becomes clear what a terrific task the people of the United States have assumed, when, in the midst of what is clearly a cold war, the Congress is asked to commit more than $62 billion for defense alone.

So we recognize the great responsibility that you gentlemen have assumed, and we felt that you would like to have the opportunity of explaining to us, as a background, and also to the country, the steps that you have taken to see that this sum is expended as economically as possible.

Under Secretary Lovett, we shall be very glad to have you open the presentation. I might add that the committee will be quite agreeable to permitting you to present your statement without interruption, and we shall postpone the questions until you have concluded. We do this in the hope of expediting the presentation.

STATEMENT OF HON. ROBERT A. LOVETT, UNDER SECRETARY OF DEFENSE

TOTAL BUDGET ESTIMATE

Mr. LOVETT. Thank you, Mr. Chairman.

In appearing before this committee to justify new obligational authority totaling $60,650,000,000, for the military functions of the Department of Defense for fiscal year 1952, I believe it might be helpful to outline the manner in which this request was developed and the steps we have taken looking toward good management of the funds already appropriated and the additional funds contained in this budget request.

FORMULATION OF DEFENSE BUDGET

The formulation of this budget is based on military requirements and not on an allocation of dollars. It began on December 14, 1950, when the National Security Council approved military forces for fiscal year 1952 totaling about 31⁄21⁄2 million men-the Army to be organized into 18 divisions plus a number of regimental combat teams and supporting units; the Navy to maintain an active fleet of 1,161 ships with the necessary aircraft and supporting elements; the Fleet Marine Force to consist of 2% divisions with essential aircraft and supporting units; and the Air Force to continue building toward a 95-wing structure and certain separate squadrons and supporting units. At the same time, the National Security Council directed us to review our matériel requirements and to establish an industrial production capacity which could be expanded very rapidly in the event of full mobilization. The Secretary of Defense immediately directed the three military departments to prepare a preliminary estimate of the matériel and supplies required to meet the objectives established by the National Security Council.

ORIGINAL BUDGET ESTIMATES

The first rough estimates developed in the three military departments during January and early February indicated that about $104 billion would be needed to finance the build-up in forces and matériel during the remainder of fiscal year 1951 and fiscal year 1952. After discussion with the Secretaries of the three military departments,

ere again reviewed within the military departments. te this review and to consolidate into a single review would also have to be carried on in the Office of the e Department of Defense and the Bureau of the et staffs of these two organizations were made availry departments to work under the supervision and er Secretary Kimball of the Navy, Under Secretary Air Force, and Assistant Secretary Bendetsen of the

rt civilians were called in to assist in the review of he program, notably public works, and we retained ers and teams of expert consultants from the gradder to give us the benefit of an impartial and unemoof both the requests and our procedures in dealing

INTENSIVE BUDGET REVIEW

an intensive review by these groups requiring 2 ere able to identify and to a large extent eliminate requests, items of doubtful value, easy-to-get items eventually needed could be deferred until the harde well on the way to delivery, and elimination of sts beyond minimum lead time for reorder. The loped major policy questions which were then decided rence between the Secretaries of the military departhiefs of services, representatives of the Bureau of the Office of the Secretary of Defense. This budget was bmitted to the Bureau of the Budget where minor ere made in the interest of national policy before it o the Congress on April 30, 1951.

ITIES PROVIDED FOR BY BUDGET REQUEST

r the military functions of the Department of Defense 52 provides funds:

all support of the active forces;

procurement of aircraft, ships, tanks, guns, ammuniar critical items in quantities sufficient to equip the h modern equipment at an early date;

iction facilities including machine tools, and tooling eded for current use but which would be required for ; and

tary public works program to meet the essential operaents of our expanding forces.

PROCUREMENT

ortion of the budget is for procurement almost $41 60.7 billion is for procurement and construction. Of arly $34.7 billion is for hard goods-that is, aircra t, tillery, ammunition, and similar critical items needed rmed Forces; $4 billion is for public works; and apbillion for soft goods.

PUBLIC WORKS

We believe that our request for public works will meet the minimum operational requirements of the military services and leave for financing in future years items that are necessary for continued use of a base, camp, or station, but not essential to meet present minimum operational needs. We plan to build permanent and semipermanent facilities that will be useful for a number of years rather than temporary structures which will be a wasting asset and much more expensive in the end.

BUDGET FOR KOREAN WAR

During the course of your review of this budget, the question of the amount that has been included for the support of our efforts in Korea during fiscal year 1952 is certain to arise. During the formulation of this budget, which, as I have indicated, began late in December, we did not feel that we could or should forecast the probable military situation in Korea during fiscal year 1952. Therefore, lacking specific knowledge on which to base a budgetary request we have with certain exceptions made no specific allowances for combat consumption rates during fiscal year 1952. We have included Korea at standard consumption rates instead of combat rates. This is most significant in the case of the Department of the Army since consumption of supplies, ammunition, and other equipment will be substantially higher if hostilities continue during fiscal year 1952. It does not appear feasible even now to attempt to forecast the extent to which additional funds may be required to support our efforts in Korea. We propose, if it meets with your approval, to meet this requirement by utilizing production and procurement which is financed in this budget so as to give first priority to filling our needs in Korea and to request that the Congress at a later date supply such funds as may be required to replace the matériel and supplies that may have been expended in combat, as compared with peacetime consumption

rates.

DELIVERY OF SUPPLIES AND EQUIPMENT

Except for this unknown factor, we believe we have adjusted our request to the minimum needed to assure increasing deliveries of supplies and equipment and to prevent a break in production in fiscal year 1953. To secure deliveries of material in quantities necessary to bring the Armed Forces to the State of readiness planned by the National Security Council we must spend the $40 billion estimated for fiscal year 1952, of which about $25 billion will be for hard goods and construction. To accomplish this, it is necessary to have in fiscal year 1952 obligational authority for substantially more than the $40 billion which it is estimated will be expended.

The major factor in this relationship between obligational authority and expenditures is production lead time which we sometimes call reorder lead time. For example, the lead time on fighter aircraft is about 18 months. Therefore, in the final month of fiscal year 1952, we must have available funds sufficient to finance approved aircraft procurement programs, at the very minimum, through December 31, 1953. Anything less than this would cause the pipeline of raw materials and components flowing into the plants to dry up since the manufacturers only put out orders when they have a firm contract on

their books. Lead time for some categories of ships may be as high as 2 to 3 years while on procurement generally the lead time is from 6 to 10 months. To the best of our ability, we have provided funds to support the essential procurement programs through these minimum lead-time periods. However, on the basis of past experience, it may be expected that some programs will proceed more rapidly than anticipated. Should desired progress on most or all of our programs be attained or if subsequent evaluations of the world situation require additional forces or further expanded procurement, it may be necessary for us to request additional funds furing fiscal year 1952.

REVIEW OF PROCUREMENT POLICY

You, gentlemen, are well aware of the tremendous size of the enterprise we are embarked upon. You are familiar with its complexity. There are over 360,000 separate types of items requiring some form of scheduling. The process of review and justification is, therefore, a most difficult one. Accordingly, we have endeavored to direct our attention to the major items of supply and equipment which perhaps constitute 75 percent of the cost. We have tried to deal with the problem in a business-like manner, taking into account, among other things, the important element of time of need so as to avoid the injection into our national economy of any overlarge amounts of readily procurable items in common civilian use. have tried to stress the hard-to-get items of military equipment and to spread the load in an orderly fashion. We hope that the detailed justifications indicate the attempt we are earnestly making to exercise control and management and develop techniques for the efficient handling of the manifold new problems which arise out of partial mobilization.

IMPACT ON ECONOMY

We

We consider the preparation of our budget request to the Congress as the first step in the process of translating military plans into the manpower and matériel which will produce the state of readiness recommended by the Joint Chiefs of Staff. This translation of dollars into equipment and supplies during this period of limited mobilization will require an even higher degree of coordination and management than it has been necessary to exercise either under all-out war conditions or under the much smaller budgets of the previous years. are aware of the impact the release of $60 billion of purchasing power can have on the economy of the United States, and we know that this economy is, in the final analysis the most important military asset of this Government. Without its ability to produce large quantities of high quality material, the military potential of this country would be substantially lower.

We

In order that the members of this committee may have a better understanding of what we are doing along this line, I have asked Assistant Secretary McNeil to outline for you the general directive issued by the Department of Defense on May 31 which states the policy and general program to be followed by the Department of Defense in the placement of procurement contracts for matériel, equipment, and supplies.

Mr. Small, Chairman of the Munitions Board, is here to outline the manner in which we are utilizing small business in this procure

ment program, and the Secretaries of the Departments of the Army, Navy, and Air Force are here to provide members of the committee with information as to specific problems and actions.

Mr. Chairman, if it meets with the pleasure of the committee, I will ask Mr. McNeil to follow with the detailed explanation of the specific directives.

Senator O'MAHONEY. Mr. McNeil?

STATEMENT OF HON. W. J. MCNEIL, ASSISTANT SECRETARY OF DEFENSE (COMPTROLLER)

PROCUREMENT MANAGEMENT PROBLEMS

Mr. MCNEIL. Mr. Chairman and members of the committee, in recognition of the procurement-management problems inherent in the augmented defense program during the next year, the President on April 27, 1951, directed the Department of Defense in cooperation with the Office of Defense Mobilization, its subsidiary agencies, and the Bureau of the Budget:

1. To establish realistic production schedules for hard goods items; 2. To establish definite policies under which instructions can be given to the procurement officers, so that the whole range of soft goods and unscheduled items can be bought in an orderly manner; and,

3. To establish special controls over major special procurement programs such as facilities, tools, lumber, petroleum, wool, and cotton goods.

In implementing the President's directive the Department of Defense has adopted the principle that once the approved active forces are raised and modernized and current operating stocks are on hand, maximum feasible reliance will be placed on continuing expansible production rather than on reserve stocks of end items.

Accordingly, the basic objective of the military procurement program will be to supply the services the material and equipment required for the timely accomplishment of their respective missions. In doing so, the procurement and delivery of all items will be scheduled in a carefully planned and balanced manner to meet the actual service needs. At all times the present and future productive capacity of industry will be given full consideration and plans will, among other things, provide for the maintenance of production lines, and whenever possible, take into account the rapid expansibility of these lines.

REVIEW OF PLANNED PRODUCTION SCHEDULES

Planned production schedules to cover approximately 75 percent of the amounts available for hard goods will be reviewed before approval by the Office of the Secretary of Defense. To accomplish this, a list of more than 600 items has been compiled which together constitute over 75 percent of the total dollar value of the planned hardgoods procurement. These schedules will indicate for each specific item the plants in which production is proposed and the anticipated quarterly delivery rate expressed in terms of units. The schedules will be supported with data to justify the proposed quantity, the rates of delivery indicating the necessity for any peaking or departure from a reasonably smooth production curve.