mended could help but there are serious questions about who would determine when the documentation was sufficient to cause an invoice to be past due. What is a reasonable time to allow an agency to bring questions on billings to the attention of a vendor? If it takes more than a nominal time to question an invoice, would the agency be required to pay interest? Would the omission of minor items from documentation be sufficient to justify late payment without interest? In private industry the major incentives to pay bills on time are many. Some of these are: The desire to maintain a good relationship with suppliers, the need for continued extension of credit by suppliers, the pride of owning or operating a well-run and profitable business, the extra profit available by taking advantage of cash discounts offered, and the threat of having new orders held because a balance is past due. None of the above really apply to the Government. However, there is one idea used by larger companies to motivate middle management that might have merit; incentive compensation. In the area of accounts payable an internal audit could be performed once or twice a year, including inquiries to suppliers to confirm balances and ask about disputes or cooperation in resolving problems. Incentive compensation or merit raises should then be tied to performance, not to longevity. I firmly believe one of the main reasons Federal employees at the lower levels are not properly motivated is the job security offered by the civil service system. I know from experience there are many excellent people employed in Government jobs, but the difficulties in removing the incompetent because of civil service regulations can frustrate the most talented manager's efforts to have a well-run organization. As an employee in a good-sized organization, I am frustrated when other people in my organization prove to be incompetent in their jobs. It makes it that much harder for me to do a good job or have pride in the company I work for. Fortunately, in my organization we can, and generally do let people go who are not performing up to the standards we expect. Can the same be said with as much certainty about Federal employees? When our company has a good year and everyone's efforts have resulted in a profitable year, the employees most responsible are rewarded by increased wages and/or an incentive compensation program. This encourages all employees to give their best efforts and take additional pride in their contributions for a successful enterprise. Is there anything like this for Government employees? There are other difficulties in dealing with Government agencies other than the motivation problems I have just discussed. Several of these are related to social questions addressed by Congress. My company does not question the value of these programs, but we do want to point out one of the effects. I have attached copies of two contracts, one for the Army and Air Force Exchange Service and the other for the U.S. Air Force Exchange Procurement Center in Europe, which show how much of these contracts involve special social requirements so we can do business with the Government. We do meet these requirements without too much trouble, but the documentation, of our efforts costs additional overhead. Other parts of these contracts do cause problems. We have rejected the contract for the U.S. Air Force Exchange Procurement Center as unacceptable. We no longer sell to the military "Rod and Gun" clubs overseas. The following is a summary of our reasons: We must give 5 days notice prior to shipment-that is, must package the shipment and hold it for 5 days before shipping. Special and specific package marking requirements are called for— much more than are required by common sense. Exceptions do result in delayed payment or nonpayment. The instructions require special handling and marking of the bill of lading. The contract calls for all shipments to be f.o.b. destination in Europe requiring us to be responsible for loss or damage within the Military Transportation Service over which we have no economic control. We are required to use a separate invoice for shipping charges and presentation of proof of delivery with this invoice causing much additional paperwork and costs. The contract states the facts of any dispute are determined by the contracting officer, leaving us at his whim concerning suitability of goods that have already been shipped 6,000 miles. And these are goods we ship across the country to everyone else. Discounts and terms are to be computed from date of delivery rather than shipment, as is common in our industry. This would result in an average of an additional 45 to 60 days in getting paid. Prices must be certified to be the lowest offered to the industry even though all the delay and extra paperwork are required. The most striking feature of these contracts, to me, is that they require so much more service from a supplier than a normal commercial sales contract. It is true that many larger firms request or require certain special services in packaging or shipping. As a supplier, we have trained ourselves to meet these requests and designed our systems to make the operation run smooth, but the requirements for the Army and Air Force Exchange Service orders exceed anything we are asked to perform for a commercial firm. All invoices to Army and Air Force Exchange Service accounts must be duplicated and sent as either five invoice copies to a billing address or three copies to the billing address and two copies to the consignee. In spite of this, on a volume basis, we receive more requests for copies of invoices misplaced or misrouted at Government agencies than from a commercial customer. The people processing purchase orders don't take adequate time to insure it is correct. We receive orders for 50-pound tents requesting parcel post shipments even though United Parcel Service is faster, cheaper, and able to provide more accurate proof of delivery information when a dispute arises. Prices are frequently incorrect and, unlike a commercial firm, have to be negotiated in writing prior to acceptance of the order or we will be paid short. On the same day, we have received two purchase orders from the same base exchange for similar merchandise, one calling for billing to the exchange, the other calling for billing to the AAFES exchange region. We do generally get paid later for direct billings to the exchange. In spite of all the problems outlined above, my company feels that we should continue to sell to base exchanges and several other Government agencies. To help us in this area, we created a position of Government Accounts Manager to control our sales and billing and insure our compliance with all the terms. We are, however, reviewing each agency separately and will now refuse business we do not feel is profitable. So far, this has been limited to the Rod and Gun clubs and several other agencies whose purchases have averaged only $100 to $200 per year. In summary, we feel we can selectively do business with the Federal Government under the current conditions but there is much room for improvement. This improvement needs to come in two areas. We feel the most important is in the motivation of the people we have to work with and the second is in bringing the requirements for shipments, billing, and terms more in line with industry standards. The purchase of generally available commercial products or consumer goods should not require the same degree of specifications and stipulations required of a product only manufactured for NASA. Thank you. Senator PACKWOOD. How does a small company not as big as you, who cannot afford a Government Accounts Manager, manage to compete with you in this kind of business? Mr. BROWN. Most of our business with the Federal Government is not on a direct competitive bid as in the letting of contracts for major construction. The Military Exchange Service operates in two methods. The majority of our volume sales to them is in the form of specific merchandise that an office in Dallas, Tex., has determined would be salable in the base exchanges on a regular basis, and this they stock. I don't know that a small business could compete for that. But the balance of the merchandise that we sell them is done all on a special-order basis. If somebody goes into a base exchange and says, "I want thus and such," I'm sure the base exchange will go out and try and order it for them. Any other questions? Senator PACKWOOD. No. It's very good testimony. Mr. BROWN. Thank you, Senator. Senator PACKWOOD. Excellent testimony. Thanks for coming. [The attachments to Mr. Brown's prepared statement follows:] 96-385 - 77-3 A. IF PURCHASE ORDER block contains an "X,” appropriate Sections and specific paragraphs of Section B. IF DELIVERY ORDER block contains an "X," the terms and conditions of the contract cited hereon are 2. Filling of any part of this order by contractor constitutes acceptance, as does written acceptance. 3. When shipment of this order cannot be made, contractor will advise the contracting officer. |