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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.

CLOSING REMARKS

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 Loeb. Mr. Dunkley, would you like to start?

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

83-821 0-81-13

specific, dealing with the various steps of the process for you to 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

1See 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 thrown into three groups: superior, excellent, and standard. Well,

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?

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