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nel and, of course, they are right on the spot. They can visit the contractor's plant in a matter of minutes, are familiar with the contractor's personnel and facilities and certainly more familiar with all the circumstances surrounding a problem and therefore better able to make a timely decision. The present system does not permit him to make a decision and instead he is little more than a message center and merely forwards recommendations to the Purchasing Office and in general slows the administrative system.
Testing in the government is of course a very elaborate process. We nearly wear out the equipment testing it. We produce generator sets that are standardized throughout the Department of Defense, that is the Army, Navy, Air Force and Marine Corps all get the same generator sets. We are currently producing 15 KW, 30 KW, and the 200 KW size within that standardized family of generator set design. We believe some good prudent business judgment could save millions of dollars each year in the testing area. A. Preproduction testing
For example, each production contract has what is called a preproduction model test. A sequence of tests must be performed on the first several generator sets produced on a contract. This sequence of tests may take anywhere from 6 months to 2 years and the cost of the tests will be, characteristically, $1 million. Even though we are currently in production on a specific generator set and receive a followup contract for the same generator set, we will be required to run an additional set of preproduction model tests in spite of the fact that we offer a $1 million reduction in the contract price to waive those tests. The engineering groups justify these requirements for additional preproduction model testing by pointing out that we may be using a different component on this generator set contract than we used on a previous contract. This is contradictory of course, to the process of purchasing spare parts for generator sets from several different sources without the benefit of preproduction model testing. B. Component equivalency
The second area of testing is called "Component Equivalency” tests. These are tests used to demonstrate that a particular component is the equivalent of a previously approved component, usually a sole source product. The Component Equivalency tests are necessary to provide alternate sources and competitive bids for a given component. To illustrate: We are currently in production on a 15 and 30 KW Generator set contract for the Army. We have a follow-on contract for the same units. We are required to run an additional preproduction model test program on this new contract because we will use a different generator source than we did in the previous contract. These generator sets have a radiator which is sole-sourced to one company and only that company is approved to build it. We have proposed an alternative radiator manufacturer and proposed to the Army that we install two of these radiators on two of the preproduction model units and test them with the alternative radiator with a view toward approving them as an alternative source. This then, would establish competition on the radiator. Our proposal has been disapproved on the grounds that the preproduction model test is not sufficient test to establish the component equivalency of the radiators. The basis for not waiving preproduction tests altogether was that we were using a different generator manufacturer on this contract than we had used on previous contracts.
So what they are saying is that this preproduction model test is sufficient to test the generator itself, which actually produces the electricity, but not sufficient to test the radiator which does nothing more than cool the water. C. Hump test
All generator sets and most other equipment is subjected to what the Army calls a Railroad Hump Test. This is a test which does just exactly what the name implies. They tie the equipment to a flatcar and send it down a ramp at 10 miles an hour. It collides with a loaded gondola car that is blocked and braced and immovable. The collision that occurs is obviously severe. Therefore, we design into each generator set the structural characteristics necessary to withstand that sort of collision. I've been in this business for more than thirty years and I have yet to see a single generator set rendered inoperable because of a railroad hump. Being against quality is like being against motherhood, but this is a very expensive provision in every 3. OPTION CLAUSES We all recognize that the government has difficulty in planning ahead and coordinating the availability of funds in a future period of time. This is the basic purpose for option clauses. Most every option clause that comes out in a bid package however, is different. There is no standard wording, or format for an option clause in any procurement office. We recently received a bid package which was for the purchase of three distinct items, three different generator sets. The package also contained an option clause for 150 percent of the aggregate jantity of those three different generator sets. The clause required us to price each different type of unit in spite of the fact that the government cannot tell us which generator set they want, how many they want of it, or when they want it. Yet they expect us to price it two and three years into the future. A standardized option clause would greatly assist in reducing confusing misinterpretation and unnecessary contingency pricing.
4. ECONOMIC ADJUSTMENT CLAUSES Most of the contracts which have delivery periods extending beyond one year have a provision in the contract to adjust the price based on a related price index published by the government. Generally, these work very well and they take a little of the risk out for the contractor as well as the government for future pricing. Obviously without these clauses in the contract, the bidders would have to add some sort of contingent provision based on his own best judgment as to what the prices will be when the deliveries are made. So these clauses do perform a good function and they are well worthwhile. The problem here is very much the same as it was in the option clauses. There is no standard economic price adjustment clause anywhere. Each of the Procurement offices has its own clause for each contract and each is implemented by the interpretation of the particular procurement office that came up with that wording. Many of these clauses provide interpretation problems and lead into unnecessarily complicated computations which combine into legal entanglements which neither we, nor the government needs.
5. REGULAR OFFICER PARTICIPATION IN THE PROCUREMENT PROCESS
Title 18 USC Section 281 permanently prohibits retired regular Army Officers from representing any person in the sale of anything to the Department of Army. There are several other related pieces of legislation which go to the payment of retired pay of regular officer and so forth. The Retired Officer's Association has a rather voluminous file of challenges to these laws most of which have been on the basis of discrimination but none of which have been successful. The General Accounting Office has now announced that these statutes are so vague in nature that it is impossible to prosecute under them, however, the particular services still recognize the service regulation on the book that implements that statute, so they effectively block the road to participation that way. My challenge to the validity of the law would be on the basis of practical application rather than an obscure claim of discrimination. It seems to me that the military services have spent a lot of time, effort, and money to train its personnel in the procurement process. When we retire from the service, we generally go into some line of business with which we are familiar. It seems then from a practical point of view to be much more advantageous for the government to have experienced Procurement personnel on the contractor's side of the table than it is to have inexperienced personnel. I know the cry of favoritism toward retired personnel and unnecessary influence on personnel who might have previously worked for the retired officer, but I don't believe those are justified claims. I think that the truth of the matter is that once the officer retires the people in an office don't even know him anymore. The fact of the matter is in my own case there is no one left in the Army today among my contemporaries except the Chief of Engineers.
Gentlemen, this concludes my remarks. I am very grateful to you for giving me he opportunity to express my viewpoints. I will be pleased to answer any questions you may have or elaborate on any of the subject matter.
PREPARED STATEMENT BY C. J. THOMAS, ADMINISTRATIVE ASSISTANT TO THE VICE
PRESIDENT FOR MARKETING, DIT-MCO INTERNATIONAL CORP.
A. GENERAL INFORMATION AND/OR BACKGROUND FOR DIT-MCO INTERNATIONAL 1. DIT-MCO International is a wholly owned subsidiary of Xebec Corporation. It
2. Principal product is commercially developed test systems. Product is normally classified under SIC 3825 and is a proprietary product developed without Government funding or facilities.
3. The product is marketed throughout the United States, Canada, Western Europe, Israel, Japan, Korea and to a very limited extent some Eastern bloc countries.
4. The market includes the aircraft industry, computer manufacturers, electronic manufacturing, and aircraft overhaul and repair facilities within the U.S. Military.
5. DIT-MCO is a small business concern located in Kansas City, MO., Jackson County, with approximately 400 employees.
B. PAYMENT PROBLEMS
A major problem in doing business with the U.S. Government involves slow payment.
1. In the private or commercial sector of our business, we are able to exercise control over payment problems by various methods, such as: (1) Careful screening of customer payment record; (2) Partial or total pre-payment with order; (3) Confirmed letters of credit; (4) COD shipments; and (5) Combination of above.
2. In doing business with the Government, we use our normal terms of “Net 30 days”. All contracts are “Firm Fixed Price”.
(1) Our records indicate that certain Government facilities have an excellent payment record while other facilities seldom make a payment per the terms of the contract. One facility has an average of 70 plus days since January 1, 1981 with three (3) invoices still unpaid. This, in contrast to an average of 19 days for another facility, indicates a major problem to us.
(2) Progress payments are not requested or used by DIT-MCO because of the excessive accounting and administrative paperwork imposed by Federal procurement procedures. Such extensive procedures are not required in the normal course of business for commercial contracts.
(3) A major problem leading to delay in payment involves final installation and acceptance by the User activity. Shipment and preliminary inspection will be made per the contract schedule, but installation will be delayed after the equipment has been delivered. Since acceptance papers are required for payment processing, payment is withheld. We have experienced delays of 60 to 90 days in some cases before being allowed to complete the installation portion of the contract.
In some cases we have been able to negotiate a change to the contract to allow for partial payment pending final installation and acceptance. This is only done as a last resort and involves additional time and effort to accomplish, not only for DIT-MCO but the Government as well.
Our suggestion would be to make a provision in contract regulations to allow payment of a given percentage, such as 90 percent, at the time of shipment or delivery with the balance upon installation and acceptance.
(4) Some provision should be available to assess a penalty and/or interest charge for late payment.
C. PRECIOUS METAL ADDER CLAUSE
During the past 18 months the marketplace has experienced a great deal of activity associated with the volatile changes in the price of gold, silver and other precious metals, which in some cases is estimated to be as great as 25 to 30 percent of component cost. Within the commercial segment, provision can be made to accommodate such changes but within Government procurement regulations on FFP type contracts there is no easy method.
The alternatives are over-pricing to start out or not bidding, either of which will impact the final price paid by the Government. Over-pricing is not a practical solution, since this would cause the end product to be non-competitive in the commercial marketplace.
D. CONTRACT ADMINISTRATION
The amount of paperwork and the skills required in handling Government contracts versus commercial orders causes many potential suppliers to back away from bidding Government work.
1. The Defense Acquisition Regulations (DAR’s) have been written to cover every possible situation and eliminate individual decision making from procurement people except along prescribed guidelines. A result is that the amount of paperwork to satisfy the required certifications, special programs and reports become greater 2. The bidding and administration of Government contracts requires a more highly skilled or specialized person than the normal commercial contract.
3. The time delays involved in making changes or corrections can seriously impact both costs and schedules. This is a serious problem compared to commercial orders and one which we as a contractor cannot control with any degree of success. This can mean the difference between a profit or a loss on a given contract.
4. Consolidation of DCASO Offices. During the past few months local DCASO office staffs have been greatly reduced or eliminated and in turn consolidated into a regional office. This was done as a cost savings effort. In so doing, it removed from the local area some of the people who were familiar with the companies doing Government contract work and their ability to perform. Where there existed a favorable working relationship between administrative people and their commercial counterparts built up by past experience, we now go back to a more rigid nonpersonal atmosphere. A major result has been a delay in resolving any administrative or potential problem areas. These comments are not intended to cast any indictment against the DCASO group because there are many dedicated individuals involved but because they have been removed from the point of action, it becomes a difficult situation.
5. Contract Language. The normal Government contract has too many clauses, regulations and specifications involved for the purpose intended compared to commercial contracts. In addition, a major problem involves Excessive Specifications. Excessive specifications impact performance in several ways: (1) They require additional cost to administer; (2) They add cost to the product by requiring excessive certifications to special standards; (3) Because of the skills and experience required to understand the scope of many specifications, smaller companies are unable to bid due to potential risk; and (4) Excessive specifications tend to eliminate current state of the art commercially available products which could be obtained at greatly reduced prices.
E. SERVICE CONTRACTS
Because of the regulations and guidelines involved, many firms in the electronic equipment field are backing away from bidding service contracts. This has to have an impact on total cost, not to mention up-time for the equipment involved. Problems involved in bidding contracts which incorporate “The Service Contract Act of 1965" are:
1. Compliance with point of performance wage, as determined by The Department of Labor, which can differ from one geographic area to another.
2. Fringe benefits must include certain specified benefits.
3. A small business concern, such as DIT-MCO, operating from one geographic location must escalate wage scale and fringe benefits to meet the most stringent case or choose not to participate in service contracts.
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 a 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. We are required to certify that our pricing is the same for all customers, both commercial and military alike, for like product. 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. Thank you gentlemen for this opportunity to present this information.
Senator DANFORTH. The final panel is made up of people with experience in furnishing products and services to the Government, Mr. Eric G. Dunkley, Mr. Michael Cartwright, and Mr. Donald
TESTIMONY OF ERIC G. DUNKLEY, PRESIDENT, ERIC'S FOODS,
INC.; MICHAEL CARTWRIGHT, PRESIDENT, CARTWRIGHT VAN LINES, INC.; AND DONALD LOEB, PRESIDENT, RITE-MADE PAPER CONVERTERS, INC.
Mr. DUNKLEY. Yes, I would. Senator, I am the president for Eric's Foods, Inc., a small minority-owned and operated frozen food manufacturing company located in North Kansas City, Mo. Our plant operates under the U.S. Department of Agriculture Federal meat inspection program. We manufacture essentially one type of product-that's a turnover, oven-ready using various types of precooked filling, for example, ground beef, scrambled eggs with ham or sausage, and curried chicken. We did bring with us some samples of our product for you all to taste.
Senator Danforth, I would like to express how honored I am to have been asked to testify about the experiences of my company in doing business with the Federal Government. I would like to say for the record that without the continued and able assistance of your office in dealing with the Federal bureaucracy, I might not be here today to testify because my business in which I have invested my life's savings might well have joined the increasing number of minority businesses that have gone bankrupt in recent years.
I think it is important to let you know, Senator, that my wife and I have had significant experiences with bureaucratic structures from our previous employment as deputy executive directors of the American Nurses' Association of 10 and 8 years respectively. Prior to that, my wife, who holds a doctorate in education from Columbia University, New York, was an administrator and assistant professor at a university, while I served as vice president and comptroller of a savings bank. Both of us are involved full time in operating the business.
In spite of our experiences in functioning in and working with large bureaucratic systems, we have found the military procurement system to be extremely complex and lacking in uniformity in its application of procedures. To compound the situation, each branch of the military has its own procurement policies and procedures for food purchase. I wish to preface my remarks by stating that my comments are based solely on our experiences in contacting 36 military installations and visiting 27 of those in person in an effort to sell our beef turnovers to military installations.
The procurement system for military troop food service programs consists of five basic steps. They are: obtaining approval of the product from the Armed Forces Product Evaluation Committee or AFPEC as it is called. This process took us 2 months. Securing a national stock number and a Federal catalog number took us approximately 5 months after step one—and with the intervention of your office, Senator. Application to be placed on the bid list for the Defense Logistics Agency took approximately 2 months. Presentation of the product to installation menu boards for taste testing and decisionmaking takes approximately 2 months. Processing of an order after all the foregoing steps takes approximately 2 months—2 to 4 months. Thus, the entire process can take anywhere from 13 to 18 months. I have attached a copy, which is more