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type contract which will recognize the true cost to the contractor, subcontractors, and suppliers that has been brought on by the experimental nature of the missile and the wartime construction conditions.

FORM OF CONTRACT

Our contract at the Plattsburgh Missile Complex is being executed under essentially the standard Government fixed-price contract. This type of contract is not consistent or compatible with the wellrecognized urgent requirement for a deterrent weapon system. Neither is it applicable when the scope of the contract is being constantly increased by new missile developments, successful experiments, and by forced compression of the available construction time. The emergency, concurrent, and wartime character of the program has been recognized in the cost-reimbursable type contracts negotiated with all other major participants in the program. Each new development concerning the missile affects our fixed-price contract by compressing more and more work into the contract time with no extension of completion date, and by more instructions to increase manpower, equipment, overhead, and to work three shifts 7 days a week without prompt or adequate reimbursement of cost.

All of the above conditions have been further complicated at Plattsburgh by changed physical conditions at many of the sites, as well as delays due to inadequate precontract preliminary work by the Government. Yet, the only recognition in our contract in these conditions is a provision which allows the contracting officer to pay the contractor in lieu of granting additional contract time. This provision has proven ineffective because the contracting officer has consistently refused to make any determination regarding time while using his full authority to require accelerated work and accelerated cost to the contractor with no commitment regarding reimbursement. In so doing the contracting officer has changed the basic contract by refusing to recognize the time tested provisions therein that offered protection to the contractor.

CONSTRUCTION PROGRESS SCHEDULE

The Corps of Engineers anticipated that excusable delays would occur, but they could not foresee what events would lead to these interruptions. Unfortunately, the bidding documents did not have any provision to cover this situation in advance nor, under the standard form of Government construction contract, would such a provision be possible.

The contracting officer, using the authority vested in him, met the conflicting requirements in an ingenious manner. He simply refused to accept from the contractor a progress schedule which did not provide time safety factors to cover unforeseeable and excusable time delays.

During the first 3 months of operations a total of eight complete progress schedules were submitted, the last of these being a schedule prepared as directed by the contracting officer and with the dates advanced far enough to provide the time safety factors that the contracting officer demanded. Thus, in order to obtain the acceleration he needed for a time contingency factor, the contracting officer arbitrarily ignored and changed the provisions of the contract. Our protests on this unilateral action were ignored.

ACCELERATION

We had originally planned to operate in an integrated manner four spreads of principal equipment to accomplish, in concurrent sequence, the contract dates over the 12-week period required by the specifica

The schedule directed by the contracting officer required us to work 12 spreads of equipment and forced us to spend three times as much as was necessary for equipment. Our original plan had several advantages which included maximum and efficient use of equipment, increased productivity that comes from a repetitive operation, and the efficient use of highly qualified supervision. The order to work all sites at the same time in effect amounted to an acceleration of the entire construction program in order to insure that unforeseeable but excusable delays would not extend the end completion date of the contract and, subsequently, the operational date of the missile launching sites.

The contracting officer, through his directed and accelerated schedule, attempted to insure that the operational date would be accomplished but in so doing he has forced the contractor to expend the terrific sums to pay the costs that arise from this directed wasteful and uneconomic use of men and equipment.

SEVEN-DAY WORKWEEK

The 7-day workweek and the 24-hour day is one of the remedies that the contracting officer directed to overcome excusable delays. Actually, when continued for more than 1 week, the 7-day workweek results in substantial overall loss in production. This is a universally recognized axiom in the industry which is supported by studies of the U.S. Labor Department. However, the job records are the best demonstration.

On October 14, 1960, the contracting officer's authorized representative directed a 7-day, 24-hour operation. By his own report at that time the overall project was ahead of schedule. The contractor protested this directive and requested reimbursement for the added expense to be accrued for overtime premiums, lack of equipment maintenance due to constant use, productivity decrease due to fatigue, and absenteeism that is prevalent on a 7-day workweek.

By the end of the year the delaying effect of the 7-day, 24-hour operation was readily apparent. On December 30 the area engineer was advised, “While we are still studying this, our tentative conclusion is that this requirement results in a 30-percent loss in overall productivity.” And this must be taken into account keeping in mind the fact the overtime pay which was being paid at this time, the premium pay, resulted in approximately 2 days' extra pay per week for each man on the job.

The refusal to consider time extensions, the direction of construction methods, and the directions of the workweek effectively transferred the management of the project from the contractor to the Government. The contractor was required, however, to continue to pay all of the resulting excessive costs.

nection therewith since July 1960. So far, we have only been partially successful. We have learned, however, that some of the onsite contracts that were to have been assigned to us have been so modified and altered in their scope and conditions as to leave little resemblance to the contract models that were made available to us at the time of bid.

The experimental nature of the program is everywhere evident in the vagaries and looseness of the provisions as we have learned them so far. We appear faced with another mountain of unforeseeable cost which would be added to our already unbearable burden on the day that we are forced to accept these assignments. This would appear to be another example of an instance where the general contractor who had little real knowledge of the subject of these assigned contracts is being forced to pay for omissions, errors, inconsistencies, and conflicts over which he had no knowledge or control.

JOINT OCCUPANCY

Joint occupancy is at the moment just a word which we have learned to fear. Here again is another example of the contractor being burdened with absolutely unforeseeable costs and hazards brought about by the joint occupancy of one site by several contractors, all attempting to implement “an experimental program on an emergency

Our apprehension on this score is increased by the knowledge that many of these other contractors will be working on cost-reimbursement types of contract and would thus be reimbursed their actual cost whereas, for our part, whatever unforeseeable expense we may be put to in this connection can only be collected after years of dispute.

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CONCLUSION

The factors enumerated above clearly demonstrate the inconsistency of attempting to accomplish an experimental program under emergency wartime conditions by the route of a fixed-price contract. In order to achieve the objectives of the program, the corps has in effect disregarded our contract by forcing us to abandon our own schedule of operations and follow their directives, by applying wartime methods to accomplish this experimental program, and by major increases in the scope of the work. At the same time unforeseeable site conditions have affected the progress and the cost of the work and the corps has not lived up to their obligations to the contractor in the handling of these matters.

The subcontractors, suppliers, and the prime contractors are literally financing the Government in this effort.

Speaking for the subcontractors, the component suppliers and ourselves, our out-of-pocket expense has reached enormous proportions. The second and third tier suppliers are at the same time being burdened with additional unforeseeable and unjust expenditures.

Many of our subcontractors have advised us that they are finding the financial burden more than they can carry and that unless immediate relief is forthcoming they cannot much longer continue. Two of our subcontractors have already reached the point where they have refused to continue. We have been able thus far to shoulder the burden, but our capacity is also limited and we are unable to continue in this fashion indefinitely, nor do we believe the Government has any legal or moral right to ask us to do so.

The answer to this problem lies in the principle of the Government being willing to pay for the cost that it is incurring in this experimental wartime missile base construction contract. All of the other major participants in the program, except the construction industry, are, I believe, on a cost-reimbursable type contract. This type of contract should be utilized for the construction industry as well.

In the Armed Forces Procurement Regulations, section 3-404-3, a cost-type construction contract is recommended where the specifications are not complete or where major changes substantially affecting the scope of the work are expected. In retrospect, we find that this describes our situation.

The immediate retroactive conversion to a cost-reimbursable form of contract would immediately change the whole character of the project. The contracting officer and the contractor having had the barrier of a fixed-price relationship removed as an obstacle between them would be in a position to effectively join forces in a cooperative effort to further the interests of the Government in achieving the objectives of the program in the most expeditious and economical fashion.

The elimination of the arms-length relationship which presently retards and impedes the program would be of tremendous value to the Government. The contractor, his subcontractors and suppliers would be compensated for authorized expenditures as they were incurred and thus be relieved of the tremendous burden which they are now under. The Government would know currently the actual cost of the missile program.

This is a point I think deserves a little further consideration here. On our contract, we expect that the actual cost to our subcontractors, our suppliers and ourselves will equal at least 100 percent over the base bid of 24-million-odd dollars we have put in, and as of the moment we have received nothing extra above our original contract price.

I do not believe I am exaggerating when I tell you that the way this program is heading at the present time will result in a horrible catastrophe for a large part of the construction industry and that our Government may well find this essential program grinding to a halt because of its failure to recognize the need for handling this experimental wartime program on a flexible basis that will enable its representatives to pay the actual cost in overcoming each obstacle as it occurs, rather than closing its eyes to reality and hoping that the problem does not exist.

Mr. SHEPPARD. Thank you. The next witness will be the representative from the Morrison Knudsen Corp., Mr. J. D. McClary, executive vice president.

STATEMENT OF JAMES D. McCLARY, EXECUTIVE VICE PRESIDENT,

MORRISON-KNUDSEN Co.

Mr. McClary. My name is James D. McClary; I am executive vice president of Morrison-Knudsen Co., Inc., of Boise, Idaho. I am here, willingly, at the invitation of this committee to make a statement regarding the ballistic missile program of the Department of the Air Force, or at least regarding that portion of the missile program with which my company is intimately associated.

Morrison-Knudsen Co. is the sponsoring company of two joint venture groups engaged in missile base construction. One group is constructing the Titan I complexes under two separate contracts at Lowry AFB, near Denver, Colo.; the other group is constructing an Atlas F Missile Launch complex at Altus AFB, near Altus, Okla. Both facilities are being constructed under contracts awarded by the U.S. Corps of Engineers following receipt by the corps of competitive bids.

In addition, my company has minority interests in joint venture groups, sponsored by other contractors, engaged in the construction of Titan I facilities at Larson AFB near Moses Lake, Wash., and at Ellsworth AFB, near Rapid City, S. Dak. While our knowledge of and interest in the outcome of these latter two contracts is of as much importance to us, I plan to comment on the ballistic missile program as it affects our contracts at Lowry and Altus, only, because representatives of the sponsoring companies of the Larson and Ellsworth joint ventures were also invited to appear before this committee and make statements regarding them.

It is important, however, to bear in mind that my remarks are based on a knowledge of the construction operations and problems on four missile bases in widely scattered parts of the country.

Contracts were awarded to Morrison-Knudsen & Associates for the Titan I facilities at Lowry AFB in April and June of 1959. These contracts had an original value of $67 million. Since award, these contract prices have been increased by more than 50 percent by reason of approximately 600 major design changes and modifications.

The contract for the Atlas F facilities at Altus AFB was awarded to Morrison-Knudsen-Hardeman & Associates in May of 1960. It had an original value of $21 million. As of December 31, 1960, this contract has had 65 modifications and design changes. By reason of these modifications and our unresolved claims, this contract may eventually cost close to $31 million.

Both of these bases, being constructed under our sponsorship, are ahead of schedule in spite of the administrative and operational problems that have plagued not only our work--but the entire missile program of the Air Force. Our contracts cover the construction of facilities that admittedly are novel, complex, and intricate. Facilities, that by contract requirement, must be built under extremely tight scheduling which allows for no slippage. They also cover construction of facilities for weapons that are still in the final stages of development.

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