and mobilization requirements, located where required to fulfill apparent missions, present or future. Though easy to state in simple terms, this is a tremendously complex problem. The result of the plan to date has been a phased program for deactivation, reduction or consolidation of depot activities throughout the continental United States. The plan is, of course, constantly under study and the results in each fiscal year are dependent upon the progress of the plan at that time. It is apparent that such a plan as this, though not directed by anyone outside the Army, has an immediate, but not specifically determinable impact on personnel, yet it is mandatory if we are to apply our resources to the best possible advantage. In production-type military overhaul, we supplement our inhouse capability by contract facilities, and have since 1948. One factor considered in contracting out overhaul is the inability of the Army to perform the service because of a lack of facilities or a shortage of required skills. Weaponry changes are so rapid that often we find it uneconomical to invest the time and funds in training or facilities necessary for maintenance even though the weaponry is combat related. There are, in fact, decided advantages to contracting in some areas. As a general rule, contractors are used for overhaul when (a) Workloads in support of mission-essential equipment exceed the established capacity of depot maintenance activities. (b) Workloads are in support of nonmission-essential equipment. (c) Complex new mission-essential equipment is introduced into the inventory for which a depot maintenance capability has not been achieved. As a result of these policies, approximately 14 percent, or $22 million, of the $155 million depot maintenance overhaul program was accomplished by private industry in fiscal year 1960. Of this amount $16.5 million was for aircraft maintenance; the remainder was spent for the overhaul of engineer construction, marine, and rail equipment, and missile secondary items. A small amount of electronic equipment also is programed for overhaul by contract in fiscal year 1961. I will discuss engineer construction, marine and rail equipment maintenance briefly. You will note that much of the equipment in these categories is essentially commercial-type and obtaining a source of contractual assistance is no problem. The contracting policies for engineer equipment have enhanced our mobilization readiness position. During the past 13 years, contractual relationships have been established with over 250 firms, any one of which could be activated on short notice under emergency conditions. Due to low workloads, only 35 of these contractors are presently engaged in the overhaul of Army engineer equipment, supplementing the inhouse capability which we must retain. Marine craft maintenance is accomplished by contract facilities with the exception of one inhouse facility maintained at Charleston, S.C. This one capability has been retained primarily as a mobilization base and accomplishes maintenance on mission-essential equipment in the Charleston area to insure an operating workload. Since commercial repair facilities are readily available, it is more economical to contract marine repairs in the general locale of operations rather than to establish inhouse capabilities. Depot maintenance of rail equipment also is accomplished by both contract and inhouse facilities. The one maintenance facility retained inhouse is at Ogden, Utah. It, as a primary mission, performs depot maintenance on locomotives and locomotive cranes in the western area; maintenance of this equipment in the East, where we have a reduced workload, is accomplished by contract. Commercial repair facilities for rolling stock-i.e., boxcars, tankers, et cetera are readily available throughout the country and, with minor exceptions, this maintenance is accomplished by contract. As you can see, we do not compromise on our efforts to have an inhouse capability for depot maintenance of mission-essential equipment. Another example of this is in the field of aircraft maintenance which represented the majority of the contract maintenance in fiscal year 1960. The Army started work at the aircraft depot maintenance facility at Corpus Christi, beginning July 1 of this year, picking up an inhouse capability which we have not had previously. We have prepared a separate presentation on aircraft maintenance which will be given, with your permission, Mr. Chairman, after my discussion. What is the result of contracting? In personnel, although there is no way of identifying what specifically is reflected in these statistics, civilian employment in the Army decreased from 429,217 on June 30, 1957, to 390,046 on June 30, 1960. A significant portion of this reduction resulted from lower workloads and congressional and Presidential limitations on personnel spaces. To a much larger degree, the reduction has resulted from work and management improvements made by the Army by continuation of its own policies. It is doubtful that contracting out per se had any very great effect on civilian personnel employment. In regard to comparative cost, we find it difficult to discuss comparisons between inhouse and contracting out. A comparison of out-ofpocket cost with a contract price is clear cut. The difficulty arises when elements of depreciation, interest, and taxes on funds previously spent for capital assets have to be taken into consideration. On a case-by-case basis, valid comparisons can be made, but these cannot be gathered together into overall statistics which compare cost in broad areas. Contracting out is a closely reviewed area, but the Army's method of management does not provide comprehensive data at our level related to personnel, specific funds, or to a specific fiscal year. Under our system, which we believe gives the maximum management at the minimum cost, available resources are distributed to subordinate commanders who also receive missions, priorities, and policies to insure that these resources are applied effectively toward meeting the overall Army requirement. A commander, under this system, often can and does make the decision to go to contract. Before he does, however, he must weigh the decision against his mission, attempt to adjust available personnel, or try to obtain relief from the workload. He must measure the adverse impact upon the existing work force, decide the advantage to the Government, and consider the policies and criteria from higher authority under which the decision must be made. Has contracting out affected our combat potential, not only now but in the future? I can find no specific instance of loss in our combat readiness position caused by contracting out. If we had unlimited resources, we would try to keep our inhouse capabilities at a higher level. This, I believe, would enhance our combat capability. However, within limited resources, we believe that we have the proper balance for our present situation. Our decisions to date as to what we will do inhouse and what must be done by contract, whether as a result of external directives or internal improvement, have represented our very best judgment and experience. As the missions and resources change, we must constantly go through the process of determining the best mix. This we will do. (The annexes attached to the statement are as follows:) Contracts for depot maintenance, fiscal year 1960—Missiles Contracts for depot maintenance, fiscal year 1960-Engineer construction |