that the Air Force should have accepted the option offered by Hoffman, Hoffman did not at any time offer an unqualified option. The option offer was conditioned on reduced reliability requirements. The Air Force was correct in not accepting the option on this basis since the increased maintenance costs would have far exceeded any reductions in price resulting from the exercise of the option.

DOD comments on costs: DOD does not agree that any unnecessary costs were incurred.

DOD corrective action: GAO suggested that it would be helpful to reiterate to contracting personnel that the Government does not commit itself by including an option provisions in a contract. Although this was not a factor in the present case, DOD concurs in the suggestion and is carrying it out.

GAO Report B-146843, January 31, 1964

84. Title: "Increased Costs Incurred for Ammonium Perchlorate Purchased During 1961 for Solid Propellent Missile Motors, Department of the Air Force" (OSD case No. 1680).

GAO finding: The Government incurred increased costs, estimated to be $500,000 in 1961, in procuring its requirement of ammonium perchlorate because prices paid by Air Force contractors generally were higher than prices paid by the Navy under contracts negotiated directly with one of the principal suppliers. GAO estimate of unnecessary costs: $500,000.

Time period of GAO report: The draft report is dated September 28, 1962. It reviewed DOD transactions that took place during 1961.

DOD comments on GAO finding: DASD (procurement) by letter of April 21, 1964, to GAO noted that the lower prices paid by the Navy resulted in part from the fact that the principal Navy supplier had been producing with the aid of a Navy funded facility arranged years earlier when qualified producers were not interested in investing capital. Increased missile and rocket requirements made is possible for the Navy to sell the Government's interest in the facility. As the result of this sale, the company's advantage was eliminated and the differential was reduced. Disposal of the plant obviated the possibility of any recurrence of the 1961 pricing situation. Prices based on the use of privately owned or financed facilities are competitive and all Government requirements are now filled in this

manner.

DOD comments on costs: No independent estimate made. However, since the report does not fully consider differences in quality and type and other factors that would cause substantial variances in price, the estimate of unnecessary costs is considered to be high.

DOD corrective action: Policy guidance has been established in ASPR (1-303, 3-807 to deal with the underlying problem of assuring that contracting activities and defense contractors buying materials or supplies obtain effective and timely information on the prices charged other buyers for the same items. The availability of such information has improved under existing procedures. More effective techniques to make such information readily available are being examined.

With specific reference to ammonium perchlorate, increased competition has been effective in assuring reasonable prices.

GAO Report B-133396, February 28, 1964

85. Title: "Unnecessary Costs Incurred As a Result of Awarding Without Competition a Contract for Overhaul and Modification of Aircraft Engines, Department of the Army" (OSD case No. 1822).

GAO finding: The Army incurred unnecessary costs because it did not acquire technical data at the time it was first known that there would be a continuing need for aircraft engine overhaul and modification.

GAO estimate of unnecessary costs: $193,000.

Time period of GAO report: 1957-62.

DOD comments on GAO finding: The Department of the Army did not disagree with the GAO finding. However, exception was taken to the GAO recommendation that the Army use the instance described in the report as an illustration in

emphasizing to procurement officials the need for obtaining timely and adequate data.

DOD comments on costs: The Department of the Army did not disagree with the GAO estimate of unnecessary costs. However, there was not sufficient time to both acquire the data and develop a suitable procurement package in time for the procurement.

DOD corrective action: The emphasis being placed by the Army on increasing competition is being applied equally to maintenance and modification services.

GAO Report B-146848, March 17, 1964

86. Title: "Unnecessary Costs Incurred in Furnishing Ammunition for Test Firing M-14 Rifles, Department of the Army" (OSD case No. 1824). GAO finding: The Government incurred unnecessary costs because the Army shipped to a contractor, for use in test firing rifles, ammunition that either had been (1) manufactured and shipped to Army depots by the rifle manufacturer, (2) unnecessarily packaged and then unpackaged by the same contractor, or (3) manufactured by a different contractor and shipped to the rifle manufacturer. GAO estimate of unnecessary costs: $145,000.

Time period of GAO report: August 1959 to August 1963.

DOD comments on GAO finding: (a) The Department of the Army agrees that unnecessary costs were incurred because unpackaged ammunition produced by the rifle manufacturer was not used to test fire this rifle.

(b) An investigation of the circumstances surrounding this case revealed no evidence of willful mismanagement or neglect of duties on the part of Army personnel.

DOD comments on costs: The Department of the Army believes that $65,000, and not $145,000 as reported by the GAO is a more realistic estimate of any unnecessary costs that may have been incurred.

DOD corrective action: The facts of the report were disseminated to contracting and audit personnel throughout the Department of Defense as a means of creating an awareness to situations where alertness on their part can produce significant cost savings to the Government.

GAO Report B-146812, March 18, 1964

87. Title: "Unnecessary Cost to the Government in the Leasing of Electronic Data Processing Systems by the Aerospace Division of Martin Marietta Corp., Baltimore, Md., Denver, Colo., and Orlando, Fla., Department of Defense" (OSD case No. 1799).

GAO finding: The Government will incur unnecessary costs of about $7,700,000 over a 5-year period if the contractor continues to lease the systems because the contractor will pay rentals greater than the full purchase and maintenance cost to the Government, including interest on the investment. Amount of unnecessary cost will increase to $13 million at the end of 6 years and $37 million by the end of 10 years.

GAO estimate of unnecessary costs: $7,700,000.

Time period of GAO report: May 1963 to June 1964.

DOD comments on GÃO finding: ASD (I. & L.), by letter of May 21, 1964, to GAO, commented on 23 reports (5 final and 18 draft) issued to date on the same subject, including this report. GAO bases its findings in all reports on its position that computers have a "useful life of 5 to 10 years" and should be retained in use for that period; that cost of leasing will exceed cost of ownership by the end of 5 years; therefore, the Government should buy computers and furnish them to contractors.

The DOD position is that the useful life of computers will vary with each equipment type and its economic utility in given areas of application; and that the present policy of the Government to require contractors to furnish their own facilities should remain unchanged. DOD feels that computers can be purchased on a selective basis when the stability of both systems and equipment can be established.

DOD comments on costs: Consideration of equipment requirements, replacement dates, replacement or field modifications costs, taxes, and insurance show that the unnecessary costs alleged by GAO will not be incurred.

DOD corrective action: ASPR changes will require contractors to submit comprehensive analyses of lease/purchase costs and equipment replacement requirements, and will base cost allowability on the least cost method of acquisition.

GAO Report B-146885, March 23, 1964

88. Title: "Additional Costs Incurred in the Procurement of P6M Seaplanes From Glenn L. Martin Co., Baltimore, Md." (OSD case No. 1724).

GAO finding: The Navy spent more than $445,400,000 over a 10-year period and did not receive a single serviceable P6M seaplane. Quantity production of 24 operational aircraft were ordered before a reasonably satisfactory seaplane had been developed, and it was known that there were serious unsolved problems with the prototype aircraft. This resulted in the expenditure of $209,200,000 which might have been saved if these contracts had not been awarded. Also significant cost increases were incurred by the Navy because of design and engineering errors committed by the contractor as well as a failure by contractor to adhere to the Navy's aircraft testing procedures.

GAO estimate of unnecessary costs: $209,200,000.

Time period of GAO report: In 1951 the Navy established an operational requirement for a high-performance jet seaplane which would be capable of 600 knots speed at sea level with a capability of carrying a load of 30,000 pounds of ordnance items. The P6M was a result of this requirement. In 1959 the P6M program was completely terminated because of unexpected engineering difficulties, significantly increased costs and the successful advent of the fleet ballistic missile program (Polaris). The GAO review effort on the P6M program extended over a 5-year period (1959–64). Two draft reports (January 1961 and February 1963) and one final report (March 1964) were submitted to to the Navy and OSD for comment. The GAO reviews covered the P6M program from inception to program termination in August 1959.

DOD comments on GAO finding: DOD has furnished GAO with detailed responses (June 22, 1961, and Mar. 28, 1963) to the two GAO draft reports and with the DOD response (June 12, 1964) to the GAO final report.

It is true that serious problems were known and that solutions were not certain when the production phase of the P6M was embarked upon in 1956. However, the military considerations for supplying a new operational weapon system which had advantages over other existing weapon developments and the national need for such military capability were factors weighing in favor of proceeding into the production phase. The decision to go forward into P6M production was based on professional appraisal of contemporary tests, experience and science and on the professional prediction that the then existing technical problems could be solved. The Navy has expressed the view in the replies to GAO that the degree of promise of technical success of the P6M and the degree of justification for management judgments made in that program were greater than would appear to a lay reader of the GAO's statements.

The Government undoubtedly suffered additional expenses due to engineering errors and deficiencies in Martin's performance.

DOD comments on costs: It is agreed that if no contract awards had been made for operational aircraft and for supporting operational facilities, the $209,200,000 for such aircraft and facilities might not have been spent.

As previously stated to GAO, the Navy agrees that an assessment can now be made that management should have reacted more promptly to the problems encountered in the P6M production phase by complete termination of the P6M | program at an earlier date. The Navy accepts responsibility for the fact that an earlier termination of the P6M might have resulted in a substantial reduction, possibly as much as $209,200,000, in costs incurred. It should be noted, however, that an estimated amount of $83.8 million of the total P6M expenditure was saved through effective utilization of inventory residual to the terminated program. With the exception of termination charges, which are included in the

estimate of $445 million costs incurred, no further expenditures were made for the P6M after August 1959 and no further expenditures are to be made.

DOD corrective action: As noted in the final GAO report and the DOD re sponse thereto, subsequent to the P6M contract awards in 1952, 1955, and 1956, significant improvements have been instituted by DOD in ASPR and in management controls to govern programs from their inception through their life cycle. These changes are calculated to avoid the undesirable aspects of the situation found in the P6M program, including particularly any premature commitment to major programs. A continuing effort is being made to futher refine these controls to achieve even greater effectiveness.

GAO Report B-146882, May 15, 1964

89. Title: "Unnecessary Packaging Costs Incurred in the Procurement of Repair Kits From Hamilton Standard Division, United Aircraft Corp., Windsor Locks, Conn." (OSD case No. 1852).

GAO finding: The Government incurred unnecessary packaging costs of about $344,000 in the procurement of about 40,000 aircraft equipment repair kits from Hamilton Standard. These overcharges occurred because contract prices were not reduced for packaging not actually performed and, in other instances, there was unnecessary packaging of parts into kits which were used at the Hamilton Standard plant in connection with overhaul work performed for the Government. GAO estimate of unnecessary costs: $344,000.

Time period of GAO report: December 1957 to September 1962.

DOD comments on GAO finding: DOD agrees with GAO that the contract prices were not reduced for packaging not actually performed but does not agree that there necessarily was a waste of funds because of what proved in retrospect to be unnecessary packaging of parts. The decision to reinstitute packaging requirements at that time was based on a consideration of the applicable factors and problems then in existence.

DOD comments on costs: $144,120. This represents the cost of the packaging not actually performed.

DOD corrective action: Hamilton Standard has issued credits to the Government of $144,120. Contractual coverage to prevent the occurrence of similar situations with respect to packaging requirements has been developed and is in effect.

In line with this position, the recently completed study by the Bureau of the Budget opposes the idea of a massive program of Government acquisition of computers for the use of contractors. Also, while the study recommends a central management system to control all computers for in-house Government use, it does not agree with the GAO recommendation to include contractor computers in the system. The study recommends some cross screening and computer shar ing as between industry and Government but not complete Government management.

DOD comments on costs: GAO's estimates are based on premises that DOD considers unsupported and invalid. DOD therefore disagrees that unnecessary costs have been or are being incurred.

DOD corrective action: DOD's responsibility is to assure that costs reimbursed to contractors are reasonable and proper. This is accomplished through contract surveillance pursuant to the cost-allowance provisions of ASPR. Revisions to ASPR are being developed to provide additional criteria for evaluating and monitoring contractors' lease-versus-purchase decisions.

To the extent that the GAO cases involve objectionable arrangements such as sale-leaseback, DOD will maintain close audit surveillance to insure that ASPR requirements as to cost-allowability are strictly enforced.

DOD agrees with GAO that, if and to the extent that Government-owned computers should ever be made available under special circumstances to defense contractors, such contractors should be required to pay a reasonable charge for any computer used in non-Government work. Provisions to this effect, applicable to all types of Government-owned equipment, are already contained in ASPR.

GAO Report B-133341, June 29, 1964

90. Title: "Unnecessary Costs Incurred in the Procurement of Aircraft Engine Ring and Vane Assemblies From the Allison Division of General Motors Corp., Department of the Navy" (OSD case No. 1910).

GAO findings: Unnecessary costs were incurred by the Navy because of its failure to terminate orders for aircraft ring and vane assemblies that were excess to its needs.

GAO estimate of unnecessary costs: $310,000.

Time period of GAO report: The GAO review was made during the period January through November 1963, and covered actions taken by the Navy during the period August 1962 through January 1963.

DOD comments on GAO findings: The Department of the Navy agreed with the GAO findings.

DOD comments on costs: The Department of the Navy agreed with the GAO estimate of costs incurred.

DOD corrective actions: The Department of the Navy has recovered $97,415.04 from the prime contractor because inaccurate information was provided with respect to termination charges. Procedures are being established to insure that the Bureau of Naval Weapons will provide the Aviation Supply Office with timely and current information on the Navy's operating aircraft engine inventory projected for the succeeding 2 years.

GAO Report B-146921, August 12, 1964

91. Title: "Unnecessary Costs Resulting From Noncompetitive Procurement of Military -Ton Trucks" (OSD case No. 1890).

GAO finding: The Government incurred unnecessary costs of $12.1 million because the Army did not competitively procure 4-ton trucks even though it could have purchased drawings for $224,000 from Chrysler Motors Corp. that would have provided information sufficient for use in competitive procurement. GAO estimate of unnecessary costs: $12,100,000.

Time period of GAO report: April 1948 to October 1963.

DOD comments on GÃO findings: The Army nonconcurs in the GAO findings that unnecessary costs were incurred. The military 4-ton truck meets the criteria of a reasonably priced, austere and utilitarian vehicle that is entirely devoid of unnecessary performance characteristics. The truck has been purchased at a relatively constant price during the history of procurement and improvements to the commercial counterpart are, and have been integrated into the military vehicle at no cost to the Government. It was the judgment of the Army that no benefit would be derived from the purchase of the drawings. The drawings would not permit the preparation of a procurement package that would support competition because the package would require sole-source supply from Chrysler Corp. of the engine, transmission, transfer case, front and rear axles, propeller shafts, and other important components.

DOD comments on costs: The Army does not agree that unnecessary costs were incurred.

DOD corrective action: None indicated.

GAO Report B-146920, August 20, 1964

92. Title: "Excessive Cost to the Government in Rentals of Electrical Accounting Machines by General Dynamics/Astronautics, a Division of General Dynamics Corp., San Diego, Calif." (OSD case No. 1882).

GAO finding: Extra-shift rentals for use of electrical accounting machines, during a 3-year period in which use time was manually recorded, were greater than rentals based on use time as subsequently recorded by meters. Such rentals were therefore excessive.

GAO estimate of unnecessary costs: $158,100.

Time period of GAO report: November 1959 through February 1963.