There are a host of these kinds of very specialized modification situations that come up in real life, every day. The Air Force numbers, very frankly, include several billions of dollars worth of these that are in a state of question. However, I told our field personnel that if they are going to make an error, make the error on the side of including everything. I don't want anything left out. We can go back when we get the policy straightened out and weed out those situations that clearly don't apply.

As a net result, looking in our total numbers, the only ones that I really have found to be awarded in clear violation, or what would appear to be clear violation of the statute, are four contracts and one modification, since our last hearing.

As a result of my visit to the field, and my deputy's visit to the field, for example, we found 67-some cases where our people had not included everything. However, on the next report they included those 67 specific contracts and that increased the numbers by something like $1.4 billion. Again, a number of those are BOA's; a number of those are change orders; a number of those are the exercise of prepriced options. So, until we get our policy established as to what we do; whether we ought to include options; whether we ought to include provisioning orders; whether we should include BOA's; when we are to get the plans; those numbers are going to be high and be not truly reflective of the work that we are doing in the field to implement this law. We are taking the most aggressive actions that I can think of to make sure that we are not missing anything. We have modified all of our solicitations that were deficient. We have no solicitations that we know of that have been issued since then that do not contain the required clauses.

We are undertaking a special training program for our people. We will have another special management review. We are going to visit all of our major buying activities starting in the month of March. It will be an acquisition management review of all of our buying activities to insure that they are in compliance with Public Law 95-507. We have a message that is going out from the Vice Chief of Staff to all the commanders of the Air Force major commands telling them to get with it. We have to comply with this law fully.

Thank you.

Mr. LAFALCE. Thank you very much, Mr. Rellins.

Without objection, your entire statement will be entered in the record at this point.

[Mr. Rellins' prepared statement follows:]

PREPARED STATEMENT OF DONALD E. RELLINS, DIRECTOR, SMALL AND DISADVANTAGED BUSINESS UTILIZATION, OFFICE OF THE SECRETARY OF THE AIR FORCE Mr. Chairman, I am Donald E. Rellins, Director of Small and Disadvantaged Business Utilization. The Secretary of the Air Force, Dr. Hans Mark, has asked that I express his regrets for being unable to appear before your subcommittee today. I have been designated to represent him and will respond to any questions you may have regarding the subject of this hearing.

The Air Force is fully committed to implementing Public Law 95-507. To make sure that we were not missing contracts and modifications which should contain subcontracting plans, we required on December 17, 1979 our field activities to report to us on all solicitations and contract awards (both new con

tracts and modifications) made from September 1, 1979 through December 31, 1979 which are over $500,000 ($1 million for construction). We then asked them to identify those which required subcontract plans, those which had been modified and those which were not either modified or terminated along with the reason for that action.

Subsequently, the following data was supplied to the Office of Federal Procurement Policy (OFPP) on February 8, 1980. Also included is the latest data we have which is about one month later than the February 8 data:

1 Field activities have reported that in all cases where a decision has been made to modify the contract, either a projected date for incorporating the plan is identified, a plan is under review or negotiated or a modification to incorporate the plan is being processed.

To insure that we were reporting all of these contracts and modifications uniformly, staff visits were made to one base contracting activity and three major contracting activities during January 1980. These visits pointed out that additional guidelines are required to determine whether current modifications to contracts entered into before September 1 should have subcontracting plans. Policies need to be developed for the exercise of options, unilateral change orders, provisioning orders, BOA's and other contractual instruments. These visits also determined that some contractual actions entered into subsequent to September 1, 1979 which should have contained the plans but didn't were omitted from our previous report. Sixty-seven such contractual actions worth $1.422 billion are identified in this category.

With respect to solicitations, the Air Force identified 28 which were listed as deficient in the report to OFPP. Six were modified and 22 were being reviewed for modification action. Since that time, no additional deficient solicitations have been identified and the current status is that all solicitations have been modified to incorporate the subcontracting plan solicitation provision.

To determine the extent of awards which should have but did not include subcontracting plans, we sampled contract actions at the Aeronautical Systems Division (AFSC) over $10 million which were awarded since September 1, 1979. This sample size represented 31 contractual actions and $3.042 billion from a total base of $4.132 billion or 74 percent of total dollars awarded. Based upon that data we identified two contracts and six modifications totaling $426.7 million which did not contain the required plan. Furthermore, we have identified nine additional awards from other contracting activities which were entered into after January 1, 1980 which are deficient. These awards amounted to $67.1 million. Corrective action is in progress.

The Air Force is concerned about these deficient awards and the actions being taken by our field activities. As mentioned above, on January 8 and during the week of January 21, staff visits were made to one base contracting activity and three major acquisition centers to determine firsthand the experiences these activities were having with Public Law 95-507. Local procedures were also reviewed. Furthermore, the Air Force has scheduled a special review on the implementation of Public Law 95-507 at all major contracting activities. This review will cover all aspects of Public Law 95-507 including contractor flow-down procedures and will be conducted by Headquarters personnel.

The Air Force also has initiated a new formal training program to be conducted by the Lowry Technical Training Center. This course will concentrate on training Air Force Small and Disadvantaged Business Utilization Specialists on their responsibilities under Public Law 95-507 as well as other aspects of the Small and Disadvantaged Business Program. The course was approved on January 29, 1980 and will be initiated in late fiscal year 80. Particular emphasis

Finally, as a result of the latest data obtained, the Vice Chief of Staff has sent a message to the Commanders of all Air Force Major Command requesting them to take action to ensure compliance with the law.

I will be pleased to answer any questions that the committee may have.

Mr. LAFALCE. That is an excellent summary. I would ask that all the summaries, however, be briefer than the prepared testimony. [Laughter.]

With that, I call on the Principal Deputy, Assistant Secretary of the Navy for Logistics, Mr. Thomas E. Harvey.

Mr. Harvey, will you please proceed.

TESTIMONY OF THOMAS E. HARVEY, PRINCIPAL DEPUTY, ASSISTANT SECRETARY OF THE NAVY FOR LOGISTICS, DEPARTMENT OF THE NAVY

Mr. HARVEY. Mr. Chairman, Secretary Hildago has asked that I express his regrets that a prior commitment has precluded his participation in these hearings.

I will follow your wishes and briefly highlight my prepared text. Mr. LAFALCE. That will be fine.

Without objection, your entire prepared statement will be inserted in the record.

Mr. HARVEY. Since the December 4 hearing, we in the Navy have responded in many ways to the desires expressed by this committee. We have, we believe, identified and analyzed each and every solicitation and contract considered to be legally deficient.

The Department of the Navy has not been content, however, merely to correct solicitations and modify contracts. Rather, in accordance with the spirit of this law we have undertaken extensive educational initiatives to better enable our contracting personnel to understand the impact of Public Law 95-507 and implement it according to the intent of Congress.

Our initiatives are outlined in greater detail in my full text.

Insofar as statistics themselves are concerned, two main areas are to be noted. Over 81 percent of our contracts are being or have been modified; 16 percent have been determined not to require modification; 3 percent are yet to be reviewed.

Every solicitation has been reviewed and, where appropriate, they have been modified.

Sir, that concludes my summary, and I would be happy to answer any questions you may have.

Mr. LAFALCE. It was an excellent summary. Also, I think it was an excellent response to our December 4 hearings. As someone who used to work on those contracts for the Department of the Navy, I am rather pleased.

I served for a while in the General Counsel's Office in 1963 in the Department of the Navy.

[Mr. Harvey's prepared statement follows:]

PREPARED STATEMENT OF THOMAS E. HARVEY, PRINCIPAL DEPUTY ASSISTANT SECRETARY OF THE NAVY (LOGISTICS)

I appreciate this opportunity to testify before your subcommittee on the status of the Department of the Navy's implementation of the procurement pro

visions of Public Law 95-507, amendments to the Small Business Act and the Small Business Investment Act of 1958, since the initial hearings conducted on December 4, 1979.

Since that time we have reviewed those contracts and solicitations not in compliance with Public Law 95-507 and begun appropriate corrective action. In addition, and more importantly for the future, the Navy has undertaken far-reaching educational initiatives as follows:

1. We have conducted ten special training sessions, which were attended by 883 personnel, that addressed specifically the requirements of Public Law 95-507. 2. A one hour block of instruction on Public Law 95-507 has been added to all acquisition and contracting courses for which the Navy has executive agent responsibility. To date, 1,276 personnel have received this instruction.

3. Key members of our contracting community, including small and disadvantaged business utilization specialists from our Washington headquarters commands and nearby field activities, have also attended special Public Law 95-507 briefings and seminars sponsored by the Small Business Administration, the National Contract Management Association, and by the Office of the Assistant Secretary of Defense (Manpower, Reserve Affairs and Logistics).

Future training plans include the presentation of 12 additional classes of the Navy sponsored "defense contracting with small and minority business firms" course at various locations throughout the country where there are concentrations of Navy and Marine Corps contracting offices. Additionally, the Department of the Navy, in cooperation with the Office of the Secretary of Defense, is evaluating a cassette-visual system of instruction which will permit an even wider distribution of training on Public Law 95-507 to remote sites.

I would like now to address the specific information requested by your subcommittee:

1. Number of contracts issued after September 1, 1979, exceeding thresholds which did not contain subcontract clause:

1 Includes 27 actions wherein the data were not received for January reporting purposes but awards were made prior to Dec. 1, 1979.

2 Includes 3 new actions which were not received for January reporting purposes.

It is to be noted that 16 percent of the contracts were determined not to require modification; 81 percent are either already modified or are being modified. Nine contracts are yet to be viewed and will be completed by the end of this month.

2. Number of solicitations issued after September 1, 1979, exceeding thresholds, which did not contain the required subcontract clause when solicitation was released:

1 Includes 23 actions wherein the data were not received for January reporting purposes.

103

1126

The Department of the Navy will continue its aggressive action to complete the review and modification of those contracts not in compliance. Furthermore, we will insure that all our contracting personnel continue to receive the neces

SUMMARY OF STATEMENT

Secretary Hidalgo has asked me to express his regrets that a prior commitment precludes his participation at this hearing.

Since the December 4th hearing, we have responded in many ways to the desires expressed by the subcommittee. Initially, we have identified and analyzed each and every solicitation and contract considered to be legally deficient. The Navy has not been content, however, merely to correct solicitations and modify contracts. Rather, in accordance with the spirit of this new law, it has undertaken extensive educational initiatives to better enable our contracting personnel to understanding the impact of Public Law 95–507 and implement it in accordance with the intent of Congress.

Insofar as the statistics themselves are concerned, the two main areas are noted as follows:

1. Contracts.-Over 81 percent of our contracts are being or have been modified; 16 percent have been determined to not require modification. Three percent are yet to be reviewed.

2. Solicitations.-Every outstanding solicitation has been reviewed and, where appropriate, modified.

This concludes my summary. I will try to answer any questions you may have. Mr. LAFALCE. Mr. Charles Patterson, of the Defense Logistics Agency, will be our next witness.

Mr. Patterson?

TESTIMONY OF CHARLES T. PATTERSON, STAFF DIRECTOR, SMALL AND DISADVANTAGED BUSINESS UTILIZATION, DEFENSE LOGISTICS AGENCY

Mr. PATTERSON. Mr. Chairman, my statement for the record is in your hands. I would like to make just a few brief remarks in connection with it.

Mr. LAFALCE. That will be fine.

Without objection, your prepared statement in its entirety will be inserted in the record.

Mr. PATTERSON. First of all, I will not repeat the statistical data that are included in the record. I would like to emphasize that the Defense Logistics Agency is involved in this new law in two rather strong

ways.

First of all, we are the principal contract administration agency for the Department of Defense. Second, as a contracting activity, we manage about 2 million items of supply for the military departments and certain selected civilian agencies. Many of our commodities are produced for the commercial marketplace. These include such things as fuel, subsistence, medical supplies, textiles, and hardware. So we are very much concerned about the "commerciality" problem that has been mentioned several times before.

I would like to advise you that since the last hearings, we have conducted an extensive program of orienting contractors and our own people with respect to the full implementation of the law. We participated with the Small Business Administration and the National Contract Management Association in a series of workshops. We have, in addition, conducted internal workshops. We have provided written guidance to our six buying centers, and both the director of contracting and I have visited each of those buying centers except one. We intend to visit the remaining center this week.

My formal statement will show that we have made reasonable progress in taking those remedial actions which resulted from the De