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He said, "Because I have to maintain my supply. I don't want to have to depend on somebody else to furnish me with gas when I need it."

I said, "Do you consider that any shipyard ought to do that?" He said, "Well, I wouldn't operate one without making my own gas," he said, "because I can't be dependent on somebody else to do it." Now, the question that was involved here and I think the same thing goes back to the automotive maintenance. There may be situations under which it can be contracted out on a reasonable basis, but as a farm operator, I had to keep a shop that could maintain or perform some maintenance on my farm tractor. And how in the world anybody can operate an industrial establishment like a shipyard and not perform any maintenance on its own equipment and not manufacture its gas, is a question for prudent management, it seems to me, to determine.

Secretary BELIEU. It certainly is, sir, because you must maintainyou must get these services from somewhere. You must have them available at the time you need them.

Mr. HARDY. Now, Mr. Chairman, there was one other point that I wanted to explore, and then I will be through with this.

I am glad to hear you make these observations.

Mr. HÉBERT. I think, Mr. Hardy-we can well say to you, Mr. Secretary-that this is an area, and which the colloquy has developed, is the key to the whole situation in which we are concerning ourselves at this time.

Of course it will be incumbent upon the committee to make every effort to have the Defense Department issue a complete and distinctive and commonsense interpretation of what 60-2 means, so it can apply it to all services, and that is a responsibility of this committee in its report.


Mr. HÉBERT. This is the heart of the whole thing, as to its commonsense application.

Mr. ĦARDY. Let me ask you this, Mr. Secretary: Are you aware of the extent to which the imposing of arbitrary personnel ceilings may be actually increasing your operating costs in Navy installations? Secretary BELIEU. I am probably not aware of the whole thing, sir. I could only give you a general answer.

I have been in command of activities in the past. Obviously, the diminishing of your personnel resources beyond a certain point does either of two things. It inhibits your ability to do your job properly, and by that adds costs, because if the job has to be done sometime, you have to pick up and catch up with it.

I am not familiar-maybe I do not understand the question properly, sir.

Mr. HARDY. Well, the thing I was getting at is this: Haven't there been times when the Navy has itself imposed personnel ceilings on its industrial-type activities or commercial-type activities which have resulted in a requirement that the performance of certain services be secured under contract and be done at a much increased cost?

I will give you an illustration, one that I know of. I know an occasion under which you had a breakdown in a cold storage plant and because you didn't have the personnel ceiling to permit your own

maintenance employees to go in and perform that maintenance, you had to do it under contract. And I know it was the kind of a job that nobody could put in a bid on, on a contract basis, because of expanding the thing out of all proportion in order to protect himself. And the thing cost the Navy in that particular instance two or three times what it should have cost. But you had a personnel ceilingand I don't know who imposed the ceiling.

Admiral BEARDSLEY. Pretty generally, Mr. Hardy-as I recall during the last 4 or 5 years our overall ceilings have been more than adequate. The tighter control has the money within the ceiling, that is the total money within the ceiling.

There may be isolated cases where this did happen.
Mr. HARDY. This was some little time ago.

You had to have the money, because you had to maintain the cold storage plant. You had to repair a breakdown.

Admiral BEARDSLEY. Well, in the overall we have had more ceiling than we have had the money to support people. So I don't think in the overall we have been hurt very much.

Mr. HARDY. This occurred some little while ago, and shortly thereafter you had a situation under which the Public Works Department had a ceiling put on it, where it had to lay off people, and the Supply Department, located right on the same base, was employing the peoplo that they laid off, because they had work that had to be done. Secretary BELIEU. This comes from two different reasons. One from the allocation of personnel trying to make a proper decision between the whole list of priorities and the jobs to be done, and also as a result of budgetary limitations-the allocation of funds from one department to the other-I mean one entity to the other.

Mr. HARDY. That would, in that particular situation. But when you increase your requirement for procuring a service under contract which is more economical to perform in-house because of a lack of personnel ceiling, then it is not a budgetary matter, because it is costing you more money.

Secretary BELIEU. It is not even an economical matter, sir.

Mr. HARDY. That is it.

Mr. HÉBERT. Mr. Kitchin?

Mr. KITCHIN. I have no questions of this general nature. I will reserve mine until we get to the specification contracts.

Mr. COURTNEY. I would like to ask a question at this point on this subject.

Mr. HÉBERT. Mr. Courtney.

Mr. COURTNEY. On this subject, Mr. Secretary, would it be a fair interpretation of your conclusions as expressed here to summarize them about in this way: That your experience in the Navy to this date in the operations that it is required to perform has not so far as your examination shows been impeded or curtailed or interfered with by the conditions that are prescribed in 60-2 and 4151.1? Secretary BELIEU. That is correct, sir.

Mr. COURTNEY. Now the second question. Do you interpret 4151.1 and 60-2 as directory of mandatory upon the Navy?

This would be the heart of the matter, in the questions, or the hypothetical cases that have been put to you here by the subcommittee: If it were mandatory, would it be so restrictive that it should now

be altered or made abundantly clear that it would not interfere with your operation on a daily basis, or can you live with it in its present form?

Secretary BELIEU. Well, of course, any defensive directive that I receive through appropriate channels is a mandatory thing as far as I am concerned.

Mr. COURTNEY. Well, of course, I would understand that, yes. So that you would feel that you would be completely obligated by 4151.1?

Secretary BELIEU. Yes. But I believe there is freedom of action within this.

Mr. COURTNEY. Well, this is the next question. Is there sufficient freedom of action so that you could accomplish the missions that you would be required to?

Secretary BELIEU. I think so.

As I indicated earlier, I have had no one breathing down my neck on this, saying, "You are doing something wrong."

If this were said to me, I would assume that among reasonable people I would have the opportunity of coming back and saying, "This is the impact it will have on the Navy and on the country's naval posture," and I would either concur with it or I don't concur with it.

I have not run into a situation of this nature yet.

Mr. COURTNEY. Well, that then would be the question.

If the subcommittee accepts, as I gather from the questioning they do, your philosophy of the application of the principle contracting out- or in-house capability, the question then ultimately would be whether you can carry out your philosophy with the restrictions, if any, that are contained in 4151.1.

Secretary BELIEU. I have reason to believe I can. I have no reason to believe otherwise.

Mr. HARDY. You mean thus far it hasn't run into conflict with somebody a little higher?

Secretary BELIEU. As the chairman mentioned earlier, as of now I am a whole man. [Laughter.]

Mr. COURTNEY. Those were the only questions I had.

Mr. HARDY. It was a very fine statement, Mr. Chairman.

Mr. HÉBERT. It was a very fine statement. "As of now," you said. [Laughter.]

Mr. HÉBERT. Now, I think, Mr. Secretary, we will proceed with the individual contracts, through Mr. Courtney.

Secretary BELIEU. All right, sir.

I have one suggestion, if I might-or whatever the committee wishes.

The first batch-I have broken down into three different groupings, for presentation.

The first eight, as I say, are from ONR.

The next five, in other words items 9 through 13, inclusive, represent BuShips.

And items 14 and 15, BuWeps.

Inasmuch as item No. 1, of the first 8, has general application to most of the others following, I would suggest as a matter of clarity it might be appropriate for the first witness to pick up with No. 2 and go

through No. 8 and then return to No. 1-if this meets the committee's approval?

Mr. SANDWEG. I wonder, Mr. Secretary, if we have them in the same order that you have.

Secretary BELIEU. I think they were taken from the list-they may not be.

I can call them off.

Mr. COURTNEY. We don't have them numbered, Mr. Secretary, in sequence. We have them bundled together, by the contract numbers. Mr. HARDY. I don't see any page numbers on these

Mr. SANDWEG. There is a contract number on top of each sheet.
Secretary BELIEU. Yes.

Mr. COURTNEY. I think they have been numbered out in the interval, Mr. Chairman. And the sequence is the same, although the numbers are not on your documents.

Mr. HÉBERT. How do you desire to proceed, Mr. Courtney?

Mr. COURTNEY. Well, that puts the monkey right on my back, doesn't it?

Mr. HÉBERT. That is correct.

Secretary BELIEU. If I may suggest, Mr. Courtney

Mr. COURTNEY. That is what I would like to have

Secretary BELIEU. [showing document]. You start right with this contract number, and go down to there, and come back and pick up this one and go right on through.

Mr. COURTNEY. All right.

Now, Mr. Chairman, we could have the titles of these contracts read in the record, so the committee could understand, as it has before in its briefings, the nature of the contracts that are being considered. No. 1 is a $296,000 to the Cowles Commission.

Mr. HÉBERT. The who?

Mr. COURTNEY. Cowles-C-o-w-l-e-s-Commission for Research and Economics, at Yale University. The purpose and scope of the contract:

This contract is for research in the general area of decisionmaking under uncertainty.

Mr. HÉBERT. What is that again? [Laughter.]

Mr. COURTNEY (reading):

Decisionmaking under uncertainty.

Secretary BELIEU. This was the one I suggested we defer until No. 8 had gone through.

Mr. HÉBERT. I congratulate you again, Mr. Secretary.

I knew just what you had in mind. That is why I asked Mr. Courtney to proceed in the order that you wanted. [Laughter.] Secretary BELIEU. The chairman runs his own committee. Thank you, sir.

Mr. HÉBERT. It was a good try, a good college try. [Laughter.] Mr. COURTNEY (reading):

Attention is to be directed primarily at decision situations characterized by the desire to optimize the value of some measure of accomplishment.

Mr. HARDY. Is that the thing you read awhile ago, Mr. Secretary, and attributed to Einstein?

Secretary BELIEU. No, sir. I think Einstein might have been talking about such activities as these. [Laughter.] (The contract data not read is as follows:)



The Cowles Commission for Research in Economics, Box 2125, Yale Station, New Haven, Conn.

Estimated cost: $296,000.



This contract is for research in the general area of decisionmaking under uncertainty. Attention is to be directed primarily at decision situations characterized by the desire to optimize the value of some measure of accomplishment.


The encolsed list and its supplement represent a summary by title of the work accomplished to date under Contract Nonr-358 (01). In this list are a number of papers listed as "Discussion papers." These are papers which are distributed prior to their being formally published as reports or in some professional journal. They are circulated, e.g., to persons on the distribution list provided by this office, for comments which could be incorporated into the final version. In addition to discussion papers, Cowles Foundation papers, and papers published in professional journals, those working either full or part time on the contract have given a number of talks at meetings of professional societies, symposia, and for special lecture series.

The productivity and quality of the research on this contract has been very good, and upon this basis this branch has continued to renew the contract. Some of the outstanding people today in the area of decisionmaking in organizations have at one time been associated with this contract, e.g., Prof. J. Marschak and Prof. R. Radner.


This contract is a contract to conduct basic research in normative decisionmaking theory appropriate to various circumstances. The primary contribution of such a contract is to provide basic background results to those working in more applied areas. To implement this contribution, the contractor is provided with a distribution list to which all papers and reports are to be sent. This distribution list includes other research people working in a similar area also having contracts with the Office of Naval Research, other research workers to whom the reports would be useful in their own research, various Government agencies concerned with planning and evaluating decision procedures (e.g., the Navy Management Office), naval laboratories (e.g., Naval Research Laboratory), Navy libraries, and directors of agencies which have members who might find the information useful (e.g., Director of National Security Agency), some industrial laboratories carrying on related research activities for the Department of Defense. As previously indicated, further dissemination is accomplished by presentation of six or seven papers a year at meetings of professional societies, symposia, and conferences.

Mr. COURTNEY. This is the second one, the Planning Research Corp. of Los Angeles, $283,310.

The scope of the contract is indicated as classified.

But the principal objectives are:

*** to study, design, and develop data processing techniques.

1. Providing expeditious access to a wide variety of logistics data required by operating staff; and

2. To assist staff logistic planners in rapidly determining logistic feasibility of war plans.

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