MACHINERY and ALLIED PRODUCTS INSTITUTE 1200 EIGHTEENTH STREET, N.W. WASHINGTON, D.C. 20036 202-331-8430 The Honorable John C. Danforth Chairman, Subcommittee on Federal Senate Committee on Governmental Affairs Washington, D. C. 20510 Dear Mr. Chairman: April 23, 1981 Problems Concerning the Federal This is in response to the notice in the Congres- We are, of course, aware that the Office of Federal With respect to the subcommittee's hearing, we understand that its purpose, at this point, is to have individuals and organizations from outside the government identify what they believe are the problems that need to MACHINERY & ALLIED PRODUCTS INSTITUTE AND ITS AFFILIATED ORGANIZATION, COUNCIL FOR be considered in connection with the effort to develop a federal procurement system. Such information should constitute a useful background for the subcommittee when it later receives the revised UPS proposal and related recommendations from the Administration. Accordingly, we have prepared the following list of problems that, in our judgment, should be brought to the subcommittee's attention in this connection. It is to be noted that our listing consists mainly of the identification of major procurement problems but does not undertake any elaboration of detail. If further detailed information on such problems is required by the subcommittee, we would of course be pleased to provide it. Inadequate Defense Industrial Base In our view, the most important problem relating to the federal procurement system is the present inadequate state of the defense industrial base. This matter has received considerable and increasing attention in recent months, including the Defense Science Board 1980 Summer Study Panel on Industrial Responsiveness, hearings which followed that fall by the House Armed Services Committee and its Defense Industrial Base Panel,/1 and the Panel's report issued last December./2 We assume that the subcommittee has no direct jurisdiction, as such, to consider the adequacy of the defense industrial base, but we believe it to be of vital importance that the subcommittee keep this matter foremost in mind in connection with the UPS proposal which it will be reviewing. The point is that there should be assurance that the federal procurement system and its components help to improve the adequacy of the defense industrial base, rather than to aggravate the problem as we think has too often been the case in the past. Profit Policy Of basic importance--particularly in the establishment and maintenance of an adequate defense industrial base--is the level of contractor profits on government business. We think that there is considerable reason to believe that both profit policies themselves and their administration in the past have led to inadequate profits generally. In many cases and with respect to certain contracts, there has been insufficient recognition of some key relevant factors, such as unique contractor contribution in performing certain contracts and the level of contractor capital investment for the financing required to perform such contracts. 1/ Capability of U.S. Defense Industrial Base, Hearings Before the House Armed Services Committee and Its Panel on the Defense Industrial Base, 96th Congress, 2d Session, September 17, 1980-December 3, 1980. 2/ The Ailing Defense Industrial Base: Unready for Crisis, Report of House Armed Services Committee Defense Industrial Base Panel, Committee Print No. 29, 96th Congress, 2d Session, December 31, 1980. Profit limitations.--Closely related to this issue is the question of what limitations, if any, should be imposed on contractor profit levels in performing government contracts and subcontracts. This matter is of special importance at the present time because of the fact that the Congress is currently considering, in connection with the proposed Fiscal Year 1982 Defense Authorization bill, the repeal of the obsolete Vinson-Trammell Act which imposes arbitrary percentage profit limitations on virtually all contracts and subcontracts relating to the manufacture of naval vessels and military aircraft. We support Vinson-Trammell repeal without reservation; such action, we think, would serve as a signal that Congress is really serious about wanting to reform and improve the federal procurement system. Imposition of Socioeconomic For many years now, through both legislation and administrative action, companies have been required, simply because they have entered into government contracts or subcontracts, to comply with various socioeconomic requirements the objectives of which have no direct relationship to the furnishing of goods and services to the government. As you know, these requirements range over a broad spectrum, including the provision of safe and healthful working conditions, the payment of fair wages. employment nondiscrimination and affirmative action (for minorities, the handicapped, Vietnam veterans, and other groups), and subcontracting to small business and "disadvantaged" small business (in accordance with Public Law 95-507). These requirements have become increasingly burdensome in terms of quality of contract performance, costs, paperwork, and time. A lightening of this burden clearly warrants high-priority attention by Congress. Cost Accounting Standards Even though the Cost Accounting Standards Board was terminated last October, the applicability of Cost Accounting Standards continues, but in the absence of the Board only Congress has the authority to modify the Standards or to provide waivers and exemptions from their application. This situation obviously needs correction--if the Standards are to continue, some agency other than the Congress itself must have the authority to modify the Standards and to provide waivers and exemptions. In addition, serious consideration should be given to whether there should continue to be a special status for Cost Accounting Standards. Why shouldn't the Standards be treated in the same fashion as other rules relating to the allowability of costs incurred during the performance of government work? Products Liability of Over a period of time, there has been growing concern with the issue of contractor products liability both for personal injury and property damage resulting from claims based on use of contractor-furnished goods and services by the government. At first, much of this concern was focused on the lack of adequate contractor indemnification in connection with contract work involving unusually hazardous risks, but at this point, the contractor liability problem extends far beyond any "unusually hazardous" limitations. We are, of course, aware of the fact that the House Judiciary Committee is seriously considering H.R. 1504, introduced by Congressmen McClory and Danielson, which is addressed to this problem. Prompt consideration and enactment of such legislation is clearly desirable. Government Involvement in There is government involvement in the management of contractor facilities and operations to a greater degree than we think is desirable or appropriate. An example of this is the "overabundance" of Defense Contract Administration Services (DCAS) personnel in contractor facilities for the purpose of administering many major defense contracts. This is an issue of considerable importance; it seems to us that there should be stronger emphasis than is presently provided on restricting government management and interference to the extent possible. Government Patent Policy Of considerable concern for companies doing business with the government has been the continuing controversy concerning government patent policy, specifically what should be the appropriate allocation between the contractor and the government of rights in inventions occurring during the performance of research and development work for the government? A first step was taken toward its resolution last year by the enactment of Public Law 96-517 which provided a "license" policy-generally granting the patent to the contractor but with a royalty-free nonexclusive license reserved to the government--with respect to small business and nonprofit institutions. What is needed now, of course, is legislation which will extend that policy to contractors which are not small businesses or nonprofit institutions. Labor-Related Statutes There have been problems with the labor-related statutes, such as the Walsh-Healey, Davis-Bacon, and Service Contract Acts, imposing minimum wage, maximum hour, and related requirements on government contractors which furnish supplies, construction, or services, respectively, to the government. The administration of these statutory requirements has generally been assigned to the Department of Labor and, as you will probably recall, there has been dispute between the OFPP and the Secretary of Labor as to which has the authority to determine whether specific contracts are service contracts or supply contracts, for the purpose of the application of one of these statutes. The controversy was resolved in favor of the Department of Labor as the result of an opinion by Attorney General Bell, but the problem continues because of what we think was the general nonresponsiveness of the Carter Administration to contractor problems under the Service Contract Act as administered by the Department of Labor. Contractor Claims Much of our concern here--though not all--results from the Contract Disputes Act of 1978, particularly its provisions on fraudulent claims and contractor certification requirements which many feel are inequitable and perhaps unworkable. The Role of the Defense Contract What are the appropriate roles of the Defense Contract Audit Agency (DCAA) and the General Accounting Office (GAO) in the contracting process continues to be a matter of some controversy. This involves the issue of the proposed advisory role of department or agency auditors in connection with initial contract pricing, including cost estimates, and subsequent contract administration. The related issue of government access to contractor books, records, and facilities, for the purpose of audit examination and inspection, is also of considerable significance, and this issue of course involves both DCAA and GAO audit personnel. The Freedom of Information Act There is concern with issues arising under the Freedom of Information Act (FOIA) with respect to government contracts. Basically, this involves the extent to which confidential treatment will be accorded to (1) pricing and technical information submitted with bids and proposals and also with unsolicited proposals, (2) information furnished under independent research and development (IR&D) programs, and (3) DCAA audit reports and contractor information submitted in connection with such audit reports. The need to assure confidential treatment of such information, it should be noted, may well eventually lead to the need for legislative revision of FOIA. Outside Participation in the Although the procurement process has been exempted from the requirements of the Administrative Procedures Act relating to proposed rulemaking, there appears to be general agreement that the comments and recommendations of interested nongovernment groups on proposed policies and rules can be helpful and that such participation by outside groups is desirable. In addition, we believe, along with many others both inside and outside government, that such participation can be effective only when (1) sought before the policy or rule has not been finally decided upon and is still under consideration, (2) the background of and reasons for the policy or rule are disclosed, and (3) sufficient time is afforded to the outside groups to furnish such comments. These conditions to the effectiveness of outside group participation appear to be generally recognized in pertinent provisions (e.g., 81-896 0-81-12 |