set ́s to me, Should make it easier for the defense industry to be able buy these plants. Obviously nobody would want to buy a plant f you are not going to continue military production, if demand is ng to evaporate in a year or two. That isn't the case now, and it seen to me that we could follow a more vigorous policy of Essing of these plants. Can you give us any notion of how many of these 82 plants that you deû't Save scheduled for sale-you say you have 89, 7 of which you are negocating now to sell-what is the minimum roughly, 20, Dosepeding 'ke that! 1. SCR. Mr. Chairman, I don't have those statistics with me. I would be more than pleased to provide them for the record. We will bce that and provide eto owing information was subsequently supplied for the PANS TO REDUCE GOVERNMENT-OWNERSHIP PLANTS → reduce Government-ownership of plants to the very minimum he responsibilities and direction of Public Law 93-155, Defense Kosove Act of 1973, 80 of the 89 production plants are contractor a is for retaining and disposing of the 89 plants are summarized YONA for sale to the using contractor___. ve decorated essential Government-operated production vacie plant ss to POP requirements_-. during the next 3 to 10 years) to sell plants not designated The major d Nula in selling the future 10 and the present 7 plants to the WX?PG AVATON@CTor is the problem of reaching an agreement on price. Since 1964, GSA has "Ponest several plants to the Services as undisposable, mainly because of lack of price agree. These are included in the "future efforts" category Shown above 196 684 grourdrules are to obtain the maximum price on each plant market value plus a user's value), More flexibility in negotiating a sales 1900 g sult is a long run benefit to the Government. Plants that were undisssible tive to ten years ago because of price, might now be privately-owned facilities. Puring the same five to ten year period the Government has spent millions of dollars to maintain such plants. We believe that GSA should exercise more latitude in arriving at a reasonable market price. Our current plans are to retain 66 plants as essential to Service requirements and dispose of 28 during the next five to ten years. During the same time period each of the 66 retained plants will be reviewed on an annual basis with the goal of further reductions, Senator PROMIRE. Do you think it would be realistic within the next 3 years you could get down to a reasonable minimum? Mr. Cm Ron. I believe that is the case, yes. Senator PROXMIRE. Do you think this can be done without a giveaway program in which useful plant is in effect just handed over to defense contractors without reasonable compensation? Mr. CHURCH, Well, of course, a giveaway is like beauty, it is in the eyes of the beholder. We will attempt to get the fair economic value of those plants in every case. I hate to characterize it as a giveaway or not giveaway, but we are negotiating vigorously. However, there are cases where the contractors feel as though we should pay them to take over the plant as opposed to them—— Senator PROXMIRE. I wouldn't disagree with that. I am sure there are instances where that might be the case. I wouldn't have a closed mind on that at all. It still might be worthwhile. You might get a more efficient overall operation if the contractor controlled everything and, therefore, was operating on the basis of the most efficient input. [Refer to questions 1 and 2 in app. III, pp. 164–65.] Now, you made a most interesting observation in your statement, referring to additional cost associated with extra capacity. You say, and I quote: For the most part, this cost consists of indirect labor, engineering, marketing and administrative personnel, retained in anticipation of and to enhance obtaining additional business. Twenty-five percent or less of the extra capacity cost is associated with underutilized plant and equipment. That is a colossal amount, 25 percent. What is the Department doing to crack down on unnecessary industry featherbedding? Mr. CHURCH. Well, you are referring to the aircraft industry study which indicated there were some $300 to $500 million worth of excess capacity. That means approximately $80 million, or about 25 percent, is bricks and mortar and various kinds of plant and equipment and the remainder is the labor and other areas that you do mention. Senator PROXMIRE. How much of this is extra people you can just layoff? Mr. CHURCH. A good percentage of it is people. Now, as we were discussing earlier, within this competitive environment, there is a need to retain a rigorous competitive base. But, because there are many factors which we don't adequately understand, and particularly, what achieves the most competitive base in the airframe industry, I feel as though we must be very careful as we move into that area. Therefore, we are further analyzing that particular aspect of it to see that we don't move so vigorously that we throw the baby ont with the bath water; that is, we don't get down to so few companies that we have destroyed the competitive base in the process. However, I believe, that there are areas where there Senator PROXMIRE. Are you saying that you would destroy the competitive base by reducing personnel that is unnecessary? Mr. CHURCH. If the personnel are truly unnecessary, obviously you don't destroy the competitive base. But if, in fact, the personnel are there doing research and development into new technologies, that will give us a better technology in the air frame industry and they are preparing proposals to do that; then, in fact, they are not unnecessary but very much needed by advancing the technology. Senator PROXMIRE. How about engineering and marketing staffs? Mr. CHURCH. Well, I think there are many who would argue that marketing staffs are too large if they are more than one person. But, it is difficult to be able to go into a plant and identify the specific. personnel and hang a tag on them as to whether they are doing marketing work or really doing new development work. Senator PROXMIRE. What I am getting at, you directed your auditors to pay special attention to excess capacity when idle personnel may be a greater contributing factor to excess cost. Mr. CHURCH. That is because it is easier to identify, of course, the excess capacity in the sense of brick and mortar. You can walk out into a plant and you can observe and you can see. Senator PROXMIRE. That is why you need ASPR provision on idle personnel though, isn't it? It is easier to review the physical capacity than it is for the personnel. Mr. CHURCH. There is no question that it is very difficult for an auditor who is trained in looking at statistics to subjectively make a determination of whether that guy who has an engineering development tag around his neck is a marketeer who is doing nothing but sales or is actually a development engineer who is, in fact, back there developing new technology. And I don't know whether you or I trained in the business community or in economics could adequately do that job either. It is a very subjective area. However, that won't keep us from rigorously pursuing a policy of getting the companies to come into line and to reduce what we consider to be idle capacity. We will make those subjective determinations and we will tell the corporations we have made them and have them present their own cases for making those costs allowable. Senator PROXMIRE. Can you describe the proposed procurement regulation revision which you state "will result in closer monitoring and control of contractor indirect costs?” Mr. CHURCH. That is correct. Senator PROXMIRE. Can you describe that regulation? Mr. CHURCH. I would like to provide that for the record. Maybe Mr. Babione, who is directly involved in the creation of that particular ASPR area, could respond. Mr. BABIONE. Mr. Chairman, what we are talking about is that direct labor is rather easy to identify and determine the requirements and audit them. Indirect labor gets more difficult to determine how much is appropriate, and what we are talking about here is not any one specific part of indirect costs, because there are many components to that cost, such as engineering, research, proposals, management people, and so on. So what we are talking about here is a better job of monitoring the day-to-day overhead that takes place at our large companies where we have onsite staffs who are responsible for performing that function and taking a tougher attitude in those transitional situations where a contractor's business base is shrinking down through smaller total sales or production, and insisting that he get rid of those extra people in a quick and reasonable manner. So what we are talking about is not any one particular part of ASPR being changed so much as it is a charge to our people to do a better job of monitoring the day-to-day big program organization that we have throughout the United States. [See app. III; refer to questions 3 and 6, pp. 166, 169.] Mr. CHURCH. I might add a specific example. I have asked my staff to monitor very closely the termination of the Rockwell Corp. contract relative to the B-1 program that as the capacity becomes idle, we should get rid of unnecessary personnel at the earliest possible date. I believe the Air Force is due with a report into me today as to the exact plans and procedures. I will be asking them for a monthly statement of how they are progressing in that particular area. I think there are great dangers in major programs of people not moving vigorously and fast enough to clear personnel out. We intend to see that that is followed through, particularly in that program. Senator PROXMIRE. How long will it take to phase out the B-1? Mr. CHURCH. I think there have been some estimates made of that. Mr. BABIONE. We have asked the Air Force to give us both how long it would take to terminate that contract and all the subcontracts involved, and how much money would be involved, and we don't have a final report on that, but it will take quite a substantial amount of time to terminate all of the contracts that are involved. Senator PROXMIRE. How long did it take to phase out the B-70? I understand there are some estimates that even as of 1975 we were still making payments on the B-70. Mr. BABIONE. I don't know. We could research it and give you something for the record. [The following information was subsequently supplied for the record:] TERMINATION SETTLEMENT OF THE B-70 PROGRAM The Department of the Air Force has provided the following information relative to the status of termination settlement of the B-70 program : The development contract was completed and the final payment was made on 16 March 1971. The second or prototype contract was completed and the final payment was made on 13 May 1974. The third or production contract AF33 (657) 42058 was completed and final payment was made on 29 May 1975. The fourth or flight test contract was closed in 1970 when final payment was made. In the process of closing the B-70 contracts, there was some residual inventory that was retained by Rockwell for use on other contracts. The residue of this property was disposed of earlier this year under the B-1 contract. Consequently, the status of the B-70 program is that all actions have been completed and the contracts are closed. Since the files on the B-70 program have been retired, it was not possible to identify the date that decision was made to terminate the program. Therefore, it has not been possible to determine the length of time involved in phasing out the program. If more detailed information is required, the files can be withdrawn from storage and data compiled as required. It is to be noted that any request for additional information should be confined to the second and third contracts because the other contracts have been closed over six years, and undoubtedly the records have been destroyed. Senator PROXMIRE. We would like to be kept current on that because this could be an enormous cost, and I imagine we might even be paying for it 10 years from now. Mr. CHURCH. I can't agree with you more and it is our intention to make sure this does not happen. Senator PROXMIRE. You said several times the excess capacity problem in the aircraft industry has become less severe because of increased orders for commercial aircraft. Why does the level of work on commercial projects have any effect? absorbs part of the cost there is no commercial busi all capacity of the airframe ich could be used for either r owned by the Government What we do in those areas is to there is an appropriate alloshare some of the costs, but not ties at that particular moment. es for any purposes, obviously our o down. early a year ago the Department - policy. The intention of that profit productivity by encouraging facili med whether the new policy has en you will note that I did suggest that it and that there is quite a lagtime between s and the time we are able to get data. We data as rapidly as possible. We have some However, I can't give you statistics on it yet. eive nature of reports. gindustry, in particular, the policy will reward are aggressively pursued. Aww. Improve productivity? : De policy is set up so it rewards improved productivthat investment. :. In the shipbuilding situation where you do have ce, de evidence is that productivity has increased. . We don't have statistics yet, and that would be a subises I would say the preliminary report is it is having its pbuilding industry. To relate that between the investthe productivity flowing from the investment, it is still too ea give you a very good determination. [See appendix 156; refer to question 4.] PROMIRE. What does your program to seek wider recog- eting, and I mentioned in the statement the things we be'd be done in that particular area to better-let me ask Degion these numbers. I am getting acquainted, but this is an ea that is kind of new to me at this particular point. I have been y for months. SHOF PROMIRE. You are a very impressive witness. Popoy. We have a very vigorous program of soliciting from spices any problem areas. These areas are eligible for funding despre III, and we obtain a number of candidates each year as a of the inputs from the services. 1st year we asked for help in the area of chromium. We also asked for several other areas that are still under consideration. A project |