PROCUREMENT PRACTICES IN THE DEPARTMENT OF DEFENSE MONDAY, APRIL 25, 1960 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON PROCUREMENT PRACTICES IN THE DEPARTMENT OF DEFENSE, EXECUTIVE SESSION Washington, D.C. The subcommittee met at 10:15 a.m., Hon. Carl Vinson (chairman) presiding. Mr. VINSON. Now, let the committee come to order. Now, members of the committee, the purpose of the hearing this morning is to meet our responsibility as set out in section 4 of Public Law 86-89, Statutes. I have a prepared statement, and prepared charts, and I will present this statement and discuss these charts as we go along. Now, we will put this whole statement in the record. Each one of you has a copy of the statement, so you can read it as I go along. Members of the special subcommittee meet today to undertake the performance of a duty imposed on us by statute to make a study, findings, and such recommendations as may be warranted concerning procurement practices and policies of the Department of Defense and its three military departments. The act of July 13, 1959, Public Law 86-89, which extended the Renegotiation Act of 1951 to June 30, 1962, provides, in section 4, that the Committees on Armed Services of both Senate and House, or any duly authorized subcommittee, are directed to make full and complete studies of the procurement policies and practices of the Department of Defense, the Department of the Air Force, the Department of the Army, and the Department of the Navy. This act further provides that such studies shall include an examination of the experience of such departments in the use of various methods of procurement and types of contractual instruments, with particular regard to the effectiveness thereof in achieving reasonable costs, prices, and profits. This act further provides that the Senate and House Committees on Armed Services shall, not later than September 30 of this year, report to its own House "the results of the study conducted by it," together with "such recommendations as it deems necessary or desirable." This act further provides that "all material and data collected in the course of the study" shall be made available to the Joint Committee on Internal Revenue Taxation to assist "that committee in making the study required of it," by the same law. The Joint Committee on Internal Revenue Taxation is thereafter required to make "a full and complete study of the Renegotiation Act of 1951 as amended," and of the "policies and practices of the Renegotiation Board." Thus, we are met now to consider (1) Costs, prices, and profits as "end products" of the "procurement policies and practices of the Department of Defense and its military departments." (2) The experiences of each of these Departments in the use of various (a) methods of procurement and (b) types of contractual instruments. Then, having considered data and testimony, to report our findings and recommendations as the study may warrant. For the information of the subcommittee and as part of the evidence, I have directed, there has been prepared and I offer in evidence, the following data: 1. The text of section 4 of Public Law 86-89, the act of July 13, 1959, from which I have just quoted. This, you will find on page 1 of the folder on your desks. Now, in that connection, Mr. Courtney, will you read in the record our directive, which is the first one in this chart? Mr. COURTNEY. Yes, Mr. Chairman. Mr. VINSON. Read that now for the record. Mr. COURTNEY. Section 4 of the act of July 13, 1959, reads as follows, in pertinent part: SEC. 4. STUDIES OF PROCUREMENT POLICIES AND PRACTICES AND THE RENEGOTIATION ACT OF 1951. (a) (1) The Committee on Armed Services of the Senate, or any duly authorized subcommittee thereof, and the Committee on Armed Services of the House of Representatives, or any duly authorized subcommittee thereof, are directed to make full and complete studies of the procurement policies and practices of the Department of Defense, the Department of the Air Force, the Department of the Army, and the Department of the Navy. Such studies shall include an examination of the experience of such departments in the use of various methods of procurement and types of contractual instruments, with particular regard to the effectiveness thereof in achieving reasonable costs, prices, and profits. (2) Each committee shall, not later than September 30, 1960, report to its House the results of the study conducted by it pursuant to paragraph (1) of this subsection, together with such recommendations as it deems necessary or desirable. Each committee shall make all material and data collected in the course of the study conducted by it available to the Joint Committee on Internal Revenue Taxation to assist it in making the study required by subsection (b). Mr. VINSON. Next, I have directed and there has been prepared, on page 2 of the folder, the text of the Armed Services Procurement Act of 1947, as amended. That law is the authority for all contracting in the Department of Defense. (The law referred to follows:) Section ARMED SERVICES PROCUREMENT LAW TITLE 10 (U.S.C.) CHAPTER 137-PROCUREMENT GENERALLY 2301. Declaration of policy. 2302. Definitions. 2303. Applicability of chapter. 2304. Purchases and contracts; advertising; exceptions. 2305. Formal advertisements for bids; time; opening; awards; rejection. 2306. Kinds of contracts. 2307. Advance payments. 2308. Assignment and delegation of procurement functions and responsibilities. 2309. Allocation of appropriations. 2310. Determinations and decisions. 2311. Delegation. 2312. Remission of liquidated damages. 2313. Examination of books and records of contractor. 2314. Laws inapplicable to agencies named in section 2303 of this title. Section 2301. DECLARATION OF POLICY It is the policy of Congress that a fair proportion of the purchases and contracts made under this chapter be placed with small business concerns. Section 2302. DEFINITIONS In this chapter (1) "Head of an agency" means the Secretary, the Under Secretary, or any Assistant Secretary, of the Army, Navy, or Air Force; the Secretary of the Treasury; or the National Aeronautics and Space Administration. (2) "Negotiate" means make without formal advertising. (3) "Formal advertising" means advertising as prescribed by section 2305 of this title. Section 2303. APPLICABILITY OF CHAPTER (a) This chapter applies to the purchase, and contract to purchase, by any of the following agencies, for its use or otherwise of all property named in subsection (b), and all services, for which payment is to be made from appropriated funds. (1) The Department of the Army. (2) The Department of the Navy. (3) The Department of the Air Force. (4) The Coast Guard. (5) The National Aeronautics and Space Administration. (b) This chapter does not cover land. It covers all other property including(1) public works; (c) The provisions of this chapter that apply to the procurement of property apply also to contracts for its installation or alteration. Section 2304. Purchases and contracts: Formal advertising; exceptions (a) Purchases of and contracts for property or services covered by this chapter shall be made by formal advertising. However, the head of an agency may negotiate such a purchase or contract, if— (1) it is determined that such action is necessary in the public interest during a national emergency declared by Congress or the President; (2) the public exigency will not permit the delay incident to advertising; (3) the aggregate amount involved is not more than $2,500. (4) the purchase or contract is for personal or professional services; (5) the purchase or contract is for any service by a university, college, or other educational institution; (6) the purchase or contract is for property or services to be procured and used outside the United States, and the Territories, Commonwealths, and possessions; (7) the purchase or contract is for medicine or medical supplies; (9) the purchase or contract is for perishable or nonperishable subsistence supplies; (10) the purchase or contract is for property or services for which it is impracticable to obtain competition; (11) the purchase or contract is for property or services that he determines to be for experimental, developmental, or research work, or for making or furnishing property for experiment, test, development, or research; (12) the purchase or contract is for property or services whose procurement he determines should not be publicly disclosed because of their character, ingredients, or components; (13) the purchase or contract is for equipment that he determines to be technical equipment whose standardization and the interchangeability of whose parts are necessary in the public interest and whose procurement by negotiation is necessary to assure that standardization and interchangeability; (14) the purchase or contract is for technical or special property that he determines to require a substantial initial investment or an extended period of preparation for manufacture, and for which he determines that formal advertising and competitive bidding might require duplication of investment or preparation already made or would unduly delay the procurement of that property; or (15) the purchase or contract is for property or services for which he determines that the bid prices received after formal advertising are unreasonable as to all or part of the requirements, or where not independently reached in open competition, and for which (A) he has notified each responsible bidder of intention to negotiate and given him reasonable opportunity to negotiate; (B) the negotiated price is lower than the lowest rejected bid of any responsible bidder, as determined by the head of the agency; and (C) the negotiated price is the lowest negotiated price offered by any responsible supplier; (16) he determines that (A) it is in the interest of national defense to have a plant, mine, or other facility, or a producer, manufacturer, or other supplier, available for furnishing property or services in case of a national emergency; or (B) the interest of industrial mobilization in case of such an emergency, or the interest of national defense in maintaining active engineering, research, and development, would otherwise be subserved; or (17) negotiation of the purchase or contract is otherwise authorized by law. (b) The data respecting the negotiation of each purchase or contract under clauses (1) and (7)-(17) of subsection (a) shall be kept by the contracting agency for six years after the date of final payment on the contract. |