awarded since 1957. There has been a steady increase in advertised awards, both total dollars and percentage of obligations, during the 4 years of fiscal year 1961, 1962, 1963, and 1964. In this period, the total amount has increased from 11.9 in fiscal year 1961 to the 14.4 percentage of the last fiscal year.

Almost 63 percent of the increase in formal advertising during the past 2 years has been provided by the use of two-step formal advertising. Two-step formal advertising has increased from $84 million in fiscal year 1962, to $250 million in fiscal year 1963, to $416 million in fiscal year 1964. In step 1 of this procedure, bidders submit items for test or specifications for evaluation without prices. In the second step, those qualified then submit sealed-bid price proposals, with the award made to the low bidder as in the regular formal advertising procedure. This flexible procedure permits the development of a procurement package for all subsequent procurements; and, with the longer range planning now taking place, this technique can be substituted for negotiated price competition in a large number of cases.

The emphasis on formal advertising, wherever possible, will continue. In those cases where formal advertising is not possible, where it might be dangerous and uneconomical, there will be renewed emphasis on negotiated price competition. Dollar obligations with only one source solicited declined by over $1 billion last year in fiscal year 1964, and total price competition increased from 37.1 percent in fiscal year 1963 to 39.1 percent in fiscal year 1964-a steady increase under the DOD cost reduction program, and the highest level of price competitive awards on record; our current goal for price competition in fiscal year 1965 is 40 percent and our fiscal year 1966 goal is 40.5 percent. These overall goals provide detailed attention to continuing increases in formal advertising. Recommendation relating to better engineering data and specifications (p. 6): "Since there has been a consistent record of negotiation of the bulk of defense requirements with the large contractors who gain thereby the experience, knowhow, rights, etc., and become entrenched, it is necessary that the trend be reversed."

Comment

The armed services procurement regulations have been revised (defense procurment circular No. 6) to protect the Government's rights to know-how resulting from Government experience.

The Office of Technical Data and Standardization Policy was established by the Secretary of Defense on June 12, 1964, to deal specifically with problems related to engineering data and specifications, such as those discussed in the report. This Office is now staffed and functioning. As a direct result, new procedures have been established and others are under development. These procedures are intended to accelerate standardization of items and to assure the purchase of technical data adequate for (but not excessive to) the engineering and logistic needs of the Department of Defense.

The basic drawing specification (MIL-D-70327) is being revised to facilitate precise statement of requirements for drawings to suit a specific purpose such as competitive procurement, maintenance, etc.

To organize technical data more effectively for future use, a directory of Department of Defense engineering drawings has been published, and a test program for automated retrieval of drawings and other technical data has been initiated.

DOD instruction 5010.12 (technical data and information: determination of requirements and procurement of) establishes policies and procedures for determining technical data requirements to be levied on contractors to insure economical, timely, and adequate acquisition of such data. A training program is being established to provide a nucleus of data managers trained in policies and execution practices related to this instruction.

Recommendation relating to utilization of excess stocks in the production of end items (p. 10);

"The subcommittee is in complete accord with the Comptroller General's recommendation that the Government should use its available resources, including supplies, equipment, drawings, stockpile materials, etc., before acquiring more either through its own services or through its contractor-agents."

Comment

The Department recognizes the importance of efficiently managing all of its resources and has for several years been making available to defense contractors selected items of excess military stocks. The Department is currently reexamin

ing this subject carefully. Efforts are being made to determine the soundness of expanding the existing programs to make available additional stocks in long supply, wherever it is feasible, to production and overhaul contractors. It is not possible at this time to forecast the probable outcome of the current studies; however, as our examination progresses we will be happy to respond to the further interests of the committee or its staff.

The Assistant Secretary of Defense (Comptroller) issued a memorandum to the military departments and DSA on September 9, 1964, directing that "pertinent audit programs should be amended, as necessary, to provide for evaluation of procurement procedures, contract awards and contract provisions to appraise the soundness of decisions as to whether materiel should be furnished by the contractor or by the Government. In this respect, some of the more important audit considerations which should be provided for in audit programs are

"(1) the adequacy of procurement policies and procedures designed to guide and direct contracting officers in this area;

"(2) effectiveness of procedures and performance concerning the exchange of purchase information (ASPR 1–303);

"(3) availability and extent of use of relevant data concerning sources of supply, prices, and inventory status of items and components thereof being procured which are already in defense supply systems; and

"(4) adequacy and effectiveness of procedures and performance relating to consideration of information of Government sources and prices in review of contractors' 'make or buy' programs and proposals." Recommendation relating to short shelf-life items (p. 11) :

"It is therefore recommended that the GSA and the DSA set up a joint project to identify and use throughout the Government the existing short shelf-life items now in stock and to devise ways and means to reduce losses from these items in the future. The subcommittee will expect a full reporting on this subject at its hearings next year. The GAO is also requested to check into this subject and to report to the subcommittee by March 1965."

Comment

The Director, Defense Supply Agency is participating in a joint project with the General Services Administration. Its objectives are to

(a) Identify items managed by each agency that has shelf-life limitations.

(b) Review shelf-life periods presently specified.

(c) Establish standardized optimum shelf-life periods acceptable to DOD and GSA.

(d) Explore possibilities for a systematized method for offering stocks to all Government activities prior to expiration of the shelf life. The working group is exploring the subject in detail, and has compiled useful data on short shelf-life items in all services. In addition to a report on its work, the group plans to complete a DOD instruction on the control and utilization of short shelf-life item assets, as well as a DOD-GSA agreement on governmentwide interchange of inventories of such items.

There follows a memorandum by which we set up this project:

"SEPTEMBER 25, 1964,

"Memorandum for the Director, Defense Supply Agency.
"Subject: Project to identify and use short shelf-life materials.

"Reference is made to the report of the Subcommittee on Defense Procurement to the Joint Economic Committee, Congress of the United States, dated September 3, 1964, specifically that portion dealing with short shelf-life items (pp. 10 and 11 of report).

"Losses to the Government by surplus declaration of items on which the self life has expired require the constant attention of our inventory managers. It is imperative that inventories of these items be matched with requirements on a continuing basis. Management must insure maximum utilization of these stocks to include all Government activities prior to disposal action.

"It is hereby requested that the Defense Supply Agency contact the General Services Administration with the view of establishing a joint project for the purpose of identifying items having limited shelf life, standardizing the shelf-life time periods to the maximum extent possible, and exploring the possibilities for increased interservicing arrangements as a medium for providing the maximum Government-wide utilization of such items prior to disposal action.

"The military services will provide the Director, Defense Supply Agency such participation and assistance as may be required in the discharge of this responsibility.

"(S) PAUL H. RILEY, Deputy Assistant Secretary of Defense."

Recommendation relating to centralized management of automatic data processing (ADP) (p. 11):

"The subcommittee noted from the testimony received during the April 1964 hearings that split responsibility exists in this area and should be clarified. This is another instance of long-deferred decisionmaking in an area of expenditures and investments amounting to hundreds of millions of dollars annually and steadily growing for the past decade."

Comment

The report refers to pending bills (H.R. 5171 and S. 1577) which relate to the centralized management of ADPE in Government; it acknowledges some progress during the past year and it notes that split responsibility in this area which still exists should be clarified.

The Department of Defense has opposed the enactment of legislation as proposed "To authorize the Administrator of the General Services Administration to coordinate and otherwise provide for the economic and efficient purchase, lease, maintenance, operation, and utilization of automatic data processing equipment by Federal departments and agencies." We have been particularly concerned with that aspect of the proposal which provides for dealing with ADPE in general terms, irrespective of the applicability or function to which it is applied. An additional major concern deals with the applicability of the proposal to ADPE employed by Government contractors, as evidenced by the language contained in the proposal.

The need for any legislation such as has been proposed in this area is yet to be demonstrated. Within current authorities and responsibilities, the Bureau of the Budget is charged with overall responsibility for the administration of the ADPE program in the Federal Government; the General Services Administration is responsible for procurement, excess property utilization, and surplus property disposal; and each of the departments and agencies is responsible for determination of individual ADPE requirements and the use to which ADPE shall be applied. There is an incontrovertible inconsistency in proposed legislation which attempts to recognize the responsibilities discussed above, yet, at the same time, attempts to provide a single central agency with the authority to control ADPE acquisition for the Federal Government as a whole.

Recommendations relating to commercial-industrial activities of Government

(p. 12):

*** all new activities proposed to be started should be carefully screened on the basis of essentiality. Second, those in existence should be identified, listed, and eliminated or curtailed in scope. Again, the basis for continuation should be essentiality. * * * While the BOB has still not issued guidance of executive agencies, the subcommittee reaffirms its previous recommendations." Comment

Although BOB has not yet revised and reissued Bulletin 60-2, the Defense Department has taken positive action which is consistent with the recommendations of the subcommittee. Through publication in March 1963, of DOD Directive 4100.15 and DOD Instruction 4100.33, a program was established for effective control of the number and type of commercial-industrial activities operated in DOD. In addition to this, our declarations of excess covering 61 DOD industrial plants, plus the closure of NOP, York, and the announced inactivation of arsenals and shipyards, are major steps toward the transfer to private enterprise of production capacity which need no longer be owned by the Government. The feasibility of further releases of DOD in-house production capacity is now being examined under the current studies covering equipment maintenance activities and all remaining DOD industrial plants.

The effectiveness of these efforts was acknowledged in hearings which the subcommittee conducted, at which Mr. Shoemaker, Chairman of the Committee of Hoover Commission Task Force members, made the following statement concerning DOD efforts in reducing their commercial-industrial activities: "I must in fairness state that the Department of Defense has made substantial progress in this field and I so testified to you in the 1963 hearings."

Recommendation relating to review of common service activities pursuant to the McCormack-Curtis amendment (p. 13):

"The subcommittee renews its previous recommendation that, as a part of the cost reduction program, a systematic program be pushed in the DOD to establish priorities for the study and analysis of common service activities and determinations made as to the most appropriate way to manage each in terms of effectiveness, economy, and efficiency as contemplated by the McCormack-Curtis amendment."

Comment

There is a continuing effort to study various feasible possibilities for integration and consolidation of common service activities. The record of successful continued development of the Defense Supply Agency, and the plans that are progressing for integration of Contract Administration Services and Contract Audit Services, are important examples.

Senator DOUGLAS. At this point in the proceedings we will include the statement of Representative Charles S. Gubser, a Congressman from California and a minority member of the House Armed Services Committee.

STATEMENT OF HON. CHARLES S. GUBSER, A REPRESENTATIVE FROM CALIFORNIA, TO THE JOINT ECONOMIC COMMITTEE

Mr. GUBSER. Mr. Chairman, I deeply appreciate the opportunity of making this statement and to raise certain points regarding defense procurement policies which I think are harmful to both Government and industry.

I have carefully studied the report of your Subcommittee on Defense Procurement issued in September 1964 and believe it is an excellent piece of work. It dealt at length with the subjects of (1) cost reduction, (2) standardization, and (3) the increased use of advertised competitive bidding. But, Mr. Chairman, one subject was completely untouched which has a direct bearing upon these three subjects-I refer to the matter of buying standard commercial catalog products and the tendency of the Defense Department on increasingly frequent occasions to resist the purchase of such items.

The report appears to be concerned exclusively with products developed at Government expense and makes no mention of incentives for private development or technical contributions available from private industry. In fact, the report strongly suggests that the committee favors Government control of research and development by emphasizing data rights and the acquisition of engineering drawings and detailed specifications to the complete discouragement of independent effort. This emphasis has been interpreted by DOD to mean more Government design and greater concentration of defense buying with those industries already dependent on the Government for survival. How can this policy achieve greater competitive bidding when it narrows the field to defense-oriented industries exclusively? In stressing acquisition of data and extensive audit of all contracts, including firm fixed-price contracts involving standard commercial equipment, Congress is forcing management to either accept greater interference and control through Government procurement policy or a careful avoidance of Government contracts.

Commercial competition involves ingenuity to advance the state of the art. A better design merits recognition by those standard buying techniques which encourage new and better solutions to a problem.

A policy of greater price competition without incentives for technical advancement is limiting competition to one narrow area of refinement in production. The Defense Department procurement practices are freezing out the most important asset of the free commercial marketthe desire to be first with a new and better product.

Government engineers are being intimidated by their contracting officers to avoid sole source or brand name buying. They are being forced to write detailed specifications not limited to one manufacturer, thus avoiding the latest advancement, and often with inadequate technical information on available commercial products or practice. This condition is particularly prevalent in the purchase of very complicated equipment such as electronic systems and instruments.

For example, the Navy Purchasing Office has a policy of buying only on detailed specifications or qualified products lists. Standard commercial catalog electronic instruments, often meeting the Navy's. requirements at less cost, are carefully avoided for fear of criticism on sole source or brand name procurement. Many products on the Navy QPL are obsolete by commercial standards. There is an undercurrent in DOD that is discrediting sole source and brand name or equal procurement because of the notion that these buying methods are noncompetitive.

Sole source or brand name or equal specifications are not without competition. There is a strong incentive to achieve the unique position of being first with a new and better product. Used properly, sole source buying is a powerful technique for improving reliability, performance, and efficiency. Brand name or equal procurement is an important technique for the Defense Department to obtain timely products. We should not so discredit this technquie that we restrict our DOD agencies to relatively old and outmoded technical gear.

Last year we saw a rash of protests to GAO because of awards to nonresponsive bidders on brand name or equal specifications. These awards were made to the lowest bidders without adequate consideration for their products being equal to the brand name. I refer to GAO decisions, B-153531 (March 20, 1964), B-154560 (July 24, 1964), B155034 (November 24, 1964), and B-155283 (December 14, 1964).

These cases are only representative of the trend to discredit brand name or equal procurement. The difficulty stems from excessive emphasis on increasing competition when there is inadequate technical information within the procurement agency to prepare detailed specifications or to fairly evaluate "or equal" bids without bid samples. This undue emphasis places a higher priority on low price than meeting specifications. The contracting officer is persuaded that the likelihood of internal criticism for failure to award to the lowest bidder is greater than vendor criticism for failure of a competitor to meet specifications. Vendors don't like to file protests for fear of blacklisting. Hence, abuse of the "or equal" award is increasing.

Utilizing the best products that private industry can develop needs to be placed in its proper perspective. The Defense Department should be encouraged to improve and strengthen those buying techniques which will insure maximum use of appropriate commercial catalog products and the avoidance of duplicating by special design that which is already available.

It should be kept in mind, too, that small business is best supported by incentives to protect its own ingenuity of offering technically ad