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Now, that is in addition to the calculation of what has already been earned, accrued up to today, of regular retirement without recomputation. That is $129 billion; is that right? That is the unfunded liability?

Senator CANNON. At what point in time was that $84.4?

The CHAIRMAN. Let me go back over that again and let me clear up this figure I just gave.

If the Congress should decide to deposit enough money today so that the interest on the 3.5 percent will have been earned by the time all the accrued liability on the retirement becomes payable, we would have to put up $129 billion deposit. So if we do not put it up, why, the bill when it comes due will be $129 billion plus what that sum would have earned at 3.5 percent interest during the interim.

Back to the second proposition about recomputation, if we were to go to full recomputation of military retired pay today, the first year cost would be $925 million. That would be for the first year, Mr. Braswell?

Mr. BRASWELL. Yes, sir.

The CHAIRMAN. Then assuming that we recompute each time there is a pay increase to the military, keep it up over the years, in 30 years the cost would run to a total of $84.4 billion which is a sum in addition to what I have said about the $129 billion.

Those things make me know by commonsense, just eighth grade arithmetic, that something has to be done or this thing will break down. I do not know what would be the result. You just have to get something here that will not go that far.

On recomputation, we have already passed a permanent law to give these fine people a cost-of-living increase.

I just state that for the record. It is going to take a lot of hard work by the military, by the civilian branch, the Department of Defense, the White House, everybody who has a responsibility, as well as the committees, to get up a new system. I am ready to stand firmly by what has been earned and must be paid.

Another point here: General Westmoreland, on your manpower matter, you said if the Congress makes any cuts below your present level for manpower this year, it will interfere with your long-term plans. We have not been told much about what your long-term plans are, but we now have this added responsibility of passing on manpower levels year by year.

If you will present your manpower plans for just one year in advance, that would give us a better chance to get into this problem.

General WESTMORELAND. We will be happy to do that, sir.

The CHAIRMAN. But we do have to press forward and make a determination about this manpower level. I am no fanatic on the subject, but I believe something can be done to cut down on manpower cost, for two reasons: it will enable you to give some of what you save to the men you keep-vou know, better pay, better everything that goes with it; and the rest can be put on your military hardware account because that is going up, too. And I think when we dig hard we can do it.

I make that point and you can supply something on that.

General WESTMORELAND. I will be happy to supply it. I would make the point, however, that the 841,000 insurance for just the year 1973 is associated with the 13-division structure which the Joint

Chiefs of Staff, the Secretary of Defense and the President feel are essential to carry out our international commitments.

(The information follows.)

The Army developed a balanced program for FY 73 which provides 13 adequately supported divisions to meet our national commitments. We propose to [deleted) during the period FY 74-77. We are programed to achieve a strength of 841,000 by the end of F Y 73—thus bringing the Army to its lowest strength in the past twenty years. In developing this force, we have incorporated all the reductions which we feel we can properly take and still maintain the capabilities required for the active Army. Specifically, we are programing (deleted) men for division forces (the deployable combat elements of the Army). This level provides about (deleted] men per division and (deleted) men for the essential support units required for each division-as opposed to about 16,000 men per division and 32,000 for supporting units required under wartime conditions.

In other categories of forces we have also trimmed to what we consider the minimum prudent level. Our Special Mission Forces (which we provide to meet directed requirements) are programed at [deleted] from end FY 72. General Support Forces are programed at [deleted] from end FY 72. Our individuals (both trained individuals and trainees) are programed at 148,000_down 11,000 from end FY 72. Any further cuts which might be imposed would undoubtedly force us to reduce our division forces, with an attendant shortfall in our ability to meet our national commitments.

The CHAIRMAN. I do not object now to the 13 divisions. The question is how many men do you have to have to make 13 divisions?

General WESTMORELAND. We feel this is the minimum requirement. I would point out, sir, that we are depending upon our Reserve components as never before.

The Chairman. I know you are honest and sincere about that but we have had so much experience where we did not have the will or for some reason did not call the Reserves, and did not rely on them. We are spending over $4 billion 'on them now. I do not believe the country is prepared for them to be called unless it is a very extreme emergency, but that is another matter. Nothing has been done to get the manpower for them. I warned about that last year. Something is being done about their equipment.

Senator McIntyre, I am calling on you now, sir.
Senator MCINTYRE. Thank you, Mr. Chairman.

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RATE OF REDUCTIONS

Mr. Secretary, the Army is going through a, critical period of retrenchment in military manpower which you state has created a high level of personnel turbulence, skill mismatches, disrupted training plans and some reduced unit readiness. In your opinion, Mr. Secretary, are we not going further than prudence demands, not so much in the numbers to be reduced but, rather, in the short period of time during which this must be accomplished?

Secretary FROEHLKE. Certainly, speaking from the standpoint of & manager of a corporation, I would never recommend that you cut down to this extent this rapidly. However, this being the real world, I also recognize that I am not the manager of a corporation; I am the manager of an entity in a political institution and, therefore, we have to do the best with what is given us. So there is no question about it; we were asked to cut down too much too fast. It was not an ideal situation but faced with that situation we did not have the choice. We went ahead and did it and hopefully during this turbulent interim

period a crisis will not arise. As General Westmoreland has indicated, by the first quarter of fiscal year 1973 we anticipate that turbulence will have subsided substantially.

I sort of worked around that one, but the answer is “Yes,” we did cut down too much too fast, but we did not have the choice.

Senator MCINTYRE. You stated that "should cost” techniques for evaluating sole source cost proposals saved about $37.1 million in the evaluation of 10 contractor proposals totaling $342.3 million.

Could you address one or two examples of this action?
Secretary FROEHLKE. Do we have any specifics?
Colonel LIVERMORE. No, sir.

Secretary FROEHLKE. I certainly will for the record. I cannot from memory. May I supply something for the record?

Senator MCINTYRE. Yes; let's have a couple of good examples for the record.

(The information follows.) The Should Cost approach is a proposal analysis technique designed to challenge contractor cost projections and assure that contract award prices do not include the effects of past inefficient performance and management practices, but what that scope of work ought to cost assuming reasonable efficiency and economy on the part of the contractor. This approach to contract negotiation differs from the traditional procedures by not accepting historical practices as a standard for future contract performance. To implement this technique, an in-depth analysis is performed on elements of the contractor's cost proposal to ferret out inefficiencies arising from poor engineering, production and management practices. The Should Cost analysis is performed by a coordinated team of specialists in design engineering, industrial engineering, contract pricing, auditing procurement, and organizational management. The principal objective of the Should Cost analysis is to develop a Government negotiation objective, well supported by facts, obtained by analyzing the contractor's records and processes rather than from the subjective judgments of the evaluators. Through the contract negotiation process the contractor's top management attention is directed to a specific improvement program to reduce costs through implementing efficiencies and economies in its operations.

During the past calendar year the U.S. Army Materiel Command has successfully completed ten Should Cost studies on proposals valued in excess of $342.3 million. Contract negotiations based on the findings of the Should Cost studies resulted in award prices of $60.2 million less than proposed by the contractors. While past negotiations have resulted in reduction in the agreed-to price, it is estimated that $37.1 of the achieved reduction is directly attributable to the results of the Should Cost studies. In addition, major procedural changes have been negotiated with most contractors to improve the efficiencies of their performance which will have a cost savings to all future work. Examples of such long-range changes are:

(a) Improved management of manufacturing labor by evaluating actual expended time in relation to engineered standards with the goal of increasing labor efficiency by more than 50 percent of past experience.

(6) Improved make-or-buy programs.
(c) Improved management of overhead expenses.
(d) Improved estimating techniques based on engineered standard.
(e) Improved accounting and allocation procedures.

As part of the should cost study contractors' make-or-buy procedures are evaluated together with other cost functions. One of our recent studies has resulted in a savings due to the make-or-buy review amounting to approximately $400,000. This finding related to a contractor's past and planned progress of making a subcomponent at a cost of $3,300 each. Through the Should Cost review it was determined that this component could be procured at a cost of $2,300. A savings of $1,000 per component was directly attributable to the in-depth evaluation conducted by the Should Cost review team. This savings, when multiplied times the quantity procured, resulted in a total savings of $400,000.

In another case we made a detailed study of all the cost elements, i.e., material, direct labor,, manufacturing and overhead relating to the manufacture of an

actuator used in one of our missile systems. By having an integrated team include ing industrial engineers we were able to successfully challenge the contractor's processes and cost estimating procedures thereby negotiating a reduced unit price resulting in a total savings of $155,395.

In a similar situation a Should Cost team concluded that a major component that had previously been manufactured in-house could be produced by other contractors at a substantially lower cost and should be competitive. Pursuant to this finding the prime contractor was requested to obtain competitive quotations from other sources. In response to the solicitation six proposals were received. Award to the lowest bidder resulted in a total savings of $600,000 for the Government,

HLH PROTOTYPING COST

Senator MCINTYRE. In your discussion of logistics and procurement management, you stated that last year the Army started a number of management improvements in the areas of systems definition, cost estimating, prototyping and so forth to insure that you acquire weapons systems which meet technical requirements within desired delivery schedules and at reasonable prices.

Does not your approach to the heavy lift helicopter program represent a departure from this objective, since it essentially commits the Army to a program with the Boeing-Vertol Co. which may approach-I say may-may approach $2 billion in costs through its ultimate procurement phase?

Secretary FROEHLKE. General, are you in a position to answer that?

General WESTMORELAND. I will be happy to address that, Senator McIntyre.

There were a number of companies that came in with proposals on the Heavy Lift Helicopter. Boeing-Vertol's was selected as the best proposal. Now, this particular helicopter is in its advanced developmental phase and for the first several years the contractor will devote his energies, with our close supervision, to testing components.

The first prototype flight is not expected until fiscal year 1975. What the cost of this Heavy Lift Helicopter will be, we do not know at this time. We do know that we will be procuring relatively few and it was our judgment that it was not practical to come up with two prototypes that would compete with one another in view of the relatively small production.

Senator MCINTYRE. That is a high risk

General WESTMORELAND. We do not believe it is a high risk, sir, since we are proceeding with an advanced component development program and each component is going to be very carefully tested.

HLH PROCUREMENT LEVEL

Senator MCINTYRE. How many at the present time do you estimate you want to procure?

General WESTMORELAND. I would say not more than [deleted] as we see it now. If we had gone the parallel route with two contractors developing this machine-we have never built a machine of this type before-and each component has to be very carefully tested, to pursue the dual track would have been extremely expensive. We do not feel it necessary and in consideration of the fact that there is going to be such a small procurement, we just could not justify the development of two prototypes.

Senator MCINTYRE. That procurement figure you gave me of [deleted] is about (deleted] over what was discussed 2 years ago?

General WESTMORELAND. That is correct. I padded that figure intentionally because I just did not want to be in the position of underestimating; it will be probably closer to [deleted] but I started to say [deleted] then--not being able to foresee what our requirement will be in 1975, I estimated a higher figure.

But this it still a relatively small number of machines to be procured. This is the point that I am making. Contrast that with the UTTAS, where we will be procuring at the outset about [deleted) and no doubt there will be perhaps [deleted] additional over a period of years. We are dealing here in mass production, where with the HLH we are dealing in very limited production.

Senator MCINTYRE. I would like to read a letter that I wrote to the Secretary of Defense. I am sure, Mr. Secretary, you got a copy of it, too. It deals with the UTTAS. The subcommittee is a little bit puzzled about the method in which we are going ahead on the Heavy Lift: Helicopter which is high risk and the mode that we are planning on the UTTAS, which is low risk.

In that letter, I said:

The Research and Development Subcommittee recently held a formal hearing on the Army Utility Tactical Transport Aircraft System-UTTAS—for which $64 million are requested in the fiscal year 1973 Research, Development, Test and Evaluation Appropriation.

I am concerned that the approach proposed by the Army, which has your approval, is inconsistent with the objectives of the new prototyping philosophy.

The engine which will used in this helicopter, regardless of who wins the helicopter competition, is already under contract for development by General Electric. The engine development is not at issue.

The helicopter development is based upon the selection of two competing contractors, each of whom will build seven prototypes for use in conducting the competition, including a flyoff. It is this plan which is questioned.

UTTAS is a low-risk program, as attested by the Army. It employs off-theshelf technology, with the possible single exception of the engine. In contrast with UTTAS, the Air Force requires only two prototypes each from two competing contractors in the A-X, Lightweight Fighter Prototype, and Advanced Medium STOL Transport Prototype programs.

While I recognize that the state-of-the-art technology involved in helicopter development is not equal to that for fixed-wing aircraft, the need for a total of 14 prototypes to provide for sufficient flight time to permit a selection between two competing designs appears to be excessive. Up to half of these ultimately would, wind up as expensive museum pieces after the competition was completed. An alternative approach which could be more acceptable but less costly than has been proposed would be as follows:

1. Reduce the number of prototypes for each contractor from 7 to 4 which would provide each contractor with one ground test prototype vehicle, one contractorretained flying prototype and two government evaluation prototypes.

2. Reduce the number of spare engines consistent with the reduction in the number of prototypes.

3. Reduce the number of flying hours substantially from, the 11,360 hours planned for the 14 prototype program; and limit the number of flight hours to that quantity necessary solely for the purpose of conducting tests through the competitive Ayoff to permit the selection of one contractor.

4. Proceed on the basis that the winning contractor would be granted an engineering development contract to complete the necessary refinements in development and testing, including accommodation of maintainability and reliability objectives leading to a production decision.

This approach promises to be feasible and austere without compromising program objectives. It would also be consistent with the principle of competitive prototyping and the fly-before-buy philosophy. It produces substantial savings to the government..

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