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in which the Government was buying three different varieties of generator sets on a given contract. The option clause read something like, “We want the option to buy 150 percent of the aggregate.” What they're saying is, “We don't know which generator set we want to buy. We don't know how many we want to buy. We don't know when we want it, but we want you to price it.” And if you don't price these things, your bid will be considered nonresponsive and thrown out. So there is a tremendous risk of the contractor trying to price an unknown quantity for delivery at an unknown time. And I think that if the legal heads of the Government should get together and talk about it for a little while a reasonable solution would be apparent. I don't think a standard option clause would be too difficult to come up with, and it would save a lot of trouble because these things do get to be administrative nightmares.
Another clause in a contract that is fairly standard in our business is an economic adjustment clause. The Government has very wisely recognized that economic adjustment policies are necessary in long delivery term contracts. The problem here again is very much like the option clause: there's nothing standard. Each procurement office has a different economic adjustment clause for each bid package. Some of them get so complicated that they cause interpretation problems. The administration of these things just becomes horrendous. There are other examples of the Air Force, notably, in which the clauses are so simple, so well-worded, and so practical in their application and administration that they're a joy to work with. It's an area in which the standardization is obvious and yet the services act very much like what's mentioned here earlier, that they're all different governments.
Senator DANFORTH. We're going to have to move along.
Mr. BRETTELL. Yes, sir. I have one other point to make. I am a regular Army retired officer. And there is a whole bunch of us in the Government business. We were raised in it. We were trained in it. The Government spent lots of time, effort, and money training us to do a job for the Government; and I think perhaps the natural gravitation after retirement is into that sort of business. The antiquated laws of the land, notably Title 18 U.S.C., written back before 1900, never contemplated that an officer would retire from the service and then work for a living. And they are written in such a way that they prohibit us from even discussing a contract with the service in which we hold retired status. We can talk to anybody else. We can talk to defense supply-I can talk to the Navy or the Air Force or the Marine Corps, but never ever to the Army. The law is so vague now and it has been challenged so many times that the GAO has said that because of its vagueness, they aren't ever going to do anything about it. But the Army, of course, has their own regulations that implement these Federal laws and they won't talk to you. So, you know, it doesn't really make any difference to them what the law says, it's what their own regula
Gentlemen, that concludes my remarks and I want to say that I do appreciate very much having the opportunity to present them to you. I've left copies with Kirte Kinser and I would be more than
Senator DANFORTH. Thank you very much, sir. You're very helpful. Mr. Thomas?
Mr. THOMAS. Thank you, Senator. I have prepared some detailed copies of information. I'll try to recap two or three major points that affect us. As a private contractor here in Kansas City, we appreciate the opportunity to come before this subcommittee. We are a small business concern located here. Our principal product is commercially developed test equipment. Our marketplace is the aircraft industry, computer manufacturers, electronic manufacturing, U.S. military aircraft overhaul and repair, both commercial and in the export field. My remarks are couched on the basis that we use primarily firm, fixed price contracts. That's the only way that we enter into contracting with the Government agencies.
We have many of the same problems that have already been mentioned. One of the primary ones has to do with payment problems involving slow or late payments. We did a recent check and our records indicate that there's a wide variation in payment from one facility to another. We have one facility which has an average of 70-plus days while we have another facility that has an average of 19 days. And at the cost of money in this particular time, this is a problem. We do not use progress payments because of the excessive accounting and administrative paperwork which are imposed. A major problem in our business has to do with dealing with the delay in payment-involves the final installation and acceptance by the using activity. Since the acceptance papers have to reach the paying office before the item can be paid for, the user can delay the thing, and we have no control over that. We feel, as in the commercial segment, that there should be some provision for payment of 90 percent, or some figure that would be equitable. There should also be some provision to assess a penalty or interest charge for late payment.
Another area which impacts us, as with most electronic firms, is the precious metal adder cost. In a firm fixed-price contract, there's no way to cover this. We have to deal with our suppliers who have the option to increase prices as precious metal costs escalate up and down. Our alternatives are overpricing to start out or to not bid. Either of these impacts the final price that's paid by the Government. Overpricing is not a practical solution because this impacts our competitiveness in the commercial marketplace.
The third area that we're concerned about is in the Government contract administration area. It's already been mentioned, but we would like to re-emphasize that the Government procurement regulations are excessive in that they have been written to cover every possible situation. To bid and administer most Government contracts requires a highly skilled or specialized person in comparison to commercial work. There are excessive time delays in making changes and corrections. And one of the biggest areas is that the contract language incorporates excessive specifications which do impact costs and performance in that they're more difficult to administer; they require special certifications; they tend to eliminate the current state-of-the-art commercially available items, which can in many cases be obtained at greatly reduced prices; and they tend to eliminate small companies that do not have the In closing, I would like to say that a major problem confronting each company involved in selling a product, both commercially and to the Government, is how can we continue to subsidize Government procurement at the expense of commercial business. A typical contract file for Government procurement might contain as many as 185 pages of written material, whereas a typical commercial order for the same product and priced from the same price list might only contain 50 pages of material. That difference must extract an added cost in time and resources. Further, we are required to certify that our pricing is the same for all customers, both commercial and military alike, for like products. In making such a certification, we as well as others are subsidizing Government procurement through commercial sales. Although we have been willing to do this in the past, there are more and more suppliers who are becoming unwilling to incur the added cost of doing business with the Government because of the sheer volume of paperwork. I thank you.
Senator DANFORTH. Gentlemen, thank you very much. Let me just-tell me if I'm wrong: one of the consistent criticisms is that Government procurement people aren't allowed to use judgment, discretion that specifications are too detailed, that everything has to be tied down. The process is too prolonged, too formalized. Isn't the reason for that that Government procurement people want to protect themselves from being blamed? If something goes wrong, they don't want to be accused of any kind of favoritism. They want to just absolutely nail down in a very formal fashion all of the details. Is that a fair statement?
Mr. Van Zant. I think so, Senator. In our particular case, we've been involved with a protest of a contracting officer's action by some company—in our view, obviously unqualified to bid upon a requirement: too small, but always capable of protesting, delaying the order for 6 months, causing the GAO to have a big hearing and really harass the contracting officer. You know, he is—and pull out some obscure regulation out of a voluminous file of rules and regulations within the practice, and probably prove he violated some minor
Senator DANFORTH. You know, the charge of having done something wrong or having done something improper or having done something extraordinary, I think, is frequently made against people in Government. And oftentimes when it's made it's very well publicized.
Just as an example, from my distant past when I first went into State Government, the whole question of how leases for office space, State government office space, were awarded was a matter of great controversy. I joined in the fray with all kinds of charges of political favoritism. “If you wanted to do business with the State government, you had to be in the in-group and you had to be a friend of the Governor"-and so on. And I thought at that time, and I still think, that there was reason for concern in that area.
On the other hand, if you want to just stop the possibility of such charges being made, the way to do it is to develop a very formal system for awarding of leases with publication of requirements and with a formal bid process and with detailed specifications and so think that the same is true with any kind of a Government contract, that if you want to avoid being blamed or being accused, the way to avoid it is to go through a very prolonged process which is very formal and which has little room for judgment.
Mr. BRETTELL. I'd like to elaborate a little bit on what Mr. Van Zant said. You're absolutely right in what you're saying. A lot of this has occurred since Project 60. My personal opinion is that Project 60 is the worst thing that ever happened to the Department of Defense. I think it has done more to harm the operational capability of the Department of Defense than the Russians are ever going to do. We've got people in our industry, very much like he described, who make a profession of protesting. And the purpose of the protest is simply to delay the award of the contract so long that the low bidder can no longer hold his price and if he has to withdraw his price, then the Government has to start all over again. Senator DANFORTH. That's the way it's done, isn't it? Mr. BRETTELL. Sure. You take a bushel basket full of-
Senator DANFORTH. If you're the second lowest bidder, you protest automatically.
Mr. BRETTELL. The last time I went to a bid opening I cautioned the guy that does this-we have one guy in the industry who is just infamous. I cautioned him not to get his bid and his protest mixed up. I said, “Be sure you submit the right one.” But really, what they're doing is taking a bushel basket full of words and dumping them out and sorting them out on the paper; there isn't any fact to them at all. And these things become very serious because in one case, for example, this same guy I'm talking about challenged our status as a small business and sent a letter to the Small Business Administration that we had several hundred people employed and we were no longer qualified as a small business, therefore could not be a qualified bidder. The Small Business Administration in turn sent us a letter, which we got on Wednesday, and said we had 72 hours to reply, otherwise we'll consider you a large business. Well, it takes 72 hours to get all of the things together that they require to prove your position. If somebody hadn't been there to get the thing, we would've been out in the cold. These things are insidious. I realize that proper bidders have to have--
Senator DANFORTH. But it is understandable that people in Government want to be protected by formality. I mean am I correct in that assessment?
Mr. THOMAS. But you're correct. They want to be in a position where they don't have—where everything is so structured they don't have to make a particular decision.
Senator DANFORTH. If a person is in the private sector, if an employee of your firm is in the purchasing business, his performance is going to be reviewed by his superiors, but he doesn't feel that he is forever going to be accused of favoritism or incompetence or-I mean his basic responsibility is to do a good job and nobody is going to be screening his activities with a long checklist of whether he did it in precisely the right manner, and that is the difference, isn't it?
Mr. Van Zant. Unless it happens to be the Government procurement agent that inspects his activities.
Senator DANFORTH. But he's not going to be humiliated or fired or exposed to the press or have other just terrible things happen to him because he exercises his best judgment. On the other hand, if you had an employee of the Federal Government here in Kansas City and he was out buying things and the competitor would very likely, wouldn't he, say "Well, wait 1 second. You're buying something from Joe Blow," and he would say he contributed money to the President's campaign or whatever. Wouldn't that happen, unless he covered himself?
Mr. THOMAS. That's true.
Mr. BRETTELL. I'd like to offer a little dissenting opinion on that. There are a lot of good contracting officers in the Government who, if they had the authority, would enjoy making the decision. The problem really is, that since Project 60, the system has evolved to the extent that the contracting officer is not permitted to make the decision. The lawyers make all the decisions, Senator Danforth. Everything that happens, no matter how big or how little, has to go to legal staffing in order to get its proper blessing. The contracting officer then is merely a figurehead. One of the great joys of being a contracting officer to me was to be able to make decisions, and that was before Project 60. It was an operation in which I believe there are lots of well-qualified people still in the system who would be delighted to accept the responsibility if they were given the authority to make the decision.
Senator DANFORTH. Gentlemen, thank you very much. I'd like to go on for some time, but unfortunately, we're about 10 minutes over now. Thank you very much for being here. You were very helpful.
Additional remarks of Mr. Brettell and additional material of Mr. Thomas follow:
ADDITIONAL REMARKS OF J. A. BRETTELL Senator Danforth, Gentlemen: we have been in the Federal Procurement business for many many years. My personal experience spans 22 years in the Army, most of which was in various procurement offices of the Army and DOD. For the past 15 years, I have been with Libby Welding Company, a leading manufacturer of generator sets for the military services and the FAA.
I would like to divide my comments into 5 topical areas and touch briefly on each. Additional details on each subject may be submitted in writing, if you so desire.
1. CONTRACT ADMINISTRATION All DOD contracts are administered through the Defense Contract Administration Management Services Offices, one of which is located here in Kansas City. These are subelements of the Defense Supply Agency which was created about twenty years ago as a result of a study called “Project 60” initiated by then Secretary of Defense, Robert McNamara. The original organization of DSA provided for several contract administration regional offices to perform the administrative function. The various offices were staffed with qualified and competent personnel and the theory of the organization was good. There was nothing wrong with it at all. The failure came in the implementation of the organization. The letters of authority issued to the contract administration personnel, simply did not permit them to do what they were originally set up to do, that is, administer contracts. Purchasing officers have retained for themselves the authority to administer contracts and make decisions on all but the most minute problem. In effect, the Procurement Office, that is the office that does the buying, is really duplicating the efforts of the Contract Adminis