MANPOWER UTILIZATION IN THE FEDERAL GOVERNMENT MONDAY, JUNE 3, 1963 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON MANPOWER UTILIZATION OF THE Washington, D.C. The subcommittee met, pursuant to adjournment, at 10 a.m., in room 215, House Office Building, Hon. David N. Henderson presiding. Mr. HENDERSON. The subcommittee will come to order, please. This morning we are continuing our series of public hearings concerning control and utilization of civilian manpower in the departments and agencies of the Federal Government. In April we originally heard from representatives of the Office of the Secretary of Defense, Hon. Norman S. Paul, Assistant Secretary of Defense for Manpower, and Hon. Tom Morris, Assistant Secretary of Defense for Installations and Logistics. Unfortunately, we had only an hour when they were here on that occasion. As a result, we are happy to welcome you back this morning and your assistants as well. Before we begin our questioning, may I say that in the interim we have heard several witnesses, including the Comptroller General of the United States, representatives of the military departments, and the Deputy Director of the Bureau of the Budget. I am not at this point going to attempt to summarize the findings to date from our several days of public hearings. However, I will say that the Comptroller General has revealed to the members very startling information concerning contractual procedures in the departments and agencies. The Deputy Director of the Bureau of the Budget also has indicated a renewed interest in manpower utilization throughout the executive branch. After hearing from the Under Secretaries of the Army and Navy and representatives of the Air Force, we continue to have questions relating to items within our jurisdiction such as reduced civilian employment in relation to increased use of military personnel, the socalled buddy system as related to employment of recently retired military personnel, policies followed in contracting out work in the Defense Department, and measurement of civilian employee productivity. Before I recognize the members of our subcommittee for questions, I again welcome you, Mr. Secretary, and Secretary Morris, and if either of you wish to make a preliminary statement we would be glad to hear from you. You may proceed at this time. 98-338-63-pt. 2--13 373 STATEMENT OF HON. NORMAN S. PAUL, ASSISTANT SECRETARY OF DEFENSE FOR MANPOWER; HON. THOMAS D. MORRIS, ASSISTANT SECRETARY OF DEFENSE FOR INSTALLATIONS AND LOGISTICS; AND SAMUEL CLEMENTS, EXECUTIVE ASSISTANT TO DIRECTOR OF DEFENSE RESEARCH AND ENGINEERING Mr. PAUL. Mr. Chairman, speaking for myself, I do not have any prepared statement to offer beyond the one which I presented earlier. Mr. HENDERSON. I might say that the earlier statement is available to our subcommittee members this morning. We have had a chance to refresh our memories of your previous statement. Mr. Edwards, any questions? Mr. EDWARDS. Mr. Secretary, what is the current Department of Defense policy on the use of military versus civilians in support-type jobs, and how do you monitor this policy, Mr. Secretary? Mr. PAUL. Our policy, Mr. Edwards, is the same policy we have pursued to my knowledge for a couple of years, in that we attempt in the major volume of our support jobs to hire civilians for this type of work. There are certain types of support functions where we believe we must maintain an expertise of people in uniform in order that they may be prepared in case of an emergency to be assigned abroad. We do not have the same authorization, of coure, with civilian employees. But the figures, which I would be glad to present for the record, do not indicate a very large proportion in the support area. In other words, sir, our policy has not changed in that regard. Mr. EDWARDS. Mr. Chairman, can we ask unanimous consent to insert Mr. Paul's figures in the record? Mr. HENDERSON. Without objection, so ordered. (Mr. Paul's reply and the figures referred to follow :) Mr. PAUL. There are certain types of support functions where we believe we must maintain an expertise of people in uniform in order that they may be prepared in case of an emergency to be assigned abroad. We do not have the same authorization, of course, with civilian employees. But the figures, which I would be glad to present for the record, do not indicate a very large proportion in the support area. Number of military to civilians in selected support activities Mr. EDWARDS. Thank you, Mr. Secretary. Mr. Secretary, are you continuing to pay fees-as for example, last year, 4.9 percent to the Research Analysis Corp.-to nonprofit defense contractors? Mr. MORRIS. Mr. Edwards, I will be glad to respond to this. The Army witnesses did testify that the present fee rate for the Research Analysis Corp. is about 4.9 percent. Our fees for nonprofit corporations, which are designed to give them operational stability and flexibility, generally run in the area of 5 to 6 percent. Mr. EDWARDS. The range of these fees is what? Mr. MORRIS. They are individually negotiated, sir, in each situation, but they tend to range around 5 to 6 percent of the estimated cost of the contract. Mr. EDWARDS. How can you justify a fee on top of all operating costs of one of these subsidized contractors? Mr. MORRIS. Sir, if I may, I would like to respond rather fully to this question, as did the Bell report in its treatment of this matter. There is some confusion frequently in the minds of the public as to the need for paying a fee on top of actual reimbursement of cost to such organizations. In the case of profitmaking concerns, the fee is designed to provide them a return which in turn they can pass on, as appropriate, to their stockholders and to have resources to perpetuate their operations. In the case of the nonprofit, the fee is designed solely to produce two results. One is to give operational stability and flexibility to the organization. This means that it must have a certain volume of cash working capital to meet its bills as they come due prior to their reimbursement by the Government. This means that there are certain disallowable costs which all of our contractors stand, such as entertainment costs, advertising costs, donations and contributions, interest on borrowing, and so on, which typically run around 1 to 2 percent of the contract value. So this is the first service that is given to the nonprofit by payment of some fee-operational flexibility, working capital stability. The second is to provide some modest resource from which independent, self-initiated research effort might be carried on, which is important to provide incentives that serve to attract high-quality personnel into these organizations. These are the two justifications for payment of a fee. Mr. EDWARDS. In other words, they have a cost-plus contract, plus the fee? Mr. MORRIS. Yes, sir. Mr. EDWARDS. What would you estimate the total profit would be? Mr. MORRIS. Total fee in the case of Research Analysis, which you mentioned, is 4.9 percent. Mr. EDWARDS. That is a combination of the cost plus, plus the special fee? Mr. MORRIS. Yes, sir. Mr. EDWARDS. Thank you. I have one further question, Mr. Chairman. Mr. Paul, last year we requested your predecessor, Secretary Runge, to insert in the record of our subcommittee hearings a list of current management-type contracts. They are found on page 186 of the printed hearings. Looking at two of the contracts, one is Logistics Management Institute, Washington, D.C., $600,000, and one is Harbridge House, Inc., Cambridge, Mass., $199,300. It appears that both of these relate to procurement. Can you, Mr. Paul, tell us specifically what the Department has received from these contracts? Mr. PAUL. Again this falls within Mr. Morris' area, Mr. Edwards, if I may ask him to respond. Mr. EDWARDS. Yes. Mr. MORRIS. I am pleased to respond, Mr. Edwards. In March of 1961 Secretary McNamara felt that it was desirable to augment the resources of the Office of Secretary of Defense and the top management of the three military departments with outside professional business research assistance to attack some of our major problems in procurement and supply management generally. Early that year we did contract with the Harbridge House to begin work on some of our most critical and urgent problems in terms of getting greater competition in the procurement of replenishment spare parts. The contract you have referred to there was chiefly for that purpose. The results of its studies are that we doubled the competitive procurement of spare parts in fiscal year 1962 and saved an estimated $50 million in lower prices. Later in 1961, November 3 to be specific, there was established a contract with the group known as the Logistics Management Institute, which group is a nonprofit research organization serving exclusively the Department of Defense. It currently consists of a staff of about 19 professional people with an annual budget for 1963, and the same plan for 1964, in the amount of $1 million; $600,000 was the first partial year effort funded for this organization. Its work, which has likewise to date saved about $50 million for us, has been concentrated primarily in studying ways to reduce our requirements in the procurement of initial parts to support new end items. They have devoted their major attention to the analysis of how we compute parts requirements for new weapons like Atlas, Titan, Minuteman, Polaris, etc., and by coming up with new ways of forecasting before we have actual operating experience the probable needs for spare parts, we have been able to cut our buys by about $50 million. Mr. EDWARDS. Thank you, Mr. Morris. Mr. Chairman, I would like to have Secretary Paul and Secretary Morris enter for the record the current OSD management-type con tracts. Mr. HENDERSON. Without objection, they will be entered at this point. in the record. (The information requested follows:) CURRENT OSD MANAGEMENT-TYPE CONTRACTS 1. Contractor: Joseph Froggatt & Co., Inc., 74 Trinity Place, New York, N.Y. Amount: $8,000. Description: In connection with the requirements to regulate the activities of commercial life insurance companies in soliciting business at oversea military installations, an examination of applications is performed to assist in the accreditation of eligible companies. The annual examination performed by Joseph |