SCOPE OF ADPE COSTS

I

Mr. CAMPBELL. You use this figure of a billion dollars a year. hope you understand that this will be much larger than that in a few years. This is an increasing figure.

Mr. MAHONEY. Actually, Mr. Chairman, the billion dollars we talk about is in-house Government expenditures. This is not including contractors.

Senator DOUGLAS. It does not include contractors?

Mr. MAHONEY. No.

Senator DOUGLAS. That is merely direct payments?

Mr. MAHONEY. We are talking of expenditures of over $3 billion annually in the ADP area.

Senator DOUGLAS. Let us start simply on Government-operated computers.

Mr. MAHONEY. Yes.

Senator DOUGLAS. The potential saving there of $275 million a year over and above the savings now effected by 45 percent purchase policy. Mr. MAHONEY. We feel this is a combination of purchase and full utilization of the equipment.

Senator DOUGLAS. Yes; we will come to full utilization in a moment. Now, let us take up the use of computers by Government contractors. You say this results in a further cost of $2 billion a year.

Mr. MAHONEY. Well, if this is broken down again, by $1 billion in Government contractors, another billion dollars in military operational uses.

Senator DOUGLAS. Is the $1 billion in military use included in the first billion dollars or was that simply for civilian use of computers? Mr. MAHONEY. If we start with $3 billion, roughly $1 billion inhouse commercial-type and engineering-type uses in the Government for all agencies, excluding certain intelligence-type activities, military operation uses. Now over in that area we are talking about another billion dollars roughly. Now this includes personnel as well as the equipment.

Then the third area is the contractor area, roughly another billion dollars.

So our estimates of savings, when we talk in terms of saving hundreds of millions of dollars annually, you have to recognize that of course a lot of this money involved is for personnel and so on.

Senator DOUGLAS. Let us take the billion dollars spent by contractors on computers on an annual basis. The Government pays for this; does it not?

Mr. MAHONEY. Yes.

GOVERNMENT FURNISHED ADPE TO CONTRACTORS

Senator DOUGLAS. We had testimony yesterday that in certain branches of the supply system that the Government furnished from 35 to 40 percent of the component parts. Why could not the Government furnish computers to the contractors?

Mr. MAHONEY. This is certainly our position. We are in full agreement that it should be furnished in many cases.

Senator DOUGLAS. Do contractors in the main pay for the computers or do they lease them?

Mr. MAHONEY. These are almost always 100 percent leased.

Senator DOUGLAS. So there is the potential savings of $500 million a year here?

Mr. CAMPBELL. There would be no advantage to the contractors themselves to purchase because from an income tax viewpoint and other factors the leasing is by far the most convenient thing for them to do. Senator DOUGLAS. I wish you would explain this tax situation a little bit.

Mr. CAMPBELL. The rental is fully deductible whereas the machine itself would be written off over a period of many years.

Senator DOUGLAS. Whereas the rent is deductible from the current gross income?

Mr. CAMPBELL. Yes, sir.

Senator DOUGLAS. Now have you taken this up with the Defense Department?

Mr. CAMPBELL. Yes, sir.

Senator DOUGLAS. What is their reply?

Mr. CAMPBELL. We have issued about 30 reports on contractor use of ADP equipment in the past year and a half or two.

DOD POSITION IN GOVERNMENT FURNISHED ADPE

Mr. NEWMAN. It is just as Mr. Campbell stated in his statement that he read, that the Department of Defense feels that they do not want to give or furnish the contractors with ADP equipment unless it is excess to the Government. We feel that in many plants that are practically 100 percent Government business that we should furnish the ADP equipment. You must understand, also, Mr. Chairman, that the lease cost which is now being charged to the Government contracts also increases the fees of these contractors.

In other words, if you have a million dollars in rentals on ADP equipment, why, he would make it another 5- to 10-percent fee on that figure.

CONTRACTOR FEES RE ADPE

Senator DOUGLAS. Now this is a very interesting question. The cost-plus-percentage contracts which were abused in World War I have been removed now, and what we now have is cost-plus-fixed-fee, which is not as bad as the cost-plus-percentage contract. You say in practice the fixed fee becomes a percentage fee, that the fee tends to become a percentage of the original contract?

Mr. NEWMAN. Of the cost.

Senator DOUGLAS. Of the cost.

Mr. NEWMAN. In other words, in a negotiated contract or cost-plusfixed-fee, they negotiate a total cost and based on that cost, depending on the risks in some areas, the contractor would receive a fee or profit on the total cost. Now maybe on ADP the services would only allow the contractor 5 percent.

Senator DOUGLAS. You mean that in part the cost-plus-percentage contract has come back wearing the disguise of a cost plus fixed fee? Mr. NEWMAN. This all is set in advance, Mr. Chairman.

Senator DOUGLAS. Yes, but what about changes, when the changes are made in specifications?

Mr. NEWMAN. He may get more fee or he may not. The services may reduce the fee.

Senator DOUGLAS. If the fee goes up as the changes are made, this becomes almost a cost-plus percentage.

Mr. NEWMAN. In each change they would negotiate what the cost would be as well as what the fee would be.

Senator DOUGLAS. You know, we are opening up some new avenues of inquiry.

In any event you feel very strongly, first, that the computers should be purchased rather than leased in direct Government operations? Mr. CAMPBELL. In general, yes.

Senator DOUGLAS. And second, that this should be extended to direct contractors for the Government?

Mr. CAMPBELL. Yes, sir.

Senator DOUGLAS. And that the savings will run into the hundreds of millions of dollars.

Now Congressman Brooks and I have had bills in to this effect for some years. We have not been able to make much progress.

BOB POSITION ON ADPE

Now it becomes my painful duty to ask you this question: Has not one of the chief sources of opposition to this bill come from the Bureau of the Budget?

Mr. CAMPBELL. I regret that is correct. We can't understand it, but that is true.

Senator DOUGLAS. Now this is the agency which is supposedly your opposite number in the executive branch, isn't that true?

Mr. CAMPBELL. Its function in the executive branch does parallel ours in the legislative to a degree.

Senator DOUGLAS. And I want to say in general I think its work is very good.

CENTRALIZED MANAGEMENT OF ADPE

I have been unable to understand this opposition. Now there is a third question, the centralized management in the handling of these computers.

We have been stressing the fact that these computers can work a long working day without great fatigue. There may be a fatigue of metals but they can work at least 22 or 24 hours a day with shifts of people working on them. And that it is an uneconomic use of resources to work them only a few hours of a day.

Granted that they are status symbols, granted that each agency wants to have a computer in order to show that it is right up with the times, still if they are under central management in convenient places this would make possible one agency using a computer for 6 hours a day and another agency for 3 or 4 hours a day, and so forth. Mr. CAMPBELL. Yes, sir, that is correct.

ROLE OF BOB IN ADPE MANAGEMENT

Senator DOUGLAS. It could be handled centrally. I have heard rumors that what the Bureau of the Budget wants is for them to be the central agency. Have you ever detected possibilities in this direction?

Mr. CAMPBELL. Our original suggestion that I think was discussed with you, Mr. Chairman, is that this was such a vital thing to the

Government that it should really be part of the President's own office.

Senator DOUGLAS. The President's?

Mr. CAMPBELL. Yes, we directed our recommendation toward direct Executive control.

Senator DOUGLAS. That would be the Bureau of the Budget?
Mr. CAMPBELL. No, we did not think that would be a good idea.

BUREAU OF THE BUDGET-OPERATING OR PLANNING AGENCY?

Senator DOUGLAS. Now that raises the question, should the Bureau of the Budget be an operating agency or should it be a planning agency and to some degree a supervisory agency?

Mr. CAMPBELL. I think that was the reason we felt as we did, that this was an operating matter and that the Bureau of the Budget

Senator DOUGLAS. Some years ago I crusaded against Government Cadillacs. I resented esthetically seeing the streets here blocked in the morning with Cadillacs of bureaucrats. My wife drives me down in a 1960 Chevrolet. I use the Chevrolet for 7 years and discard it. I am very proud I have a Chevrolet. I have no jealousy of Cadillacs but it seems to be a status symbol which people embrace. I crusaded on this for several years, drew down on my head the derision of the Secretaries, the Deputy Secretaries, and Under Secretaries, the Deputy Under Secretaries, the Assistant Secretaries, and the whole hierarchy of governmental officials.

I was pleased to see the President put in an Executive order reducing the number of Cadillacs and making a saving. I want to congratulate him on it.

Now who is managing the assignment of these cars? Is it the Bureau of the Budget?

Mr. CAMPBELL. Of course, the General Services Administration handles most of the car problem in the Government.

Senator DOUGLAS. The chief abuse has not been the White House but in the departments scattered around. I am informed by Mr. Ward that the authorization for cars is fixed by the budgetary-legislative process and Congress handles its own somewhat liberally.

Then each Department more or less administers its own vehicles where there is no GSA motor pool. I think that is right. There have been real reforms of it on the whole. Would you not say, that the Bureau of the Budget should not be an operating agency but should be a planning and inspecting agency?

Mr. CAMPBELL. I think that was the genesis of the Bureau's organization.

Senator DOUGLAS. I have been asking questions for some time. I think I will stop for a moment and let Mrs. Griffiths have a chance.

COMPATIBILITY OF COMPUTER SYSTEMS

Representative GRIFFITHS. I would like to ask you, Mr. Campbell, what about the difference in these computer systems.

Did not DSA inherit a good many different computer systems and would it not be of more value if they were all the same system or at least compatible? (See Admiral Lyle's statement, p. 82.)

Mr. CAMPBELL. That is a technical problem which I probably am not competent to discuss. I will say, however, that we are aware that

these computers do serve different purposes. Mr. Mahoney is better qualified on that.

Mr. MAHONEY. I think what we are asking the Government is a degree of compatibility between computers so that we can interchange data between the various systems.

We are not particularly interested in who the manufacturer is as long as we can speak computer to computer language back and forth not only in Government but between Government and industry. We have been searching for this for a number of years. At the moment we have quite an incompatibility problem.

Representative GRIFFITHS. Thank you.

TRANSFER OF DISPOSAL FUNCTION TO GSA

I would like to ask you also, Is not General Services about to take over the disposal function of the Defense Supply Agency? (See p. 83.) Mr. CAMPBELL. To some extent.

Representative GRIFFITHS. Do you have information on cost differentials in this? And the economies, if any, that would be effected or the speed with which it could be done?

Mr. RUBIN. We have no information on that. We are aware of the fact that there is an agreement between GSA and the Defense Supply Agency to make this transfer which will go into effect, we believe, the first of July but we have not made a study as to the relative cost. Representative GRIFFITHS. Do you know whether or not in actuality the General Services Administration is now recouping less per dollar than Defense is?

Mr. RUBIN. We have no information here on that.

Representative GRIFFITHS. In addition to this, the General Services do not have the automatic processing data that the Defense Supply Agency has, does it?

Mr. RUBIN. We have no information here as to GSA's ADP capability.

Representative GRIFFITHS. So in reality they will take over the thing and make it into a manual operation and the real advantage that the Defense Supply Agency has now is that they have an automatic operation?

Mr. RUBIN. We do not know what their plans are. We are not too familiar with that phase of the problem.

GAO TO REVIEW CAPABILITIES AND COSTS OF DSA AND GSA RE DISPOSAL

FUNCTION

Representative GRIFFITHS. Would you mind looking into it?
Mr. RUBIN. We would be glad to.

Representative GRIFFITHS. I think the result would be that it would simply cost the Government additional money. Why should any additional equipment be purchased or why should these people take it over and run it manually when it is already being run from an automatic basis.

Second, I think it is true that the Defense Supply Agency recoups more money per dollar than General Services recoups. Mr. RUBIN. We will be glad to look into that. Representative GRIFFITHS. Thank you.