portunities will be greatly broadened and this referral process considerably speeded. In the first 7 weeks of operation, more than 6,800 employee applications were registered in the system and about 6,500 requisitions, representing about 14,000 jobs, were received. These numbers are expected to grow significantly in the months ahead. Finally, we are aggressively seeking the assistance of State employment services in finding jobs in industry and the Civil Service Commission in locating job opportunities in other Government agencies. This program requires a major effort on the part of Defense management and it costs money. But, in my judgment, it is well worth the cost and the effort involved. And in this connection may I say that I don't think early retirement is a good substitute for productive employment. It would be easier on Defense management but much harder on the individuals involved and much more costly for our Nation. No self-respecting American in his early forties would want to live on a retirement income; what he wants and should have is a productive role in our society.

Admittedly, our efforts to help our own dislocated employees may not solve the problems of the communities affected by our base-closing actions, especially when the new jobs offered them are at other places. Although our responsibility in this instance is not as direct as in the case of our own employees, we still should do what we can to alleviate the impact.

OFFICE OF ECONOMIC ADJUSTMENT

It was for this reason that I established in March 1961, a new Office of Economic Adjustment under the Assistant Secretary of Defense, Installations, and Logistics. This Office is designed to work with the affected communities to help them find alternative uses for whatever Government facilities may be available and to advise them on other programs of assistance offered by the Federal Govern

ment.

In working with these communities, the Office of Economic Adjustment encourages and assists local leadership to identify and exploit their own resources for economic growth. Officials of local defense firms are encouraged to participate in this effort. Members of the staff of the Office of Economic Adjustment visit the communities on their invitation and therefore the cooperation of a community's leadership is an indispensable element in the success of this effort. The Office of Economic Adjustment can serve as the focal point and provide ideas and Government agencies. But the initiative must rest with the local community and cooperation must be forthcoming if any useful results are to be achieved.

Representatives of the Office of Economic Adjustment have now completed initial visits to most of the communities affected by the base closings announced last November which have requested assistance. These include Mobile, Ala.; San Bernardino, Calif.; Savannah, Ga.; Terre Haute, Ind.; Salina, Kans.; Glasgow, Mont.; Lincoln, Nebr.; Reno, Nev.; Portsmouth, N.H.; Middletown, Pa.; Amarillo, Tex.; Moses Lake, Wash.; and Madison, Wis. These initial visits are intended to lay the organizational groundwork for continuing cooperation between the community and the Federal Government. We have had magnificient cooperation from the majority of the communities affected. There are some notable exceptions, however.

We have found in most cases that swift, aggressive action can usually reduce and shorten the local economic impact of these closing actions. For example, shortly after we announced that Schilling Air Force Base at Salina, Kans., would be closed by this coming June 30, a group of local leaders, accompanied by Governor-elect Avery, Congressmen Dole and Shriver, and representatives of Senators Čarlson and Pearson met with Deputy Secretary Vance to arrange for the assistance of the Office of Economic Adjustment. Since that time, readjustment planning has moved forward at a very good pace. By next September a vocational school will open, occupying part of the facilities of the former base. Action has been taken to freeze the transfer of surplus industrial-type equipment located at the base which might be of use in the school's training program. Within the past few weeks, the State legislature has passed a bill approving some quarter of a million dollars for the establishment of a technical institute which will eventually enroll about 1,500 students. Also well along in planning is a new campus for Kansas Wesleyan University. Both of these new activities will occupy former base facilities. Still another portion of Schilling will become a municipal airport. The local planning group, known as the Schilling Development Council, has "fathered" enabling State legislation permitting the creation of a public authority to buy some of the remaining property for use as a large industrial park.

I won't go through it, but we show the disposition of several hundreds of these properties in a table I present in my prepared statement. (See p. 17.)

Altogether, communities in 44 different States have been beneficiaries of these disposals, and the return to the U.S. Treasury has been over $84 million. I believe you are already familiar with some of the cases where base closings have actually resulted in the creation of more jobs for the communities involved:

Presque Isle, Maine, where today a new industrial complex provides jobs for 2,000 civilians (compared with a former Defense employment of 1,200 military and civilians) and where the former SNARK missile base, itself, provides educational, commercial aviation, local government, and industrial facilities.

The former Army signal depot facilities at Decatur, Ill., where the new private owners employ half again as many civilians as did the Army and are still adding workers.

BASE CLOSURE RESULTS IN GREATER EMPLOYMENT

Senator DOUGLAS. I may say, Mr. McNamara, that when you closed that base, the mayor of the city denouced me for not preventing you from doing it. However, what has happened has been that the Firestone Co. has moved in there; it employs more people and pays taxes to the locality. It has been a highly beneficial act.

Secretary MCNAMARA. This is quite true, Mr. Chairman. It is typical, I think, of what can be done when men with imagination seek to put to productive use these facilities formerly reserved solely for defense purposes.

Another illustration of the same kind is at York, Pa., where the former naval ordnance plant was sold by the Government for $92 million to a private concern and where that private concern has increased

the former employment by 60 percent; and, in addition, put the property on the tax rolls.

So, this is what we can expect from the 669 actions that have released a million and a half acres of land and which utimately will save a billion dollars in direct cost to the Government but, much more importantly, will put these facilities, these men and facilities, to work in the mainstream of our society, producing either for the public sector or the private sector the goods which we need and so much desire.

Now returning to the cost-reduction program, there is only one other item I wish to draw your attention to and that is item 2, under the heading "Reducing Operating Costs," where we note what we are saving through consolidating and standardizing our operations.

SAVINGS FROM DSA

I mention many of these consolidations to you today-the consolidation of our Contract Audit Service, consolidation of our Contract Administration Service-but I think the most interesting and most important has been the consolidation of the Common Procurement Service into the Defense Supply Agency. I will report very briefly on that to you.

One million eight hundred and seventy-five thousand items formerly procured by the services have been transferred to the Defense Supply Agency for procurement. That Agency has been able to reduce the number of those items by a quarter of a million. The inventory value which had amounted to $2.5 billion has been reduced by $500 million. Forty-one thousand men were formerly assigned to these functions. They have been able to cut that total by 8,000. The savings are substantial as a result.

It has been an extraordinarily well-managed operation, the credit for which goes to General McNamara and now to Admiral Lyle.

I have but one further point to make in connection with the costreduction program. I want to draw your attention to the assistance that we have received from defense contractors. It has been outstanding and very important. There is much evidence that the program is taking widespread hold in defense-related industries. Not only is it helping the Government through direct savings, but there is an indication that industry profits are being improved, as well.

For example, in the Lockheed Aircraft Corp. report for 1964, among the factors to which the company attributed increased earnings in a year of lower sales were these, and I am now quoting directly from that report:

First, generally improved efficiency resulting from the cost reduction program; and, second, more work carried out under fixed-price and price-incentive contracts rather than under cost-plus-fixed-fee contracts.

Western Electric's 1964 figures report states:

Price reductions also reflect sustained program of cost reduction conducted in all our operations. In manufacturing operations alone, several thousand individual cost reduction projects were completed during the year.

In defense work alone, the company reports savings of approximately $21 million taxpayers' money.

The Douglas Aircraft reports that:

The company's ability to show higher earnings on a slightly lower level of sales is further demonstration of its substantial progress in effecting greater efficiency

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through new management system and cost reduction techniques. In 1964, Douglas scored well in responsiveness to the national administration's heavy emphasis on cost reduction. These efforts had a simultaneously beneficial effect on the company's own results.

We have had similar comments from other defense contractors.

This trend, I think, is encouraging because our contractors account for more than 55 percent of each defense dollar which we spend. Their effort, therefore, will contribute importantly to our ability to meet and, indeed, I hope to exceed the present goal of $4.8 billion annual savings attributed to the cost reduction program.

Mr. Chairman, this has been a long statement. I apologize for its length.

I will be very happy now to attempt to answer some of your questions.

Senator DOUGLAS. That is a very splendid report on a great achievement.

I notice your time has approached. I shall not ask any questions. I will ask Mrs. Griffiths if she has any questions.

PROTECTION OF SUBCONTRACTORS

Representative GRIFFITHS. I would like to commend you, too, Mr. Secretary. I think you have done a good job.

What have you done, if anything, toward the protection of the subcontractor?

Secretary MCNAMARA. We have not done what I think you would like to see us do, Mrs. Griffiths.

We did investigate the problem you brought to my attention either last year or the year before, which involved possible discrimination against the subcontractor by a prime contractor.

We considered what we might do to prevent such situations from developing in the future. We finally concluded that it is not practical for the Defense Department to interpose itself between the prime contractors with whom we have legal contractual arrangements and their subcontractors. It is not practical for several reasons, the most important of which is simply the huge magnitude of the job.

There are tens of thousands of subcontractors functioning for the account of the prime contractors. We have sought to avoid discrimination in those relationships by two primary programs:

One is a program to increase the participation of small business in defense contracting and on this we have made considerable progress. Small business was receiving about 15.9 percent of defense contracts 4 or 5 years ago, and it is up to something over 20 percent in the first 8 months of 1965.

Secondly, and more importantly, we have sought to insure that the prime contractors were utilizing the most efficient form of subcontracting, choosing the best producers, if you will, pushing out the work to subcontractors where that could be done more efficiently than being done in their own plants, by emphasizing formally advertised competition, competition in other forms, by shifting away from cost-plus contracting and fixed-price contracting, all of which forms of contracting give the prime contractor a major incentive to seek the most efficient way of obtaining the competent parts for his major systems; in that way, to insure that he does procure those services from the most

efficient subcontractor, if you will. I think we must rely on that as our primary safeguard.

Representative GRIFFITHS. Is one of the reasons you are able now to have more competitive bidding and fewer cost-plus, the fact that the things which you buy you have more experience in purchasing? They are more closely standardized?

Secretary MCNAMARA. No; I don't believe that is a major factor. It is true that the opportunity for formalizing varies by type of weapon. In a sense, it is much more difficult to have a formally advertised contract for an intercontinental ballistic missile than for a rifle. I believe the major reason for an increase in formal advertising which has been very substantial, indeed, during the past several years, has been simply we have directed more attention to it. This committee has consistently emphasized the desirability of it as have other bodies in the Congress. We, ourselves, recognize the benefits that accrue from it.

It is extremely difficult to develop procedures for applying formal advertising under some circumstances. We think we have made a major breakthrough within the last 2 years by developing a procedure that we call-I think it is called-two-step bidding.

In any event, what we do is first go out and separate those firms qualified to participate in a formally advertised bid from all other firms in the country and then having determined which firms are qualified we limit the formally advertised bids to those firms. This, as well as other changes in procedures, has allowed us to substantially expand the percentage of our business through formal advertising.

I don't think we have reported before to this committee the progress in fiscal 1965, and I don't wish you to think these are final figures; they are not; we have not finished the year, of course. I think they will drop before the end of the year.

IN 1965 18.6 PERCENT FORMALLY ADVERTISED BIDS

Through the first 8 months of 1965, 18.6 percent of our contracts were awarded through formally advertised bids. That compares with 11.9 percent in 1961, which is a tremendous percentage increase, from 11.9 to 18.6; roughly a 60-percent increase.

Perhaps I should add that I think not only will that percentage drop before the end of the fiscal year, but it will drop a point or two. I don't want to overstate the case. The fact is that there has been a tremendous increase in formally advertised bids as a result of your interest.

DECREASE IN SPARE PARTS

Representative GRIFFITHS. I have observed you have decreased the quantity of spare parts. How did you do it?

Secretary MCNAMARA. As a percentage of new equipment inventories and in absolute terms. Simply by insisting that we make a more precise requirement calculation. Particularly the Air Force, I think, has done a magnificent job in improving the precision of its requirements calculating procedures. General Gerrity who has been in charge of that work for some time has spent a great deal of his personal time on it and has made a substantial contribution to it.