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ferred to that facility was about $7,500 for the overhaul of an engine, which when overhauled commercially would cost about $2,800. Some of that $7,500 went to pay the mobilization base of this industrially funded facility.

That is why I say they are not directly relatable.

There was no other work in the facility, and obviously the total account had to be paid. But in general we have found the costs roughly comparable. The slightly higher cost for contract, as Mr. Secretary said, represents the fact that the contractor pays taxes and has depreciation and other things not included in our costing structure.

Mr. HÉBERT. Yes, but under your costs there you entered the cost of mobilization.

General BUNKER. Yes, sir. Well, that is the rule of the game under industrial funding of an installation of that type, sir.

That is why I say those figures are not talking really about the same thing

Mr. HÉBERT. I recognize that. And we come out with not the same thing, too.

General BUNKER. But those first figures I gave, which showed around a 5. or 10-percent difference, is a best estimate of trying to compare directly relatable things, sir-around a 5- or 10-percent difference.

Mr. KITCHIN. And may I ask a question right there?
Mr. HÉBERT. Yes, sir.

Mr, Kitchen. In those instances where you shaw a 5-percent differential or a 10-point differential of contracting out, do you take into cosideration, when you release the military personnel involved in the inhouse operation, the value of that personnel to the Army and other activities? Is that taken into consideration in getting the cost!

General BUNKER. That is taken into consideration in making the decision as to whether it will be contracted out or not.

Mr. Kitchen. But you take it into consideration in your cost figures ? General BUNKER. No, sir; they were not.

Mr. KITCHIN. So if you take that into consideration in your cost figures, then you probably are a little bit ahead of the game in contracting out?

General BUNKER. Yes, sir.

Mr. KITCHIN. In those instances where the percentage differential is so small ?

General BUNKER. That is correct. And also in that one, where they were quite large.

The reason that we paid $7,000 for overhauling an engine which could be commercially overhauled for $2,500; some or most of that $5,000 difference went to pay the cost of having a mobilization base and having trained people that you had to have for other requirements.

Mr. HÉBERT. It had nothing to do with the engines.

General BUNKER. Yes, sir; but was in this particular instance directly charged to the engine.

Mr. KITCHIN. Well, that is true. But the inverse is true, also, Mr. Chairman. When you release the personnel in an inhouse operation

The total value of the materiel to be returned to service from this facility cannot at this time be reasonably projected; however, a sample portion (engine and aircraft overhaul) can be fairly accurately computed. For the first year, the estimated direct overhaul cost of $3.3 million will yield a return of $16.5 million value of material recovered.

As mentioned by Secretary Ignatius in his remarks, the primary functions to be accomplished at this depot are as follows:

(a) Maintain a base which will provide maintenance capability during a national emergency.

(6) Effect prototype installations and develop man-hour standards so that more definitized maintenance work specifications for competitive contracting can be developed.

(c) Retain, within the military sphere, a source of skills for oversea assignments and a home assignment for skilled personnel returning from overseas.

(d) Fabricate aircraft parts for out-of-production aircraft and critically needed long leadtime items required on an emergency basis.

(e) Perform overhaul and effect repairs to crash damaged aircraft having various degrees of damage and requiring job operation rather than production line maintenance.

To summarize, the activation of this depot will enable us in the Transportation Corps to advance side by side with industry in executing a difficult but essential maintenance program and provide a source of information to industry to better enable them to assist us in performing, by contract, the functions of aeronautical maintenance.

In addition, the Transportation Corps also operates four fourthechelon maintenance shops located at the general depots where our supplies are stored. While their primary function is in support of aircraft stationed in the geographical area in which they are located and the care and preservation of depot stocks of aeronautical equipment, they have performed certain overhaul operations. This program has been based on skills and labor available not required to meet the fluctuating requirements received from the field activities.

Although this discussion has been primarily on depot level of maintenance, I feel it would be desirable to mention briefly our:

V. FIELD AND ORGANIZATIONAL MAINTENANCE

In the Army, filed and organizational maintenance are responsibilities of the commanders of the using units. As a matter of basic policy, we desire that these functions be performed by military units in order that they may be deployed with the equipment in the event of emergencies.

Due to shortages of personnel in units and other special considerations, however, there are a few significant instances in which their function is contracted out."

a. All of our school aircraft at both Camp Wolters, Tex., and Fort Rucker, Ala., are supported by contractors for their full range of organizational and field maintenance. As a matter of interest, this covers almost one-quarter of our U.S.-based aircraft.

6. All of our test aircraft are supported by maintenance contractors at Fort Rucker, Ala., and Fort Huachuca, Ariz.

c. Most field maintenance at Fort Sill, Okla., is performed by contract.

Approximately one-third of the Continental Army Command's maintenance dollar goes for contract maintenance.

VI

In oversea areas we have established a reasonably effective aircraftmaintenance facility at Sandhofen, near Mannheim, in Germany, but have otherwise been forced to lean heavily on indigenous contractors. With the increasing emphasis on the unfavorable balance of payments, however, we are now bringing most of the expensive components back to CONUS for overhaul.

The major problem is “contracting out” overseas for aircraft maintenance has been in supplying the required parts on a timely basis and accurate forecasting of requirements.

VII

All in all, the Transportation Corps has enjoyed a highly successful program of contract maintenance of Army aviation equipment. This has followed our similar experience in railway and marine equipment for many years.

We feel that, with the availability of our new facility at Corpus Christi and our long list of competent contractors, we can successfully perform our mission in any emergency.

We feel that the costs that we have experienced have been reasonable and that we have been particularly successful in keeping the Army's investment in tools and facilities to a bare minimum consistent with our military responsibilities.

(The chart attached to the statement is as follows:)

Depot maintenance (CONUS) accomplished and cost-Air equipment

[blocks in formation]

Fiscal year 1959:

Aircraft.
Engines.
Components

7

0 87, 949 611, 157

445

963 10, 221

5, 150, 243 2,909, 692 4,333, 595

7, 716

Total.

699, 106

12, 393, 530

Fiscal year 1960:

Aircraft.
Engines.
Components.

0
532
13, 913

2,065,000
2, 296,000

484
1, 318
11, 067

7, 287,000 3, 859,000 5, 355,000

Total.

4,361,000

16,501,000

Fiscal year 1961 (4th quarter estimate):

Aircraft.
Engines..
Components.

88
800
1,031

264,000 3,352, 000

400,000

72 2,036 32, 110

1, 133, 000 9, 276, 000 10, 324, 000 20, 733, 000

Total.

4,016,000

Mr. HÉBERT. General, you have had personal contact with this situation ?

General BUNKER. Yes, sir.
Mr. HÉBERT. For how many years, now!
General BUNKER. Six years, sir.

.
Mr. HÉBERT. Six years.
General BUNKER. Yes, sir.
Mr. HÉBERT. What is your opinion on the contracting-out features ?

General BUNKER. It is my opinion that the contracting for maintenance operations and certain other things that we have done has not deteriorated our military capability, that in any area we do need the ability to perform a portion of all work-a sample, if you will, as a yardstick or standard of performances and costs, as a testing capability for degree of recovery, and that sort of thing. Fundamentally our contractors have been responsive to speedups to meet our requirements, they have been generally quite conscientious in quality control, and their costs as we have experienced them, where you can directly relate them, have been in general quite comparable.

The reason I can't answer that more accurately is that, as you are very well aware, sir, our methods of cost accounting make iť rather difficult to clearly outline exactly what an operation on a large military establishment costs.

Mr. HÉBERT. It seems to me your cost-accounting system ought to be given a complete overhauling, if you can't tell how much you are getting out of your dollar.

General BUNKER. It is a question of paying for the excess capacity needed for mobilization, and whether you can separately cost that to one side.

Mr. HÉBERT. I recognize that.
But you can't come up with an answer.
Geneal BUNKER. Yes, sir, we can.

Mr. HÉBERT. IVell, what is the answer? Is it more economical to contract out than it is not to?

General BUNKER. Generally the figures that we have worked up show in most instances a slightly higher cost by contract, on most things.

On certain items there have been rather large variations. But usually the reason for it can be determined by investigation. But I have some samples here.

For example, the R-1820 engine, which is about a 1,200-horsepower engine, our inhouse costs are $4,475, and our contract costs are $4,539, or, in other words

Mr. HÉBERT. Where is that, General? General BUNKER. These are just some figures that I have. Mr. HÉBERT. Is it in here? General BUNKER. No, sir. Mr. COURTNEY. It is not in the print. Mr. HÉBERT. It is not here. General BUNKER. A smaller, opposed, six-cylinder engine, for fixedwing aircraft : $2,205 inhouse against $2,214 done by contract.

On the other hand, I have some rather significant differences, to give an example of my other statement. On the overhaul of an engine in an industrially funded facility, the price that was transferred to that facility was about $7,500 for the overhaul of an engine, which when overhauled commercially would cost about $2,800. Some of that $7,500 went to pay the mobilization base of this industrially funded facility.

That is why I say they are not directly relatable.

There was no other work in the facility, and obviously the total account had to be paid. But in general we have found the costs roughly comparable. The slightly higher cost for contract, as Mr. Secretary said, represents the fact that the contractor pays taxes and has depreciation and other things not included in our costing structure.

Mr. HÉBERT. Yes, but under your costs there you entered the cost of mobilization.

General BUNKER. Yes, sir. Well, that is the rule of the game under industrial funding of an installation of that type, sir.

That is why I say those figures are not talking really about the same thing

Mr. HÉBERT. I recognize that. And we come out with not the same thing, too.

General BUNKER. But those first figures I gave, which showed around a 5- or 10-percent difference, is a best estimate of trying to compare directly relatable things, sir-around a 5- or 10-percent difference.

Mr. KITCHIN. And may I ask a question right there?
Mr. HÉBERT. Yes, sir.
Mr. Kirchin. In those instances where you shaw a 5-percent dif-

KITCHIN ferential or a 10-point differential of contracting out, do you take into cosideration, when you release the military personnel involved in the inhouse operation, the value of that personnel to the Army and other activities? Is that taken into consideration in getting the cost ?

General BUNKER. That is taken into consideration in making the decision as to whether it will be contracted out or not. Mr. Kirchin. But you take it into consideration in your cost

KITCHIN figures ? General BUNKER. No, sir; they were not.

Mr. KITCHiN. So if you take that into consideration in your cost figures, then you probably are a little bit ahead of the game in contracting out!

General BUNKER. Yes, sir.

Mr. KITCHIN. In those instances where the percentage differential is so small ?

General BUNKER. That is correct. And also in that one, where they were quite large.

The reason that we paid $7,000 for overhauling an engine which could be commercially overhauled for $2,500; some or most of that $5,000 difference went to pay the cost of having a mobilization base and having trained people that you had to have for other requirements.

Mr. HÉBERT. It had nothing to do with the engines.

General BUNKER. Yes, sir; but was in this particular instance directly charged to the engine.

Mr. KITCHIN. Well, that is true. But the inverse is true, also, Mr. Chairman. When you release the personnel in an inhouse operation

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