Senator DANFORTH. Gentlemen, thank you very much. The next witnesses work under defense and transportation contracts: Robert Van Zant, James Brettell, and Clarence Thomas. Gentlemen, I'm going to have to take a phone call right now. I'll be back in about 5 minutes.

[Senator Danforth leaves the room.]

Senator DANFORTH. Mr. Van Zant, would you like to start, please?

TESTIMONY OF ROBERT VAN ZANT, VICE PRESIDENT FOR PROGRAM ADMINISTRATION, WILCOX ELECTRIC, INC.; JAMES BRETTELL, EXECUTIVE VICE PRESIDENT, LIBBY WELDING CO., INC.; AND CLARENCE THOMAS, ADMINISTRATIVE ASSISTANT TO THE VICE PRESIDENT FOR MARKETING, DIT-MCO INTERNATIONAL CORP.

Mr. VAN ZANT. I certainly appreciate the opportunity, Senator. It's interesting that my 5 minutes of points here-you covered about 4 minutes of it in your opening address and the other minute has been covered by the other three speakers, so I can hurry right along.

Senator DANFORTH. I was taught once when I was in divinity school, as a matter of fact, when you preach a sermon, tell them what you're going to tell them, tell them, and then tell them what you told them. So repetition is just fine.

Mr. VAN ZANT. I've been involved in various departments of Wilcox for about the last 28 years with the Government procurement practices. And so, that's a little bit of a background. The Federal procurement policies and regulations in our view are designed to insure maximum competition and thereby give all interested and qualified parties the opportunity to bid on Government jobs and offer the best price for the Government. This procurement system is basically sound and it works. However, any system can be made better, and a few of the comments that follow really are designed to be hopefully helpful, constructive criticisms. Now, in 5 minutes you can't really review the practices of the Government as far as procurement, so I've picked out two or three points to emphasize this morning and not necessarily the most important points of the system or in the order they're presented. No. 1: we talk about excess regulations. It's our experience that the Government contracting officers and buyers as a group are knowledgeable and dedicated people, who have been regulated and guidelined and protested and sometimes arm-twisted into ineffectual order-placers. and really are not allowed to use their good judgment to contract in the manner to accomplish some of the goals that you just referred to, Senator, for the Federal procurement system. In our experience, most all award decisions are based on the lowest quoted price with very little attention to other important factors, such as total cost to the Government, or the product fulfilling the Government's needs, or quality control of the product, or to sup port of an industry that supports other facets such as small business and affirmative action programs.

Point No. 2 has been referred to before. In our segment of the industry, it's equally important, and that is the long procurement cycle. It is a very complex and time-consuming series of steps

involved in our procurements on even relatively small dollar amounts, which take such a long time to process that even an apparent low bidder on a job has an almost impossible task of holding his price and his delivery capabilities, especially in view of today's double digit inflation. For example, it takes about 1 year from the announcement of a program from the Government to an award of contract. That's an average. Sometimes less, sometimes more. During that time, the contractor must spend a lot of administrative cost, maintain his capability to meet the job, maintain his delivery position. A solicitation typically goes out, has a 30- to 45day response time. If the procurement is a highly technical one, as it is mostly in our industry, it requires an extensive proposal and a detailed auditable cost package. And it has to be time-phased to usually a very ambitious delivery schedule. The contractor in anticipation of an early award must keep his capability to deliver, charge to his overhead expenses, until the contract is awarded. If there is a substantial delay in executing the contract, the contractor is very frustrated by his mounting costs. If he increases his bid to cover the long-time phase that he expects, he usually loses the bid.

The third point is military specification versus commercial product. The mil specs on special electronic components serve a very useful purpose when they describe the application for the product and usually define the environmental extremes over which it can operate. They also serve to standardize the manufacture of frequently used components. The problem with mil specs has to do with technical obsolescence. The computer-oriented devices in today's market, where technology is changing rapidly-high performance, low cost, semiconductor devices for instance, are being developed and are being spread in worldwide commercial use before the mil specs are modified in order to create or utilize this modern technology. The Government frequently can utilize the equipment that already exists. However, when it comes to procurement, the Government adds mil specs which may increase the cost and force older and less modern components into the design.

We also suffer from the interest charge problem, which has been adequately covered I believe. The contractor needs the right to collect interest costs from the Government for slow and untimely payments. At present, the only way we have to do that is to file a claim. The claim, and the process of the claim, is costly to both. sides.

And lastly, I believe, a topic called small, inexperienced companies, and this deals with some subcontracting work that we've done in the past. A company doing business with the Government for the first time has a lot to be wary of, especially if he's small. The Federal procurement system may subject him to a cost that he didn't bid in areas of financial reporting and audits and procurement approvals, specification rigidity, quality control, and many others. We have seen this result in contract terminations, no product to the Government, hardship or even bankruptcy to the small company. In summary, one could conclude that a company should be aware of these requirements and protect himself against them, but too often the vast Government $100 billion pocketbook is too lucrative to the hungry bidder. Thank you.

Senator DANFORTH. Thank you, sir. Mr. Brettell?

Mr. BRETTELL. Thank you, Mr. Danforth. We are in the generator business, a business that is not unrelated to Wilcox Electric. We provide the units for the military which generate the electric power to operate his devices. We've been in the business with the Federal Government for more than 40 years, and I have been with the company for about 15 years. For more than 20 years prior to that I was in the Government procurement business on the other side of the table, so I have the dubious advantage of having seen the Government procurement process from both sides. I think perhaps all our remarks are directed toward the same general area, but I do have some comments to make that are in a little different orientation-in the contract administration field in the military department per se.

We deal with the Federal Aviation Administration also who buys under the Federal procurement regulations as opposed to the Defense acquisition regulation. In the Department of Defense, the contract administration is all through an organization called Defense Supply Agency-DSA-which was established about 20 years ago as a result of Project 60 initiated by the then Secretary of Defense McNamara. The DSA was originally set up to operate two general agencies: one, Defense procurement offices, which actually did the buying; and contract administration offices, which would administer the contracts once they were purchased. The theory of this was good. There wasn't anything wrong with it at all. The practical application, however, after the organization was developed, lost sight of the original goal. The contract administration offices, although they were developed and staffed with very adequate, well-trained people, never did get the authority to administer the contracts. The result is that the buying offices, who never were really set up, organized, and staffed to conduct contract administration, have retained the contract administration authority for themselves. They don't have the people or the know-how to do it. The contract administration people are sitting out here in the cities with nothing to do and no authority to do it. So in reality, in spite of the fact that DSA has an organization and qualified personnel to perform contract administration, they're really no more than a message center; they do generate delays and redtape as a result. I understand it is the purpose of these hearings to try and eliminate such redtape. The contract administration function is a very serious one and should be transferred from the procurement offices to the contract administration offices. It needs attention because it's the heart of contracting in the Government. These DSA-DCASMA people are local, are on the spot; they're wellqualified in contracts; they're well-qualified in the product that we produce. They are here, available for us to talk to eyeball to eyeball. They know our plant, our personnel, our product. They can look at the problem on the spot and they can make a pretty welleducated decision, but they're not permitted to simply because of the authority lines.

The second area I'd like to address is testing. I suppose there have been a lot of jokes over the last 100 years about Government testing, and it's true. We practically wear the equipment out testing it. But, there are three areas in particular which I really

believe need to be addressed. (A) In each contract that we enter into, there is a part of that contract called preproduction testing. This involves several units of the first production lot which are subjected to a particular series of testing which may take anywhere from 6 months to 2 years and may cost, characteristically, $1 million. It's not uncommon at all-as a matter of fact it's the rule that a contractor like ourselves would get a contract for exactly the same item that we're producing today-a follow-up contract—and be required to conduct a complete new set of preproduction testing in spite of the fact that we offer $800,000, $900,000 or $1 million to waive that testing. The decision not to waive the testing is very often based on a decision by an engineering group in the process that-well, you're using a different component here than you used in the last contract; therefore, we have to go through all the testing again. Now they lose sight of the fact that the component in question is identified and specified by detailed Government drawings. So that if it's made any different than the drawings, they won't accept it. If it's made exactly like the drawing and it doesn't work, it's a question of what the Government wants to do with their product. Additionally, it contradicts the spare parts buying practices in which the Government buys these same components as spare parts from any one of a number of manufacturers and does not get the benefit of preproduction testing. There's a lot of money, in my opinion, wasted in preproduction testing that could be saved by prudent business judgment and testing of a specific component, rather than an entire product. (B) In another area of testing, we have what's called Component Equivalency. This is a matter of developing an alternate source for a component that has already been tested in preproduction testing, where we have a sole source-and we have one in a current project which I explained to Mr. Brewster yesterday. It's a radiator, much like the radiator in your car. It cools a diesel engine on a generator set. The original design included a radiator from a reputable radiator manufacturer who as a sole source, since he was approved on the original unit, simply takes his bite at the Government every time a bid package comes out. Either there is a production package from us or a spare part package directly from the Government. In our efforts to develop an alternate source for that item to generate a little competition and to try to keep the price down, we came up with another perfectly well-qualified nationally known radiator manufacturer and submitted a proposal to the Government to install a couple of these radiators on units that we are producing for another preproduction model test and test them during our preproduction test to qualify them. That was denied on the basis that the preproduction model test was not sufficient to qualify the radiator. Now the basis for the preproduction model test itself is that we're using a different generator than we're using on the current contract; therefore, what they're really saying is we're going to qualify the generator which produces the kilowatts on this test but that's not enough testing to qualify the radiator. These things are not consistent and they are a tremendous waste of money; there's no question about it. Additionally, it's a tremendous waste of time because these preproduction tests are going to take months and months and cost lots of dollars. In the meantime, we're going to