2. The Small Business Administration proposal provides that, for the purpose of Government procurement, any concern which together with its affiliates is not dominant in its field of operation shall be classified as a "small business concern" if it does not employ more persons than the employment size standard for the particular product or service to be procured, as set forth in an attached schedule. The employment size standards for individual products, as indicated in the attached schedule, range from 250 to 1,000 employees.

The Navy strongly opposes this proposal for the following reasons:

(a) Anticipated delays in processing of procurements because of difficulty in determining the appropriate size standard classification for a particular military product.

(b) Anticiapted need for lengthy consultation and coordination with the Small Business Administration to resolve contractor's appeals and to classify properly military products, particularly new ones, under the appropriate size standard. (c) The difficulty of determining appropriate small business size standards under an invitation for bids or requests for proposals specifying two or more products having different Standard Industrial Code (S. I. C.) numbers and varying small business size standards.

(d) Inconsistencies and inequities from a situation where a contractor would be alternately considered large business and then small business dependent upon the term being procured.

(e) No provision has apparently been made for size classification of prospective research and development contractors.

(f) Prime contractors, who have been urged by the military departments to place a maximum number of subcontracts with small business, would be extremely reluctant because of the costs involved to maintain records of size standards. The ensuing loss of interest of prime contractors in subcontracting to small concerns because of difficulty in compiling statistical records on subcontract awards would vitiate the effectiveness of the defense small-business subcontracting program.

3. Because of the limited time afforded to this office to furnish the above comments, it is requested that the Navy be given a further opportunity at a later date to make additional comments on the proposed new definition if the Small Business Administration does not abandon such definition.

E. M. FAGAN,

Assistant Chief of Naval Material (Procurement).

DEPARTMENT OF THE AIR FORCE,
OFFICE OF THE SECRETARY,
Washington, May 23, 1958.

Memorandum for Assistant Secretary of Defense (Supply and Logistics). Subject: Proposed Revision of the Small-Business Definition for Procurement

Purposes

1. This memorandum is forwarded to you pursuant to our agreement and in accordance with the procedure adopted for the presentation of the position of the Air Force to Subcommittee No. 2, House Select Committee on Small Business, concerning "the proposed revision of the small-business definition for procurement purposes."

2. The Air Force objects to the proposed revision on the ground that it is neither practical nor feasible for use within the Air Force because it would place an undue administrative burden on the personnel involved, lead to protests and disputes, delay our programs, increase our costs, and possibly result in a failure of the prime contractors and large subcontractors to support the defense subcontracting small-business program.

3. Under the present definition it is relatively simple to identify the smallbusiness firms. Under the proposed industry-by-industry definition the employment size standard would vary according to the classification. Considering the large number of complex items which are being bought, reasonable people could differ in regard to the classification under which an item would fall. The likelihood of this happening in a case where schedule A listed several alternatives is very real but in the case where no reference is made to the item in the schedule the classification would depend upon each individual contracting officer. This could result in a company being categorized differently by the Army, Navy, Air Force, and industry. Such a situation will be confusing and result in protests, disputes, inquiries, and investigations, all of which will seriously delay our

programs not only by delaying that particular procurement, but other portions of the program of which it is an essential part. The administrative burden through all echelons is apparent.

4. Under the present definition, it is relatively simple to bring a small-business man together with the Air Force contracting office of one of our air materiel areas or depots through our small-business representative of one of our 18 air procurement districts. The applicant makes out his application for inclusion on the bidders list on the SF 129 on which he states the number of persons employed; he consults the commodity lists of the several air materiel areas or depots; lists the items, in which he has an interest, on AFPI Form 24 and sends them to the purchasing activity and/or activities. Under the proposed definition it would be necessary to subdivide this system, or at least note by cross reference the particular items as well as the employment size standards.

5. The air procurement district is also a main point of contact between the prime contractors and the subcontractors. In order to effectively perform its function it must be able to bring these two types of contractors together. To do this under the proposed definition would require an elaborate system of cross reference by item and firm. Possibly the use of electric machine systems would be necessary. Even then our small-business representatives would, depending upon the employment size standard, refer a company to a prime contractor or a large subcontractor as small business on one occasion and exclude that same business concern from consideration on another occasion. The adverse possibilities are innumerable. The cost of the prime contractors of keeping account of who is large business and who is small business would be excessive and discourage them from supporting the small-business program.

6. In view of the fact that this information would be fed into the several air materiel areas and depots from the air procurement districts, and in view of the further fact that the small-business concerns would be contacting these air materiel areas and depots directly, this voluminous information would have to be filed and kept up to date at those installations also. A survey at the Middletown Air Material Area, Pa., indicates that the 34 buyers for prime procurement would require the assistance of, at least, 5 additional personnel to "screen" for classification by the proposed method.

7. The Air Force is convinced that what is true for the Air Force would also be true for industry generally. We are engaged in a vigorous campaign to cause our contractors to cut costs. This is happening at a time when the quest for Government business is becoming increasingly competitive. It is entirely possible that if this proposed definition is adopted the defense subcontracting small-business program, which includes not only the prime contractors but subcontractors having subcontracts in excess of $1 million, will be adversely affected.

8. The arguments set forth above are equally applicable to the definition of a nonmanufacturer because that definition is in turn tied to the product or service of a small business.

9. The Air Force fails to see how the proposed definition could be applied in the research and development field.

10. Attached hereto as enclosures are three samples which demonstrate some of the difficulties which would be experienced.

DUDLEY C. SHARP, Assistant Secretary of the Air Force.

Requirement to buy: Docks, maintenance, aircraft

Brief description.-This is a structural steel and sheet metal structure, up to 200 feet wide, erected at air bases to enclose the major portion of an aircraft undergoing periodic maintenance.

Schedule A references.—

Page 44: No "construction" code applicable.

Page 26 SIC Code 3441: Buildings, prefabricated and portable, metal, No. 250. (Neither this or other building codes on p. 26 appear applicable.) Page 54: No docks listed.

Page 109: No maintenance listed.

Comment.-IFB No. 33-600-58-170 was issued by Hqs AMC on February 12, 1958, for 37 USAF maintenance docks (type MB-3A) at 14 AF bases.

This IFB was designated by AMC as total set-aside for small business.

One hundred and twelve sources were solicited; sixteen responded. The low bidder was nonresponsive, his employment figures were 60; the second low bidder, who was successful, employed 380 people.

On May 9, 1958, we issued another IFB for 25 MB-3A docks, large, 200 feet. On May 16, 1958, we issued another IFB for 19 docks, small, MB-12, 150 feet. If the proposed definition had been in effect it is conceivable that the contracting officer would decide that the employment size standard set forth on page 26 of schedule A was applicable for the small docks. This would automatically eliminate the firm which was the low bidder on the last go-around. We could also have decided that the employment size standard for the large docks was 750. If he had had the power to make this latter decision when we made the original purchase for the large docks he would have eliminated the complaint of a company which was barred from the procurement on the ground that it was big business and which had become big business because of its working on similar items for the Air Force.

Requirement to buy: Landing control set, trailer mounted (AN (MPN-11)) Brief description.—This is a small, mobile control tower, with about 40 square feet of space. It is enclosed in glass, mounted on a truck. Its principal equipment is radio transmitters and receivers, including generators, electrical equipment, and lighting.

Schedule A references.

Page 101: Landing, no applicable classification.

Page 104: Lighting, no applicable classification.

Page 147: Radio, standard, 750.

Page 60: Electronic, no applicable standard.
Page 185: Trailers, motortruck, 500.

Page 78: Generators, 750.

Comment.-In view of the fact that schedule A does not have such an item listed each buyer must review the principal components of the end item; research schedule A to see which classification most nearly approximates the main components and make an arbitrary decision as to which standard applies. It is conceivable that one contracting officer would say that 500 was the standard and another say that 750 was the standard. This could result in a protracted dispute which would delay the procurement.

Requirement to buy: Multipurpose servicing unit

Brief description. This is a motor vehicle which carries both alternating current and direct current generators; a gas turbine compressor for low pressure to start engines; a high pressure air compressor; and air conditioner of 15-ton refrigeration capacity. It is also a truck used for towing.

Page 187: Trucks-the standard varies from 250 to 1,000, but there is no appropriate classification.

Page 185: Tractors, industrial, 250; tractors, truck (for highway use), 1,000.

Page 78: Generators, 750.

Page 43: Compressors, 500.

Page 3: Air conditioning, 750.

Comment. This is another instance where the item is not listed in schedule A. Reasonable persons could differ on the proper classification.

Requirement to buy: Noise suppressors, jet engine

Brief description.-These devices are adjusted against the exhaust end of jet engines so as to suppress noise while engines are run up on the ground. One type is 75 feet long, 20 feet wide, and 29 feet high.

Schedule A references.—

Page 121: No "noise" listed.

Page 176: No "suppressors" listed.

Comment.-Whether these items are bought by the services or by prime contractors or large subcontractors, the judgment of the individual making the purchasing will have to be relied upon. Many other similar examples present themselves such as: Engine rollover ring; flight simulator; portable jet-engine test stand; runway, overrun barrier; and filter meter hose cart.

The appropriate classification into which any of these would fall would depend upon the judgment, experience, and detailed information in the hands of the buying personnel at the time of the execution of the contract, It is probable that several reasonable persons could decide to place the same item into different categories.

EXAMPLE OF ADDITIONAL ADMINISTRATIVE BURDEN

Under the terms of the present definition, a contractor who desires to have his name placed on the bidders list goes to either an air procurement district, an Air Force depot, or an air materiel area and fills out two forms. One of these is known as the standard form 129. On this form, plus other information, he sets forth the number of persons employed. The other form is known as the Air Force procurement instruction form No. 24. On this form, the contractor lists the items which he is capable of manufacturing. If the system is mechanized, these forms are forwarded to a clerk who, using a key-punch machine, punches this information into a punchcard (machine accounting). It is then forwarded to Statistical Services, which organization integrates it into the bidders list. If the system is a manual system, this information is broken down by commodity code (usually an industry classification) and forwarded to the several buyers. The decision as to whether or not a company is large business is normally able to be made by the clerk who receives this information at the purchasing activity.

If the proposed definition were adopted, this clerk would no longer be able to make this decision. The information would have to be forwarded to the buyers, who would have to research schedule A and, based on their knowledge of the article, decide into which classification to place it. If the item was not listed in schedule A, each buyer would have to decide the classification on an individual basis. This screening process of each individual item would be time consuming. Many questions would, necessarily, be referred to the field for checking by the air procurement districts before a decision could be arrived at as to classification.

After qualified personnel made the decision in regard to classification, the information would then be sent back to the clerk, who would then proceed to punch it into the mechanized system. This system would have to be changed, on a onetime basis, to utilize the new standards. This would be a difficult but not an impossible task. The undue administrative burden would fall on the buying personnel. They could not assume this additional burden and perform their present tasks on a timely basis. Therefore, additional, highly qualified persons would be needed.

The above-described situation would be true if the system were mechanized. If a manual system were in use, a check with the several places in the field reveals, it could not be done. It would be necessary to introduce a mechanized, machine-accounting system.

In this connection, the 18 air procurement district offices maintain their sources lists either on a McBee key sorter system or on a manual basis. No study has been conducted in this area, but an informal inquiry to several of these offices indicates that completely mechanized systems would have to be devised. In any event, much correspondence would be generated between the air materiel areas and the district offices, because the decision as to which classification was to be used would rest with the buying activity.

(The following was received for the record :)

NATIONAL SCIENCE FOUNDATION-SOME BACKROUND INFORMATION BEARING UPON SCIENTIFIC RESEARCH AND DEVELOPMENT IN THE UNITED STATES AND THE ROLE OF SMALL BUSINESS THEREIN

CHAPTER I. SCOPE AND MAGNITUDE OF SCIENTIFIC RESEARCH AND DEVELOPMENT IN THE UNITED STATES

A major aspect of American culture and technology in recent decades has been the growth of research and development in the natural sciences. Scientific research and development is becoming increasingly essential to industrial progress, generally, and to survival with respect to competing establishments in certain industries. Likewise, the role of the Federal Government in science generally, and research and development specifically, has enlarged greatly since the begin

ning of World War II. The universities continue to play a very significant role in the conduct of fundamental research upon which ultimately depends applied research and development and, consequently, technological progress.

A. Expenditures for research and development

The National Science Foundation undertook a group of surveys on expenditures for research and development conducted by organizations in the various sectors of the national economy, using the year 1953 as a starting point. A general review of the findings of these surveys is contained in Reviews of Data on Research and Development, December 1956, and included as appendix A to this report. Among the more significant findings were the following:

1. That $5.4 billion were spent on the conduct of research and development in the natural sciences in the United States in 1953. This figure, which does not include expenditures for capital equipment (see Facilities, in section B, below), was, roughly, 1.5 percent of the gross national product of $363.2 billion for the same period.

2. As indicated in table I, below, the Federal Government and industryoriented organizations together provided more than 95 percent of the financing of research and development. Funds from the university and other sectors were less than 5 percent of the total.

TABLE I.-The 4 sectors as sources of research and development funds and as research and development performers, 1953 (preliminary)

NOTE.-Detail may not add to totals because of rounding. Percentages are calculated on the basis of unrounded figures.

3. On the other hand, with respect to the performance of research and development, regardless of sources of financing, industry-oriented organizations accounted for almost three-fourths of the total.

4. The role of the university as a performer of research, though significant, is dwarfed in dollar terms by industry and the Federal Government; as a source of funds, it is insignificant.

5. Finally, more than half of the funds for research and development came from the Federal Government. Chart 1 below indicates the flow of Federal funds into research and development as of 1953, with 54 percent going to industry.