Imagens das páginas
PDF
ePub

Senator DANFORTH. The next witness is Wallace H. Robinson, Jr., president, National Security Industrial Association of Washington, D.C. He is accompanied by Hugh Witt, vice president, Government liaison, United Technologies Corp., Washington, D.C.; Walter O'Neil, vice president, Washington Operations, Hazeltine Corp., Arlington, Va.; and Harvey Kushner, president, ORI, Inc., Silver Spring, Md.

Mr. Robinson, would you care to begin?

TESTIMONY OF WALLACE H. ROBINSON, JR., PRESIDENT, NATIONAL SECURITY INDUSTRIAL ASSOCIATION, WASHINGTON, D.C., ACCOMPANIED BY HUGH WITT, VICE PRESIDENT, GOVERNMENT LIAISON, UNITED TECHNOLOGIES CORP., WASHINGTON, D.C.; WALTER O'NEIL, VICE PRESIDENT, WASHINGTON OPERATIONS, HAZELTINE CORP., ARLINGTON, VA.; AND HARVEY KUSHNER, PRESIDENT, ORI, INC., SILVER SPRING, MD.

Mr. ROBINSON. Thank you, Mr. Chairman.

I welcome this opportunity to appear before this subcommittee on behalf of the National Security Industrial Association. Your letter of April 22, 1981, advised that this hearing has been called to identify major problems in the Federal procurement system, and we will be most pleased to assist in that regard.

I am Wallace H. Robinson, Jr., president of NSIA, and I am accompanied by Mr. Hugh Witt of the United Technologies Corp., Mr. Walter O'Neil of the Hazeltine Corp., and Mr. Harvey Kushner, ORI, Inc., representing a large, a medium, and a relatively small NSIA member company, respectively.

The association was established in 1944 at the instance of James Forrestal, then Secretary of the Navy and later the first Secretary of Defense. It is a nonprofit, nonpolitical, nonlobby association of approximately 300 industrial, research, and educational organizations of all types and sizes, comprising all segments of defense industry in all parts of the United States.

Our essential role and purpose is to foster an effective working relationship and good two-way communications between the Government and the industry which supports it, in the interest of national security. Through a structure of 10 standing committees, several task groups, 7 chapters, and a program of national conferences and symposia, it provides industry advice and technical assistance to the Government either on request or on the association's own initiative. It provides a forum for the armed services and other Government agencies to discuss plans, problems, and future requirements with industry.

For over 37 years, NSIA has addressed the business and technical aspects of the Government-industry relationship, dealing with law, policy, regulations, and procedures in fields of procurement, research and development, logistics, and others related to national defense. Not advocating or representing the special interests of any trade or group, we have participated in various studies of procurement systems and supporting legislation ever since the inception of NSIA. In that context, I would like to address some of what we feel are the most important specific and major problem areas that we believe require attention today if a really improved and effective

Federal procurement process is to be achieved. These problems can be grouped into the following six general categories:

Overmanagement;

Lack of sufficient industry investment incentive;

Unrealistic and overoptimistic forecasts relating to inflation and

costs;

Proliferation of laws and regulations, including the use of the procurement process for socioeconomic reform;

Use of inappropriate contract types;
Adversarial relationships.

OVERMANAGEMENT

As the Department of Defense and other governmental agencies have expanded, criticisms have been made that there were insufficient controls on the procurement process. As a result, more and more checks and balances have been created. This proliferation of controls has significantly stretched out the acquisition cycle, as well as increased costs.

For example, Department of Defense program managers and contracting officers frequently have their decisions reviewed at the working level, at the Division level, at the Command level, at the Service Headquarters, at the Assistant Secretary level, and the Service Secretary level, followed by the Office of Secretary of Defense Staff-Research and Development, Program Analysis and Evaluation, and Comptroller-followed by the Defense Systems Acquisition Review Council, and finally, the Secretary of Defense. In some instances, the decisions are further reviewed by the Office of Management and Budget staff and the President before going to the Congress for committee staff review and finally, congressional action.

In addition to the above review structure, the procurement actions are checked by service auditors, the Defense Contract Audit Agency, the Defense Contract Administration Services, and the General Accounting Office. Other agencies have similar requirements for reviews and approvals.

We believe that a major reduction in layers of review would go a long way in reducing costs and speeding up the procurement process.

Detailed Government specifications found in many solicitations reduce the opportunity for innovation by industry. This limits industry's opportunity to propose design and other alternatives which would increase reliability and maintainability and reduce the number and sophistication of personnel required to maintain. and operate today's complex equipment. Also, insistence upon use of these same kinds of specifications also often inhibits industry from offering off-the-shelf, lower cost commercial items which would satisfy requirements.

Another area of overmanagement that needs attention is the recordkeeping, reporting, audit, and surveillance requirements imposed on contractors. We feel much of this effort to be unnecessary. It creates requirements which demand attention by industry personnel which is uneconomical and counterproductive and which increase costs to industry and, therefore, to Government. Every possible effort should be made to reduce surveillance requirements

to only those required to insure delivery of desired products and services without preempting the authority and responsibility of industry to efficiently perform contracts.

LACK OF SUFFICIENT INDUSTRY INVESTMENT INCENTIVES

Current policies relating to unallowable costs, progress payments, profit, and cancellation ceilings should be changed to provide adequate incentives for industry to invest in capital assets which would increase productivity and reduce costs. Industry should be assured a share of cost reductions resulting from increased productivity.

It is generally recognized that all industries have suffered a general decline in investment capability due to inadequate capital formation. Defense contractors are especially handicapped because of problems rooted in the unique relationship which exists between Government and producers of defense equipment. Therefore, they need to be additionally assured of a sustained national effort and greater incentives to invest in high-risk development and production defense contracts. These can be provided by tax incentives, that is, more rapid capital depreciation and increased credit for R. & D. expenditures. Recognition of protection of industry's proprietary information, revision of laws impacting "paper profits" and revision of regulations which unnecessarily increase industry's cost of doing business without contributing to improved products would provide additional incentive. Expansion of the use of multiyear contracts and amendment or revocation of Cost Accounting Standard 409, "Depreciation of Tangible Assets," would be appropriate and most helpful.

We strongly believe that favorable consideration of these suggestions would motivate industry to make significant capital investment, provide protection to contractors more commensurate with risk, greatly improve the strength of industrial base by virtue of continuing modernization of facilities and, finally, would result in increased productivity and reduced costs.

UNREALISTIC AND OVEROPTIMISTIC FORECASTS RELATING TO

INFLATION AND COSTS

These unrealistic inflation projections by the Government are primary factors in creating a host of problems for the procurement process. Facts and studies demonstrate that actual inflation in the defense industry has been running considerably over those inflation rates approved for use by Government agencies. Consequently costs and prices are underestimated, resulting in inadequate profits, cost overruns, program instability, and cutbacks in contract quantities-increasing unit prices and causing shortfalls in meeting hard requirements.

We suggest that future inflation rates used by the Government for planning and budgeting reflect realistic projections from recent experience. Forward indices should reflect the dynamics of a particular industry and not generalized Department of Commerce indices which may not be appropriate.

We also believe that the costs of programs should not be estimated and projected based upon a less than realistic inflation rate.

Otherwise, the inevitable resulting cost overruns will continue to undermine public confidence in the procurement process. We strongly advocate that program stability and quantity be maintained. Realistic inflation rates will also improve investment credibility in industry and provide Congress with more reliable data for its consideration of programs. Thus, realistic cost projections will increase program stability resulting in more efficient production rates and reduce overall program costs.

PROLIFERATION OF LAWS AND REGULATIONS

It has been estimated that there are approximately 4,000 statutes which affect the procurement system. The two principal statutes governing current Federal procurement policies and practices were legislated in the late 1940's. These statutes, the Armed Services Procurement Act and the Federal Property and Administrative Services Act of 1949, need to be reevaluated to ascertain their appropriateness in a system which has become more and more diverse and complex. The proliferation of statutes, regulations, and directives other than the two principal ones, imposes a tremendous burden on all who are involved in the procurement process. In far too many instances, this burden results not only in increased costs but diversion in efforts which should be concentrated on managing procurement in the most effective way possible.

A further problem area was well recognized by the 1972 report of the congressionally established Commission on Government Procurement, which stated that the cumulative burden of socioeconomic programs then enforced through the procurement process threatened a breakdown of that process. Since then, many additional socioeconomic programs have been added which are applicable only to Government contracting and which are increasing the cost of the procurement process. The Congress and the executive branch should reexamine this proliferation of socioeconomic policies to determine whether their purposes and objectives can be met more effectively without burdening the procurement process.

Our studies and experiences, in recent years, substantiate a conclusion that current laws do not support efficient procurement practices in the modern environment. For instance, innovative changes to speed up the procurement process are frequently blocked by laws which are now obsolete.

We, therefore, are convinced that there is a need for the Congress to create and enact a procurement law as a single source of authority, such as was envisioned in Public Law 96-83. We will comment on this further in a moment.

USE OF INAPPROPRIATE CONTRACT TYPES

Fixed price contracts are often used in situations which are not appropriate. This type of contract should not generally be used to procure research and development effort or to price production quantities when there is still instability in design and insufficient actual production cost experience to validate pricing decisions.

81-896 0-81- 6

ADVERSARIAL RELATIONS

Adversarial relations exist between Government and industry. As a result, the defense/industry infrastructure in both capability and productivity has been adversely affected. Lack of effective communication and participative management results in higher costs and reduced innovation. This has been made manifest through unilateral determinations of policy and interpretations which seriously impact on equity in the performance of contracts. While we strongly advocate appropriate arms-length contracting, this environment should not preclude full industry participation with the Government in the procurement process and should not be interpreted as requiring adversarial conduct of the contracting

business.

I would now like to turn my remarks from major problem areas to ongoing efforts within Government, in compliance with Public Law 96-83 to:

develop for submission . . . a uniform procurement system which shall . . . include uniform policies, regulations, procedures and forms to be followed by executive agencies. .

We believe this system and its supporting legislation should be designed to adhere to certain principles which are based upon good and traditional American business practices. We believe their dedicated and consistent application will lead to greater efficiency and economy in the management of public funds.

These principles are as follows:

Government should rely principally on the private sector for its goods and services.

Procurement should be based on competition which is open and

equal.

Contracting relationships should be characterized by fair dealing and equity.

Industry should be allowed an opportunity to earn a fair profit commensurate with risk.

The procurement process should encourage continuing industrial investment.

The procurement process should insure the protection of industry's proprietary information.

Industrial research and development should be encouraged.

The procurement process should be managed only by qualified professionals.

We hope that in creating such a procurement system the mass of current statutes will be reviewed and consolidated into a workable basic law. We urge that means be found to manage future legislation to assure that consideration is given to its impact on the procurement process, to fit it within the basic law, and to avoid repeating the proliferation of unrelated statutes which have contributed to our present difficulties.

In addition, Government agencies should adhere to the intent of Congress. In too many instances, regulations and directives implementing statutes result in establishing requirements, especially reports which we feel are well beyond the intent of Congress. We believe that in order to rectify these deficiencies, a continuing costbenefits analysis program should be instituted to ascertain the impact of regulations. Authority for conduct of this program and

« AnteriorContinuar »