supply of information from AFBMD was not free and open. He reported that there was a continuous struggle to obtain information and that the normal waiting period was from 60 to 75 days, if the request was not contested. With respect to the Air Force statement that only 28 documents were denied, General Medaris pointed out that "it is not the quantity, but the quality and timeliness of the technical information that is the major issue." He cited a Convair report which was refused because it was an "internal document, therefore not releasable." This report concerned radiant heating from engine exhaust gases. He said that this type of heating problem was of particular significance to the Jupiter program at a later date. As stated above, the Air Force advised that 28 documents requested by the Army were withheld. Our review disclosed 15 additional refusals of Army requests and two instances where reports were denied to the Navy liaison office. One of the requests refused was for the R-W/STL monthly and semiannual technical reports. The reason given by BMD for refusing the Army was that these reports contained internal management information. The reasons for refusing the other reports were that they included proprietary information, internal management information, etc. SUPPLEMENTAL PAYMENTS TO CONTRACTOR EMPLOYEES AT DOD TEST FACILITIES "(c) Our examination revealed that at one Defense activity, Holloman Air Force Base, Alamogordo, N. Mex., employees of cost-plus-fee contractors were paid per diem allowances varying from $8 to $15 per day. This action has often proved a negative factor on the morale of Government personnel, without the per diem allowances but working alongside of the contractor's employees. It is also a factor among contractor employees who realize that they are not getting the same consideration under similar circumstances. In raising the question, we feel that this personnel practice may be pertinent to other places, and therefore, the overall policy and procedures are of sufficient interest for more complete development." Summary A revised policy has been established by the Department of Defense covering supplemental compensation to contractor employees at Cape Canaveral, Fla., and Edwards Air Force Base, Calif. Contractors with employees at these locations have been instructed to discontinue payment of supplemental compensation after June 30, 1960. Similar changes at other test locations are being considered. The Armed Services Procurement Regulation Committee, Office of the Secretary of Defense, is considering a proposed revision to the ASPR covering contractors' employees at isolated locations. Actions taken to resolve problem of varying allowances As stated in our report dated October 21, 1959, concerning this item, this office, prior to the request from the subcommittee, had made a study of supplemental payments to contractor employees working at Edwards Air Force and Rocket Bases, Calif. We found that travel allowances were paid to contractor employees although the factors of isolation and unfavorable environment, which originally justified such payments, were no longer present. We reported our findings to the Department of the Air Force, which recommended to the Office of the Secretary of Defense (OSD) that a study group be established to investigate the practice and determine the feasibility of establishing new standards and conditions for payment of incentives to contractor personnel. At the time of our report to the subcommittee, this study group had completed a preliminary review and the staff of the Assistant Secretary of Defense (Supply and Logistics) was considering the problems disclosed, particularly at Cape Canaveral, as the basis for development of a policy position. Subsequently, we were informed that OSD had completed its study of the conditions at Patrick Air Force Base, Cape Canaveral, Fla., and Edwards Air Force Base, Calif., and had established a revised policy for supplemental compensation at these test facilities. This policy was set out in a letter sent by the respective military services to each of the contractors with employees assigned to Cape Canaveral and Edwards Air Force Base. In substance, this letter urged the contractors to discontinue payment of supplemental compensation at the earliest possible time and stated that reimbursement would not be allowed in any event after June 30, 1960. The letter also pointed out that supplemental pay would not be recognized under new contracts, including supplements to existing contracts, entered into after the date of the letter. We have also been informed that the Air Force has made further studies at Holloman Air Force Base, a test center which also has problems with respect to supplemental allowances to contractor employees. Based on these studies, the Air Force recommended to OSD that payments of such allowances be discontinued. As of April 30, 1960, OSD was considering this recommendation. The Armed Services Procurement Regulation Committee, OSD, is considering a revision to the ASPR which will provide policies and procedures to be used in the evaluation of costs of supplemental allowances in cost-reimbursement-type contracts or of costs recognized in pricing fixed-price-type contracts. This revision, if approved, will permit such costs only to the extent that the isolation or unfavorable environment of the site make such payments necessary if the contract work is to be accomplished without acceptable delays. SCOPE OF REVIEW In accordance with the request of the subcommittee, our review was conducted in the course of our study of the administrative management of the Air Force ballistic missile program, the scope of which is discussed in detail on page 123 of our initial report to the Congress, released today. Because of the subcommittee's request, we also developed, insofar as possible, certain additional information, such as the personal gains made by key employees of Ramo-Wooldridge Corp. and Space Technology Laboratories, Inc.; contracts held by Thompson Products, Inc., to supply missile components for the Defense Department; and sup plemental allowances paid to contractor employees at Department of Defense test facilities. FOLLOWUP HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MANPOWER UTILIZATION OF THE Hon. THOMAS S. GATES, Jr., Washington, D.C. DEAR MR. SECRETARY: There are transmitted herewith for your information and consideration a copy of this subcommittee's preliminary report on the aspects of the missile program, dated April 1959, a copy of the Comptroller General's report to the Congress on "Review of Administrative Management of the Ballistic Missile Program, May 1960," and a copy of the Comptroller General's report to this subcommittee covering "Survey of Aspects of the Ballistic Missile Program, May 1960," all relating directly or primarily to the Department of the Air Force. These reports raise many questions which affect both the security and wellbeing of our country, and are of such a serious nature that I believe you will want to give us the benefit of your views. Accordingly, I would appeciate your comments on the following: 1. The reports indicate that, because of the lack of an in-house capability the use of a contractor was an emergency measure in the initial stages of the missile program. However, since the Air Force now has had several years' experience, the question naturally arises as to why the in-house capability has not yet been developed. This is especially disturbing in view of the number of military personnel who have been associated with, but rotated out of, the program and, consequently, the experience gained by them has not been effectively utilized. In this connection, our inquiries of approximately 2 years ago disclosed that of all the military officers then working on the program at the contractor's plant, not one has been with it from its inception. The foregoing leads to the question, What has been done to develop in-house capability? 2. This failure to develop in-house capability is also disturbing when one considers the fact that the House Committee on Post Office and Civil Service has gone along each time with the Department's requests for additional scientists, engineers, and other supergrades. In view thereof, we are wondering why these career professional employees have not been used to develop such capability in the missile program. 3. The General Accounting Office report shows that a retired lieutenant general has played a large role in the contractor's organization. The questions arise as to whether his abilities in this line were recognized while in the service and how they were used. Secondly, why wasn't he recalled to active duty to assist in the development of in-house capability? 4. Another important question is, Where will the Government stand if the contractor decides to pull out of the program and embark upon other fields? This is not an impossibility. In fact, according to the General Accounting Office report, many of the key personnel in the original Ramo-Wooldridge organization at the time of the reorganization left the program and went with ThompsonRamo-Wooldridge, Inc. 5. Is this contract inflationary? Does it permit, possibly encourage, the payment of salaries far in excess of what the Government can pay? Is it true that the contractor has recruited a number of Government employees at substantial salary increases? The General Accounting Office report shows RamoWooldridge salaries to be above the national average in comparable fields. In view thereof, we would be interested in learning of the reasons for the Departments' failure to keep these costs down. 6. What about excessive profits? The General Accounting Office report shows the $6,750 investment made by Drs. Ramo and Wooldridge to be worth $2,910,000 and $2,702,100, respectively, at November 3, 1958, New York Stock Exchange prices. And what was the investment of Gen. H. L. George, whose stock is worth $2,286,400, to say nothing of the others whose holdings, in 1958, were worth from $291,000 to $831,400? Does the foregoing mean, aside from the normal increase in stock values over the past few years, that profits under the contracts were unconscionable? Is this not also inflationary? 7. How do patents developed under this contract affect profits of the contractor? Based on the $95,000 valuation that appears to have been placed on two patents developed under a National Aeronautics and Space Administration contract, it would appear that those developed under the Air Force contracts may have a very considerable value. To what extent, if any, were these considered in fixing the Ramo-Wooldridge fees? 8. In view of the many items brought out in the General Accounting Office report covering rents and acquisition of property and equipment, it would appear that the Department's audit of expenditures under the contract may not have been as effective as it should have been. Are corrective measures in this area being considered? 9. What about the multiapproach and parallelism in the missile program, as originally disclosed by the preliminary report of this subcommittee? To what degree has the administration of the Air Force program by this contractor brought about coordination of technical information and elimination of duplication between contractors? 10. Our report last year also pointed out that the defense efforts of Government and of industry were not fully utilizing our scientific and engineering manpower in the missile program, and also the competition between Government subsidized contractors and the Government involved in obtaining qualified employees. To be sure, there are many issues involved, but we would like to know what progress has been made. It is recognized that the foregoing questions involve many problem areas. However, in consideration of the fact that we are engaged in a momentous struggle both for our existence and our financial solvency, I urge that these matters be given your personal attention. These problems are of such magnitude that I feel you will want to answer the several questions as your staff develops the necessary information rather than delay the reply until all items are completed. I would like to express my appreciation for your cooperation. Enclosures: JAMES C. DAVIS, Chairman. Preliminary report on the aspects of the missile program in the Departments of the Navy and the Air Force, Subcommittee on Manpower Utilization of the Committee on Post Office and Civil Service, 86th Congress, 1st session, April 1959. Report to the Congress of the United States-initial report on review of administrative management of the ballistic missile program of the Department of the Air Force by the Comptroller General of the United States, May 1960. Report to the Subcommittee on Manpower Utilization, Committee on Post Office and Civil Service, House of Representatives-survey of certain aspects of the ballistic missile program of the Department of the Air Force by the Comptroller General of the United States, May 1960. JULY 15, 1960. Hon. THOMAS S. GATES, Jr., Secretary of Defense, Washington, D.C. MY DEAR MR. SECRETARY: This is in reference to my letter of June 7, 1960, to you concerning further inquiry into the Air Force's plans for managing and directing its missile program. As you are well aware, the Comptroller General in his report to the Congress of May 19, 1960, on the administrative management of the ballistic missile program in the Air Force stated that a program of such importance and a function which so significantly affects a major segment of industry should more appropriately be performed by the Government rather than by a contractor, particularly when the program is continuing in nature. Our subcommittee has also been concerned with the failure of the Air Force to develop its own capabilities to manage the missile programs. It has been brought to the attention of this subcommittee that the Air Force is planning to use a nonprofit contractor, Aerospace Corp., to supplement or eventually replace the Space Technology Laboratories in providing technical direction and systems engineering for several missile-space projects. In consideration of this recent development we would like to have an expression of your views on the following points: 1. In Department of Defense press release of June 29, 1960, the Under Secre tary of the Air Force, Hon. Joseph V. Charyk, in speaking of the Aerospace Corp., is quoted, "The new corporation should be regarded as an undertaking which has been designed for permanence and stability. * * *" What are some of the differences surrounding this undertaking as compared to the relatively short tenure of its predecessors, Ramo-Wooldridge and Space Technology Laboratories? 2. What factors were considered prior to deciding that a nonprofit organization would be more advisable than the development of in-house capability to provide systems engineering and technical direction for the Air Force missile program? 3. What is the anticipated size, personnelwise, of Aerospace Corp. by July 1961? July 1962? (a) If key employees of Aerospace Corp. are to be recruited from Space Technology Laboratories what will be the effect on the programs under the direction of Space Technology Laboratories? (b) Will promising civilian engineers and scientists in the Federal Government, especially Air Force, be given opportunities for advancement to the Aerospace Corp.? (c) Specify the control, if any, that Air Force proposes to exercise over the salaries to be paid by Aerospace Corp. 4. What are the financial arranagements in the contract with the Aerospace Corp.? (a) What is the total capital available to Aerospace Corp.? (b) Who is providing the capital? (c) Are there any contractual provisions relating to the payment of fees by the Air Force to Aerospace Corp.? (d) What is the contractual relationship between Aerospace Corp. and Air Force as to real property and equipment? 5. Will this nonprofit organization take title to patentable disclosures developed under the contract? We will appreciate your replies to these questions and a summation of any other data that may assist us in obtaining a better understanding of the merits of the Air Force contract with the Aerospace Corp. Thank you for your continued cooperation. Sincerely yours, JAMES C. DAVIS, Chairman. DEPARTMENT OF THE AIR FORCE, Hon. JAMES C. DAVIS, Chairman, Subcommittee on Manpower Utilization, House of Representatives. DEAR MR. CHAIRMAN: The Secretary of Defense has asked that I reply, on his behalf, to the matters presented in your letters of June 7 and July 15, 1960, on the management of the Air Force ballistic missile program. You emphasize that the development of "in-house" scientific and technical capability is essential to this most vital program. I share your concern that our finest talent be concentrated on the challenges of the space age. It does not follow, however, that all of such competence must be mobilized within agencies of the Government-that these scientists and engineers must uniformly become employees of the United States. Our experience has been that private industry can provide, in an efficient and effective manner, the scientific and technical manpower required for the successful prosecution of the ballistic missile program. A striking illustration in this regard is the Atlas, which was brought to operational status during 1959 within 2 months of the date originally scheduled by the Air Force some 5 years earlier, and from 1 to 3 years ahead of the date generally believed possible |