services of all these are brought together under the overall direction of the Army Ordnance Missile Command. We have cited the Pershing system several times here, gentlemen, because it is the latest complicated system that we have placed, and these things have all been applied in the procurement of this system. The system prime contractor is also required to prepare and furnish drawings and documentation in accordance with a prescribed schedule. For example, in connection with the Pershing contract, the system prime contractor will furnish lists of production equipment, plant layouts, flow charts, routing sheets, bills of materials, and names of suppliers, so that qualified manufacturers would be able to produce subsystems or components of the Pershing missile. In addition, the Army maintains at the plants of system prime contractors resident staffs who, in addition to other duties, insure that items are broken out as soon as possible, and that necessary documentation is available when needed. The magnitude of this program can be appreciated from the fact that the Army Rocket and Guided Missile Agency currently has more than 800,000 drawings in its files. TRAINING AND QUALIFICATION OF PROCUREMENT PERSONNEL It is axiomatic that the quality of the procurement job, or any other job, depends upon the competence of our personnel engaged in performing the job. The Army has therefore placed special emphasis. on securing the best qualified personnel for work in the procurement field. Minimum qualifications have been established for the appointment of personnel as contracting officers. Contracts of larger dollar value, those over $100,000, are executed by the more senior personnel. Both military and civilian personnel make up the procurement team. Military and civilian career programs have been established to maintain and increase the competency of our personnel. The military program is sponsored by the Deputy Chief of Staff for Logistics. Similarly, a logistics civilian career management program has been established and implemented by the technical services. Specifically, procurement and related career field programs are underway for procurement officers, contracting officers, and acceptance inspectors. In line with these career programs, we are continuing our emphasis on training of our personnel. I would like to briefly mention several of our actions along these lines. During the fiscal year 1959, 1,117 military and civilian personnel received advanced management training at the Army Logistics Management Center in the areas of procurement, supply, requirements, maintenance and property disposal. A new course on specifications management has recently been added. A total of 1,240 students have been programed for these courses during the present fiscal year. Secondly, we arrange and participate in procurement conferences and seminars. Third, correspondence courses on procurement have been developed and are offered by the Army schools. Fourth, military and civilian personnel are sent to civilian colleges and universities for specialized training related to procurement. These are some of the ways in which the Army is continuing to increase the competence necessary to deal with the complicated problems of Army procurement. CONCLUSION In this presentation, I have illustrated some of the methods, policies, and procedures by which we manage the Army's procurement program. I have also pointed out some of our problems and what we are doing about them. And we will be very pleased, Mr. Chairman, to attempt to answer any questions that the committee may have. Mr. VINSON. Thank you very much, Mr. Secretary. The committee appreciates your frank and candid statement. Now, you operate under the direction, authority of the Deputy Secretary for the Office of Supply and Logistics of the Department of Defense? Secretary JOHNSON. The policy direction, yes, sir, come from there. Mr. VINSON. The policy direction. They formulate the policy and they issue certain regulations that guide you in making the contracts? Secretary JOHNSON. Yes, sir. Mr. VINSON. Then, having obtained that authority, as well as the inherent authority, as spoken about by the General Counsel, then you break down your procurement in the different channels in the Army? Secretary JOHNSON. Yes, sir. Mr. VINSON. And from your office emanates the Deputy Chief of Staff for Logistics? Secretary JOHNSON. Yes, sir. Mr. VINSON. And his jurisdiction is set out and well known. Then the Chemical Corps and the Corps of Engineers and Ordnance Corps and Signal Corps and the Transportation Corps and the Quartermaster Corps and the Army Medical Service make the contracts, under your supervision, cognizance and surveillance? Secretary JOHNSON. Yes, sir, that is correct. Mr. VINSON. And that is the way the contracts are made? Secretary JOHNSON. There are also contracts made in the Continental and oversea Armies. Mr. VINSON. Yes. Secretary JOHNSON. Generally speaking, small contracts-local contracts. Mr. VINSON. Yes. Now, in your statement-I want to clear this up-you stated the types of contracts, on page 4, and then the type of contracts used, whether a fixed-price type or a cost-reimbursement-type contract. That is the most prevalent contract that you enter into, is it not? Secretary JOHNSON. Which Mr. VINSON. Number one, of the types of contracts used, that is, whether a fixed-price type or a cost-reimbursement-type contract. Secretary JOHNSON. Yes, sir, Mr. Chairman, those are two different types. Mr. VINSON. I know they are two different types. Secretary JOHNSON. And those I believe cover the only type of contracts that we enter into, those two types. Mr. VINSON. That is right. Those are the only two types. You do not use what has been discussed here as the incentive-type contract. Secretary JOHNSON. No, sir. Mr. VINSON. Now, why do you not use that? Secretary JOHNSON. I want to correct one thing. I don't know whether this was given to the committee or not, but in the run of our types of contracts off the machine, it showed up that about half of 1 percent that we were using were incentive. Actually, we haven't any incentive. We checked this back. This was an error somewhere in the injection of the information in the machine. Mr. VINSON. All right. Then why do you not use the incentive-type contract? We had the explanation from Mr. Bannerman: Because you did not deal with aircraft. But you are dealing with missiles-you are dealing with the Pershing, and other missiles. Why do you not use the incentive-type contract? Secretary JOHNSON. Mr. Chairman, I was here during the latter part of this discussion. Mr. VINSON. Yes, sir. Secretary JOHNSON. May I say first, before I answer your question, that I am not taking the position that there may not be types of contracts or types or production problems or types of performance problems where the incentive contract might be useful. I don't know that. And I am not taking the position that that is true, that it is not useful anywhere. Mr. VINSON. Well, if it is used in missiles for the Air Force and the Navy, why would it not be a good contract for use for missiles for the Army? Secretary JOHNSON. I will now directly answer your question. The other was just a remark. We don't use the incentive-type contract because in our procurements and we have examined this question many times over several years we haven't found any procurement where we believe the incentive-type contract would be advantageous to the Government. Mr. VINSON. I want you to repeat that. I want that in the record twice. Secretary JOHNSON. Well, we have examined the question of using incentive-type contracts many times over the last several years. And I want to check this with General McMorrow. General McMORROW. This is correct. Secretary JOHNSON. That is correct. It is a correct statement. And we have not been able to find a type of contract, or a contract, or a contractual relationship in the Army procurement where we believe that the incentive-type contract would insure an advantage to the Government. Mr. VINSON. In other words, from your examination of the incentive-type contract, being applicable to the Army, you do not find in any area where the results would be a less-cost article? Secretary JOHNSON. May I rephrase your question to me a little bit, Mr. Chairman? Mr. VINSON. Rephrase it, just so you get the same answer I am looking for. Secretary JOHNSON. We do not find any area in which we believe that an incentive-type contract would insure an advantage to the Government. Mr. VINSON. Thank you very much. Now, Mr. Secretary, we have a very important bill on the floor today, the housing bill, which would authorize additional credit of a billion dollars to build houses, and we are all deeply concerned about the solvency and the adequacy of homes. So we will have to take a recess now until tomorrow morning at 10 o'clock. And I will respectfully ask you to please return, you and the general. And all of the Navy witnesses be here. Because in view of this splendid statement of the Secretary, I do not think there will be many questions. But we do want to make a fine record on this splendid statement that the Secretary has submitted. Secretary JOHNSON. Thank you, Mr. Chairman. Mr. VINSON. We will take a recess until tomorrow morning at 10 o'clock. Secretary JOHNSON. We will be here. (Whereupon, at 11:48 a.m., the subcommittee adjourned, to reconvene at 10 a.m., Friday, April 29, 1960). PROCUREMENT PRACTICES IN THE DEPARTMENT OF DEFENSE FRIDAY, APRIL 29, 1960 HOUSE OF REPRESENTATIVES, SPECIAL SUBCOMMITTEE ON PROCUREMENT PRACTICES IN THE DEPARTMENT OF DEFENSE, Washington, D.C. The subcommittee met at 10 a.m., Hon. Carl Vinson (chairman) presiding. Mr. VINSON. Let the committee come to order. Now, Mr. Secretary-Mr. Secretary, please come around. Secretary JOHNSON. Yes, sir. Mr. VINSON. Now, yesterday, when the committee took a recess, we were discussing the incentive-type contracts. I have no further questions along that line of contracts to ask you. But I do want to refer to your statement on page 4, where you state that the Army uses two types of contracts, a fixed-price type and a fixed-fee, cost-reimbursement type. Secretary JOHNSON. Yes, sir. Mr. VINSON. Those are the only two types of contracts you use as a rule, is that correct? Secretary JOHNSON. Yes, sir. Mr. VINSON. Am I correct in that, now? Secretary JOHNSON. Yes, sir. Mr. VINSON. No doubt about that classification. Two contracts, the fixed-price contract and the fixed-fee, cost-reimbursement-type contract. Secretary JOHNSON. Yes, sir. You see, a fixed-type contract means it can be a fixed price-price redetermination is one type of a fixed-price contract. Mr. VINSON. Yes. You will see in our chart, on page 6 of our chart-we stated the types of contracts, classified by method of compensation. Secretary JOHNSON. Yes, sir. Mr. VINSON. And we broke down all the different broad names of types of contracts: firm fixed-price, fixed-price-redeterminable, fixedprice incentive, fixed-price with escalation. Now, the cost-reimbursement-type contracts. And then there is one with no fee, and a fixed-price contract cost reimbursement, as the contracts in use then. You use two types of contracts. Now, that is correct, isn't it? Secretary JOHNSON. Yes, sir. |