data on awards for work to be done in the territories, are not included in the United States figures.

Business Firms. Included in the data on awards to
Business Firms are data on awards to companies, individuals,
partnerships, educational institutions and non-profit or-
ganizations with which the military departments have con-
tracts for work performance within the United States, in-
cluding its territories and possessions. Small Business
Firms are concerns which, including their subsidiaries
and affiliates employ fewer than 500 persons.
It is noted
that the small business data, like all other data included
in this report, refer only to prime contracts awarded by
the military departments, and do not reflect any subcon-
tract work done for other military contractors.

The ratio of small business contracts to total prime
contract awards is subject to wide fluctuation and figures
for any short period of time are not necessarily repre-
sentative. The percentage depends mainly on the types of
commodities being procured in that particular period. When
procurement of soft goods and easy-to-make items is a large
part of the total, the small business percentage will be
high. When aircraft, tanks, trucks, or other heavy items
are purchased in large volume, the small business percen-
tage will be relatively low.

Armed Services Petroleum Purchasing Agency. This
agency is abbreviated to ASPPA throughout this report.
ASPPA contracts for virtually all the petroleum used by
the military departments.

Beginning with July 1955 (Fiscal Year 1956) the AS PPA
reports total petroleum procurement, and the departments
have discontinued reporting petroleum purchases. AS PPA
figures show total petroleum procurement, including the
petroleum storage and transportation services which ASPPA
contracts for.

Comparison With Fiscal Reports. There are certain
differences between the coverage of this report on the
value of military prime contract awards, and that of the
fiscal reports of the Department of Defense which include
certain data on obligations of funds for procurement and
construction. One difference is that the reports on con-
tract awards do not include funds obligated by project
orders issued to military-owned and military-operated
establishments, such as Navy Yards, unless and until the
funds of this type are used to finance contracts with pri-
vate business firms or with other government agencies.
Another significant difference is that this report includes
contracts for services, whereas the fiscal data on obliga-
tions for procurement and construction do not include
obligations for service contracts.

19

C21942

Hon. CARL VINSON,

APPENDIX 3

DEPARTMENT OF THE AIR FORCE,
OFFICE OF THE SECRETARY,
Washington, May 16, 1960.

Chairman, Committee on Armed Services,

House of Representatives.

DEAR MR. CHAIRMAN: Enclosed as separate attachments is information in reply to certain requests made during your recent hearings on Department of Defense procurement.

As of the end of March 1960 there were 59 large contractors having fixedprice-incentive contracts with the Air Force. Attachment No. 1 is a list of 43 contractors who have less than 50 percent Government facilities. It is note worthy that 17, or 39 percent, of these contractors have no Government facilities. Attachment No. 2 is in reply to Congressman Kilday's request that we take one aircraft and trace through the types of contracts used during the course of its research and development and procurement.

With reference to Congressman Huddleston's question relative to advertisements in such publications as the Air Force Association magazine, Armed Services Procurement Regulation 15-205.1 (advertising costs) states in subparagraph (a)(i) that advertising costs for advertising in trade and technical journals are allowable, “provided such advertising does not offer specific products or services for sale but is placed in journals which are valuable for dissemination of technical information within the contractor's industry."

The Air Force position is that the Air Force Association magazine is not a trade or technical journal within the purview of the above definition and the costs of ads placed there expounding or praising the contractor's product are not allowed by the Air Force. One exception to this rule would be the insertion of straight "help wanted" or "recruitment" ads inserted by the contractor. Such ads, however, to be an allowable cost to the Government must be devoid of other language or exhibits expounding or praising the contractor's products, and must be found to represent costs which are reasonable and necessary to secure an adequate labor force as stipulated in ASPR 15-205.33.

The stated Air Force position prevails, regardless of the type of contract or contracts existing between the contractor and the Government.

With reference to the other information you requested, we will forward it to you as soon as it is secured.

Sincerely yours,

P. B. TAYLOR,

Assistant Secretary of the Air Force.

Large Air Force contractors having FPI contracts (who have less than 50 percent Government facilities)

NOTE.-Value of contractors investment is approximate due to being obtained from many independent sources, i.e., Moody's Investors Service, contractors and Government records. Value of Government investment may contain other Government agencies.

1 The use of a CPIF contract was occasioned by the fact that the change from the model F to the model G was so extensive that neither the contractor nor the Air Force was willing to accept the risk in using the FPI contract.

Hon. CARL VINSON,

DEPARTMENT OF THE AIR FORCE,

OFFICE OF THE SECRETARY,
Washington, May 18, 1960.

Chairman, Committee on Armed Services,

House of Representatives.

DEAR MR. CHAIRMAN: With further reference to Secretary Taylor's letter of May 16, 1960, enclosed is a list of those Air Force contractors having fixed-price incentive contracts and who have over 50 percent Government facilities.

Sincerely yours,

AARON J. RACUSIN,

Deputy for Procurement and Production.

Large Air Force contractors having FPI contracts (who have more than 50 percent Government facilities)

MEMORANDUM

MAY 9, 1960.

From: House Committee on Armed Services Special Committee on Procurement Practices.

To: Departments of Navy and Air Force.

Subject: Supplementary information on testimony given concerning "savings through use of incentive contracts."

As to the contracts and amounts submitted to the subcommittee as a basis for the "savings" effected through the use of incentive contracts, the additional inmation is requested on or before May 12, 1960:

1. In what instances of the contracts cited was the target ceiling exceeded; and, in each of those instances, state the target ceiling in dollars and the overrun in dollars.

2. As to each of the contracts cited, state the individual change orders affecting (a) monetary value and/or (b) affecting the target price plus or minus. In each instance where the target price was changed, state the first target price and the amount of the change.

3. State, in each instance, the date of commencement and date of completion or termination, as the case may be.

4. State, in each instance, whether performance of change orders was mandatory under the contract.

5. State whether the contracts enumerated are (a) letter contracts or (b) definitive contracts.

6. State, in each instance, whether a cost-plus-fixed-fee contract preceded each incentive contract cited. If the answer is affirmative, answer the following questions as to each contract:

(a) The original estimate of (1) cost, (2) fee.

(b) State the change orders affecting the monetary value of the fixed-fee contract, and indicate overrun or underrun in dollars.

(c) State whether or not the target prices referred to in the testimony are a total, in dollars, or the sum of its components in dollars.

(d) In the instances which you have cited, was a letter contract given which obligated the Government to a cost-plus-fixed-fee contract to be followed upon award in the design competition by an incentive contract? If the answer is "No," what were the arrangements?

7. State whether or not the pricing data of your department is exchanged with the other services. If so, by what means, how often, and with what results?

DEPARTMENT OF THE AIR FORCE,
OFFICE OF THE SECRETARY,
Washington, May 16, 1960.

Hon. JOHN J. COURTNEY,
Special Counsel, Subcommittee for Special Investigations,
Committee on Armed Services, House of Representatives.

DEAR MR. COURTNEY: Attached as additional information in support of the summary of Air Force incentive contracts finally settled during the period from January 1, 1957, through June 30, 1959 which was submitted to the committee during the hearings, is a more detailed summary concerning the specific contracts involved. You will note that this supplementary information contains 127 contracts rather than the 103 contracts listed on the original summary. The reason for this is that in several instances more than one contract was considered in a single price negotiation and conequently was included in the original summary as only one contract.

The following comments relate to the specific points raised in your May 9, 1960, memorandum :

1. While there are additional instances of contracts which exceeded the ceiling price and consequently resulted in no profit or an actual loss to the contractor, the only one that falls in such a category in the attached list is the Grumman contract No. 19950. In that case the allowable contract ceiling price was $11,957,590.81. The actual audited and accepted costs were $12,044,986. The contractor sustained a loss of $87,395.19.

2. As you will note from the attached detailed summary, the target cost is an adjusted target cost which includes increases or decreases resulting from change orders. The column indicating overruns or underruns is a comparison of total actual costs to the adjusted target and consequently gives you a final