government-owned facilities although the facilities are used almost exclusively in the performance of Government contracts and subcontracts. This requirement, which has been adopted pursuant to provisions of the armed services procurement regulation, results in unnecessary costs to the Government through absorption of insurance charges in prices, to the Government and is inconsistent with the Government's policy of self-insurance on its properties. B-132989 February 28, 1958 Review of Requirements Determinations and Related Procurement for J-57 Aircraft Jet Engines in the Department of the Air Force. Our review of the J-57 engine program disclosed four cases of management deficiencies involving substantial amounts. When these deficiencies were reported to the Air Force, corrective action was taken, thereby avoiding unnecessary expenditures of approximately $16,430,000. B-132970 March 10, 1958 Review of Procedures for Canceling Production of Excess Aircraft Jet Engines in the Department of the Air Force. We found that substantial amounts were being spent unnecessarily for continued production of J-47, J-73, and J-65 engines that were no longer required. These failures to reduce production were caused by inadequate procedures and by reliance without sufficient review on information furnished by the contractors. We reported our findings to responsible Air Force officials and recommended improvements in Air Force procedures. Additional cancellations of aircraft engine production were made, resulting in savings of more than $62 million, as stated in the Comptroller General's annual report for 1955 and 1956. In addition, Air Force procedures were improved and revised regulations were issued in August 1957. Our findings were reported to responsible Air Force officials and 37 additional J-65 engines that were still in production were canceled at a saving of about $1,300,000. B-125050 March 13, 1958 Need for Current Cost Data in Negotiations of Defense Contracts. Our examinations have shown that the Government frequently was in an unnecessarily disadvantageous bargaining position in the negotiation of the original contract price and is subsequent repricing since it did not have knowledge of current cost data known to contractor officials at the time of negotiations. In contract repricing negotiations, prolonged delays often occur between the redetermination cutoff point and the time of the actual negotiation of revised contract prices. These delays are usually attributable to the time needed by the contractor to assemble the necessary cost data and by the agency to audit and |