DEPARTMENT OF THE ARMY

Mr. MULTER. Mr. Arthur Tyler Port is our first witness this morning.

Will you come around, sir?

You may bring with you Mr. Jack Askins, and whomever else you want to assist you.

Mr. Askins is well known to this committee.

Will you proceed?

TESTIMONY OF HON. A. TYLER PORT, DEPUTY ASSISTANT SECRETARY OF THE ARMY FOR LOGISTICS; ACCOMPANIED BY JACK W. ASKINS, SMALL BUSINESS ADVISER TO THE ARMY, OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY (INSTALLATIONS AND LOGISTICS); ERNEST L. WALKER, ASSISTANT TO ARMY SMALL BUSINESS ADVISER, OFFICE OF THE ASSISTANT SECRETARY OF THE ARMY (INSTALLATIONS AND LOGISTICS); AND BRIG. GEN. JOHN A. GOSHORN, DEPUTY DIRECTOR OF PROCUREMENT AND PRODUCTION, ARMY MATERIEL COMMAND

Mr. PORT. Good morning, Mr. Chairman.

My name is A. Tyler Port. I am the Deputy Assistant Secretary of the Army for Logistics.

In addition to Mr. Askins, the Army's Small Business Adviser, present with me this morning is Brig. Gen. John A. Goshorn, Deputy Director of Procurement and Production in the new Army Materiel Command.

A biographical sketch of General Goshorn is submitted for the record.

Mr. MUTLER. You may incorporate it at this point.

(The biographical sketch referred to can be found in the subcommittee files.)

Mr. PORT. Mr. Chairman, if you prefer, I can cover my statement in detail or submit it for the record and discuss the Army's small business program with you informally.

Mr. MULTER. Since the statement was submitted in advance and has been reviewed, I think we can save considerable time if you will make it a part of the record in full at this point and then summarize it. (The statement referred to follows.)

STATEMENT OF A. TYLER PORT, DEPUTY ASSISTANT SECRETARY OF THE ARMY

(LOGISTICS)

Mr. Chairman and members of the subcommittee, I welcome the opportunity to discuss with you at this time the Army's small business program. On behalf of the Assistant Secretary of the Army (Installations and Logistics), I would

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like to assure this committee that the Secretary and I have personally assumed an active role in the monitorship of the Army small business program. Accompanying me is Mr. Jack Askins, the Army Small Business Adviser.

Mr. Chairman, in undertaking to develop a statistical analysis of the Army's small business program during fiscal year 1963, I should like to invite the committee's attention to several factors which I believe should be kept in mind as we review the matter. It is one thing to prepare a simple statistical summary. It is another thing to portray the considerations that must be taken into account and the individual and collective effort expended in each procurement by various levels of command. Add to this the fact that the transfer of major procurement activities from the Army to the Defense Supply Agency in fiscal year 1962, and to a limited extent in fiscal year 1963, a revised procedure for reporting procurement statistics to the Department of Defense; and the reclassification of several major Army small business producers to large business during fiscal year 1962, have had a major impact on the percentage ratios which we have used in the past for judging performance from year to year. Nothwithstanding the apparent retrogressive effect which the statistics tend to depict, it is my firm conviction that the Army's small business program has continued to progress and it is my purpose here today to justify this conclusion.

I believe that we must first discuss the program as the average person will see it, namely, in terms of the total dollars awarded by the Army to small business. The following tabulation evidences what has taken place in the Army procurement program during the past several years.

The data shown for fiscal year 1961 reflects an average year of operation. For fiscal year 1962 we must discuss two sets of statistical data; first, Army performance with a procurement mission comparable to fiscal year 1961 and, second, an adjusted procurement mission which excludes the Clothing and Textile Agency and the Subsistence Supply Agency which were transferred to the Defense Supply Agency during fiscal year 1962. It should be noted that performance between fiscal year 1961 and fiscal year 1962, when reviewed on a comparable basis, did show a significant increase. In fact, dollars to small business increased $550 million (35 percent). Impact on future Army small business awards, when judged against previous performance on an overall percentage ratio basis, can be readily understood since the commodities transferred to DSA represented small business awards of 62 percent (or 62 cents of every dollar) against an overall Army average of 30.3 percent. The Department of the Army feels that performance in fiscal year 1963 equaled and, in fact, exceeded previous years. However, this is not borne out by the statistics before you. This is due primarily to the reclassification of two major small business producers and the revision in reporting previously mentioned. The latter precludes any direct correlation of data between fiscal year 1962 and fiscal year 1963. However, I will give you full particulars to support my statement during the balance of this presentation.

Small business performance is generally evaluated on the basis of (1) total dollars awarded to small business concerns or (2) on a percentage basis in relation to total awards to all business concerns. However, both of these yardsticks preclude from consideration a basic element of the Army small business program, namely, qualified small business firms receiving an equitable opportunity to compete for Army procurements. The tabulation in exhibit A attached, brings together, into a composite picture, these (above) two basic elements that make up the small business program. It should be noted that in fiscal year 1961 (before the creation of DSA and before the reorganization of the D/A) the small business community received an opportunity to participate in approximately 50 percent (49.5 percent) of all business awards made by the Depart

ment of the Army. In fiscal year 1963 approximately 47 percent (46.6 percent) of all awards included small business participation. The reduction between fiscal year 1961 and fiscal year 1963 results from the transfer of functions to DSA. The chart in exhibit B, attached, graphically portrays the total small business picture in the Army.

Of course it follows that we must also consider the other side of the ledgerwhy did we exclude the small business community from the balance of our procurements? The tabulation in exhibit C attached, depicts this situation. It would appear at first glance that the Army is losing ground since the small business exclusion rate increased from 50.5 percent in fiscal year 1961 to 53.3 percent in fiscal year 1963. This is misleading because approximately $1 billion in high potential small business items having an average award rate of 62 percent to small business which were transferred to DSA do not appear in the fiscal year 1963 adjusted figures. If we were to include in the fiscal year 1963 figures the $1 billion transferred to DSA, the amount of dollars not offered to small business would have increased. The fact that it has not increased is evidence that the Army has actually improved its position.

It is important to note that approximately two-thirds of the contract dollar awards not having small business participation in fiscal year 1963 resulted from the lack of small business sources and production capability in small business. Of course this includes our major items of materiel and weapons systems. We must accept the fact that the average small business producers lack the "capability" to accept prime contracts for our major items and weapons systems. However, we feel very strongly that small business concerns can participate in such procurements through a very aggressive breakout program and through setasides. I can assure you that a constant effort is maintained to break out components of major items to enhance small business participation and broaden the competitive structure of Army procurement program. Publications describing several of the approaches to this program have previously been provided to your committee.

Generally, the quantity and complexity of certain military items and weapons systems purchased by the Department of the Army exceed the capability of the small business community. As the size and complexity of individual procurements are reduced and procurement packages become available, small business concerns come into the zone of consideration. This fact is clearly portrayed by an analysis of the dollar value categories of awards made in fiscal year 1963, shown in exhibit D attached. Small business received approximately 53 percent of all contract dollars awarded under $10,000 and 71 percent of all contract actions. Small business received 39 percent of the dollars awarded under $1 million and 71 percent of the actions. However, exhibit E, attached, shows very clearly what happens to small business awards for individual procurement actions exceeding $1 million. Our studies have shown that $1 million is truly the dividing point for the average small business concern. Beyond this point small business capability becomes an exception rather than the rule, and this is arrived at by considering each proposed procurement on a procurement-by-procurement basis. To maintain an active source list of qualified small business concerns (for research and development, preproduction engineering, production, and services) it is necessary for each major commodity command within the Army to support a continuing program to seek out and identify qualified small business concerns and to encourage their participation in our materiel requirements. For example:

1. Participation in procurement fairs, exhibits, clinics, conferences, and seminars throughout the country by industry representatives, Army procurement personnel, and small business advisers has become very significant. Generally, such affairs are jointly supported by local organizations, the military departments and civilian agencies of the Government. In addition, many of the larger procurement offices display a variety of items currently available for award, including physical samples, drawings, specifications, and bid forms.

2. Providing local Small Business Administration representatives with early notification of proposed procurements (DA Form 1877) prior to the procurement being offered to the businessman in order to obtain additional small business sources that have recently come to their attention.

3. Release of advance procurement information for publication in the Commerce Business Daily published daily by the Department of Commerce and to the Small Business Administration for display in its procurement information center located in Washington, D.C.

4. Small business advisers assigned to all major procurement activities continually provide potential business concerns with detailed information which will acquaint them in general with the methods of doing business with the Government and the points of contact within the country from which to seek Government business.

These actions have little meaning if we do not have an aggressive program to insure that the small businessman is given every consideration when a procurement is being programed. All procurement activities within the Army are cognizant of the necessity for a healthy small business community in the economic growth and defense effort of the Nation. The Armed Services Procurement Regulation sets forth ample guidelines to insure that qualified small business concerns receive an equitable opportunity to participate in Army procurements. The Assistant Secretary of the Army (Installations and Logistics), I, as his Deputy for Logistics, and Mr. Askins, the Army Small Business Adviser, have all visited the major commodity commands, and you can be assured that the small businessman is the recipient of constant consideration.

To further assure the committee of the Army's determination to maintain a stable small business community, we have 68 specialists employed as small business and labor surplus advisers; each with a primary duty to screen procurements and otherwise insure that the small business community receives an equitable opportunity to compete in Army procurement programs. These full-time specialists are assigned to major procurement activities where the bulk of dollars for Army purchases are awarded. At all other echelons within the Army where there is a purchasing mission, a qualified individual, usually with the background of a contracting officer, is designated to insure that the interest of small business is given every due consideration. Appointments of small business and labor surplus advisers (full or part time) are accomplished by the head of the procuring activity. The functions of the small business and labor surplus adviser in the Army are covered by general guidance set forth in the Army procurement procedure. Small Business Administration procurement representatives are assigned to major procurement offices on a full-time or part-time basis. A team effort, by both Army and Small Business Administration personnel at all echelons from the Secretariat down to and including field purchasing offices, has developed into a working relationship and spirit of cooperation that is highly gratifying.

As I previously mentioned, we provide the Small Business Administration procurement representatives advance notice of our proposed procurement plan for each proposed procurement by means of the DA Form 1877 ("Presolicitation Data on Proposed Procurement Actions"). This form contains a summary of the proposed purchase action prior to its being offered to the businessmen. It is worthy of note that the Assistant Secretary of the Army (Installations and Logistics) and the Deputy Administrator, Small Business Administration, recently made an agreement whereby this form is made available to field procurement representatives of SBA so that they may further screen our proposed purchases and request a set-aside and/or offer additional sources. The form is prepared on procurement of $50,000 and over. Under $50,000 Small Business is presently receiving 71 percent of all actions amounting to 49 percent of the money spent by the Department of the Army.

The Army recognizes the Small Business Administration has statutory authority to certify the competency of any small business concern as to capacity and credit. Contracting officers accept the fact that SBA is empowered to certify small business concerns in the area of capacity and credit and the Army accepts SBA certificates of competency (COC) as conclusive. But the matter does not simply rest there. Both the Army and the SBA are interested in reducing the number of COC cases. The complete interchange of information and spirit of cooperation between procuring offices and SBA field representatives has resulted in a reduction in the number of certificates of competency from 133 in fiscal year 1962 to 68 in fiscal year 1963. This area will continue to receive special emphasis. The small business set-aside procedure continues to be an excellent procurement tool to enhance the opportunities for small business concerns. A constant effort (consistent with the primary mission of the Army) is put forward by the Army in the form of the early preparation of procurement packages so as to permit breakout programs that are suitable for set-asides. This becomes more difficult as common use and off-the-shelf items are transferred to DSA for procurement. Transfer of items and functions to DSA has had a very definite impact on the ability of the Army to equal prior year performance, due to the exceptionally high small business potential and dollar value of items transferred. This fact can

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be judged by the reduction in set-asides between fiscal year 1962 and fiscal year 1963 as reflected in the following tabulation:

Notwithstanding the impact of transfers to DSA, in fiscal year 1963, the Army awarded 36 percent of total Department of Defense set-aside dollars and 70 percent of the awards. In fact, the Army accounted for 35 percent of the joint set-asides and 55 percent of the unilateral set-asides for fiscal year 1963. We intend to continue to take every action possible to maintain this lead. Policy relative to small business set-aside procurements by the Army is set forth in the Armed Services Procurement Regulation. Additionally, the Army as well as the other military departments in compliance with agreements reached between the SBA Administrator and the Secretary of Defense, have agreed that proposed procurements for construction (i.e., new construction-repairs and utilities) estimated to cost between $2,500 and $500,000 will be considered as though SBA initiated a request for a total set-aside. Of course, many construction projects in the Army exceeding $500,000 have been set aside for exclusive small business participation under criteria prescribed in ASPR. The Army, pursuant to policy set forth in the Army procurement procedure, has established a policy in the supply contracts area (i.e., other than construction) that proposed procurements between $2,500 and $50,000 will be considered for small business set-asides. This action was agreed to by SBA, thereby permitting their procurement representatives to devote their time to the larger procurements.

The Army has long recognized that the small business community cannot exist on prime contracts alone. The size and complexity of many present day military items and weapons systems generally exceed small business capability. To counter this problem, the Army has always looked to its major prime contractors for the necessary additional small business awards to support small business industries geared to the production and logistical support of Army materiel.

In furtherance of Public Law 87-305, the Department of Defense has implemented a fully coordinated subcontracting program which includes the Small Business Administration as a partner. Conferences with selected large prime contractors assigned to the Army have been arranged with contracting offices' representatives, small business advisers, SBA representatives, and the prime contractor's small business liaison officers participating to insure that the intent and purpose of the Defense subcontracting program is thoroughly understood and operational. Approximately 117 prime contractors are assigned by the Defense Department to the Army for monitorship. These in turn have been assigned to specific Army activities throughout the country for necessary reviews and compliance with the subcontracting program.

The Armed Services Procurement Regulation prescribes policy, procedures, and necessary reviews under which the Army operates its subcontracting program. Basically the current program is centered around new provisions of a subcontract clause now being placed in all prime contracts of $500,000 or more which offer substantial subcontracting opportunities. Under this requirement small business concerns which are potential subcontractors will receive the same consideration for procurements made by our major prime contractors as they would receive under procurements being made directly by the Army (except that the set-aside procedure will not be used in such cases).

Under current reporting procedures, all Defense prime contractors make their statistical reports directly to the Department of Defense with copies to the