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We are making visits and are discussing with prime contractors the means by which subcontracting opportunities may be expanded.

I am sure you are aware that Mr. Beller of your committee staff and Captain Lotterhos recently made a trip to the west coast for this purpose.

I understand Mr. Questal of my office and Mr. Lanaham of the Bureau of Naval Weapons will proceed to New York this week in an attempt to accomplish further results in this same regard.

We maintain close association with the Small Business Administration and attempt in every practicable way to meet the objectives of the law under which they operate.

I understand that there is an improved format which has been developed with respect to the Commerce Daily which will permit an easier use of this particular publication by small business concerns. In conclusion, Mr. Chairman, I would like to say to you that in my opinion, and I have been in the procurement business for quite some time, small business has a very definite place, and by giving small business an opportunity to compete, we can expect to receive quality merchandise at less cost.

There are many problems in achieving this objective, but I believe we in the Navy are doing our best to resolve them.

Thank you very much.

Mr. MULTER. Might I ask you the same question, sir, as I asked the last witness: You will remember when this subcommittee conducted hearings in the field not too long ago, we found some commandants who were wholeheartedly behind the small business program and doing an excellent job, but others were resisting to the bitter end and making it quite difficult in some instances to bring small business into the procurement program. What do you find regarding the resistance of these people to bringing small business into the procurement program of the Navy?

Mr. JONES. Based upon what I have seen, Mr. Chairman, there are isolated instances in which people may initially, because of their lack of experience with the program, not be as cooperative as they should be. But I can quite assure you that, through the efforts of our small business people and our procurement people, this atmosphere, in my opinion, does not continue to exist.

Mr. MULTER. I am pleased to hear that. I just wonder how you overcome the situation of the top man of a particular installation telling his small business specialist, "you are here as a small business specialist, but we want this business going to big business to the fullest extent."

Mr. JONES. I think, Mr. Chairman, that when we have goals in the small business area which are passed down to these individuals, they cannot from a practical point of view take that attitude.

Mr. MULTER. How many small business specialists do you have assigned full time?

Mr. JONES. We have a total of 98 small business specialists. Eighteen of these are full time in our major procuring activities, 45 are part time in procurement activities, and 35 are part time in our contract administration offices and are primarily concerned with the subcontracting area.

Approximately 80 percent of the Navy's procurement dollars are spent right here in Washington, and in these major procuring activities we have full-time small business specialists.

Mr. MULTER. Do you initiate small business set-asides?

Mr. JONES. Yes, sir.

Mr. MULTER. To the extent that you are asked to do so by the Small Business Administration, is there complete cooperation between Navy and Small Business Administration?

Mr. JONES. My observation is that there is; yes, sir.

Mr. MULTER. I think one way of appraising or evaluating such cooperation is to ascertain how many, if any, appeals have been taken where the Navy and Small Business Administration couldn't agree on set-asides? How many such appeals have there been in the last year to the Secretary of the Navy!

Mr. QUESTAL. I would like to say first, with respect to set-asides initiated by the Small Business Administration, our statistics indicate that there has been concurrence in more than 90 percent of the

cases.

With respect to appeals to the Secretary, within the last year there have been two appeals.

Mr. MULTER. Î think that speaks very well for the cooperation of the Department.

Mr. Smith?

Mr. SMITH. Mr. Jones, were you present when I talked with Mr. Port?

Mr. JONES. Yes, I was.

Mr. SMITH. Were you able to hear my questions to Mr. Port?
Mr. JONES. Yes, sir, although I don't recall them in detail.
Mr. SMITH. Did you understand them?

Mr. JONES. I think I did; yes, sir.

Mr. SMITH. Did you hear Mr. Port's answers?

Mr. JONES. Yes, sir.

Mr. SMITH. Did you understand his answers?
Mr. JONES. I think so.

Mr. SMITH. In the interests of saving time, did you get any ideas or comments in your mind during the questioning and answering that you would like to submit that might be different or that might enlarge in any way upon statements he made, or were you pretty much in agreement?

Mr. JONES. I would like to say with respect to project 60, it is my opinion that the objective of Mr. McNamara, which is to bring greater uniformity and consolidation of effort, will ultimately result in benefits to the small business organization, because there will be one field organization to which they will be able to go, and there will be a more uniform set of principles under which they will operate. Mr. SMITH. Have you found that the contemplation of this vast reorganization of the functions has caused more confusion among small business now or less confusion? Is your work harder, easier, or what is the status?

progressed to the point The change has not yet That is, the consolida

Mr. JONES. I do not believe that it has where this can be reasonably determined. been made, and I think there must be time. tion which is planned in Philadelphia is only in the planning stage

at this point, but, as I said a moment ago, I would expect that the reorganization would benefit small business.

Mr. SMITH. From the standpoint of how far it has gone now, do you have any opinion as to when this might be brought about into one complete reorganization? Have you had any orders or instructions? Are we talking about 1964, 1965, 1970, or after the man gets to the moon?

Mr. JONES. I have forgotten the detail which is indicated in the piece of paper which Mr. Askins furnished, but my recollection is that the project will be launched within about 6 months, and they will take a period of 6 months to a year in which to analyze the results. In the meantime, there will be efforts carried on to bring about greater uniformity and standardization within the services in the contract administration area.

Mr. SMITH. Do you have any comments to make about this neverending problem of drawings being taken and handed to other individuals? Have any recent cases come to your attention, or does everything seem to be in agreement?

Mr. JONES. I know of no cases along this line recently. I know sometimes there are differences of opinion as to what is proprietary information. The mere fact that a contractor labels a drawing proprietary does not necessarily make this so.

I think you have to analyze this matter on a case-by-case basis. I would assure you of one thing, that it is not the Navy's policy to in any way violate data that is truly proprietary, nor to use it in any way which would embarrass either the Navy or the contractor who furnished it.

Mr. SMITH. In demanding the drawings, do you or does your office require that they be drawings from which the product can be manufactured?

Mr. JONES. If we expected to use the drawings for manufacturing purposes, we would then make arrangements to have complete rights to issue the drawings to others. If we have spent money in research and development, as you know, the ASPR provides that we pick up the data which is the result of this development. If the particular information belongs to a contractor, we may either take steps to purchase it or encourage the contractor to grant some licensee the right to use it. It is only seldom that we would reverse engineer an item. As you probably know, in the ASPR this is the last choice that we make. If we can obtain a proprietary item at a reasonable price, we will respect that proprietary position and will buy it from the individual who produces it. We will not pay an exorbitant price if we can economically reverse engineer.

Mr. SMITH. In other words, if there were a sole source item and no R. & D. money, and if you thought the manufacturer were holding you up on price on something that you needed urgently, in that instance you would consider

Mr. JONES. We would probably in that instance have to buy it from him but we certainly would consider, on future procurements, the practicalities of reverse engineering.

Mr. SMITH. In the event we have a person who is using his own money for development of an item and is the sole source for that item

at that time, would you give any thought to taking his drawings and sending those out for competitive bid?

Mr. JONES. No, sir, not unless we had paid him for the proprietary information that is in those drawings.

Mr. SMITH. You would actually try to purchase them and pay him a reasonable amount

Mr. JONES. Yes, sir.

Mr. SMITH (continuing). Or you would try to get him to help license it if he could not supply it. Is that correct?

Mr. JONES. Yes, sir.

Mr. SMITH. Do you have any suggestions that you can make to this committee along the lines of proposed legislation, changing of regulations, or where we can be of further help? Is there any help you can give us along those lines?

Mr. JONES. I think something which might be helpful to your understanding of the defense problem in this area is to discuss the procurement of weapons systems with technical personnel who can indicate to you the problems which are associated with maintaining quality and integrity and performance of these systems, and how this tends to adversely affect the possibilities for small business. These people are also the ones who can and do in many instances aid us in developing information and actually taking the steps which permit us to break items out, and as a consequence get competition which is helpful to small business.

Mr. SMITH. Do you find any indications of newly formed small businesses attempting to compete where you feel they are not qualified? Does this raise any problem?

If

Mr. JONES. I don't think it is any different than it has always been. Every business must be evaluated as to its responsiveness and its responsibility, and, of course, we do this in the Navy on our own. there is a difference of opinion as to responsibility with regard to capacity and credit, this is a matter for the SBA to determine, and I think you will find that we have been quite cooperative in trying to reach an objective result.

Mr. SMITH. Do you find, as you put out orders to your employees, that they do their best to follow orders, or do you find any instances where they say, "We will be here long after Mr. Jones is gone. We are going to do this with our friend, Smith, and give him the contract and not worry about these regulations"?

Mr. JONES. If they say it, they don't say it openly, sir.

Mr. SMITH. You don't hear anything like that?

Mr. JONES. No, sir.

Mr. SMITH. Only I hear of it.

Mr. JONES. I think it is probably more natural that you would than I, sir.

Mr. SMITH. Thank you, Mr. Chairman.

Mr. MULTER. Mr. Robison?

Mr. ROBISON. Mr. Jones, in skimming through your prepared statement, my attention has been drawn to two relatively new procurement policies or procedures.

One of those is what you call the "multiyear" procurement procedure.

Mr. JONES. Yes, sir.

Mr. ROBISON. This one I can rather readily understand. I gather it is your hope and your thought that this will result in greater small business participation in procurement.

Mr. JONES. I am hopeful that there will be instances in which this will occur; yes, sir. That is the way the statement has been written. I would hope that where there are items which can be purchased in this manner, that their purchase on the basis of a multiyear procurement will give more stability to the procurement and will permit small business to take a greater risk as a result.

Mr. ROBISON. The next one is the so-called "weighted guidelines" policy.

While you have outlined, in language that this country lawyer can understand, the "multiyear" procurement procedure, you don't give much explanation, at least for me, of the so-called "weighted guidelines" policy. Could you put that in layman's language?

Mr. JONES. I will attempt to do this; yes, sir. The general feeling of people within the Logistics Management Institute, industry, and the Department of Defense, was that a more objective means should be devised for arriving at profit. The Logistics Management Institute made a study in this regard.

They came up with a formula which is somewhat along the lines of that now in the ASPR. This formula indicated certain considerations to be given to various factors of cost. It also gave consideration to risk, to performance, and to other factors. This particular procedure was discussed with many procuring activities throughout the services. It was submitted to industry, and there was formulated a Department of Defense-industry advisory committee group which reviewed the results of the study and made studies of their own.

As a consequence of these studies, recommendations were made to top officials in the Department of Defense, and ultimately Mr. Gilpatric, I think it was, signed off on these weighted guidelines. When the guidelines were being developed, there were some of us who were concerned, because of the weights which were indicated, as to the adverse effect it might have on small business because of the tendency of big contractors to possibly pull business back into their plants.

Mr. ROBISON. That is what I would like to have you discuss.

Mr. JONES. As a consequence, we made a provision, when the recommendation went topside, that various aspects of this program be followed, and that the results be analyzed to determine whether adverse effects were actually obtained.

One of those areas was the effect on small business. The Office of the Secretary of Defense, as I understand it, will take steps to obtain statistical information from contractors to ascertain whether or not the weighted guidelines have had any adverse effect on small business. The contention of those people who had something to do with its devlopment was that contractors, where they subcontract, will make more on their invested capital than they will if they buy the facilities and equipment necessary to perform the work inhouse. I think only time will tell us precisely what the effect will be.

Mr. ROBISON. Thank you, Mr. Chairman.

Mr. MULTER. Mr. Harvey?

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