VII.

10.

Dec 3, 76 4005.16

Developing a technique where feasible to identify "end item application" for those critical or weapon system essential items affected by shortage/phaseout conditions.

11. Seeking manufacturers and suppliers commitments to
provide maximum advance notice prior to phasing out
production or supply of material.

12. Advising using Military Departments and other users of date(s) beyond which support will no longer be provided for item(s). The DoD Components are responsible for notifying International Logistics (IL) customers.

EFFECTIVE DATE AND IMPLEMENTATION

This Directive is effective immediately. Two copies of implementing regulations shall be forwarded to the ASD (I&L) within 120 days.

DEFINITIONS

4005.16 (Encl 1) Dec 3, 76

A.

B.

C.

D.

E.

F.

Items. Material that is raw, in process, a manufactured commodity, equipment, component, accessory, part, assembly, or product of any kind including prime and subcontractor items.

Life of Type Buy. A one-time procurement, when all other alternatives have been exhausted for a quantity of an item no longer to be produced. Procurement quantity will be based upon demand and/or engineering estimates of mortality, sufficient to support the applicable equipment until phased out of the system.

Life Cycle. The total life span of an end item commencing with the concept formulation phase and extending through the operational phase up to its removal from the DoD inventory and ultimate disposal, to include inventories of other nations participating in the Security Assistance Program.

Not Available from a Manufacturing Source or Supplier. Items which cannot be procured from any known manufacturing source. These items are not to be regarded as "currently" or "temporarily" nonprocurable. They are items no longer manufactured because of advancing technology, loss of commercial markets, or the total DoD requirement is insufficient to make continued operation of a minimum manufacturing facility economically feasible for the manufacturer, or other difficulties.

Potentially Not Available from a Manufacturing Source or Supplier. This applies to items for which any known manufacturing source, including privately owned and Government-owned manufacturing capability intends to, or is likely to, cease production permanently prior to the forecasted completion of the life cycle of the using end item.

Material Shortage. Lack or shortage, or impending lack or shortage of any raw, in process, or manufactured commodity, equipment, component, accessory, part, assembly, or product of any kind.

Joint Committee on Defense

Production

Subject: DoD Procurement Practices
Hearing Transcript, September 30, 1977
Supplemental Question

Senator Proxmire: Please describe the Department's activities with respect to Title III of the Defense Production Act.

Mr. Church: We are in the process of adapting our materials policies and programs to more fully recognize and respond to the dynamics and economics of the international supply and demand for metals, minerals and industrial materials in their basic and upgraded forms to support defense production. In this connection, we are planning for increased utilization of the expansion of production capacity and supply authorities of Title III of the Defense Production Act of 1950.

In the recent past, the DoD has developed and submitted several proposed. Title III projects to the Federal Preparedness Agency (FPA) of the General Services Administration for financial support. proposals have addressed means by which we could reduce our dependence on For example, three DoD foreign sources for chromium by (a) mapping and mining U.S. chromium resources, (b) developing silicon-base substitutes for chromium, and (c) developing substitutes for chromium in superalloys. coordination of these proposals with others developed by the Department of the Interior, the FPA has received $1,100,000 in FY1978 under Title III for the development of substitutes for chromium and the recovery of chromium from metallic waste materials.

As a result of

In Fiscal Year 1978, we intend to place more emphasis on examination of the need for expansion of production capacity and supply for end items and component parts for DoD systems and equipment in addition to raw materials and semi-finished commodities.

Thank you for your letter of October 7, and for the opportunity to appear again before the Joint Committee on Defense Production, on September 30, 1977. As I indicated at that time, I feel that your hearings into the state of the U.S. defense industry are particularly important and timely.

In the attachment I have given my initial response to your three follow-up questions; however, I must point out that these, as well as other questions raised during the course of the hearing, are, in my opinion, extremely complex and undoubtedly require far more study to be adequately answered. In fact, in many cases I believe that the data base does not adequately exist to provide the full answers at this time. However, I am optimistic that with the combination of your continued questioning and the new initiatives which the Department of Defense has recently instituted, in the area of analysis into the defense industry, there will be data made available and corrective actions implemented for improvement in this very critical portion of the U.S. defense posture and the overall U.S. economy.

Please do not hesitate to call on me if I can be of any further assistance.

FOLLOW UP QUESTIONS TO THE TESTIMONY

OF J. S. GANSLER BEFORE

The JOINT COMMITTEE ON
DEFENSE PRODUCTION

ON SEPTEMBER 30, 1977

Question No. 1

In your oral testimony, you suggested that one way
to minimize the additional costs associated with
excess capacity in the aircraft industry would be
a "much tighter rein on the overhead not only in
terms of percent but also in terms of the type of
charges that are allowable against it. That is in
terms of the labor portion." Mr. Church testified
that it is extremely difficult to determine un-
necessary staffing. Do you have any proposals for
formal procurement regulation changes or less formal
procedural changes which could control these types
of costs ?

Answer:

-

I believe that the A.S.P. R. provisions covering this
area are adequate to cover the intent of disallowing
excess capacity charges both in terms of facilities
and labor. The problem, however, rests in the specifics
of the implementation at the individual plants.
in terms of facilities, the guidance from the Department
First,
of Defense and the Congressional legislation is very un-
clear as to how much additional capacity beyond the
current usage should be provided for the future possibility
of surge or mobilization. However, clear definitions of

"requirements" would minimize this uncertainty.

In the case of labor, it is even more difficult to provide general guidance, other than the obvious steps that the Department of Defense has begun to take in terms of emphasizing to its procurement people and to its auditors the strong desire to eliminate unacceptable overhead labor charges. The difficulty is in defining which workers are, in fact, excess and which are not. probably required, in addition to setting very tight percent Here, detailed floor audits are overhead controls; so that as direct labor falls, the allowable overhead percent stays constant. past ten years in the defense industry has clearly shown that (Data over the this percentage is rising significantly, and thus far greater control is required; and is being initiated.)