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CONTRACTING-OUT PROCEDURES

FRIDAY, AUGUST 11, 1961

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ARMED SERVICES,
SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS,

Washington, D.C. The subcommittee met at 10:15 a.m., the Hon. F. Edward Hébert (chairman of the subcommittee) presiding.

Mr. HÉBERT. The committee will come to order.

Members of the committee, this morning we will continue with the presentation of the Air Force. And we have the pleasure of having the Assistant Secretary with us again today.

Mr. Imirie, you have a prepared statement ?
Secretary IMIRIE. I do, sir.

Mr. HÉBERT. You may read your statement. The committee will not interrupt you until after you have finished.

Secretary IMIRIE. Thank you, Mr. Chairman. I believe that the information presented today on Air Force policies and use of contract services will be of value to the committee in its consideration of the subject of “contracting out.”

In developing our testimony in response to your letter of May 3, it is our understanding that the area of concern to the committee at this time is the use of all contract services in the past 3 years with the exception of research and development and housing maintenance. The discussion will be limited accordingly.

It is also our understanding that the committee is interested in Air Force policy and practice within the framework of directives issued by higher echelons. In connection with this and the other data requested, it is pertinent to discuss this point in order to place our more detailed information in proper perspective.

When the Air Force became a separate department, it did not have and has not since developed an inservice arsenal system to manufacture military products. The Air Force was also called upon in this early time period to rapidly expand its capabilities to meet the requirements of international conditions, particularly the Korean conflict. Under these circumstances, the Air Force found it desirable and necessary to make significant use of contracting to perform many support activities. We have long operated on the concept that there is a positive role to be played by contract services in getting the Air Force job done.

The committee's letter requesting this hearing mentioned two specific directives applicable to the Air Force. BOB Bulletin 60–2 deals with commercial- and industrial-type activities, and favors contracting for such activities except for reasons of national security, disproportionate costs, or clear unfeasibility. Because of our historical use of contracting, this bulletin has had a negligible impact on the Air Force.

DOD Directive 4151.1, dealing with maintenance, which we will discuss in more detail later—and as an aside I believe Colonel Riemondy addressed himself in part to that yesterday.

Mr. HÉBERT. That is right.
Mr. COURTNEY. That is right.

Secretary IMIRIE (continuing). Has similarly not brought about major changes in Air Force practice. We are in accord with the principles set forth in this DOD directive, and no policy conflict exists. Neither of these directives apply to all areas of contract services which are of interest to the committee. In light of these facts, I will therefore concentrate on Air Force policy and procedures, which have been developed to meet our particular needs and to serve the best interest of the Government.

Air Force management and control of contract services requirements can be divided into three general types of activities: policy, budgetary reviews, and procedures and controls.

First, we exercise control over the use of contracting through policy directives issued by Headquarters U.S. Air Force. These policy regulations include a general directive applying across the board plus a series of directives pertaining to particular functional areas such as feeding or custodial services. Our basic policy is to perform combat and direct combat support functions with our own personnel to insure our combat capability. Specific regulations prescribe what may and may not be contracted and under what circumstances. Such policies provide responsible commanders throughout the Air Force with guidance on which to base proposals and actions for use of contract services.

Second, we conduct a thorough review of proposed expenditures for contract services during the course of periodic budgetary reviews both at major air command and Headquarters, U.S. Air Force level. Representatives from all concerned staff agencies are involved. These reviews are designed to insure that proposed contracting is in accordance with policy and that amounts are in proper relationship to to program requirements and priorities.

Third, we have various management procedures and controls which apply to particular contract services programs. Since there are obvious differences involved in contracting the overhaul of aircraft engines and the feeding of troops, the Air Force must and has tailored its contract services procedures to the functional area involved.

Procedures are established which cover the manner and levels at which the specific contract service requirements can be approved. Some contracting programs or individual proposals are processed to Headquarters, U.S. Air Force level for approval due to their size, nature, sensitivity, or statutory requirements. For example, requirements for contract technical services are approved at Headquarters, U.S. Air Force level.

Authority to act on other contract services which are small in size and local in character is delegated to base level, subject to Headquarters, U.S. Air Force policy guidance and periodic budgetary reviews. In an organization the size of the Air Force, such delegation to the lowest level where a proper decision can be made is necessary to take account of local conditions, maintain adequate flexibility, and avoid hopeless clogging of higher headquarters in paperwork.

Illustrations of the types of contract services in this category include maintenance of office machines, motor vehicle maintenance done in local garages, and custodial services.

The discussion of policy, budgetary review, and management procedures applicable to the contract services resource leads to an important point concerning the programing of resources to accomplish the Air Force workload—whether those sources are contract services, military personnel, or civil service employees. This point is particularly significant in light of your expressed interest in the question of replacement of military and civilian personnel with contract services.

The relationship of military, civilian, and contract service resources must be reviewed in terms of the Air Force as a whole, not just in terms of a particular activity. This view is necessary because of the manner in which resources are obtained.

Based on Air Force requests and review by higher authority, the Air Force is given a total quantity of military manpower, civilian manpower, and dollar resources. Once established, there is little flexibility in the total amounts. We must then distribute these resources to subordinate levels in a fashion to insure maximum utilization of amounts available in each category and the accomplishment of the most important workloads first.

This distribution process is not a one-time effort, but a continuous one. For while the total resource available in each category is relatively inflexible, workloads are changing continuously. We must adjust our resources within totals available to meet these changes. This is a never-ending process.

For example, at one of our Air Force Logistic Command facilities, it was necessary to increase the in-service civilian capability for missile managment. Not having additional civilian manpower available, it was determined that the necessary authorizations could be obtained from the engine maintenance shop where the work being done was eligible for contracting under policy and criteria. What appeared to be solely a replacement of civilians by contract from the standpoint of the engine shop was, in fact, a realinement of resources to meet a vital requirement without change in total civilians available to the Air Force.

I believe this example illustrates why the relationship between in-service and contract resources and the question of replacement must be looked at in terms of the total Air Force rather than the individual case if it is to be meaningful.

Since the committee has also expressed an interest in cost comparisons, I would also like to touch briefly on this subject. This complicated matter is one with which the Air Force has wrestled for years. In areas such as depot maitenance where plant and equipment are involved, exact valid comparisons are, frankly, not feasible. Not only the Air Force, but other congressional investigations have found this to be the case. This situation is caused by several factors.

First, it is normally impossible to find two work projects—one inservice and one on contract—that are exactly comparable. Both work

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content and amount normally change from one project to the next or from a past time to the present. Second, the cost-accounting systems between industry and Government are sufficiently different to present problems. Third, there is a lack of comparability in the treatment of depreciation of facilities which industry accounts for and the Government normally does not, and in determining what overhead to attribute to a particular job. Finally, it is often not possible to segregate such costs as those associated with the support furnished a contractor by the Government.

This is not to say that costs are not important, but only that exact comparisons between contract and inservice costs are often not possible. In those areas where primarily labor is involved such as food service, cost comparisons are feasible and are, in fact, used.

Mr. Chairman, this concludes my prepared statement to the committee. I believe that we are making a concerted effort to manage the use of contract services effectively.

With your permission, I would like to further demonstrate this view and provide the more detailed information of interest to the committee by proceeding with a presentation by Col. James E. Hill from the Air Staff on the general use of contract services. And as we previously noted, Colonel Riemondy presented the detail yesterday on depot level maintenance contracting.

Having done this, sir, and at your pleasure, we will try to answer the questions you gentlemen of the committee may have.

Mr. HÉBERT. Colonel Hill you say is present?
Colonel Hill. Yes, sir.
Secretary IMIRIE. Colonel Hill, to my far left.
Colonel Hill. Mr. Chairman and members of the committee:

CONTRACT SERVICES

In this presentation I shall state the contents of our policy on the use of contract services, how successful we have been in applying that policy, and the specific uses of contract services from fiscal year 1959 through fiscal year 1961 in the functional areas of interest to the committee. With the exception of one overall trend chart on the use of military, civilian, and contract services manpower, this presentation will be confined to contract services used by the active Air Force for work in areas other than research and development, real property maintenance and repair, and depot maintenance which was covered by Colonel Riemondy yesterday.

DEFINITIONS

CONTRACT SERVICES-INSERVICE PERSONNEL

Since I will be using two terms frequently during the course of this presentation, let me commence by defining them. Contract services are those services obtained from non-Air Force sources to perform Air Force work. Contract services provide a work force supplementary to our military and civilian manpower resources. Contract services include contracts in such areas as maintenance, overhaul and modification of equipment and facilities, operation of facilities such as the distant early warning line, training, and housekeeping services.

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In contrast, contracts for the manufacture of “hardware," construction of facilities, the purchase of supplies and utilities, rentals, lease of communication circuits, and the like, are excluded from contract services.

Inservice personnel is defined as military personnel, U.S. citizen and foreign national direct hire personnel, and foreign nationals utilized by the Air Force under arrangements with the host governments.

BASIC POLICY

INSERVICE CAPABILITY TO PERFORM COMBAT AND DIRECT COMBAT SUPPORT

FUNCTIONS-EXCEPTION : SKILL DEFICIENCY

Our basic policy and objective for the use of contract services, and conversely, for the use of our inservice manpower resource are contained in Air Force Regulation 25–6. That policy is to maintain an inservice capability to perform combat and direct combat support functions. Our objective is to provide an appropriate balance and relationship in the use of military, civilian, and contract service manpower so as to achieve maximum effectiveness and economy in accomplishing our workloads and missions.

Combat and direct combat support functions comprise not only cockpit positions but all work which, if not accomplished, would result in an immediate impairment of combat capability. Specific examples of these functions are base level maintenance of combat and support equipment, operation and maintenance of the ballistic missile early warning system, and other radar stations, the operation and maintenance of SAGE computers, and even the operation and maintenance of the powerplants in support of those computers. The only exception recognized to this policy is the lack of inservice skills to perform the function and then only for the time required to develop an inservice capability.

CONTRACT SERVICES IN INDIRECT COMBAT SUPPORT

SKILLS

EFFECTIVENESS-ECONOMY-LACK OF Contract services may be used in the indirect combat support functional areas when improved effectiveness or greater economy are achieved or, again, when we lack sufficient or adequate skills inservice to accomplish the work. Effectiveness is determined in terms of more work produced, better quality work resulting, or completion of work in less time than would be required by the use of inservice personnel. Contract services can often be employed effectively to perform one-time, peak, or seasonal workloads, or to perform work requiring special tools and equipment or a small quantity of special skills for which we do not have or cannot forsee a sizable continuing requirement. Economy considerations encompass both immediate and long-range costs and are determined on an individual basis where appplicable. The lack of skills criteria may be satisfied by the demonstrated absence of technical know-how, such as in the maintenance of new, complex equipment, or an absence of scientific knowledge in a research effort.

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