Joint Committee on Defense Production Subject: DoD Procurement Practices Hearing Transcript, September 30, 1977 2. Senator Proxmire: What is the planned method for disposal for these a. Are the plants being declared surplus to the government's b. Are competitive bids being solicited? C. Are bids being solicited from other than defense contractors d. Are the disposals being made in compliance with the federal e. Are minimum acceptable bid levels being established below Mr. Church: Before responding to this question, I believe it appropriate to define a few terms of reference. These are: Excess to ownership: Plants required for defense production. Excess to need or requirement: Plants no longer required for defense production. They are available for transfer to other Government Agencies or for declaration as excess by the GSA and disposal in any possible manner. Surplus to Government needs: Plants declared surplus after negative response to GSA screening of all appropriate Government Agencies. These plants are then offered for sale on the open market by the GSA. I will now respond to your questions: a. These seven plants were declared excess to DoD ownership. Since the plants were being operated by defense contractors to support Government contracts, they were turned over to the GSA for disposal by negotiated sale to the using contractor, provided this could be accomplished under existing laws. It is our understanding that the GSA clears these properties for sale through appropriate Congressional Committees and attempts to sell them to the using contractor with a provision that the contractor will retain the production capacity to support defense needs. 1. Senator Proxmire: negotiation to be so Mr. Church: The f the using contra Air Forc Air Fr Air A Wh negotiated sale to hi are being solicited. attempting to sell these **g contractors. We are aware that GSA A Brats that have established a lease 2 contractors. Sices Administration conducts these negotiated MANETty of the Federal Property and Administrative Services veraert Operations and the Justice Department. Na Pryerty Act). Each sale is then cleared by the House 24 S4 and a contractor cannot arrive at a mutually acceptable a midiishes its negotiation price based on a fair market value plus property is returned to the DoD for retention of ownership. If a plant is determined excess to DoD needs or requirements it is turned over to GSA for disposal in any manner. 5. Senator Proxmire: In reference to the Department's finding that 75 percent this problem? Does or can DoD set absolute or percentage of sales limits unnecessary personnel, what plans does the Department have to minimize of the cost associated with idle capacity can be attributed to idle or or marketing staffs? Are such costs subject to challenge on the on cost reimbursement for administrative, government relations grounds of reasonableness? monitoring contractors' costs at major contractor locations will Section 20. limitations, determined in advance, often do not provide equitable limited contract situations, but this has disadvantages; because such The DoD has established limits on contractors overhead rates in very with such limitations. On the other hand such costs are subject to cost allowance, and contractors are seldom willing to accept contracts of intent to disallow costs, as provided in the proposed new ASPR challenge on the grounds of reasonableness. By advising contractors Part 10 to Section 20 we believe effective control of these costs can be attained. 4. Senator Proxmire: Has the productivity improvement reward clause contained in the new profit policy been used yet? If so, please provide details year's implementation of the new profit policy, and special attention 5. Senator Proxmire: Please describe the details of the special termination buy-back program. How much equipment is potentially subject to government re-purchase; under what conditions would it be re-purchased; what office or person would be responsible for determining whether to re-purchase the equipment? Mr. Church: The provisions of the special termination buy-back program are contained in a proposed change to ASPR which states special provisions may be included in contracts for R&D and/or production of weapon systems or materiel to provide incentives to contractors to invest in fixed capital assets. Such provisions may permit the Government to acquire specific capital investments at no more than the depreciated value. The provisions become operative if the contract or program is terminated or funds are not provided in subsequent fiscal years to procure sufficient end items that would enable the contractor to recover his investment through the combination of investment incentives, income tax credits or incentives, and allowable depreciation costs pursuant to the ASPR XV cost principles. The limitations include: --The capital investment that may be covered by the special provisions is limited to severable plant equipment, including associated accessories that would be capitalized in accordance with the contractor's disclosed accounting practices, but excluding real property. -- The program which uses the end items requiring the capital investment must be listed in the DoD Five Year Defense Program (FYDP). The capital investment would not be made by the contractor except to meet the requirements of the program involved. - The amount of contingent Government liability by fiscal year must be authorized by the Secretary of Defense. The contracting officer must advise the appropriate fiscal authority of the amounts of contingent liability to be contracted for by fiscal year. - If it becomes apparent that a contingent liability resulting from the use of this technique will become an actual obligation, the Secretary shall be notified and immediate steps taken to obtain sufficient funds to cover the obligation. b. As indicated in answer a., we are pursuing negotiated sale to the using contractors. Competitive bids are not being solicited. c. As discussed in answer a., we are attempting to sell these plants via negotiation to the using contractors. We are aware that GSA has sold some plants to local governments that have established a lease back arrangement with the using contractors. d. The General Services Administration conducts these negotiated e. If GSA and a contractor cannot arrive at a mutually acceptable a user's value. If a plant is determined excess to DoD needs or requirements 3. Senator Proxmire: In reference to the Department's finding that 75 percent Mr. Church: We believe that the establishment of a formal program of The DoD has established limits on contractors overhead rates in very 4. Senator Proxmire: Has the productivity improvement reward clause contained Mr. Church: We are currently analyzing data gathered during the first 5. Senator Proxmire: Please describe the details of the special termination buy-back program. How much equipment is potentially subject to government re-purchase; under what conditions would it be re-purchased; what office or person would be responsible for determining whether to re-purchase the equipment? Mr. Church: The provisions of the special termination buy-back program are contained in a proposed change to ASPR which states special provisions may be included in contracts for R&D and/or production of weapon systems or materiel to provide incentives to contractors to invest in fixed capital assets. Such provisions may permit the Government to acquire specific capital investments at no more than the depreciated value. The provisions become operative if the contract or program is terminated or funds are not provided in subsequent fiscal years to procure sufficient end items that would enable the contractor to recover his investment through the combination of investment incentives, income tax credits or incentives, and allowable depreciation costs pursuant to the ASPR XV cost principles. The limitations include: - The capital investment that may be covered by the special provisions is limited to severable plant equipment, including associated accessories that would be capitalized in accordance with the contractor's disclosed accounting practices, but excluding real property. - The program which uses the end items requiring the capital investment must be listed in the DoD Five Year Defense Program (FYDP). The capital investment would not be made by the contractor except to meet the requirements of the program involved. - The amount of contingent Government liability by fiscal year must be authorized by the Secretary of Defense. The contracting officer must advise the appropriate fiscal authority of the amounts of contingent liability to be contracted for by fiscal year. - If it becomes apparent that a contingent liability resulting from the use of this technique will become an actual obligation, the Secretary shall be notified and immediate steps taken to obtain sufficient funds to cover the obligation. |