In order to verify our engineering judgment of this program we have contracted for an analytical overhaul of one of our cargo helicopters and will continue such surveillance on a random basis. I would now like to discuss:

III. AIRCRAFT COMPONENT OVERHAUL

Pursuant to the memorandum of agreement relative to transfer of responsibilities from the Air Force to the Army, it was considered in the best interests of the Governmeint to establish overhaul contracts on a contractor furnished parts concept. This basic policy was established in order to delay the introduction of an additional broad range of items and tools in the Army supply system which would not be required within the normal scope of the military mission.

Our contractors were accustomed to the Government furnished equipment concept under Air Force contract procedures, therefore the transition to contractor furnished parts was not at once favorably received.

Also, under the contractor furnished parts concept, the contractor had no way to predetermine the parts required until disassembly and inspection.

This action resulted in a delay in the timely procurement of parts required for the overhaul.

The contractor ordered his parts from other manufacturers and, as a result, took his place in the production line to get his parts produced. In many instances he was competing with large Government and other civilian orders.

Contractors also experienced financial difficulties because they had to increase their investment in shelf stock and their contractual deliveries were delayed.

While the contractor furnished parts concept did offer many advantages and was improving, as the Transportation Materiel Command gained more experience during the period from 1957 to the present, we have gradually changed over to a policy of Government furnished parts. This will not only assure a better support of our oversea customers but will:

(a) Reduce overhaul turnaround time from about 13 months to 6 months, and

(b) Expand the production base to emphasize small business participation.

Initially, component overhaul contracts were awarded to cover a fixed quantity of items. As requirement information was not entirely dependable, modifications as to quantities were required. In order to obviate the necessity for revision of quantities, a more flexible type of contract was required.

The indefinite quantity type, which provides for a minimum and a maximum quantity, enabled the Government to order and meet quantities as are actually available for overhaul. The Transportation Material Command did, however, award a contract covering overhaul of a quantity of engines on a fixed-price basis. This method of procuring contract maintenance proved to be unsuccessful for the reason that no contractor can accurately predetermine the full scope of work that will be required.

The present method for accomplishing component overhaul is to utilize indefinite quantity contracts, which are the result of the negotiation of competitive quotations submitted by bidders covering labor, certain mandatory work, and services. Parts and materials supplied by the contractor are reimbursed at actual net cost.

In addition to the normal component overhaul contracts we have some "closed circuit" overhaul contracts which are usually with a prime manufacturer in support of the Army's test program on new items of equipment. The purpose of this type of contract is to

Provide for analytical overhaul with attendant investigations and determination of the cause of unsatisfactory conditions; Render engineering reports and recommendations for extending the life of the component;

Accomplish engineering evaluation for the development, manufacture, and testing of prototype kits for the modification;

To determine the time between overhaul of major time change components; and

To determine the range and quantities of line items to be procured and stocked for repair and overhaul.

A review of the award of contracts discloses that 25 percent of the total dollars or 44 percent of contracts awarded for contract maintenance were placed with small-business concerns.

I know that most of you are aware of our recent reactivation of the air repair facility at Corpus Christi which I would like to discuss:

IV. ARMY AVIATION DEPOT MAINTENANCE FACILITY

As stated previously, in December 1959, the restrictive provisions on establishment of an Army aircraft depot maintenance facility and an inhouse capability were rescinded by the Secretary of Defense. Factors affecting this decision were steadily increasing inventory of more complex aircraft and the increased importance of Army aviation to the Army's mobility objectives. Based on a request of the Department of the Army, the Secretary of Defense authorized the establishment of an aeronautical depot maintenance facility in order to permit the Army to gain and maintain technical competence essential to the successful management of its aeronautical maintenance program.

The basic objectives of this program encompassed the establishment of a facility capable of the overhaul and repair of the full range but not the full quantity of mission-essential aeronautical materiel. The projections of this plan over the next 5 years have been based on an ultimate goal of approximately 40 percent of the total fifth-echelon maintenance program. Dut to the growth of the aeronautical program in terms of inventory quantities and increased equipment complexity, the establishment of the fifth-echelon capability within the Army should not have an appreciable effect on the dollar level of overhaul repair programs accomplished by

contract.

The Corpus Christi facility was designed and built by the Navy Department for the overhaul and repair of aircraft, engines, and all related components, and is valued at approximately $23 million for the complete facility. An estimated $700,000 for rehabilitation of this facility is considered to be a good investment for the activation of a complete depot maintenance activity.

The total value of the materiel to be returned to service from this facility cannot at this time be reasonably projected; however, a sample portion (engine and aircraft overhaul) can be fairly accurately computed. For the first year, the estimated direct overhaul cost of $3.3 million will yield a return of $16.5 million value of material recovered.

As mentioned by Secretary Ignatius in his remarks, the primary functions to be accomplished at this depot are as follows:

(a) Maintain a base which will provide maintenance capability during a national emergency.

(b) Effect prototype installations and develop man-hour standards so that more definitized maintenance work specifications for competitive contracting can be developed.

(c) Retain, within the military sphere, a source of skills for oversea assignments and a home assignment for skilled personnel returning from overseas.

(d) Fabricate aircraft parts for out-of-production aircraft and critically needed long leadtime items required on an emergency basis. (e) Perform overhaul and effect repairs to crash damaged aircraft having various degrees of damage and requiring job operation rather than production line maintenance.

To summarize, the activation of this depot will enable us in the Transportation Corps to advance side by side with industry in executing a difficult but essential maintenance program and provide a source of information to industry to better enable them to assist us in performing, by contract, the functions of aeronautical maintenance.

In addition, the Transportation Corps also operates four fourthechelon maintenance shops located at the general depots where our supplies are stored. While their primary function is in support of aircraft stationed in the geographical area in which they are located and the care and preservation of depot stocks of aeronautical equipment, they have performed certain overhaul operations. This program has been based on skills and labor available not required to meet the fluctuating requirements received from the field activities. Although this discussion has been primarily on depot level of maintenance, I feel it would be desirable to mention briefly our:

V. FIELD AND ORGANIZATIONAL MAINTENANCE

In the Army, filed and organizational maintenance are responsibilities of the commanders of the using units. As a matter of basic policy, we desire that these functions be performed by military units in order that they may be deployed with the equipment in the event of emergencies.

Due to shortages of personnel in units and other special considerations, however, there are a few significant instances in which their function is "contracted out."

a. All of our school aircraft at both Camp Wolters, Tex., and Fort Rucker, Ala., are supported by contractors for their full range of organizational and field maintenance. As a matter of interest, this covers almost one-quarter of our U.S.-based aircraft.

b. All of our test aircraft are supported by maintenance contractors at Fort Rucker, Ala., and Fort Huachuca, Ariz.

c. Most field maintenance at Fort Sill, Okla., is performed by

contract.

Approximately one-third of the Continental Army Command's maintenance dollar goes for contract maintenance.

VI

In oversea areas we have established a reasonably effective aircraftmaintenance facility at Sandhofen, near Mannheim, in Germany, but have otherwise been forced to lean heavily on indigenous contractors. With the increasing emphasis on the unfavorable balance of payments, however, we are now bringing most of the expensive components back to CONUS for overhaul.

The major problem is "contracting out" overseas for aircraft maintenance has been in supplying the required parts on a timely basis and accurate forecasting of requirements.

VII

All in all, the Transportation Corps has enjoyed a highly successful program of contract maintenance of Army aviation equipment. This has followed our similar experience in railway and marine equipment for many years.

We feel that, with the availability of our new facility at Corpus Christi and our long list of competent contractors, we can successfully perform our mission in any emergency.

We feel that the costs that we have experienced have been reasonable and that we have been particularly successful in keeping the Army's investment in tools and facilities to a bare minimum consistent with our military responsibilities.

(The chart attached to the statement is as follows:)

Depot maintenance (CONUS) accomplished and cost—Air equipment

Mr. HÉBERT. General, you have had personal contact with this situation?

General BUNKER. Yes, sir.

Mr. HÉBERT. For how many years, now?

General BUNKER. Six years, sir.

Mr. HÉBERT. Six years.

General BUNKER. Yes, sir.

Mr. HÉBERT. What is your opinion on the contracting-out features? General BUNKER. It is my opinion that the contracting for maintenance operations and certain other things that we have done has not deteriorated our military capability, that in any area we do need the ability to perform a portion of all work-a sample, if you will, as a yardstick or standard of performances and costs, as a testing capability for degree of recovery, and that sort of thing. Fundamentally our contractors have been responsive to speedups to meet our requirements, they have been generally quite conscientious in quality control, and their costs as we have experienced them, where you can directly relate them, have been in general quite comparable.

The reason I can't answer that more accurately is that, as you are very well aware, sir, our methods of cost accounting make it rather difficult to clearly outline exactly what an operation on a large military establishment costs.

Mr. HÉBERT. It seems to me your cost-accounting system ought to be given a complete overhauling, if you can't tell how much you are getting out of your dollar.

General BUNKER. It is a question of paying for the excess capacity needed for mobilization, and whether you can separately cost that to one side.

Mr. HÉBERT. I recognize that.

But you can't come up with an answer.

Geneal BUNKER. Yes, sir, we can.

Mr. HÉBERT. Well, what is the answer? Is it more economical to contract out than it is not to?

General BUNKER. Generally the figures that we have worked up show in most instances a slightly higher cost by contract, on most things.

On certain items there have been rather large variations. But usually the reason for it can be determined by investigation. But I have some samples here.

For example, the R-1820 engine, which is about a 1,200-horsepower engine, our inhouse costs are $4,475, and our contract costs are $4,539, or, in other words

Mr. HÉBERT. Where is that, General?

General BUNKER. These are just some figures that I have.

Mr. HÉBERT. Is it in here?

General BUNKER. No, sir.

Mr. COURTNEY. It is not in the print.

Mr. HÉBERT. It is not here.

General BUNKER. A smaller, opposed, six-cylinder engine, for fixedwing aircraft: $2,205 inhouse against $2,214 done by contract.

On the other hand, I have some rather significant differences, to give an example of my other statement. On the overhaul of an engine in an industrially funded facility, the price that was trans