European Stars and Stripes (Newspaper) - September 5, 1968, Darmstadt, Hesse                              In Donald m. Roth8erg and Jean hew a Toff Hen it comes to buying there Sno customer with a shopping list the size of the Pentagon a the defense department gets the major share of the Federal budget. I spends $45 billion a year on a huge variety of military hardware goods an services with some 5,500 experts direct ing this procurement. But sometimes the gears Don t quit mesh and losses result. The Money is swallowed up by duplication by human error and by faulty management some of it inevitable in an organization the size of the Pentagon. Whatever the cause this loss never precisely calculated could Well run into billions of dollars. This is shown in an associated pres study of five major areas of procure ment a study that details the problem in All its intricacy and outlines numerous ways in which things can go wrong. Defense officials emphasize that Price Competition reduces costs by an average of 25 per cent. But in most years no More than 14 per cent of Pentagon buy is ased on competitive bidding. R1 defense department owns billions of dollars Worth of Industrial  of it is unneeded according to the general accounting office which say the department exerts no effective control Over its use. Last year the Pentagon lost $160 Mil lion according to the general services administration by acquiring new com Puter equipment even As computers it already owned or leased stood Idle More than two million hours. The Gas is the chief purchasing agent for the govern ment. The Pentagon spends $7 billion a yearn research and development contracts that usually run More than double the original Cost estimates. The defense department insists it has adequate Protection against profiteering by private contractors yet Bil Lions of dollars in annual purchases Are not subject to any Independent review for overpricing. The armed services procurement regulations apr fill several Hundred volumes. New regulations and revisions of old rules Are issued frequently in a constant Campaign to close Loop holes. For the 4,000 civilians and 1,500 serv  defense procurement the of theoretically guide every step to Ward the Purchase of any item. Critics insistently0" aim f6w Are followed the defense department issues weak regulations and then administers them  they did t exist says , d-wis., whose joint economic committee condemned procurement practices after a recent examination of defense buying the committee reported finding Loos and flagrantly negligent management Brant in the defense procurement very largest contacts once the pent gon chooses a company to \ T aaydej8tter to it Whf Aco attract to produce regulations governing defense procurement say Price Competition should be the Rule but there Are exceptions Are so and that Rule i lie was he Case  awarded two -.,_ negotiated contracts of production of m16 rifles. A ducts njxjlp1?11 Eaf the defense department had solicited Price estimates from four manufacturers but on march29, the four companies received the offcafm."06 from. A sat Resim of increased urgency to Supply the maximum number of rifles at the earliest possible Date with Minimus risks of production interruption the object of this procurement is changed to select those two sources which jul afford to the government the highest de Gree of Confidence in their ability in Meeyung or exceeding the accelerate schedule set Forth below while Mintal ing Good Quality and provide the of base1" strongest mobilization after the contracts were awarded members of a special House sub edit Mittee demanded to know Why Oneto general motors even though its was $20 million higher than two that lost out. The army replied that there was a urgent need to obtain a Large number. Sometimes the gears Don t mesh and losses studies that when Price Competition i introduced for the first time a Price reduction on the order of 25 per  computers and computer use in this electronic age Are an important area of military procure ment. For tills Story general serv ices administration Gas officials made a computer report available. It covered Only those computer sys tems not located in classified areas and not performing classified functions. Among the examples listed in the re ss2 Mas a us rugs b263 compute system operated by the air Force at War Alpy Namil Nea chased in March 1987. When the Navy prepared to award anti to noncompetitive contract to Tabet another firm notified the Navy electronics Supply office at great lakes 111that it wanted to bid on the item tasked for a technical manual giving manufacturing  at great lakes replied with a Telegram refusing to Supply the tech sst1 of"?""81 on around it v no part of the necessary specifications and " manual is not readily that would make the defense de part Orient s 64 per cent share of unde uti nation 178,000 hours a month 2 14mjlljon hours a year. And those hours would be Worth $160 million. Lawson b. Knott jr., Gas administrator was asked last Wei firby ?2?, satire what could done to reduce the amount of Money spent on computers. Knott said we should place the Burden on the Agency to make a Case which it does it have to do now agencies no make determinations to share equip in i Tai Lher e la piment where sharing jul interfere with their pro Gram  h sharing Knott says is the key to Amend or at least to a drastic reduction of the costly waste of computer time.  the area of defense procure ment research and development sen. Proxmire the defense department issues weak re Lula Toni and in and ministerial m As the Utah they did t the difficulties were spelled out by tic worhol Mcnamara earlier this year. Discussing efforts to develop an experimental air Craft Mcnamara said during the last seven years we have invested a total of several Hundred Mil lion dollars in the development and construction of a wide variety of a Stol vertical Takeoff prototype aircraft using different design approaches. Non of them proved to be both technically and operationally  said no approach was Likely to work until a suitable engine i developed. Accordingly Mcnamara said be ginning in fiscal 1966, we concentrated our resources on engine development and through fiscal 1968, we devoted almost $70 million to this project additional funds will be required in fiscal 1969."and, he added whether this engine will solve the problem is yet to  even successful research and development projects often Cost More than double what the Pentagon had expected to pay. A study of 12 major weapons development programs published in 1962 by Merton j. Peck and p. M. Scherer of Harvard business school showed the final Cost average of research and development contracts to be 220 per cent higher than the contractors original estimates. Two months ago Scherer told a Senate subcommittee recent experience shows no striking  two recent cases Bear out the conclusions of the Harvard study. One is the tfx now the air Force f111a an the defunct Navy f111b. The tfx was the object of Intens Competition Between general dynamics and the Boeing co. General dynamics won not Only the contract to develop the two service fighter but also the Promise of $6 billion in production con  so general dynamics set out to design an air plane that would serve Theair Force As a fighter bomber and the Navy As a Carrier based Fleet interceptor. Each service wanted a plane of it sown but Mcnamara overruled the generals and the admirals. In the name of Economy he demanded commonality air Force and Navy planes so much alike that a High percentage of their parts would be interchangeable. Mcnamara insisted this approach would save $1 billion. It did . John l. Mcclellan d-ark., chair Man of a subcommittee that has investigated the program for five years says latest estimates Are that the Penta gon plans to buy 1,300 planes at a total Cost including Rad of $12 billion double Mcnamara s original estimate. General dynamics was never Able to build a plane that was both Large enough for the air Force s needs and Light enough to operate from the Navy s  project that illustrates How up costs can escalate is the Cheyenne helicopter. In a speech to the House. Rep. Otis. Pike d.y. A member of the armed services committee disclosed details of the aircraft s development. Pike said research and development costs originally estimated at $126 Mil lion had already risen to $186 million. T but when the director of the Nav publication and printing service in Washington heard about the Case he mad manuals available to All interested parties. Four bids were received and the Price of the switch dropped $33.49 to $80.20 each. Low bidder at that Price Tabe manufacturing co. Nas assistant Secretary of defend Senmao t Morrill "11 we have constantly found in our  Takeoff   Hundred d and still no feasible design. The stars and stripes on a 9overnmen�-wide basis computers Are underused by 278,000 hour a Man. I dec thursdays according to a Gas report Idle time Worth More than $250 million a year. Members 1968 the stars and stripes he defense department own so much Industrial equipment that it can t keep tabs on it All and As result spends Large sums to buy machinery it does t need. Furthermore much of the equipments used by private Industry for Commer Cial purposes frequently without govern ment permission or objection. J in one instance the department spent$1.4 million for an 8,000-ton forge press so try inc., of Cleveland could Manu facture Jet engine Blades when in fact the government already owned forge presses in the try Plant capable of doing the  one in the government or out of it can Supply precise figures on How much this sort of unnecessary procure ment costs the taxpayer but Survey by the Gao indicate the amount could run into the hundreds of millions of dollars. One Gao Survey of 21 defense Plant found 296 pieces of government owned equipment being used predominantly or entirely for commercial work being used infrequently or standing  the same time the defense department s Industrial Plant equipment enter had been asked to Supply 47 of those items for defense  reported them to be unavailable whereupon said the Gao the defens department purchased replacements for those items which were critically needed. The defense department owns More than $195.5 billion in property Industrial Plant machinery special tool ing and test equipment raw materials buildings plants and  that property $14.7 billion is held by defense contractors assigned to the for use in defense production. When they finish using such property on a defens contract they Are supposed to report it As available for  theory this creates a Mammoth revolving government owned property stockpile available for assignment to private  the Gao has reported to Congress Many cases where the defense depart ment had no idea How its property was being used and therefore had no Ade quate basis for reassigning it. Most of the Gao cases involved Industrial plan equipment commonly referred to As  Gao also said its study of ipe in the Possession of contractors showed that Many items were being retained which in our opinion should have Bee reported As excess and available for utilization elsewhere within  report said this ipe 328 items valued at $15.9 million had not Bee used Over an extended period of time had been used solely or predominantly for commercial work or had been used below the level indicated As acceptable by the defense department. According to the Gao the govern ment allowed the Rohr corp. Of Chula Vista calif., fac corp. Northern Ord Nance division at Minneapolis and try. To use $4.9 million Worth of ipe for commercial work 75 per cent of the time for periods ranging from six months to one year. He defense department which contracted for $45 billion in goods and services last year maintain that private Industry does not get away with Over charging the government to any significant extent. Yet on As much As $10 billion Worth of purchases a year the department has no Way to determine if it has been cheated. The area of profits is a sensitive one in military procurement and some critics suggest procedures to oversee them need to be tighten. Two Steps most frequently mention dare a uniform accounting system for de sense contractors and greater scope forthe renegotiation Board an Independent Agency empowered to recapture excess profits but Only from some government  of defense Clifford wrote to the chairmen of the House and Senate armed services and appropriations committees june 13 denying that defens contractors were making big profits or engaging in War  As Evi Dence he cited the work of the renegotiation , there Are 17 classes of exemption from the renegotiation Board jurisdiction including a Blanket exemption for companies which do less than$1 million in business a year with the defense department and four smaller agencies. I would estimate that if All the exemptions were lifted we would have jurisdiction to Check for excess profit son at least another $8 billion or $9 billion in government purchases and i could possibly go As High As $10 billion Lawrence e. Hartwig chairman of the renegotiation Board said in an inter View. The Gao which has Legal authority to audit contractors books has shown that profits a company reports Are no always the profits it has earned. I audits of five defense contractors which Gao refused to name the Agency found company a reported 4.5 per cent prof its but audit showed 10 per  b said its profits were 12.5 per cent but Gao found 19.5 per  c reported 11.1 per cent profits but audit showed 16.9 per  d reported a 2 per cent loss but Gao found 15 per cent  e said its profit was 21.6 per cent Gao found 23.7 per  figures also show that profits negotiated by the Pentagon on defense contracts Rose from an average of 7.7 per cent in the period 1959-63 to an aver age of 9.7 per cent in 1966. Even among people who agree that profits Are going one Way or the other there is no agreement on the  reason is that no two companies use exactly the same accounting methods. Sen. Proxmire estimated in june that uniform accounting standards for de sense contractors could easily save the government $2 billion a  the renegotiation Board which has dealt with profits and sales since 1951, has no fool proof method for determining profit trends either. Nor can it determine what accounting method companies use in making their annual reports to the Board. Without uniform standards chairman Hartwig said nobody can Ever accurately estimate How much the govern ment pays in excess profits each  since 1951, the Board has recovered$975.5 million in excess profits and claims that its existence had spurred private Industry to reimburse the government voluntarily for $30 million More through fiscal 1967. But Hartwig says some excess profit get away because of exemptions from the Board s  Board has no authority with companies which do less than $1 million year in business with the government. If that floor were lowered to $250,000,Hartwig said it would bring another $3.9 billion in sales under the Board scrutiny. Even More than lowering the floor Hartwig would like to get rid of the so called commercial  covers sales to the government of Standard commercial articles such things As Oil and Gas fired boilers commercially available computers digital equipment drugs fuel lubricants Auto mobiles aircraft video and audio re corders and memory systems. As Long As 85 per cent of contractors sales of such items Are on the private Market or to agencies of government not covered by the Board none of their sales of these items to government agencies is subject to renegotiation. Clearly the problems of outfitting modern defense establishment Are Stag Goring there is no place to really train for such procurement in the midst of the bewildering technological change of today. Page 13