As I understood you, you said that the Government or the service has the power of veto over the letting of your subs?

Mr. ALLEN. Yes, sir.

Mr. HÉBERT. You must get their approval?

Mr. ALLEN. Yes, sir.

Mr. HÉBERT. Well, if the Government or the agency overrides your judgment, then doesn't that remove from you the authority to discharge the responsibility?

Mr. ALLEN. No, sir. No, sir, it doesn't work that way, as I am sure you know.

Mr. HÉBERT. No, I am not sure.

Mr. ALLEN. If there is a split responsibility, which there often is, nevertheless our reputation depends on the ultimate result and that is the most valuable asset we have, and we do the best we can to try to bring about the best result we can.

Mr. HÉBERT. We admit that.

Mr. ALLEN. Yes.

Mr. HÉBERT. Your reputation is not at stake. I am talking about the divided responsibility.

Mr. ALLEN. Well, if you are looking at it from the standpointMr. HÉBERT. Because may I implement what I have just said? The impression that we have gotten is that, in this new so-called Weapons System Concept, the contractor is given the responsibility to discharge this contract, and yet along the way the Government reserves the right of veto, which would override the judgment of the contractor. So if the contractor does not have complete authority to discharge his responsibility, how then can he be held responsible.

Mr. ALLEN. That is a very logical approach, but it simply doesn't operate that way, Mr. Hébert.

Mr. HÉBERT. From your experience, you say it doesn't operate that way?

Mr. ALLEN. No, sir.

Mr. HÉBERT. All right. But it is, I think, a very logical conclusion. Mr. ALLEN. Yes.

Mr. HÉBERT. All right.

Mr. ALLEN. I might say that, under those circumstances where there is a split responsibility and it doesn't work out well, that is the result; it's not the way we would like to have it, if the Boeing Co. or Allen rared back and said, "Well, why didn't you give us the complete responsibility to start with, it is just too bad"-I don't think that is the way to get the job done.

Mr. HÉBERT. No. But it would be a fact.

Mr. ALLEN. Oh, sure.

Mr. HÉBERT. If a weakness developed in a sub that the Government had selected over your judgment and the job was not a good job, then certainly you would have a real squawking point there.

Mr. ALLEN. That is right.

Mr. HÉBERT. Well, that is correct. So then this system is not what it is represented to be a full responsibility system. It is still a dual personality.

Mr. ALLEN. That is right.

Mr. GAVIN. Because if it is an imperfect piece of equipment, you can say, "Well, you wanted it done this way and we followed your instructions," even though it was against your better judgment. I

think what the chairman wanted to know: Do you have the final say-so?

Mr. HÉBERT. No, they don't.

So, in other words, what this system really amounts to, shorn of all its marbles and beads or whatever you want to call it: It merely makes you a manager to follow through at a fee, a fee added to the contract, isn't that right?

Mr. ALLEN. No. We have more

Mr. HÉBERT. They make you a manager and they pay you a fee for being that manager?

Mr. ALLEN. Yes, but

Mr. HÉBERT. But the Government always has the final say-so? Mr. ALLEN. Well, that is a generalization that I don't think tells the story, Mr. Hébert.

We have the responsibility of producing the result, with all of the facets that are involved in that.

Now, we don't do it without consultation with the Government. We don't do it without direction from the Government. It is a matter of teamwork.

Mr. HÉBERT. Well, hasn't that always been the case, except now they put a manager in at 612-percent fee, or in the case of Lockheed, at a 2-percent fee, which was not present before?

Mr. ALLEN. I don't think the weapons system concept is anything that is new, that somebody just rared back and thought up a few years

ago; no.

Mr. HÉBERT. That is what we are trying to find out. That is the reason we are trying to get the facts out on the table.

Mr. ALLEN. Yes, and that is why we wanted to come here and show you different types of projects which call for really a shading of different types of management. We thought that would be helpful

to you.

Mr. HÉBERT. That is right. The only new gimmick in it is a manager at a fee. That is the only difference."

Mr. ALLEN. No. No, sir. No.

The manager doesn't get the fee. I mean, the weapons system manager concept is a means of accomplishing a result.

Mr. HÉBERT. Why are we talking about fees, then?

Mr. ALLEN. Well, the fee is the compensation

Mr. HÉBERT. A mere bagatelle, 62 percent and 2 percent.

Mr. ALLEN. Compensation that is paid for doing the whole job. Mr. HÉBERT. That wasn't paid before.

Mr. ALLEN. Oh, no.

Mr. HÉBERT. Before, you performed the same services under the complete direction or allegedly under the supposed direction of the Government, and here the Government turns over to you the managerial function.

Mr. GAVIN. For the whole prime contract.

Mr. HÉBERT. For the whole prime contract.

Mr. ALLEN. There is no difference in fee, sir. The fees under whatever kind of contract you are talking about haven't changed or the compensation to the contractor hasn't changed. Not one bit. As a matter of fact, the contractor today gets less than he used to. If you would like to have me expound on that, I would be glad to do so.

Mr. HÉBERT. Not at this moment, but we will get into it. Don't worry. We are not sloughing it off. We are kind of pressed as to time. I wanted to clear that up. The committee will go into executive session in the counsel's chambers to see these films. We will be back afterward.

Mr. GAVIN. Getting back to the weapons system just for a minute, there is a new technique evolved. There isn't any question about that. Three or four years ago you had overlapping, duplication, and arguments about subcontracts. The Government was handling some subcontracts and you were handling some subcontracts. Now you are under one definite management head, where the prime contractor supervises the whole operation from its start until the product is finished; isn't that right?

Mr. ALLEN. Mr. Gavin, I think as we develop this thing, you will see that in reality there hasn't been any change.

There has been increased complexity in weapons systems which has called for, you might say, greater coordination.

Mr. GAVIN. That is right.

Mr. ALLEN. Of bringing together of talents and skills and so forth. But his weapons system concept: That is a phrase that has been widely used and not so widely understood.

Mr. GAVIN. Who originated that weapons concept system?

Mr. ALLEN. I don't know. I don't take any responsibility for that. Mr. HÉBERT. We will get into that later.

Mr. COURTNEY. Mr. Allen may be excused, Mr. Chairman?

Mr. HÉBERT. You may be excused, Mr. Allen.

Mr. COURTNEY. Mr. Chairman, for the press, the next witness will be Mr. Lysle Wood, who is scheduled as witness No. 2.

The committee will meet in executive session to view the film and then continue with Mr. Allen further.

(Whereupon, at 11:15 a.m., the subcommittee adjourned to reconvene at 10 a.m., Thursday, April 30, 1959.)

WEAPONS SYSTEM MANAGEMENT AND TEAM SYSTEM CONCEPT IN GOVERNMENT CONTRACTING

THURSDAY, APRIL 30, 1959

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ARMED SERVICES,

SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS,

Washington, D.C.

The subcommittee met at 10:40 a.m., Hon. F. Edward Hébert (chairman of the subcommittee) presiding.

Mr. HÉBERT. The committee has ended its executive session, and will now reopen public hearings. Mr. Courtney?

Mr. COURTNEY. Mr. Chairman, Mr. Clyde Skeen, who is the assistant general manager of the systems management office of Boeing Airplane Co., will speak to the subject of the committee's inquiry on the contracting arrangements and the management system as carried out by Boeing.

Mr. HÉBERT. All right, Mr. Skeen.

STATEMENT OF CLYDE SKEEN, ASSISTANT GENERAL MANAGER, BOEING AIRPLANE CO.

Mr. SKEEN. This morning in executive session we have shown you some films and slides which we believe have served to inform the committee generally of some of the program facets of the Minuteman program.

I, therefore, request, sir, with your permission, that I file my statement in its entirety for the record and in the interest of time saving, brief some of the more important items for the benefit of the committee.

Mr. HÉBERT. You may do so.

Mr. SKEEN. As Mr. Allen pointed out, the Boeing Airplane Co. currently is performing as a supplier under several weapon system procurement concepts. One concept is typified by the contractual arrangement for research and development of the Minuteman Intercontinental Ballistic Missile System. In view of the importance and urgency which attaches to this strategic weapon system, it is particularly appropriate to discuss Boeing's role in the Minuteman program with this subcommittee.

In the remarks which follow, I shall describe the relationships which exist between and among the several associate contractors and the Air Force in executing the program; I shall outline the chronological sequence of events leading up to award of contract to Boeing for its portion of the Minuteman program; I shall discuss the character of our proposal and the extent of the intense competition in which we were successful; and I shall conclude with some general comments regarding weapon system procurement.

First with respect to relationships.

The Minuteman development program is managed by what we refer to as the BMD/BMC/STL complex, located in Inglewood, Calif. As you gentlemen know, BMD is the Ballistic Missile Division of the Air Research and Development Command. BMC is the Ballistic Missile Center of the Air Materiel Command. STL is the Space Technology Laboratories of Thompson Ramo Wooldridge Corp. These three organizational elements operate as an integrated system development management team as disclosed in page 3, the chart thereon.

BMC is the executive agent responsible for accomplishment of all phases of the Minuteman development program-design and manufacture of the missile and all its ground equipment, the design and construction of developmental and operational system facilities and provision of logistics support and trained personnel to operate and maintain the system. It provides overall program planning, direction, and control. BMC provides business management, including the formal contracting function, and logistic support. STL provides systems engineering, design coordination, and technical direction.

All these are very vital functions of weapon system management. Boeing is one of the several associate contractors in the Minuteman research and development program. Our primary responsibility is for weapon system integration. In this role, we provide for design integration, physical integration of subsystems, and the testing out of the total weapon system.

Additionally, we are responsible for development of the launch and control system as a natural corollary to our primary responsibility. Each of the other associate contractors is responsible for development of a major subsystem as follows:

Boeing and the other associate contractors have or will have a number of first tier subcontractors to develop various components and to furnish equipment, materials, and services of various kinds. Of course, the first tier subcontractors will be supported by second and third tier subcontractors according to the requirements of the development pro

gram.

Here is how BMD-BMC-STL performs weapon system management, as the customer of ours.

BMD, assisted by BMC and STL, retains overall control of the program and coordinates all basic technical designs. It must continuously evaluate all the factors affecting optimization of weapon system design and continuously review design and development progress by all the associate contractors. Boeing, as assembly and test contractor, must maintain close, continuing coordination with BMDBMC-STL and with the other associate contractors to integrate the subsystems. To accomplish and facilitate this coordination, the Ballistic Missile Division has established a very effective managerial system.

An initial plan is developed by the BMD-BMC-STL complex and forwarded to the associate contractors to be used as a guide in working out their respective detailed program plans. The associate contractor plans are then submitted to BMD-BMC-STL where they are integrated into an overall master program plan which, when released, becomes the basic authority and direction for implementation of the contract. In this manner realistic key dates are established for use as