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TABLE 2

DOD MILITARY PROCUREMENT BY SERVICE CATEGORY AND FEDERAL
SUPPLY CLASSIFICATION

(Thousands of dollars)

Section A-Research, development, test, and evaluation

Section B-Other services and construction

501-505-Aircraft and engines, missiles, vessels, and combat vehicles
Modification, alteration, and/or rebuilding of equipment

5,844,104

546,324

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10, 12-17, and 19-Weapons, fire control equipment, ammunition, missiles, aircraft,

aircraft components and accessories, aircraft launching, landing, and ground handling equipment, ships, small craft, pontoons, floating docks

2305 and 2350-Ground effect vehicles, tanks, and self-propelled weapons 6920 and 6930-Armament and operational training devices

11,070,549
102,037
74,627

8415, 8455, 8470, and 8475-Special-purpose clothing, badges and insignia, personal armor, specialized flight clothing and accessories

83,122

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APPENDIX B

Associated Equipment Distributors
Position Report to Study Group 13A

The Associated Equipment Distributors organization, represented by thirteen of its member firms and staff personnel, was pleased to be invited by Study Group 13A of the Commission on Government Procurement to offer suggestions on how local distributors can be of service in supplying Federal Government requirements for construction equipment, parts, and service.

As a result of the comments offered at the meeting held at the Sheraton O'Hare Motor Hotel, Chicago, Illinois, on September 8, 1971, it was decided that AED as an association should prepare an industry position report to the Commission covering those areas where it is felt that greater economy, efficiency, and effectiveness could be realized by the Federal Government through the services offered by local AED equipment distributors, as contrasted to the present centralized purchasing system used by the Government. The Government does not make maximum use of these local suppliers at the present time.

However, before detailing some of the specific areas for improvement, it appears appropriate to first review some of the past procurement methods used by the Federal Government in obtaining construction equipment, parts, and service.

As early as 1940, an Army engineer unit used commercially available construction equipment very successfully. This was followed by the activation of many engineer units during World War II, and they too used commercially available equipment with only such minor modifications as: lifting eyes, OD paint, and RIS electrical components. In 1942 the Navy

and the Marines also activated engineer units, and they too utilized commercially available construction equipment. So World War II was fought with commercial construction equipment, all without the kind of support which is available today through a worldwide distribution network.

During the Korean conflict, engineer units were again equipped with commercial construction equipment.

Between the Korean war and the start of the war in Vietnam, we saw the introduction of Mil. Spec. construction equipment and centralized parts supply for Army and Marine Corps requirements.

Product qualification, standardization, extensive testing, provisioning, FSNs, special manuals, etc., duplicating that done in the commercial market, all costing considerably more to the Government and to the taxpayer make for doubtful increases in performance and reliability.

In many instances, the Mil. Specs. and APL requirements did not incorporate the latest designs.

Today there are over 20,000 contractors who are dependent on five billion dollars worth of commercially produced equipment to perform their jobs efficiently and economically per year so that they can make a profit and retain the good will of their customers. This figure does not include field inventory. Many of these same contractors perform services for the Federal Government without the benefit of special equipment. Commercial equipment is currently being used in Vietnam by RMK-BRJ to lay

highways, and the performance on the equipment has been excellent.

With this short summary, the reasoning of the Government might well be questioned.

Why Mil. Spec. construction equipment?

It is often heard that the equipment must operate under a wide variety of terrain and environmental conditions.

In answer to that-perhaps it should be remembered that commercial equipment has been used under the most rigid conditions at the North and South Poles and most of the land masses in between.

With this background information in mind, AED wishes to offer the following comments which the Association members feel will aid the Federal Government in its cost cutting role without sacrifice to effectiveness:

(1) Utilize standard commercially available equipment whenever and wherever appropriate, especially when the functional performance is the same and yet there could be considerable savings in cost and maintenance to the Government.

Where would the savings come from? (a) There would be no special de

velopment expense. (b) The equipment is now in high

production and available. (c) No special tooling is required. (d) Testing costs would be mini

mized. (Many suppliers cannot undergo the expensive testing required to meet Government specs.)

(e) There would be reduced administrative expense.

(f) Local distributor service teams can be utilized.

(g) Equipment inventories can be

kept to a minimum.

(h) Buy equipment to suit the need rather than use what is available.

Other advantages are:

(a) Faster delivery (mobilization) (b) Latest technology

(c) Less recordkeeping

(d) Training and service manuals available.

There are over 800 AED local distributors

strategically located throughout the United States and others in many foreign countries.

(2) Utilize local distributor stocks. Parts and components stocks of suitable mix and quantity are available on a local basis where they are needed. The Government does not have to maintain parts warehouses, parts stock, trained people, maintain costly records, separate manuals and reports, special packaging facilities and pay for shipping to the using unit. There would be no loss through obsoles

cence.

Local equipment distributors maintain 85-90% of parts availability at all times. in order to prevent costly downtime with contractor customers. This service is available to local Government installations.

(3) The Government should take advantage of equipment rental when permanent ownership is not really needed. The newest most modern equipment can be rented from local distributors for short duration (only for the time needed) at the lowest cost per equipment hour.

Other savings to the Government through rentals:

(a) Service and repair remains the responsibility of the local distributor.

(b) Equipment need not be moved long distances from one job site to another at great expense.

(c) Exact usage costs can easily be maintained-there is just one rental billing.

(d) The cost of disposing of owned or obsolete equipment is eliminated. Overhauling for resale and the time and money required to find buyers is an important factor.

(e) Funds are available for other

use.

(f) More effective service can be

expected on equipment either rented or sold to the Government in a local area because a distributor has a better knowledge of the terrain and the conditions where the equip

ment will be used. Because of this he has a vested interest in the right equipment and its performance. Local distributors maintain the most modern service facilities with trained specialists on every type and make of equipment. (g) The Government product manager would still control and authorize equipment purchases and rentals, but he would use local sources of supply instead of remotely located Government warehouses and depots. (h) Downtime-poor use of per

sonnel.

(4) The Federal Government often automatically eliminates itself from doing business with many desirable suppliers because of the voluminous paper work and the "red tape" involved in the completion of bids and contracts.

It is, therefore, suggested that forms used by the many services be standardized and that consideration be given to those provisions which are essential and can be clearly understood by the buyer and the seller.

If many standard commercially available products were specified, there would not be a need for reams of paperwork as is presently the case. If over 20,000 contractors are buying equipment on a daily basis from local suppliers without problems, why should the Federal Government who buys considerably less require such rigid regulations?

(5) When the Federal Government requires much stronger guarantees, warranties, and "hold harmless" clauses than that required by contractors for like equipment and like work, the Government has to pay a premium for these provisions.

In Summary:

The original concept of centralized procurement, which was installed by the Government a number of years ago, may have served a purpose at the time and was a step in the right direction.

At that time it provided for the accumulation of purchases which, in most cases, produced a savings to the Government and the taxpayer. Better controls were established and management practices were introduced which contributed to greater efficiency.

However, like most systems and procedures, they became too fixed and rigid in practice, and little provision has been made since for the many changes which have evolved.

Throughout the U.S., distributor organizations have emerged in great numbers in every city and state. They have responded to the pressing need for specialized service and parts to support expensive labor saving equipment.

The Government is continuing to perform some functions which can be done more economically by others who are specialists in their field.

The members of AED welcome the opportunity to work with the Federal Government in an effort to find a solution to its problem of reducing costs to the taxpayer. We hope our suggestions will be helpful.

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a Latest available data to place all agencies on a fiscal 1971 basis. The data furnished by the Veterans Administration (VA) are for actions under $2,500 rather than for actions of $2,500 and under. DOD data consist of negotiated procurements only.

b Department of the Army Procurement Statistics, Fiscal Year 1971, Procurement Statistics Office, DCSLOG Data Processing Center, Washington, D.C., p. 28.

e Calculated by the Commission using data in Military Prime Contract Awards and Subcontract Payments or Commitments, July 1970June 1971, OSD, p. 49.

d Letter from Directorate of Procurement Policy, Hq. USAF, to the Commission, June 27, 1972.

• Procurement and Production Directorate Procurement Statistics, FY 1971, Defense Supply Agency, pp. 69-70.

f Note C, supra.

* Letter from Director, Supply Service, Veterans Administration, to the Commission, June 26, 1972, and VAMC Operational Management Data (Procurement)-FY 71, VA Marketing Center, Hines, Illinois, n. d.

h Letters, with attachments, from Director, Federal Supply Service, General Services Administration, to the Commission, Sept. 17, 1971, and Feb. 2, 1972.

iSource of other data: Note c, supra, pp. 48, 54-56.

J Calculated by the Commission.

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