we must have a formalized and operating system which has thorough knowledge of a subcontractor's current degree of effectiveness in such areas as production, quality, reliability, procurement methods, resources, and so forth. Our aim, then, is to improve the capability of those subcontractorspredominantly small business-who are presently on our source lists. rather than to aggressively seek additional sources. We, of course, are still interested in qualifying good new sources, but the emphasis has shifted. In the course of these forums we will try to keep small business contractors informed as to such things as- (a) DOD policy and procedural changes. (b) New programs. (e) Estimates of future hardware requirements. (d) Latest in production techniques, and so forth. Martin also renders assistance to small business through this medium on a personal counseling basis relative in such matters as— (a) Testing procedures. (b) Reliability management. (c) Configuration control procedures, and so forth. Finally, I have a suggestion to offer. The success we have so far attained in our latest approach to assisting small business leads us to believe that it might well be applied more widely. Through Government encouragement and sponsorship, the large commercial product manufacturers could be induced to undertake a similar type of small business assistance program to improve the technology, production, and management capability of their small business suppliers. Their increased efficiency should, in turn, produce cost reductions while furnishing a better product to the customer. We wish to assure you that the Martin Co. will continue to have a dynamic small business support program not only to fulfill legal requirements, but because we feel it is good business and in the overall national interest. That concludes the statement, sir; thank you. (The attachments referred to appear in the appendix.) Mr. MULTER. You have made an excellent statement, and I am sure the committee would be very happy to note the fine work your company is doing in this field. We will review the attachments that are submitted with your statement and then print those in full that should be printed and either excerpt or file the others as may be appropriate in each instance. Your attachments numbered 2, 3, 4, and 5, do they represent updating of the various items or Mr. ODELL. No, sir; those attachments represent implementation of the company policy down to a detail level by the buying divisions to insure that it is carried out by the individual buyers, and so forth. It gets down to pretty small detail but it is part of our overall policy and criteria guide to promote the small business program. Mr. MULTER. And they are of general application throughout the company's various divisions? Mr. ODELL. No; they have application only to the division which issues them. You will find there is one from Orlando, one from Denver, one from Canaveral and one from Baltimore. They do vary because of the fact they are in different locations and they have different product lines. So that there is some variance locally in the implementation of the overall company policy. Mr. MULTER. Would you care to make any comment on the testimony that was presented this morning by the Strategic Industries Association? Mr. ODELL. Only this, sir, that I thought it was excellent, and that I basically agreed with everything that I heard. Mr. MULTER. Are there any questions? Thank you very much, you have given us a very fine presentation. Mr. ODELL. Thank you, sir. Mr. MULTER. I want to repeat again to all of the witnesses who came in here today, we are indebted to all of you. I know that your testimony will be very helpful to the subcommittee in formulating its recommendations to the full committee which will then be presented to the Congress. Is there any other comment that anybody on behalf of the Strategic Industries Association would like to make at this time? Any further comment by any of the witnesses we have heard? If not, we will recess the committee at this time subject to the call of the Chair. (Whereupon, at 3 p.m., the subcommittee recessed, subject to call of the Chair.) SCIENTIFIC APPARATUS MAKERS ASSOCIATION Mr. HENRY A. ROBINSON, SCIENTIFIC APPARATUS MAKERS ASSOCIATION, Select Committee on Small Business, House Office Building, Washington, D.C. DEAR MR. ROBINSON: Pursuant to our telephone conversations I am forwarding the attached 15 copies of the statement of the Scientific Apparatus Makers Association pertinent to the current hearings on Government procurement before Congressman Multer's subcommittee. I trust that you will make copies of this statement available to Mr. Multer and the other members of the subcommittee, and arrange to have it incorporated in any official report of these hearings. Copies are also being forwarded to the pertinent procurement policy officials at the Department of Defense, Small Business Administration, NASA, General Services Administration, and Atomic Energy Commission. Should there be a need for additional information or clarification of any portion of the statement, we shall be glad to submit further details and supporting data. Sincerely yours, GEORGE LAWRENCE. AUGUST 12, 1964. Mr. GEORGE LAWRENCE, Scientific Apparatus Makers Association, DEAR MR. LAWRENCE: This will acknowledge and respond to your August 4 letter with its referral to the statement of Bruno O. Weinschel, submitted on behalf of Scientific Apparatus Makers Association for the record of this subcommittee's current hearings on Government small business procurement programs. Mr. Weinschel's statement will be included in the record. We are asking the Department of Defense to comment regarding Mr. Weinschel's complaints and views for the committee's evaluation. Your interest in the subcommittee's hearings is appreciated. Sincerely yours, ABRAHAM J. MULTER, Chairman, Subcommittee No. 2 on Small Business and Government Procurement. STATEMENT OF SCIENTIFIC APPARATUS MAKERS ASSOCIATION PROCUREMENT ADVISORY SUBCOMMITTEE I am Bruno O. Weinschel, president of the Weinschel Engineering Co., located in Gaithersburg, Md. My company is a small business firm manufacturing precision microwave equipment and related instruments. I am appearing before the subcommittee today representing the procurement advisory subcommittee of the Scientific Apparatus Makers Association, of which I am a member. The Scientific Apparatus Makers Association is a national trade association, founded in 1918, and consisting of approximately 220 member companies representing the majority of leading U.S. manufacturers and distributors of scientific instruments, laboratory apparatus and equipment. The association membership embraces manufacturing plants in 28 States, with branches and offices in virtually every State. While member companies represent a total employment in excess of 132,000 workers, a recent survey indicates that this is essentially a "small business" industry with 67 percent of member firms qualifying under the definitions of the Small Business Act. While the scientific instruments industry accounts for only a small portion of the U.S. gross national product, the instruments and equipment produced by this industry are essential to technological advancement in every facet of this country's efforts in scientific research and development, industrial process control and automation, medical research, education, and Government research. The capital investment of member companies in plant and equipment totals approximately $1 billion. Annual research and development expenditures by these firms total about $60 million, and annual sales to Government agencies is estimated at approximately $220 million. Additional facts and information about the Scientific Apparatus Makers Association and the scientific instruments industry are included as attachments to this statement. INTRODUCTION Instrument manufacturers associated with the scientific instruments industry are becoming increasingly concerned about the disproportionate impact that Government procurement is manifesting within this industry, and with the increasing restrictions which Government procurement polices, regulations and practices are imposing on the private company in the conduct of its business. Various segments of this industry supply from 10 to 40 percent of their output in direct and indirect Government sales. Practically all of these products are either standard commercial items or variations of standard items which are usually furnished to the prime or subcontract level on a fixed-price, supply-type contract or purchase order. The nature of this industry and these manufacturers is unique in that over the postwar years they rank third or fourth among all industries in the percentage of sales dollars invested in research and development, and at the same time the overall research and development market constitutes probably their most important sales potential. Much of the concern of member companies rests in the belief that recent trends in Government procurement regulations and practices are reducing the incentive for small- and medium-sized instrument manufacturers to invest their own resources and their best research and engineering talents in the solution of the Government's technical problems. It is strongly felt that the highest portion of research creativity and the largest source of technological advancement within the scientific instrument industry rests with the small- and mediumsized firm. If the managements of these firms consider it to be in their best interests to divert their efforts from the field of Government procurement, it seems patent to assume that this loss of technical capability can only result in a slower advance on the technical problems of Government agencies, less efficient Government procurement, and something less than full utilization of the following major headings: This statement will endeavor to develop more specifically the details of the Government procurement problems of the scientific instruments industry under he following major headings: 1. Manufacturers' Rights to Technical Data. 2. Technical Data for Spare Parts Provisioning. 3. Problems Related to Technical Specifications. 4. Government Treatment of Inventories and Patents. 5. Government Demands for Detailed Cost Data. MANUFACTURERS' RIGHTS TO TECHNICAL DATA Over the past several years the problems related to the protection of propietary data have been explored frequently and in detail. Spokesmen from various industry groups have aired their complaints before various administra tive agencies, in the Halls of Congress, and indeed before this same subcommittee. It would serve no purpose to review again these positions and arguments, but rather this statement will attempt to develop some of the unique aspects of this situation as they apply to the scientific instruments industry. As previously stated, substantially 100 percent of the Government business placed in this industry is for standard commercial items, either supplied "off the shelf" or with minor modifications. Because of the highly technical and complex nature of these scientific instruments and devices, however, there are factors involved here which are vastly different from other classes of governmental purchases of standard items; i.e., papers, pencils, ink, coal, steel, containers, furniture, etc. In procuring scientific instruments and related technical equipment, the background knowledge, skill, integrity and know-how of the manufacturer becomes as important as or maybe even more important than the ability of the product to meet the written specification or perform the initial tests. Year of technical experience, based on both successes and failures, combined with years of accumulated competence of the manufacturer's team of skilled scientists and technicians are an integral part of the sustained accuracy, lasting quality and continuing performance of the final instrument. The manufacturer's right to protect this valuable resource of technical competence and know-how should be unquestioned in contractual dealings with Government agencies the same as it is in dealing with ethical commercial customers. Some Government agencies have made attempts to grant protection for the manufacturer's proprietary data. In the case of the Armed Services Procurement Regulations (ASPR), the Defense Department states that it will not claim such proprietary data unless they are listed separately in the schedule of the contract, negotiated for, and a fair consideration paid to the contractor. What could be fairer? In practice, however, the contractor learns to his sorrow that his definition of proprietary data is quite different from that of the Defense Department which maintains that any information which can be obtained by inspection and analysis is not proprietary. Also, the "fair" consideration offered to the contractor is usually the cost of the blueprints; and if the contractor's cost demands are deemed "unreasonable," the vast resources of Government laboratories can be employed to "reverse engineer" the product in order to extract the innermost proprietary features. The present broad wording of the ASPR clauses are too often seized upon by the contracting officer to force the small contractor into granting unlimited access to background data and technical know-how without any compensation whatsoever. This is accomplished by setting up competitive bidding situations in which the nucleus manufacturer who has developed the product is confronted by bids or questionable manufacturers who have copied his product in whole or in part (sometimes with the assistance of the Government agency involved). In a few proven instances within the scientific instrument industry, these "copy artists" have gone so far as to take another manufacturer's instrument, install a new front panel, and submit this for test as a proof of his competence. Such a supplier has no compunction or hesitancy in granting the Government unlimited rights to data-he has no data to protect. This evil may then be further compounded if the contracting officer uses this offer for unlimited rights as a means to force all bidders to grant similar rights to proprietary data. All Government procuring officials should be instructed that they do not have the right to obtain unlimited rights to technical data in any contract unless it is fairly paid for-even if such rights are freely offered by a contractor. TECHNICAL DATA FOR SPARE PARTS PROVISIONING There is another manner in which a small manufacturer who has developed proprietary instruments may be forced to give up his design and technical data under Government contract provisions. Even if he was successful in obtaining the original procurement, perhaps on a negotiated, sole-source basis, his background data and technical know-how may be exposed to his competitors through the data requirements for spare part provisioning. Since the Government uses the equipment it purchases in all parts of the globe, it is understandable that it is not possible in all instances to return such equipment to the manufacturer for maintenance, adjustment, and repair the way a normal commercial customer would be expected to do. In most contracts it is therefore customary to include a provision for spare parts and the contractor usually agrees to supply certain calibration and adjusting instructions not normally supplied to commercial customers. In itself this seems fair and also harmless. The contractor makes this agreement at the inception of the contract and it is usually in the form that he agrees to comply with the technical data requirements of the spare-part provisioning document cited in the contract. The document most commonly used, however, is actually an octopus-like specification which references additional specifications, which in turn themselves reference other specifications; ad infinitum. A specific analysis of one of these sparepart provisioning documents, MIL-D-70327, indicated that 514 other specifications totaling over 3,000 pages of fine print legally bound the contractor who |