a team headed by the prime contractor or managing agency, who has direct lines of communication with the major system contractors; development of the major systems and subsystems in phase, according to a plan, continually monitored and corrected as to time elapsed, cost expended, and progress achieved; and completion of a fully operable weapon system by a prime contractor who has both the responsibility and the authority to do so.

In my opinion this has been the best answer to the multiplicity of problems forced upon military procurement by the acceleration of technology. In fact, I cannot see how the weapon systems of today could be procured without this procedure, or something nearly like it. Undoubtedly it will be further refined to match the advancing technical needs of the future. The main point that I would like to leave with you today is that weapon system contracting is not the cause of mounting costs, of lengthening lead times, of increasing negotiated contracts, or of the other particular procurement problems with which this subcommittee is rightly concerned.

On the contrary, it is a considered attempt to solve such problems that existed previously by the very nature of modern technology.

Nor is weapon system contracting a new theory that we are experimenting with at the taxpayer's expense. It has been hammered out over a period of years on the anvil of experience, and it is still being shaped and improved. In short, weapon system contracting is not the problem. It is a system for providing answers to problems that are inherent in today's advanced weaponry.

With your permission I would like to end my prepared statement here today. When I resume tomorrow, I will describe how weapon system contracting is being applied in some of our company's current programs.

Mr.HEBERT. Mr. Courtney, do you have any questions to ask of Mr. Atwood for clarification?

Mr. COURTNEY. I have just two questions which I think may not be handled tomorrow.

The first: In the early part of your statement, Mr. Atwood, you made reference to the assembly of a nucleus of engineers and scientists to advance the missile technology by the Germans. You were speaking of your efforts in 1945.

Mr. ATWOOD. Yes, sir.

Mr. COURTNEY. We are speaking now in terms of the assembly at Huntsville, Ala.

Now, what have you to say by way of explanation of what was done by your company in that regard?

Mr. ATWOOD. I believe I started out by pointing out that the initial successes of the Germans with their V-1 and V-2 made it apparent to us that this technology would be increasingly important and that as far as our company was concerned, we merely undertook to assemble the scientists and the skills that we felt would be applicable to cope with this particular problem.

At the same time, I realize that the Army arranged that the German group who represented, oh, perhaps a cadre of this original German development group at Huntsville. These were somewhat parallel efforts, Mr. Courtney, I feel.

Mr. COURTNEY. Well, granting that they were parellel, we were interested in knowing at this point, since we are going to depart from this subject tomorrow, what kind of a nucleus you had.

Mr. ATWOOD. Well, we arranged to have some scientific people who were skilled in propulsion sciences, some skilled in the sciences of advanced electronic applications, some in thermodynamics, high-temperature work, some for aerodynamics and some for nuclear energy applications.

Among those, I believe we had at least two of the German scientists who chose to work for us under the restrictions that were imposed on them at that time, and one at least, Dr. Reidel, was one of the original German rocketeers. That is the general class of scientists which we undertook to recruit and employ in this effort, Mr. Courtney.

Was that your question?

Mr. COURTNEY. Well, this was a company effort, then?

Mr. ATWOOD. It was of course, it started as a company effort. We made proposals continuously to the Government and some were accepted and some were deferred and some were rejected. But over a period of time, a series of contracts was awarded to us to develop various phases of this technology. Of course, most of the money over a period of time, in fact nearly all, was sponsored by the Air Force or Navy, and in some instances by the Army, on contract.

Mr. COURTNEY. But then the effort of assembling this information for company use-was it a company project subsequently reimbursed in some fashion or other by the services?

Mr. ATWOOD. Well, of course, any initial work that we undertake

Mr. COURTNEY. Yes.

Mr. ATWOOD. We usually-well, all initial expenditures are made by our company and then, of course, if something is rejected as being unsuitable for the military science, why, we usually abandon it or reorient it. If it is acceptable and becomes a contract, why, of course, we are reimbursed.

Mr. GAVIN. What did you say again? If what?

Mr. ATWOOD. If it is accepted and becomes a contract, of course, we are reimbursed, Mr. Gavin.

Mr. GAVIN. Í have a question at that point, Mr. Counsel.

Mr. HÉBERT. All right.

Mr. GAVIN. What I want to ask you now, as of today: When you start in on a particular project, on your chart a step in the weapons system development, technical analysis, time phasing analysis, budgetary and logistic analysis. And you enter into the operating requirements, do you receive progress payments from the Government at the initial start of this project? When this project is initiated, I mean. How do you initiate it? Do you take the responsibility with your own money, or after discussions with the Government, whether it is the Army, the Navy or the Air Force, do you immediately receive progress payments to continue your studies and working out the project up to a basis of operating requirements and then, I expect to production?

Mr. ATWOOD. Mr. Gavin, you will notice we have a series of steps, on two charts. The first chart shows the development of the operational requirement. This is a Government function.

Mr. GAVIN. Yes.

Mr. ATWOOD. Then we have the competition which we participate in. Mr. GAVIN. You go all through and you get the project.

Mr. ATWOOD. Then we get a phase I

Mr. GAVIN. What I want to know: On the initiation of a project, do you start to receive progress payments by the Government on the project?

Mr. ATWOOD. As soon as we receive the contract, we do, Mr. Gavin. Mr. GAVIN. What?

Mr. ATWOOD. As soon as we get a contract, we do.

Mr. GAVIN. All this preliminary work. As I just outlined there, do you receive anything from the Government-technical analysis, time phasing analysis, budgetary and logistics study, and then you go into operating requirements. A study of contracts, design competition. Do you receive any help from the Government when you initiate the project or only when you enter into a contract with the Government?

Mr. ATWOOD. Only when we enter into a contract, ordinarily, Mr. Gavin. Although I think I should make it clear that at some point here in this procedure we incur what we call bidding expenses. The Defense Department regulations do allow bidding expense as a reimbursible item of cost, when we are bidding against a specific require

ment.

I believe we do receive reimbursement for this bidding expense. Mr. GAVIN. Yes. That is what I wanted to know.

Mr. HARDY. Would the gentleman yield right here? Would that apply to each of the companies who is putting in a bid? Mr. ATWOOD. Normally it would, sir."

Mr. HARDY. So that no element of risk is present at all?

Mr. ATWOOD. On the bid, I consider the element of risk-no, there is no element of risk.

Mr. HARDY. Not any element of risk in the preparation of the proposal?

Mr. ATWOOD. In the preparation of the proposal we have no risk, sir. Mr. GAVIN. May I continue?

Mr. HARDY. Thank you.

Mr. GAVIN. Well, why do you refer on page 30: "A limited availability of funds," when you are practically assured by the Government that payments are going to be made as this work continues?

On page 30, you say "The weapon system contractor will tend to be extremely realistic because of the budgetary restrictions and the limited availability of funds." Are you limited? Are you restricted by the Government in development of this, after you have coordinated it into a working project that has been accepted and a contract ensues? Mr. ATWOOD. I am glad you brought that up. I think it deserves some further explanation. The responsibility for expending the money, of course, is the Government's. It is allocated to various projects in accordance with estimates and appropriations and all the procedures that make money available.

Now, if one part of the project absorbs an abnormally large amount of money, there is a very good likelihood that some other part of the project will suffer. If we can't schedule the application of the funds we were given, we are either going to slow down the progress of the

project or have to in some fashion get an increased appropriation, or effect economies in some other area.

Mr. GAVIN. Did you ever experience such a difficulty?

Mr. ATWOOD. Yes, sir, we continuously experience the difficulty of making the money allocated to our contracts cover the requirements of the work for the time period involved.

This is an extremely difficult budgeting and management process, Mr. Gavin, and it is continually with us and always will be with us. The Government service that gives us a project naturally is trying to effect all the saving possible and keep the expenditures as low as possible. So

Mr. GAVIN. Do they restrict you or limit you on any particular phase of the problem?

Mr. ATWOOD. They do, yes, sir. For a given time period we have so much money to spend. If we are not able to make the progress we would like, why the entire program is likely to suffer in the way of a schedule.

Mr. GAVIN. Approximately how much of your own money would you say, what percentage would you say of our own company's money is invested in a particular project-percentage wise?

Mr. ATWOOD. I would say, broadly speaking

Mr. GAVIN. In its initial stage?

Mr. ATWOOD. Broadly speaking, none of our money is invested in these projects, except for machinery and facilities.

There is a contract. The contract provides for the reimbursement, as you know. We do not ordinarily—well, we look to the Government for reimbursement for all legitimate expenses in these projects. Mr. GAVIN. That is right. That is what caused me to inquire about the limited.

Mr. ATWOOD. Yes.

Mr. GAVIN. Let me ask you this: How much does your company have in the way of plants and machine tools and equipment that the Government made an investment in? Could you give us that, just approximately?

Mr. ATWOOD. I think I can.

I think we have the material here, if you will give me a moment. I have. In 1956, these questions were asked and we reported that a total of $93,127,000 of Government facilities was used by our company in August 1955. Now I have figures bringing this up to date.

Mr. GAVIN. How about the machine tools and equipment, or is that everything?

Mr. ATWOOD. I will give you the breakdown, if you would like.
Mr. GAVIN. Yes.

Mr. ATWOOD. And I was going to bring it up to date. We have land and buildings, as of 1955, of $37,689,000. Machinery and equipment, $42,493,000, which was purchased. And then we have Government reserves equipment at values assigned by the Government of $12,943,000.

Mr. GAVIN. What is that total?

Mr. ATWOOD. That totaled $93,127,000.

Mr. GAVIN. Are you leasing any of that, or are you renting any of it, or are you paying anything at all for it?

Mr. ATWOOD. With respect to Government contracts, we are not.

If you will recall the proceedings of the committee in 1956 and 1957, I believe the conclusions were that rent was not being paid for the use of Government facilities on Government contracts and that this was the proper method of using such facilities.

Mr. GAVIN. Well, the point I am trying to make, Mr. Chairman: Say 30 years ago, when your company started, could you have bid on such a project as we have before us today?

Mr. ATWOOD. You mean one of that scope?

Mr. GAVIN. Yes, of that magnitude, yes, or the magnitude of the project we have before us today?

Mr. ATWOOD. I hardly know how to put myself in the position to answer this. Our company was started with a rather large capitalization for its time.

Mr. GAVIN. What was it?

Mr. ATWOOD. Thirty million dollars for its time, in 1928. It was a large capitalization. I think it was able to handle what would be considered appropriately a large project for its time or in that time. However, it certainly wasn't equipped or prepared to handle this specific type of work today, nor was anyone.

Mr. GAVIN. I believe anyone. However, the point I am trying to make: How is a small corporation going to break into or get an opportunity to bid on projects of the magnitude as we have here today?

Mr. ATWOOD. Well, I hope in my testimony to develop completely our subcontracting and our utilization of small business.

I would prefer, if you would give me the opportunity to make that presentation before I outline in any detail how we utilize the services of small business.

Mr. HÉBERT. I understand that will be in the third phase of your presentation.

Mr. ATWOOD. Yes, that was my plan.

Mr. GAVIN. I have no further questions. Thank you, Mr. Chairman. Mr. HARDY. May I proceed?

Mr. HÉBERT. Yes.

Mr. HARDY. Mr. Chairman, I have just one or two questions here. Mr. Atwood, I listened very carefully to your summary and to the specific points that you made of the advantages under this procedure. Apparently you haven't found any disadvantages in it. I didn't hear you suggest any.

Mr. ATWOOD. I have been attempting to develop the advantages, Mr. Hardy. Of course, when we address ourselves to the problem of the weapon system, I have excluded from my comments anything that might have to do with the disadvantages of procurement regulations, contract laws, and a thousand and one other things, that we work with in connection with our Government contracts.

I obviously could find many things in the general procurement area that I personally would feel might be greatly changed. But addressing myself to this particular facet, I honestly feel that you don't-that I am not able to put a measure on disadvantages here.

Mr. HARDY. Well, actually, Mr. Atwood, insofar as general procurement regulations are concerned, under this system that you have outlined here, in effect we bypassed them all. We don't have any more, insofar as this program is concerned, isn't that correct?

Mr. ATWOOD. This, of course, is a matter of opinion, Mr. Hardy.