Defense budget is going to be cut very much in the coming years, even if Vietnam is phased out. Chairman PROXMIRE. Mr. Moot estimated that it would be about the same level, close to $80 billion after Vietnam, because of the various costs. And I take it that it might be reasonable to assume on the basis of your estimate that this can be substantially higher because of the escalation of these weapons systems. Mr. RULE. Well, we are getting escalation every year, 6 or 7 percent. One of the things I think we really ought to do you know in the marketplace, the commercial marketplace, companies that can't hack it go bankrupt. But you have never heard of a Defense contractor going bankrupt, because there is a philosophy that they shouldn't lose money. I think someone alluded to it-I know that this is Mr. Charles' philosophy. Chairman PROXMIRE. Mr. Charles told us that to his knowledge no Defense contractor had ever lost money on any major system. Senator Goldwater pointed out that Lockheed might lose money on the C-5A, and that on certain weapons systems they may lose money. But the C-5A contract is far from finished, and I would be very much surprise if Lockhead loses a nickel on the C-5A. Mr. RULE. I agree. But two things we ought to do. If Defense contractors can't hack it, and there are these contractors around, they ought to be terminated for default, and if they lose money and go bankrupt, let them do it. Maybe a couple of bankruptcies and defaults in the Defense industry is going to do them good. I don't know what else is going to make them put their own house in order. Chairman PROXMIRE. You are the first person to say that, and it is good. Mr. Tyrrell, I have just a couple of brief questions for you. In effect you did a "should cost" on Minuteman II. That is, you studied, as I understand it North American's performance to determine what the contract should have cost with reasonable efficiency as distinguished from what it was actually costing, is that correct? Mr. TYRRELL. That is correct. Chairman PROXMIRE. NOW, North American also built the Mark II avionics system for the F-111 on which there has also been an enormous overrun, and other problems, although the Air Force has refused to publicly disclose the source of the overrun. Can you tell us anything about the Mark II, or whether in your opinion the lessons learned on Minuteman apply to the Mark II? Mr. TYRRELL. I have not been engaged directly in the Mark II program. I would say, however, the lessons learned on Minuteman, or rather, the situation that existed on Minuteman could relate to the Mark II as far as the contractor's efficiency is concerned. It is being built in the same plant, by the same people, and so on. I understand that the Air Force did do a cost study on the Mark II. It was done, I believe, by the pricing division of Air Force Systems Command, and was published in December of 1967. I am quite sure that they have documentation similar to what we prepared for Minuteman. Chairman PROXMIRE. Then I would like to comment you have just had a large overrun, an enormous cost problem, and extensive delays and serious reliability problems on some components of Minuteman II; can you tell us the reason for these problems, why they occur? Mr. TYRRELL, I think, as I pointed out earlier, it stems from a lack of necessity to control costs and, secondly, it stems from-call it an overzealousness on the part of both the contractors and the military procurement. It is not just the military. Chairman PROXMIRE. Overzealousness in trying to sell a program to the Congress? Mr. TYRRELL. That is correct, not only to sell the program at successively higher levels-I am not saying, and I would hate to imply, that it is done by subterfuge. Many people on Minuteman actually believed that they could produce within the program costs, but I think it tends to become obscure with time. Some of them believed it; but some of them knew very well that it could not be done. Chairman PROXMIRE. In your opinion, were these results unique or typical not only of Minuteman, but other extensive weapons systems? Mr. TYRRELL. I think it is typical. It is more typical than unique. It has happened on almost all of the large weapons systems programs. I think the study done by the RAND Corp. relating to cost growth tends to bear this out. Chairman PROXMIRE. Again, I want to compliment both of you. You have been unusually fine witnesses. And you have come forward with real courage and honesty, and have given us some information that we did not have before. Mr. Rule, I am especially apologetic to you, because you did have an outline that you wanted to give us. Mr. RULE. You will never know what gems you missed. Chairman PROXMIRE. When you correct your remarks, maybe we will get an idea. Tomorrow we will hear from Ernest Fitzgerald, Deputy for Management Systems, Department of the Air Force, and Barry J. Shillito, Assistant Secretary of Defense for Installation and Logistics. And in the afternoon Mr. Dean Acheson, former Secretary of State, will appear at 2 o'clock. The other gentlemen will appear at 10 o'clock. (Thereupon, at 12:45 p.m., the subcommittee adjourned, to reconvene at 10 a.m., tomorrow, Wednesday, June 11, 1969.) THE MILITARY BUDGET AND NATIONAL ECONOMIC PRIORITIES WEDNESDAY, JUNE 11, 1969 CONGRESS OF THE UNITED STATES, Washington, D.C. The Subcommittee on Economy in Government met, pursuant to adjournment, at 10 a.m., in room G-308 (auditorium), New Senate Office Building, Hon. William Proxmire (chairman of the subcommittee) presiding. Present: Senators Proxmire, Jordan, and Symington; and Representatives Griffiths, Conable, and Bolling. Also present: John R. Stark, executive director; Richard F. Kaufman and Robert H. Haveman, economists; and Douglas C. Frechtling, minority economist. Chairman PROXMIRE. The subcommittees will come to order. First, I would like to make a brief comment about yesterday's discussion leading to the possibility that the former Secretary of Defense, Robert McNamara, might appear as a witness in these hearings. The suggestion was made yesterday by Senator Goldwater and warmly seconded by Senator Jordan that Secretary McNamara be invited to appear, in view of the central part that he has played in some of the decisions that we are discussing now. I said at that time that Secretary McNamara had been invited to appear. And I stand corrected. The word had been passed to him through a third party, but apparently Mr. McNamara did not receive it. But I did write him yesterday, and I talked to him on the telephone this morning. And Mr. McNamara informs me that it is the policy of the World Bank for its executive officers not to testify in congressional hearings. And neither Mr. Black nor Mr. Wood nor Mr. McNamara has ever appeared. And this includes testimony on the central concerns of the World Bank Act, the International Development Association, and so forth. And no World Bank President has ever testified or appeared before a committee of the Congress even regarding World Bank matters. Consequently, Mr. McNamara has declined. And I agreed to abide by his decision. The decision is perfectly proper. Our first witness this morning is Mr. Barry J. Shillito, Assistant Secretary of Defense for Installations and Logistics. Lets just say in this connection that the Honorable Barry J. Shillito will make the first presentation. Secretary Shillito has a distinguished and fascinating career dating back to his service with the Air Corps in 1942. From December 1943 until the end of hostilities he was a prisoner of war in Germany. From 1949 to 1954 he was section chief and contracting officer in the Procurement Division of Air Force (521) Headquarters, Air Materiel Command, Wright-Patterson Air Force Base. În 1954, he was made Director of the Materiel and Services Division, and in 1958 director of sales for Hughes Aircraft Co. From 1959 to 1962, he was with Houston Fearless Co., where he served as vice president, and later president. In 1962, he became president of the Logistic Management Institute. In 1968, he was appointed Assistant Secretary of the Navy for Installations and Logistics. In 1969, he was appointed to his present position. Following Secretary Shillito, we will hear from A. Ernest Fitzgerald, Deputy for Management Systems, Department of the Air Force. Secretary Shillito, we are delighted to have you. Would you identify the gentlemen who you have with you for the record? STATEMENT OF HON. BARRY J. SHILLITO, ASSISTANT SECRETARY OF DEFENSE (INSTALLATIONS AND LOGISTICS); ACCOMPANIED BY JOHN M. MALLOY, DEPUTY ASSISTANT SECRETARY FOR PROCUREMENT, AND DON R. BRAZIER, PRINCIPAL DEPUTY ASSISTANT SECRETARY OF DEFENSE (COMPTROLLER) Mr. SHILLITO. Thank you very much, Mr. Chairman and gentlemen of the committee. I have to my right Mr. John M. Malloy, Deputy Assistant Secretary of Defense for Procurement. Judging from your letter of invitation, we will possibly be touching on procurement matters in some detail. On my left Mr. Don Brazier, who is the principal Deputy Assistant Secretary of Defense, Comptroller. There is quite a tie-in between the things that we find ourselves involved in in installations and logistics and in which he and Mr. Moot, who previously testified, are involved in. We are pleased to have the opportunity to appear before this subcommittee. Considering the broad range of issues discussed during the hearings, I am confident that we will benefit from them in carrying out our responsibilities. At the outset, Mr. Chairman, I want to assure this subcommittee, the Congress, and the American people that all of the officials and employees of the Department of Defense-and particularly those who play a role in managing its affairs are dedicated to rooting out waste and inefficiency wherever and whenever they appear. This is a never-ending task. There will regrettably, always be human error and there will always be transactions that in retrospect we can improve on. Almost every decision we make involves an opportunity for savings or waste depending on the soundness of our policies and the skill of our people. Secretary Laird has charged his entire management team with the task of insuring the integrity of Department of Defense fund requests in the first instance and then the spending of these funds under conditions of maximum efficiency. We make no pretense that this will be accomplished completely satisfactorily overnight nor do we suggest that we can eliminate all human error. We can assure you, however, that all our energies will be devoted to this purpose. We welcome-and, in fact, we will surely need-constructive suggestions from this and other committees of the Congress. We would be less than candid, however, if we were to agree that our combined best ef |