But I think one of our real assets in this field, and particularly in our larger contracts, in the important ones, are the team concept that we use, which we described in the statement.

In other words, this team concept is made up of men from the negotiating field, from the contracting field, from the legal field, and from other fields, within the Bureau. And they, in total I think, in practically all instances, are matches for the men on the other side of the desk.

My point is, sir, that it is not left to one individual.

Mr. VINSON. It is not left up to one individual?

Secretary BANTZ. That is right.

Mr. VINSON. One individual, then-when you are dealing with some electronics, he calls at least a team in, who has some knowledge about what they are talking about?

Secretary BANTZ. That is true, on the major contracts.

Mr. VINSON. I am going to stop right now, because it is getting to be 12 o'clock.

Do any of you want to ask any questions this morning?

Mr. MORRIS. Mine will be very short.

Mr. VINSON. If you are going to be short, we will recognize you first.

Mr. MORRIS. All right.

I don't think you gentlemen completely answered one question that the chairman asked. At least, I didn't get a complete answer.

When he asked you, in substance, when the breakout system was first inaugurated, your answer was, as I recall it, that it was nothing new but just a new term.

(Mr. Jones nods.)

Mr. MORRIS. That had been going on all the time?

Secretary BANTZ. It is an intensification of what we had been doing under Government-furnished principles for a great many years. Mr. MORRIS. I see.

Now, when did this new term, or this new intensification-when did it come into existence?

Mr. JONES. I would suggest that it came into being at the same time the so-called weapons system concept came into being.

Mr. MORRIS. When was that, if you recall?

Mr. JONES. It has been the past several years. And it has been given a good deal more publicity in the last year than it ever has been before.

Mr. MORRIS. But it is of recent date-the last few years?

Mr. JONES. It is a recent terminology; that is, we have had weapons systems ever since we have had a Navy. But this somehow created a great deal of publicity.

We had a battleship. We have had an airplane. We have had a number of other things that might be termed weapons systems. But today, the term is given a significance which I believe goes far beyond that which is used in the Navy; that is, we don't, for example, buy a Polaris submarine and all of the equipment from a single contractor. Mr. MORRIS. All right.

Now, you have three methods there, as I understand. You can permit the prime contractor to make the components or you can per

mit him to buy it from a subcontractor. And in both instances you review it?

(Mr. Jones nods.)

Mr. MORRIS. And of course you are very interested in the price and in the quality and the workability of it, as, of course, you should be. And you can use the breakout system; now, those three as I understand from this statement.

Now, do you sometimes use step 1 and 2 and 3 all together, or do you confine it to just one step when you start out?

Mr. JONES. Usually we use all three.

Mr. MORRIS. All three.

All right, then this final question, and I will conclude, because I said mine would be short.

In your statement you said this:

"Purchases"-and this is brief-"Purchases by breakout frequently"-you didn't say all the time but "frequently result in better prices and earlier deliveries."

Now, both of those are important elements.

Then you also said:

They also serve to increase the opportunities for a greater participation by small business firms in our procurement program.

Now, all three of those elements, in my judgment, are importantprices, early deliveries, and greater participation for small business. Now, this final question:

Can you tell me approximately the percentage of contracts where the breakout system is used either in whole or in part?

Secretary BANTZ. Oh, I don't think we would have any figure of that type available, Mr. Morris.

But I would like to use the Enterprise, the CVAN, that is, the nuclear-powered carrier.

I would think, if we had the actual breakdown here today, we would come pretty close to 50-50, in the total dollars of that ship.

Mr. MORRIS. I don't quite get your answer.

You mean to say you would use the breakout system in 50 percent of the cases?

Secretary BANTZ. I would think about 50 percent of the dollars would be Government-furnished equipment.

Mr. MORRIS. Fifty percent of the dollars?

Secretary BANTZ. Yes, sir. The hull, of course, is all done by the ship contractor.

Mr. MORRIS. I see.

I believe that is all, Mr. Chairman.

Mr. VINSON. Now, Mr. Secretary, we have by no means finished. You have a fine statement. It is 12 o'clock. The House is not in session today, but there is the weekend coming on.

Let's take a recess until Monday morning at 10 o'clock.

Secretary BANTZ. Monday at 10?

Mr. VINSON. Monday morning at 10 o'clock.

Secretary BANTZ. All right, sir.

Mr. VINSON. Thank you very much.

All of you come back.

(Whereupon, at 12:08 p.m., the subcommittee adjourned, to reconvene at 10 a.m., Monday, May 2, 1960.)

PROCUREMENT PRACTICES IN THE DEPARTMENT OF

DEFENSE

MONDAY, MAY 2, 1960

HOUSE OF REPRESENTATIVES,
COMMITTEE ON ARMED SERVICES,

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.

This is a continuation of our hearing which we commenced last week. We did not finish last Friday with the Navy Department. I had reached the point where I wanted to talk about incentive

contracts.

Now, Mr. Secretary, have you any statistics showing how much has been saved to the Government by obtaining a lower price on cost as a result of incentive contracts?

Secretary BANTZ. Yes, sir.

Mr. VINSON. All right, let's have it.

Secretary BANTZ. These figures, Mr. Chairman, are the result of 3 years of incentive-type contracts. And the total negotiated target costs during this period were $2,534 million.

Mr. VINSON. $2,534 million?

Secretary BANTZ. $2,534 million. That is for a 3-year period.
Mr. VINSON. All right, good.

Secretary BANTZ. Now, the total final costs that were finally negotiated

Mr. VINSON. The total what?

Secretary BANTZ. The total final costs.

Mr. VINSON. Final costs?

Secretary BANTZ. Yes, sir; to the Government, in that amount of target costs as just enumerated were $2,466 million, or a difference of a minus $67-plus million-$67,647,000.

Mr. VINSON. Now, out of how many contracts was that?

Secretary BANTZ. I believe this is 47.

Mr. VINSON. Forty-seven?

Secretary BANTZ. Yes, sir; 47 major contracts.

Mr. VINSON. Forty-seven.

Now, that is not along the line of happening in the Army. Here

is what the Army says

We have reviewed our experience during fiscal year 1959 on the redetermination of 259 contracts. It is interesting to note that the revised price totaled $631 million, against an estimated target price of $659 million.

5509660-19

In other words, the target price was $25 million more than the actual cost of the products.

And you now make out your case, showing a saving to the Government of $67 million on $2 billion worth of contracts for the last 3 years, is that correct?

Secretary BANTZ. Yes, sir.

These are contracts placed by the Bureau of Aeronautics and the Bureau of Ordnance.

Mr. VINSON. Now, what type of articles were involved in these $2 billion worth of contracts? Was it along one particular line, or was it various articles?

Secretary BANTZ. Well, in this $212 billion it was largely aircraft and a very, very small percentage of it was missiles.

Mr. VINSON. Now, the largest portion of it was in the Bureau of Aeronautics?

Secretary BANTZ. I can give you the exact amount for fiscal 1959. Mr. VINSON. All right.

Secretary BANTZ. În 1959, out of a total of $824 million of obligations that were on incentive-type contracts, the Bureau of Aeronautics was responsible for $356 million. The Bureau of Supplies and Accounts, $286 million. And let me explain, sir, that was largely from ASO, in Philadelphia, which are components of engines and other component parts of planes.

The Bureau of Ships was next, with $122 million.

And the Bureau of Ordnance next, with $36 million.

Mr. VINSON. Now, have you any statistics showing that the target price was higher than the actual cost of the article?

Secretary BANTZ. That the target price

Mr. VINSON. This, what you just testified, is that the target is lower than the cost of the article?

Secretary BANTZ. Well, in the 47 contracts that I referred to, 15 of them were finally negotiated at a price higher than the original target. The balance of them, or 32, were at a lower cost.

Mr. VINSON. Now, then, there were 15 contracts that were negotiated upward, then?

Secretary BANTZ. Above the original target; yes, sir.

Mr. VINSON. That is right, exactly.

And that was an incentive contract?

Secretary BANTZ. Yes, sir.

And that was part of the $67 million saving that, of course, was taken into consideration.

Mr. VINSON. Now, in those cases the target price was too low?
Secretary BANTZ. That is right, sir.

Mr. VINSON. And you raised it up?

Secretary BANTZ. Yes, sir.

Mr. VINSON. And what was the total amount, in dollars and cents? Secretary BANTZ. I would have to add it up.

It is, in my figures here, sir, and I would have to add to it the saving to the Government. That was a total saving of $67 million.

Mr. VINSON. Now, I want both sides of the picture put in the record. Secretary BANTZ. We have the figures here, and we will total them up, and we will put them in the record before we leave.

Mr. VINSON. Now, Mr. Kilday, have you any questions?