specific,
review, Senator.1

Fortunately, steps 1 through 3, which take approximately 8 months, are a one-time situation unless other approvals are sought for other products. However, in order to market a product under a local purchase approval, which is the approval we received from the Armed Forces Product Evaluation Committee, steps 4 and 5 have to be repeated at every installation, and sometimes the form, for example, form 129-105, which is a bidder's mailing list form, has to be completed at each step of the process.

Selling our product to individual installations, Senator, is very expensive, time-consuming, and not cost-effective when orders received are sometimes so small that there is no way of recovering the cash outlay.

As far as we have been able to determine, the multiple steps in the process add layers to the bureaucracy and decrease the cost efficiency of the process. When too many individuals in these multiple and overlapping levels have veto power, it prevents a product of documented good quality and reasonable price from reaching the system. It is, therefore, our recommendation that the decision of the Armed Forces Product Evaluation Committee regarding a new product be the only evaluation necessary to have access to the dining facility for testing.

We have been unable to secure sizable orders from many military installations because of inadequate freezer storage at installations. We are therefore directed to contact local food distributors who would stock and store our items for an additional add-on charge of 20 to 25 percent. This add-on increases the cost of the item to the Government, and in many instances, installations are not able to purchase a product because the price is too high with the distributor's markup. We therefore recommend that short-term contracts be issued to manufacturers for limited quantities which could be centrally stored and distributed through the existing Defense Personnel Support Centers as other supplies are handled. We suggest, Senator, that this initial purchase could be a part of DOD's set-aside program for small disadvantaged businesses. Depending on the acceptance of the product at the various installations, future contracts could be negotiated.

We have been told, Senator, by a National Military Approval Agency that they will not do business with principals, and they advise us to obtain a national military broker. However, national military brokers are not interested in new products of unknown manufacturers, particularly small business. Thus, we are denied access to the system. Even if we found a national military broker who agreed to take on our product, this would add 5 to 10 percent to the basic cost of the item. We recommend that no governmental agency be able to mandate that a company hire a military broker in order to have access to the system.

With each contact with the system, Senator, we have become more and more convinced that the military procurement system was not designed for the small minority business, but rather for big business where time, effort, capital, and manpower to negotiate the system is not a problem. The four recommendations included in

1 See p. 200.

this testimony have a potential significant cost savings to the Government. In our opinion, they would also minimize the identification of ethnicity, eliminate the variations in procedures at installations, and establish a simple entry point to the system for the small minority business.

It should be emphasized that whenever a product is introduced to the food service system it does so usually by replacing an existing item on the menu or by reducing the quantity of an existing item. The large suppliers of raw materials and finished products have generally longstanding business contacts with the military procurement system. Small minority business cannot compete with big business in negotiating the obstacles unless Government makes a deliberate effort to facilitate the access of the small minority business to the military food procurement system. We know that some branches of the military have small disadvantaged business specialists. In our experience, Senator, they are just another layer in the system, since they have no authority to minimize the obstacles and are not knowledgeable in food procurement systems or processes. With respect to the system of billing and payment, we have experienced no undue difficulty. In fact, the few installations that have placed orders with us have been prompt in their payments. Senator, that's the end of my testimony.

Senator DANFORTH. Thank you very much. How many employees are in your firm, Mr. Dunkley?

Mr. DUNKLEY. Senator, when we have the opportunity of producing at full production capacity, we have 14 employees, including my wife and myself.

Senator DANFORTH. Thank you very much. Mr. Cartwright?

Mr. CARTWRIGHT. Yes, sir, Senator, I'm Mike Cartwright and my company is Cartwright Van Lines with a subsidiary company of Cartwright International Van Lines. We do household goods moving throughout the United States and points overseas. We derive approximately 70 percent of our total interstate volume from the Government traffic. Competition in our Department of Defense shipment is very keen and we welcome this. However, we feel that the competitive posture of our market is somewhat riddled with some ill-conceived performance policies and rate filing procedures. The Department of Defense, through the Military Traffic Management Command, provides each approved motor carrier or freight forwarder the opportunity to participate in the personal property movement program. It's on the basis of rate competition and quality of services throughout the joint shipping offices through the United States. Now, a carrier may file individual rate tenders at these installations they wish to serve four times during the year during specified periods of time. In this way rate competitiveness can be achieved by the carrier either by him establishing the low rate or by meeting a low rate that another carrier has set. Quality of services that these carriers are judged by is done. through a system called carrier evaluation and reporting system. This was developed by the Military Traffic Management Command and this is an evaluation period every 6 months where they select x number of shipments moved and then they subtract penalty points from 100 and then you're ranked by a percentile. You're

this is all fine and it's a very cumbersome system; very expensive and I understand it's currently under scrutiny by GAO, but the big problem we have with it is, we-I feel it would be fair to deal with it, but due to the Government's efforts of cost savings, this system somewhat becomes unfair because a carrier can be put in the very top range on service performance and then another carrier can perhaps be ranked last, and file the low rate and garner the entire amount of traffic strictly through the rate. So there's really no real consideration given performance.

The other area is in the rate filing procedures. We just currently went through the rate filings for this most recent cycle and these are administrated in Washington, D.C., at the Military Traffic Management Command. They were supposed to have been processed and out to the individual military installation offices by the first of May. These were the rates on which we would be operating for this summertime, which is the peak time in the moving business. However, due to lack of staff management in their office, these rates in many instances were not administrated out to these local installation officers until 1 month later. We know we experienced a great penalty on the amount of traffic we should have received but we really have no way of being able to ascertain how much that is.

The other area I would like to address is in the area of payments. Both of our companies move shipments for the Department of Defense, which includes Army, Navy, Air Force, and Marine Corps. We also move shipments for several departments of the Government including Drug Enforcement, Bureau of Indian Affairs, FFA, Social Security, FBI, IRS, and on. Through the years we've continuously experienced delays in receiving payments for our services from these various military finance centers as well as other governmental departments. With my testimony, I've submitted consolidated printouts for both of our companies reflecting these payment records for the past 17 months. In respecting the shipments we've moved for the Government, we've listed our payments separately for the Army, Navy, and Marine Corps and the last area is miscellaneous other Government Agencies. The payments are organized in time segments, and we've computed an interest based on 20 percent simple interest rate beginning after the 30th day of nonpayment. For instance, the Department of the Army, in zero to 30 days-during this period of time we had billed them for 2,707 shipments for a little over $5 million in revenue and we have, of course, not shown an interest cost. From 31 to 45 days, approximately 2,500 shipments for $5 million in revenue, cost us $19,685 in interest; 46 to 60 days, $472,000 in revenue-$5,000 in interest; 61 to 90 days, $3,400 in interest; 91 to 120 days, $3,400 in interest; 121 to 180 days, $894 in interest; 181 to 210 days, two shipments, $651 in interest; and over 210 days, there were none. The Navy is worse than the Army. I won't go through all the categories, but like 31 to 45 days, $6,000 in interest; 46 to 60, $10,320; 61 to 90 days, $17,076; 91 to 120 days, $3,000 and on up; and a couple of shipments over 210 days.

Senator DANFORTH. Isn't it the standard practice in your industry to receive payment on delivery?

Mr. CARTWRIGHT. No. It is in the commercial-the private sector. That's true. Unless it is for a commercial shipper like a national account shipment. The individual shipper is normally paid by collect on delivery. But for the Government these shipments are all billed, of course.

Senator DANFORTH. Is the charge for an individual the same as the charge to the Government?

Mr. CARTWRIGHT. No. The charge to the Government is cheaper. Senator DANFORTH. Why?

Mr. CARTWRIGHT. Why? Because you have section 22 of the act and it's a highly competitive field. You're enabled to file rates; the Government takes the cheapest rate and therefore the competition in that market brings the rates down. They generally have held anywhere from about 6 to 10 percent under the commercial level of rates. However, today, we're looking at up to 40 and 50 percent. We're seeing a very difficult period of time in our industry where companies are jumping in and filing these ridiculously low rates and really unable to survive.

Senator DANFORTH. After the deregulation?

Mr. CARTWRIGHT. That's fed it considerably, yes.

Senator DANFORTH. Now, I don't want to interrupt the train of your thoughts, but the sum of it is that the rates charged the Government for moving are substantially lower than the rates that you would charge for just an individual who is moving?

Mr. CARTWRIGHT. Yes.

Senator DANFORTH. And for the individual you collect on delivery and for the Government you bill.

Mr. CARTWRIGHT. Correct.

Senator DANFORTH. And the bills are sometimes a matter of months-

Mr. CARTWRIGHT. Right.

Senator DANFORTH [continuing]. When you receive them, when you receive payment, there's no interest paid on the payments. Mr. CARTWRIGHT. No. No interest. The sum total-I didn't go into the other branches, but they're worse-but the sum total is that I was kind of astounded when I went through this, but for that period of time it cost our company $100,000-$100,219 in interest charges over 30 days.

Senator DANFORTH. Why is competition so stiff for the Government contracts if the

Mr. CARTWRIGHT. Well, they're by far the biggest shipper of-Senator DANFORTH. It's the volume, huh?

Mr. CARTWRIGHT. Yes. It's the volume. But, you know, they work very hard, I feel, to get that rate down. And as I mentioned in this carrier evaluation form, they evaluate you but it all doesn't mean anything if you come in and file the low rate, because you capture however much you want of the market. In conclusion, I have put a couple of examples in here of payments. We had, for instance, sent a billing to the Army Finance Center, and they need an appropriation number on the form. This is supposed to be supplied to us by the local information traffic officer. OK. They put the wrong one on there. We have been 312 days trying to get this thing paid and so far we've computed it's cost us $680 in interest. Just one other

center. A great deal of time went by. We checked; they said "No, rebill it out to Los Angeles." We did this. We checked back. They didn't get it. So we rebilled it again. They said "No, bill it to Anchorage, Alaska." You know, we've just constantly gone through this. We still haven't been paid. That's cost us over $500 in interest. It just becomes extremely costly, especially in this time we're in of high interest rates. That's

Senator DANFORTH. Thank you very much, sir. Mr. Loeb?

Mr. LOEB. Thank you, Senator. I've been very interested in listening to the testimony. I've had the advantage of hearing everyone before it became my turn. Our experience with doing business with the Government has been basically with GSA, not with the military, so consequently we have had different problems. We don't find it quite as difficult. I have prepared a statement that I would like to read and then, if time permits, go into some of these problems at greater length.

Senator DANFORTH. OK. Fine.

Mr. LOEB. I should say in advance, however, that this is not a new experience. Our company instituted the idea of the Government paying, or GSA at least, paying interest back in 1968, and I have some responses here from the then administrators to Senator Long and Congressman Bolling. You may find them of interest. I have them here. Our company has done business with the Government for more than a quarter of a century. In candor, I must admit that this has been a somewhat profitable relationship, though not always a happy one. Perhaps by this time we have become a bit more knowledgeable about finding our way through the jungle and have learned the most direct routes to square one. The inability of GSA to pay interest on past due accounts, if they are truly barred from doing so, is not new to us. In a letter to the Senator under date of May 27, was enclosed a file covering this very subject. In fairness, however, some judgment must be used in this matter. For instance, (a) if a discount is passed by the Government, then a period of grace must be allowed before penalty is incurred, as the vendor is covered by the passed discount. It would seem equitable that interest would accrue beginning 20 days after the discount date, at some fair daily rate. Before leaving this subject, I wish to call your attention to two letters which I mentioned before which bear directly on this. We'll leave that for a little later. So much for payment problems, which for a small business often pale before other procurement problems. In specifications-we were requested to comment, for example, on a revised issue on specifications for an item called perforator tape in 1978. To date, such a revised specification has not been issued, although we have contacted innumerable people to try to bring this about. (b) Term contracts without guarantee of purchase or at best a guarantee to take a minimum of 25 percent of estimated quantity is a problem. Since a contractor must ship an order within a stipulated number of days, he must provide or set aside machine time necessary to manufacture the 'estimated quantity," time which could have been used for commercial purposes or dedicated thereto. This amounts to an unpaid option on this equipment. Also, he must gamble that he can procure raw materials in time to meet shipping dates, or take a chance and buy materials ahead, materials which may not be used.