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and count the services, the value of the services in another sector of that particular operation, or in another piece of equipment or something of that nature, then you are still gaining.
General BUNKER. That is right.
Mr. KITCHIN. As against that cost, the personnel to do another function.
General BUNKER. That is correct.
Mr. KITCHIN. And the value of that service is not added into the cost on a comparative basis, as against your commercial operation. General BUNKER. Well, an example of that came up, sir, on the question that has been included in one of these questions in the lists that were presented.
I closed the Holabird rail rebuild shop about 2 years ago. Our workload for that shop was something less than 50 percent of its capacity, and therefore it enjoyed a very high overhead rate.
In considering closing it, we recognized the fact that we have and could maintain an operation at Ogden, Utah, where the skills and knowledge of this profession, which is getting rather rare, of maintaining particularly steam railway equipment, could be maintained. And under those circumstances the decision was primarily a cost one. If, however, we didn't have any facility, we undoubtedly would have kept it open without regard to how much more it cost us to perform the work there, because of the low workload and the rather large facility they had to keep going.
Mr. NORBLAD. They were civilians doing this work at Ogden, I take it?
General BUNKER. Yes, sir. There were civilians at both places. Mr. NORBLAD. At both places?
General BUNKER. Yes. And there were approximately 90 civilians released at Ogden, about half of whom found other jobs. About half of them were ex-retired railroaders.
Mr. NORBLAD. I didn't mean to say civilians. I was trying to distinguish Government employees as against contractor's employees. General BUNKER. Yes, sir; these were Government employees. Mr. NORBLAD. In both cases?
General BUNKER. Yes, sir.
Mr. HÉBERT. Now, Mr. Secretary, you understand?
Mr. HÉBERT. You will supply for the record-I know you do not have it now-the details, or the categories of the items as far as you are able to ascertain?
Secretary IGNATIUS. Yes, sir.
(The information is as follows:)
With reference to the question of relative costs of inhouse operation as against contracting for these services, a true comparison of overall costs is usually not possible due to the difficulty of computing elements of depreciation, interest, and taxes on funds previously spent for capital assets, and of deleting Army costs related to the overall mission such as mobilization requirements. Cost, including the above elements, is not always a factor in determining whether a service or product will be produced inhouse or by a contractor. National defense requirements, including security and combat effectiveness, or the lack of inhouse capabilities might determine the source of the supplies or services without specific consideration of relative cost estimates.
In those cases where costs were a determining factor in the evaluation of Government-owned and operated facilities, the following is a sample of cost comparisons:
These samples indicate that some activities are more economical to perform inhouse while others are more economical to contract. No overall answer as to whether or not contracting is more economical or more costly than the inhouse work is possible.
Mr. NORBLAD. May I ask one question?
Mr. HÉBERT. Yes.
Mr. NORBLAD. What about in time of emergency, where you have one of these steam engines and an aircraft is 10,000 miles away and there is no contractor to do the work? Are you prepared with your own people under combat to get that done?
General BUNKER. Yes, sir. This is one of the reasons we have reduced our operations overseas, in addition to this program.
We have established at Corpus Christi a mission of training a unit ready to move overseas, and we have established certain cellular teams of specialists in maintenance of various aircraft to move overseas.
Mr. NORBLAD. It seems to me one of the functions of the military in a time of peace, or relative peace, is to be constantly training their people so they can go into combat areas.
General BUNKER. That is correct.
Mr. NORBLAD. And be a self-sufficient unit ready to make their own repair and maintenance.
General BUNKER. We have units capable of performing each level of maintenance in the Army.
Mr. NORBLAD. The fact that you are contracting out a great deal doesn't lessen the efficiency or the ability to do your own repair in a combat base, many miles away from a contractor in time of combat? General BUNKER. No, sir.
The unit, for example, that we have stationed at Atlanta in the shop-and it is issued a certain amount of property to work on as their skills in any individual area reaches the point where they can qualify. They work side by side with the civilians, working in the shop to learn the trades.
(Mr. Norblad nods.)
General BUNKER. And by being jointly located, can be pulled out without the mission there collapsing if they did.
Mr. NORBLAD. Yes.
In other words, you are satisfied that this contracting out system does not impair the training ability or the ability of your own men in uniform to perform this repair work at a remote area in time of emergency?
General BUNKER. Within the personnel authorizations that we have, I am satisfied.
Mr. NORBLAD. That is what I am driving at.
Secretary IGNATIUS. We try to contribute to that capability also through our Reserve program, where we try to maintain units that are trained in these supporting activities of maintenance and overhaul. Mr. NORBLAD. Of course, I also assume some of these contractor personnel would be available to go with your people in time of emergency, to act as experts or technicians to advise.
General BUNKER. We have three Reserve maintenance
Mr. NORBLAD. No. I mean civilian employees-not Army employees. Secretary IGNATIUS. Technical people?
Mr. NORBLAD. Technical people from the contractor.
General BUNKER. Yes, sir, we have about 50 technical representatives.
Mr. NORBLAD. I know in my own experience at an oversea base during World War II-I was with the bombers, as an Army personnel. There were a lot of contractor personnel, I believe, from Martin, going around giving advice and technical aid to the men doing the repair work on the planes.
General BUNKER. The contract in which you are interested, sir, is a modification contract. We secured the engines for our DeHavilland Caribou procedurement from Air Force excess.
Mr. NORBLAD. I don't follow you, from the beginning.
General BUNKER. Canadian.
Mr. NORBLAD. Yes, I asked about that. What is it?
In Washington, D.C., and one in Montreal, I noticed.
General BUNKER. That is because the contracts with the DeHavilland Corp. are made through a contractor which is an arm of the Canadian Government, called the Canadian Commercial Corporation. And some of the contracts list the contractor as DeHavilland, which it is not. It is the Canadian Corporation.
Mr. NORBLAD. These are some British planes, you mean, that the Army bought, or Canadian?
General BUNKER. No, sir. They are Canadian aircraft. But the engine contract is for the modification of an excess, out-of-production engine to meet production of this new aircraft.
Mr. NORBLAD. Well, in other words, the basic question would be answered by this: The Canadian Commercial Corporation comes into the picture because you bought certain planes from a Canadian manufacturer, is that it?
General BUNKER. That is correct, sir.
Mr. HÉBERT. May we have the contracts, Mr. Courtney?
Mr. COURTNEY. Now, Mr. Chairman, we pass with that, and with the supplementary information which the Secretary will supply, to a consideration to what has been described as "effort" type.
At the direction of the Chair, we inquired of the Department of the Army the scope, and obtained a listing of some of these contracts. And it is to them, and as to the subject matter, that the attention of the subcommittee is directed now.
Mr. HÉBERT. These are these "effort" or "think" contracts?
Mr. COURTNEY. These are-well, I don't want to get into semantics. If you want to get them, you have to ask for "effort" type contracts. So I better stick with that. Then I won't be lost in the woods.
Secretary IGNATIUS. Mr. Chairman and Mr. Courtney, we have with us General Ely, who is Director of Research for the Army, who can talk about some of these specific contracts in as much detail as we can provide at the moment.
We just got the list recently. I would like to make a general statement with regard to these "effort" or "think" contracts.
Many of them fall into two categories: One, management services, that is, management advisory services. And, secondly, what is sometimes called operations research.
The basic Army policy governing work of this kind is set forth in AR 1-110, which sets forth both the basic policies and procedures for contracting for this kind of work.
You might be interested in just a quick summary of the controls that are established by this policy statement.
With regard to the management consulting and advisory services, these must be approved contract by contract, or project, by the Comptroller of the Army, and by the Assistant Secretary of the Army for Financial Management.
There are three basic criteria that these gentlemen use in reviewing requests for contracting of this kind. The first one is that the work requires technical knowledge not available in the Army.
Secondly, that the project may require an outside, disinterested opinion. As you know, often businesses contract with consultants for this kind of thing, because the people on the job sometimes are committed to a particular structure of organization, and it is sometimes useful to have an outside, objective look.
Mr. HÉBERT. That is the blanket that covers everything.
Mr. HÉBERT. It is.
As a matter of fact, isn't that a good escape clause?
Secretary IGNATIUS. Well, if it is not policed properly, it certainly could be.
Mr. HÉBERT. It is the avenue that leaves it way open to the Army to say, "Well, we want an outside opinion," and you go outside and get an opinion on ice cream cones, or anything else that you desire.
Secretary IGNATIUS. Yes, sir.
Mr. HÉBERT. I think that will be developed.
Secretary IGNATIUS. It could be abused.
And the third point or criterion is that the requirement is of sufficient urgency in terms of time that your available people who might have the technical competence are not able to do it within the time and still do the other work that they are responsible for.
The other category of these "effort" type contracts is the operations research area, where you have these studies of various kinds-mathematical analyses, and so forth. And here the Chief of Research and
Development of the Army is the person responsible for approving these. And he applies some of the same criteria that would be applied to the management engineering.
One other category is the field of logistics studies, concerned with the supply system and distribution system of the Army. And here the Army has designated its Army Logistics Management Center at Fort Lee, Va., as the agency responsible for knowing about and approving contracts of this kind.
The point of this is to have a repository of knowledge here, to know what is going on, and to try to prevent someone from reinventing a wheel.
Now with regard to these specific contracts-these are from my review in the R. & D. area.
And General Ely, who is on my right, can respond to this. And we have other people here familiar with individual contracts and in greater detail.
Mr. HÉBERT. All right, Mr. Courtney
Mr. SANDWEG. Could I interrupt, please?
Mr. HÉBERT. Yes, Mr. Sandweg.
Mr. SANDWEG. Mr. Secretary, is this review that you spoke of, of contract by contract, regardless of cost?
Secretary IGNATIUS. Yes, sir.
Mr. HÉBERT. All right. Mr. Courtney.
Mr. COURTNEY. We have these listings as to which the specific questions were suggested by the subcommittee.
One is a contract with Opinion Research Corp. of Princeton, N.J., as follows:
Awarded a contract in February 1961 to conduct a 6 months' study designed to enhance West Point's ability to attract highest quality candidates from throughout the United States.
The contract-giving the number of it-is for $40,000.
contractor will report results and recommend communication methods for motivating outstanding students to seek admission to West Point.
Now this effort is said to be still in the "development stage." Now the subcommittee would be interested in knowing the military purpose to be accomplished by this contract, and also the timeliness of the contract.
General ELY. This one happens to fall in an area that has never been referred to the Chief of R. & D., and I believe Major Miller is here who can speak to that.
Mr. HÉBERT. Getting more cadets wouldn't be in research and development, then, General?
General ELY. Beg pardon?
Mr. HÉBERT. I said, getting more cadets for the Academy wouldn't fall within the category of research and development?
General ELY. Not thus far.
Mr. HÉBERT. Not thus far.
General ELY. Major Miller
Mr. COURTNEY. From what office?
Major MILLER. I am from the Office of Deputy Chief of Staff for Operations.
Mr. COURTNEY. What is your first name?