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EIGHTY-NINTH CONGRESS

FIRST SESSION

JULY 13, 1965

Printed for the use of the Committee on Post Office and Civil Service

U.S. GOVERNMENT PRINTING OFFICE

52-252 WASHINGTON : 1965

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..COMITE;TE114N POST OFFICE AND CIVIL SERVICE

• elm MURRAY, Tennessee,

JAME§ H. MORRISON, Loiislana

THADDEUS J. DULSKj, Niw York

DAVID N. III,WDERSONV North Carolina

ARNOLD OLSV& limistana

MORRIS K. UDALL, Arizona

DOMINICK V. DANIELS, New Jersey

LINDLEY BECKWORTH, Texas

HARLEY 0. STAGGERS, West Virginia

ROBERT N. C. NIX, Pennsylvania

JOE R. POOL, Texas

WILLIAM J. GREEN, Pennsylvania

SPARK M. MATSUNAGA, Hawaii

PAUL J. KREBS, New Jersey

RAYMOND F. CLEVENGER, Michigan

JAMES M. HANLEY, New York

JOHN V. TUNNEY, California

CHARLES E. JOHNSON, Staff Director

B. BENTON BRAY, Associate Staff Director

JOHN H. MARTINI, Counsel

WILLIAM A. IRVINE, Assistant Staff Director

Chairman

ROBERT J. CORBETT, Pennsylvania

H. R. GROSS, Iowa

GLENN CUNNINGHAM, Nebraska

EDWARD J. DERWINSKI, Illinois

ROBERT F. ELLSWORTH, Kansas

ALBERT W. JOHNSON, Pennsylvania

JOHN H. BUCHANAN, JR., Alabama

JAMES T. BROYHILL, North Carolina

SUBCOMMITTEE ON MANPOWER

(B-370(b), Rayburn Building—Ext. 2821)

DAVID N. HENDERSON, North Carolina, Chairman

LINDLEY BECKWORTH, Texas

ROBERT N. C. NIX, Pennsylvania

RAYMOND F. CLEVENGER, Michigan

JAMES M. HANLEY, New York

JOHN V. TUNNEY, California

H. R. GROSS, Iowa

EDWARD J. DERWINSKI, Illinois

JOHN H. BUCHANAN, JR., Alabama

Ex Officio Voting Members

TOM MURRAY, Tennessee ROBERT J. CORBETT, Pennsylvania

II
serve%

ttis r 30

'41171111,

CONTENTS

Statement of Hon. Norman S. Paul, Assistant Secretary of Defense for

Manpower, and Hon. Paul R. Ignatius, Assistant Secretary of Defense

for Installations and Logistics, accompanied by Robert Moot, Deputy

Assistant Secretary of Defense for Installations and Logistics, and

Gus C. Lee, Director, Requirements and Utilization, Office of Assistant

Secretary of Defense for Manpower 

Page

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USE OF CONTRACTOR PERSONNEL IN THE

DEPARTMENT OF DEFENSE

TUESDAY, JULY 13, 1965

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON MANPOWER OF THE

COMMITTEE ON POST OFFICE AND CIVIL SERVICE

W ashing ton,D 'D.C.

The subcommittee met at 10 a.m., room 219, Cannon House Office

Building, Hon. David N. Henderson (chairman of the subcommittee)

presiding.

Mr. HENDERSON. The subcommittee will come to order.

Last summer this subcommittee spent many days questioning management officials from the Office of the Secretary of Defense and

military departments, and received testimony from officials of National

Government employee groups and from trade associations concerning

the control of total labor costs in the Department of Defense.

Upon opening these public hearings in June 1964, I stated that this

subcommittee was neither antimilitary nor anti-private-industry. But

I did emphasize the fact that our subcommittee had evidence to prove

that in many instances the Defense Department was continuing to

use, month after month, year in and year out, combat-qualified military personnel and/or contractor personnel to perform work that has

been handled more economically and efficiently over the years by civil

service employees. It was also the contention of this subcommittee

that some contractor-furnished labor was not only more expensive

than use of civil service employees but also of questionable legality.

On this latter point, the General Counsel of the Civil Service Commission, concurred in by the Comptroller General of the United States,

has ruled that contracts with private industry to furnish personnel to

be supervised by Government employees and to work alongside them

are illegal.

The public hearings emphasized to the members these points, all of

which are found in House Report 129.

(1) The Secretary of Defense should establish procedures to

insure more information at headquarters level concerning contractor

operations.

(2) Comparative cost data relating to the military personnel, civil

service workers and contractor employees were found to be most

inadequate, at all levels of organization in the Defense Department.

(3) The Bureau of the Budget should revise its policies relating to

the procurement of services.

Since our public hearings last summer, the Secretary of Defense has

taken action, so I understand informally, to correct several manpower

1
2 USE OF CONTRACTOR PERSONNEL IN THE DOD

management issues and thereby insure a tighter control over the total labor costs in the Department. I also understand that in the one area of .contract technicians, where we have been especially interested, action is already underway to go to in-house operations and save the

taxpayers millions of dollars. If this be true, I applaud Secretary

McNamara and his staff for this initiative and accomplishment.

We have requested two of Secretary McNamara's assistants to appear before us today to tell us what they have done and to report on where the Department plans to go.

We are most happy to welcome before the subcommittee the As- sistant Secretary of Defense for Installations and Logistics, Hon. Paul

R. Ignatius; the Assistant Secretary of Defense for Manpower, Hon.

Norman S. Paul; and their very able staff assistants, Mr. Gus C. Lee and Mr. Robert Moot.

Last year we were impressed by the testimony of both Secretary

Paul and Secretary Ignatius. However, Secretary Ignatius last year

was speaking as the Under Secretary of the Army and has now moved

up as Assistant Secretary of Defense. We will be quite interested,

Mr. Ignatius, to get your philosophy concerning in-house versus contract operations.

Upon my suggestion, the witnesses today have only one position

paper. Would one of you please present it, after which I am sure the

members will have several questions?

Mr. PAUL. With your permission, Mr. Chairman, I will read the

statement, just because it is a little more efficient that way, although I

am covering not only my areas but Mr. Ignatius' as well and we will

be prepared to answer questions on our respective areas.

Mr. HENDERSON. May I say at this point, Mr. Paul, that, while we

were surprised about the announcement on the changes in the Department of Defense, particularly with the Air Force this past weekend.,

the subcommittee members are glad we are not going to lose your serv- ices in Government and it is a pleasure to have you this morning.

Mr. PAUL. Thank you, Mr. Chairman.

STATEMENT OF HON. NORMAN S. PAUL, ASSISTANT SECRETARY

OF DEFENSE FOR MANPOWER, AND HON. PAUL R. IGNATIITS,

ASSISTANT SECRETARY OF DEFENSE FOR INSTALLATIONS AND

LOGISTICS; ACCOMPANIED BY ROBERT MOOT, DEPUTY ASSISTANT

SECRETARY OF DEFENSE FOR INSTALLATIONS AND LOGISTICS,

AND GUS C. LEE, DIRECTOR, REQUIREMENTS AND UTILIZATION

(SPECIAL STUDIES AND REQUIREMENTS), OFFICE OF ASSISTANT

SECRETARY OF DEFENSE FOR MANPOWER

Mr. PAUL. It is a pleasure to meet with you this morning to discuss

the progress the Department of Defense has made, the present status,

and the outlook for controlling labor costs in the Department of

Defense.

Mr. Ignatius and I are aware of this subcommittee's continuing interest in the use of contractor personnel, as well as your interest in

other aspects of manpower control and utilization. In connection

with your request for information on contract technicians in March

1964, members of our respective staffs reviewed the data on each such
USE OF CONTRACTOR PERSONNEL IN THE DOD 3

contract. Subsequent to hearings of this subcommittee last June, the

Assistant Secretary of Defense (Installations and Logistics) and I

recommended that the Secretary of Defense initiate a much more

thorough and comprehensive study of Department of Defense policies

and practices in the utilization of contract support services than had

previously been undertaken. Concurrently, in connection with the

study of the draft, which is to be submitted to the President in the

near future by the Secretary of Defense, we shall include recommendation as to the appropriate proportions of in-house military and

civilian personnel.

Mr. Chairman, as you observed in your opening remarks at our hearing last year, the efforts of military, civilian, and contractor personnel

are necessary to discharge the many and varied functions of the Department of Defense. I plan to discuss briefly the considerations

affecting the use of each category of personnel. I will then cover the

findings and conclusions of the studies made during the past year and

the status of present plans and programs. As you know, Mr. Ignatius

was Chairman of the Defense Steering Group which conducted the

study of Contract Support Services. The study of the in-house mix

of military and civilian personnel was conducted under my general

supervision. The two studies give us an overview of the direction in

which to go in making adjustments in the present proportions of the

three broad categories of personnel—military, Government-employed

civilians, or contractor-employed personnel.

There is general agreement upon the considerations governing the

use of military personnel. Clearly, military personnel should be used

in combat units or in units whose mission and contingency plans call

for the development of personnel on short notice into a combat environment. About 65 percent of the 2,650,000 military personnel of the

Department of Defense are in the operating forces in combat or combatsupport type units. To maintain total strength at about the present

level, we replace our annual losses of military with about 500,000 new

personnel each year, entering service for the first time. Because of

the need for individual skill or unit training; the need for education

to provide career personnel the opportunity to increase their knowledge

and ability; and the need for rotation from sea duty, from "hardship"

or other overseas areas, we allocate about 17 percent of military personnel to the training establishment, including trainees, students, instructors, and supporting personnel. The military departments

attempt to assign military personnel rotated back from overseas to

an operating unit or a training activity but some are assigned to

support activities where their skills may be utilized while they are

provided a tour of duty in the United States. About 15 percent of

total military personnel are assigned to support activities, such as major

command headquarters or a commercial or industrial-type activity

like a maintenance or supply depot. These commercial- and industrialtype activities, however, are where we predominantly use Department

of Defense civilian personnel. There is general agreement that the

use of military in these commercial and industrial-type activities

should be generally limited by the necessity for rotation, training, and

career development of military personnel concerned.

Defense policies, in effect, provide for the maximum use of civilians

in support-type activities, except where limited by the need to provide
4 USE OF CONTRACTOR PERSONNEL IN THE DOD

an effective military force through rotation, training, and career de- velopment of military personnel. In staffing key positions, we must be concerned to provide attractive civilian career opportunities, in- cluding training, similar to those provided to military personnel. Our objective must be and it is to recognize the knowledge, skills, and experience possessed by both military and civilian personnel, to match this knowledge, skills, and experience to job requirements, thereby developing an effective military-civilian team effort. On the basis of these objectives and by careful analysis of the ratio between overseas positions and positions in the United States for each military skill and the training requirements for these skills prior to expanded Vietnam operation, we became convinced that thousands of positions, the exact number of which has not been determined, and may not for some time be identified in which civilians could be utilized without detriment to present rotation, training, or career development policies. The military released could be used to reduce total military manpower requirements or to increase combat strengths, depending on military manpower requirements at the time. The cost implications favor the use of civilians, where practical, primarily because of the relatively high turnover and training costs associated with the military personnel. The Secretary will make specific recom- mendations in this matter in his forthcoming report to the President

on the draft.

Since our last hearing, we have made significant progress in devel- oping a course of action to assure appropriate use of personnel hired by contractors in the performance of support activities. Mr. Ignatius

was Chairman of the Defense Steering Group so that, in this instance I am describing a project which he and his predecessor and their asso- ciates accomplished, with the help of other elements of the Department, and which I believe was an outstanding job. I would like to summarize the study now.

The Secretary of Defense emphasized cost considerations in direct- ing the contract support services study, but due consideration was (riven other factors. The steering group examined both the situations where greater use of contractual support would be a more economical

means of performing commercial- and industrial-type functions which

are available on a competitive basis from private enterprise and the situations where the use of contract support was more costly than

Government performance. We also considered military readiness objectives and the applicability of civil service laws and regulations.

In summary, the four factors considered in our recommendations were national policy, military readiness, civil service laws, and comparative

costs.

One of the major conclusions of our study was that the military

departments primarily through the use of in-house civilians, should develop in-house capability, early in the life cycle of new weapons,

to maintain operate or provide training on weapons and equipment.

As a result, use of contract technical personnel in this area will be curtailed. Civil Service Commission representatives have concurred

in our program and have indicated that it will be consistent with

civil service laws and regulations. We estimate that about 8,300 contract technical service personnel will be replaced by Government personnel, about 7,500 of whom will be civilians and the remainder
USE OF CONTRACTOR PERSONNEL IN THE DOD 5

military. We estimate annual savings of $30 million when the program

has been carried out. This was based on a previous estimate involving lesser numbers of personnel.

Mr. HENDERSON. We heard unofficially the figure was $35 million.

We are very pleased it comes closer to what we heard.

Mr. PAUL. There is a figure of $35 million which is also a correct

figure. This is strictly, as I understand it, the defense aspect of it.

Mr. MOOT. It might be well to explain the difference in the figures.

One cost computation takes all Government costs in, such as loss

in income tax, interest that the Treasury pays, which is the $30 million figure. The $35 million figure reflects the change in the Defense

Department budget so that we will get a greater budget saving than

the Government-wide saving.

Mr. HENDERSON. It is very good to have that because we recognized

for some time that there are different cost bases for arriving at these

savings. It is very helpful.

Mr. PAUL. Our plans call for completion of this phase of the program by July 1, 1966. We are presently reviewing the service programs for this conversion.

We estimate the annual costs of support services to be on the order

of $8 billion, of which about 57 percent is performed in-house and

about 43 percent by contract. Depot level maintenance, the repair

and rebuild of equipment, accounts for about one-half of this total;

the balance can be divided into roughly about five equal categories.

These are operation and maintenance of facilities; storage; transportation services; housekeeping services; and all others. This particular

study excluded depot level maintenance, since this function was already being covered by separate study. Perhaps our major finding

was that we have to proceed on a case-by-case basis, as is recommended in the subcommittee's report on the use of contractor personnel. Each installation and each geographic area presents unusual

problems. The project staff conducted 40 case studies, involving about

..1.3 billion. On the basis of this sample, we concluded that, as measured by dollars, in about half of these areas the present method of

performance, whether by contract or in-house, is appropriate.

In a variety of functions involving on the order of $650 million,

some economies could be made by a shift in the method of performance.

In some functions and areas presently performed by contract, inhouse performance would be preferable; however, in cases covering

a majority of the costs, a shift from in-house to contract would be advantageous. To illustrate the case-by-case nature of the problem, we

found that, in 11 functions where the aggregate of studies reflected an

advantage for contract performance, one-fourth of the cases favored

Government performance. Defense is now embarking on a 3-year

program to adjust the method of performance of functions, on a caseby-case basis, using the cost models and procedures derived from our

40 case studies to provide a systematic approach to this work.

In accordance with the subcommittee's recommendations, we have

developed comparative cost criteria for comparison of in-house and

contract costs. We expect these to be consistent with the Bureau of the

Budget guidelines in this respect. We are computing the total cost

of performing services under contract by adding to the contract price

the cost incurred by the Government in administering the contract and

52-252-65--2
6 USE OF CONTRACTOR PERSONNEL IN THE DOD

any cost of standby or underutilized facilities which is incurred as a

result of contracting. For purpose of comparison with contract costs,

we are computing in-house costs by adding to the total appropriated

cost, including depreciation, the loss of Federal income-tax and excisetax revenue, the cost of any self-insurance not included in maintenance and repair costs, the cost of interest applied only to additional

in-house costs over contract costs, and a general administrative cost.

We believe we have developed a sound and realistic method for comparative cost analyses.

. I think it comes as no surprise to this subcommittee that we found

differences in labor costs in many cases to be a significant element

in the cost comparisons, particularly in instances of unskilled or less

skilled labor. The Government's wage policy is one of payment of

the prevailing rate; a contractor may pay less. In the service contract area there are no wage protections like the Walsh-Healey Act in

manufacturing and the Davis-Bacon Act in construction. Some contractors have even paid less than the Fair Labor Standards Act, although the Department of Labor takes the position that work of

military installations is generally covered and has brought several

court actions on the subject, which are now pending. I believe we

should move further toward uniformity on wage board matters in

the Department of Defense, as a part of the Government-wide study,

or earlier if practical.

Also, in accordance with your subcommittee's recommendation, we

have developed a reporting system on contractor personnel. For all

commercial or industrial services having a cost of over $25,000 annually, we will obtain an annual report of civilian, military, and contractor personnel, by installation and by function, including personnel costs. This report will be very useful in our followup on this

program, as well as in manpower management generally.

In conclusion, Mr. Chairman, I believe we can state that we have

made significant progress in the past year. We have completed a.

comprehensive study of the proportions of military and civilian personnel. We are phasing out the use of contract technical personnel.

We have developed the cost models for case-by-case studies of all

other contract support services under a definite timetable. We have

acted to close the information gaps on reporting of contractor personnel. The directives covering these programs are in the final stages

of coordination and will be furnished you when published, probably

within the next 6 weeks. We have by no means solved all the problems, but we have taken real steps toward significant.improvement

in those aspects of manpower utilization concerned with use of the

appropriate category of personnel.

Mr. Ignatius is accompanied by Mr. Robert Moot, Deputy Assistant

Secretary of Defense (Installations and Logistics), who served as

staff director of the contract services study project. These gentlemen

will be glad to furnish additional information on the subject of contracting for support services. I and Mr. Lee, Director of Manpower

Requirements and Utilization in my office, will be glad to furnish additional information about other aspects of manpower utilization.

Thank you.

Mr. HENDERSON. Mr. Paul and Mr. Ignatius, may I compliment

you on a very brief and very effective statement, one that I think
USE OF CONTRACTOR PERSONNEL IN THE DOD 7

clearly proves that the session this morning will be beneficial if for

no other reason than to get your statement into the record where the

members of the subcommittee can use it in their considerations

throughout this and certainly next year.

Secretary Paul, could you give us the figures on the total military

in-house at the present time or, let us say, your last reporting period?

Mr. PAUL. Yes, sir.

Mr. HENDERSON. Compare it with say June 30, 1960?

Mr. PAUL. I can give you our latest. This is an estimate, civilian

employment exclusive of civil functions—which is handled in a different fashion—of approximately 994,000 as of May 31.

Our total figure as of the end of the last fiscal year, which I know

is not the figure you asked for but for comparison purposes is approximately 998,000.

The figure June 30, 1960, is 1,225,000. That includes foreign nationals. That is not a directly comparable figure but I would be glad

to supply it.

Mr. HENDERSON. If you would do that. There is an obvious reduction in the total of civilian force in the Department of Defense over

the 4-year period.

Mr. PAUL. Yes, sir.

(The information follows:)

DOD direct-hire civilian strengths, fiscal year 1960 through fiscal year 1966

Fiscal year:

1960 1, 047, 120

1961 1, 042, 407

1962 1, 069,543

1963 1, 049, 765

1964 997, 864

1965 1 994, 424

1966 2963, 720

1 As of May 31, 1965.

2 Authorized in fiscal year 1966 budget.

Mr. HENDERSON. What is the comparison of military figures for the

same period?

Mr. PAUL. The military strength—now again I will refine these

for the record—the military strength now is between approximately

2,640,000 or closer to 650,000 at the present time. You want a 1960

figure?

Mr. HENDERSON. 1960 military figure.

Mr. PAUL. We have to add up some totals. I think it is an increase

of about 150,000 or 175,000.

Mr. HENDERSON. You might supply the exact figures.

Mr. PAM,. Yes, sir.

(The information referred to follows:)

DOD military strengths, fiscal year 1960 through fiscal year 1966

Fiscal year:

1960 2, 476, 435

1961 2, 483, 771

1962 2, 807,819

1963 2,699, 677

1964 2, 685, 050

1965 1 2, 639, 296

1966 22, 640,266

As of May 31, 1965.

2 Authorized in fiscal year 1966 budget.
8 USE OF CONTRACTOR PERSONNEL IN THE DOD

Mr. HENDERSON. Roughly, you say it is a 175,000 increase from the

military?

Mr. PAUL. Yes, sir.

Mr. HENDERSON. Would you like to again explain and I know you

did last year, the reason for the trends here: downward of civilian and

upward of military?

Mr. PAUL. Mr. Chairman, several important decisions were made

during the last several years in the Military Establishment which resulted in an increase. The total number of active army divisions has

been increased. There has been an increase in tactical squadrons in

the Air Force. There has been a slight increase in naval strength, all

due to strictly military requirements.

This is a fluid situation right now. There are changes occurring

regularly within the various services. The Air Force, in toto, is going

down in military strength, largely due to the lesser dependence on

manned strategic aircraft and more on missiles. However, the Army

strength has gone up significantly and will probably or could continue to rise. Again, due to the strictly military requirements and the

technology of the times.

On the civilian side, the reason for the decreases—and they have

been gradual but they have been steady—is that we believe that we

can through improvements in the productivity of our work in the

Defense Department decrease the total number of civilians we have

on board. We continue to believe that hopefully the total civilian employment can be reduced but we realize, as this committee has pointed

out, it is a false economy to decrease civilian personnel to a degree

where the only way you can get the job done is to have certain Jobs

undertaken by military personnel which should be done by civilians.

Mr. HENDERSON. I was coming back to your statement where you

estimate that 8,300 contract technical service personnel will be replaced by Government personnel or about 7,500 of whom will be civilian, the remainder military. The result of this would mean we could

expect, if no other factors were taken into account, that your civilian

force would increase by 7,500 and your military would increase by

the figure of 800?

Mr. PAUL. No other things taken into account, that would be correct.

Mr. HENDERSON. However, I feel sure that your statement proves

that there will be savings to the taxpayer of $30 million by an increase

both of military and civilian personnel in this instance?

Mr. PAUL. Yes, sir.

Mr. HENDERSON. What I was trying to get into focus, Mr. Paul,

is the contention of our subcommittee that there were some areas in

which we could save dollars by increasing civilians and, as you pointed

out, to a slight extent here in the military slots.

Mr. Paul, have the percentages that I cite, of 65 percent for allocation of combat, 17 percent for training, and 15 percent for civiliantype jobs, changed materially in recent years?

Mr. PAUL. I believe that has remained fairly stable, Mr. Chairman.

Mr. LEE. The percentages of military have remained fairly stable.

On this you take the total military and divide it up as to the percentages. This changes within 1, 2, 3, and 4 percentage points over

a period of time. The earlier trend which you mention in your fig-
USE OF CONTRACTOR PERSONNEL IN THE DOD 9

ures is that we have, as Mr. Paul explained, in the last 4 years gone

up in military. The biggest single factor would be the two additional

Army divisions added and we have gone down in civilians.

That relationship, that trend is there, of military up and civilian

down, but the proportionate distribution of military is constant,

fairly constant.

Mr. HENDERSON. I also would like to compliment you on what I

think is a very clear statement with regard to the conclusion that you

have come to that you need to make studies on a case-by-case method.

It is very difficult for any sort of generalization to fit into all of the

complex problems that you have.

The next question I will ask will be somewhat of that nature. All

of the information concerning the military in support-type jobs who

can be released for combat seems to me to be most interesting in view

of the specific study recently made at the Sacramento Air Materiel

Base where the number of civilians declined by 19.4 percent or 3,140,

whereas the number of military has increased by 282 percent or 1,056

between the years 1957 and 1965.

I recognize this is a rather long period of time but I thought that

you would want to comment on the fact that, if you look at the caseby-case evidence that we have? you could find some contrary results

to the position that you have pointed out in your statement.

I am sure that it is probably true in many other specific cases. Mr.

Paul, in your statement—any of you might respond if you like—

you mentioned a study of the military personnel in civilian-type jobs.

Was such a study done just before the Cuban crisis?

Mr. PAUL. Yes, sir; a similar type study.

Mr. HENDERSON. Of course, some of our studies, or all of them, can

be knocked into a cocked hat, depending on the military situation that

might arise, even while the study is going on.

Mr. PAUL. Mr. Chairman, I would like to elaborate on that. I made

a statement that we had made our study, or started it at least prior

to the expanded Vietnam operations. If the operations are expanded

that could have an effect on the whole thing. But we do not think it

is going to have too major an effect. It will be more or less peripheral,

largely occasioned by the fact that the more men you send overseas

on short tours, which is what we are now operating on in Vietnam,

the more the need you will have for a rotational base in the States

which would have an effect on whether or not certain jobs can be civilianized.

That is all I meant when I made that reference to Vietnam.

Mr. HENDERSON. Very briefly, it may be helpful to the new members

of our committee, but in your statement, when you speak of the four

factors, national policy, military readiness, civil 'service laws, and

comparative costs, we are all very familiar on the subcommittee with

the latter three. But when we speak of national policy—and I will

not ask you to spend a great deal of time on that because I am sure

you and Secretary Ignatius can spend the rest of the morning elaborating on this—would you tie this back to your statement of the Vietnam operation? Is that the type of operation you are talking about

when you use the term "national policy"?

Mr. PAUL. Well, I am glad you asked that question, Mr. Chairman.
10 USE OF CONTRACTOR PERSONNEL IN THE DOD

By national policy I did not have any reference to broad international and national policy. I was referring there to the provision

of BOB Circular 60-2 which has not been completed yet. I understand it is close to being completed. We are generally aware of the

lines it is taking. It is that policy, the policy of which costs one does

and does not include, I was referring to.

Mr. HENDERSON. I thought that the newer members of the subcommittee would want to recognize this as being the fact.

Mr. GROSS. Would the gentleman yield at this point?

Mr. HENDERSON. Happy to.

Mr. GROSS. Last summer, Mr. Ignatius furnished the subcommittee

with a list of contractors working for the Defense Department in

Vietnam.

Do you still have contractors in Vietnam?

Mr. IGNATIUS. We have construction contractors in Vietnam, Mr.

Gross. The study of the contract technical services, that Mr. Paul

has summarized in his statement, included contract technicians worldwide, thus including those in Vietnam.

Mr. GROSS. You are still awarding contracts to civilians for the

repair of tanks in Vietnam?

Mr. IGNATIUS. All of the—

Mr. GROSS. Equipment in Vietnam?

Mr. IGNATIUS. As I say, all the contract technical services being

conducted in Vietnam are included in the conversion plans that we

have summarized and therefore those that were designated for conversion to in-house—and most of them were—will be phased out during

the period of the coming year really beginning now and to be completed at 12 months from now.

Mr. GROSS. When we fought World War II, did we farm out to

private contractors the maintenance of battle equipment in various

theaters of the world?

Mr. IGNATIUS. I am not familiar with the World War II experience

but we can check that and provide it for the record, Mr. Gross.

Mr. GROSS. You do not think we did, do you?

Mr. IGNATIUS. I am not making a statement one way or the other,

because I do not know, but we will be glad to furnish that for the

record.

(The information referred to follows:)

Contract maintenance of military equipment was utilized during World War II.

Examples of this were—

India-Burma theater of operations.—During 1944 and 1945, the Hindustani

Aircraft Corp., at Bangalore, India, performed a wide variety of contract

repair and maintenance work on U.S. fighter and troop aircraft in operation

in that theater.

Pacific theater of operations.—During 1943, 1944, and 1945, contract repair,

overhaul and maintenance of numerous and varied types of U.S. naval ships

was carried out in Honolulu by the Kauai Marine & Machine Co., and by the

Inter-Island Navigation Co. Similar contract repair and maintenance was

performed on U.S. ships by various local firms in Trinidad, British West

Indies.

European theater of operations.—During 1944 and 1945, replacement of

vehicle tires became a critical problem within the ETO. To meet their

need, the Goodrich and Michelin plants in Paris, and four other indigenous

plants in France and Belgium performed contract repairing and recapping

of tires for support of allied forces.
USE OF CONTRACTOR PERSONNEL IN THE DOD 11

Mr. GROSS. It is reported that one of the "think factories" in this

Research Analysis Corp. is doing war gaming under contract on

Vietnam ; is this true?

Mr. IGNATIUS. It is very possible that the Research Analysis Corp.

is doing some war gaming on Vietnam. I do not happen to know of

those projects. These are intended to be supervised by the Army which

provides most of the workload for the Research Analysis Corp., and it

is under the direction of the research and development people.

I know that they have done war gaming. I am familiar with some

war gaming they have done involving Korea. It is very possible that

they are doing some war gaming involving Vietnam.

Mr. GROSS. Do you happen to know what qualifies the Research

Analysis Corp. to carry on this work under contract?

Mr. IGNATIUS. Their staff consists of people who are qualified by experience and by training to do work of this kind, operations analysis

type of work.

Mr. GROSS. What does war gaming embrace? Fighting of wars,

strategy, tactics?

Mr. 'GNATIts. - It means analysis of contingencies based on what are

called scenarios that contain assumptions with regard to opposing

forces. Through use of assumed forces, and assumed positions, the

different sides make moves and typically these are assisted by computers because there are many factors that have to be taken into consideration. It is a simulation, I would say, of an actual situation that

can be extremely helpful to planners in determining levels of forces,

amounts of supplies and matters of that kind.

Mr. GROSS. We do not have within our own military, graduates of

West Point, and so on and so forth, the capability to develop war

strategy, tactics, and so forth, nor do we have the in-house skilled personnel to operate the computers you speak of?

Mr. IGNATIUS. We have, of course, as you know, Mr. Gross, from

graduates of West Point, the other service academies and other sources,

people highly qualified in these matters. The Research Analysis

Corp., as I understand it—and I do not supervise its work—has certain people with specialized training who can assist the military operations people in the Army staff in analyzing problems of this kind.

Mr. GROSS. I am informed that 3 years ago the Research Analysis

Corp. hired a retired vice president of the American Telephone &

Telegraph Co., to study Army tank failures in Europe. I do not

know, perhaps you can help out or furnish for the record 

Mr. IGNATIUS. I do not know.

Mr. GROSS (continuing). The qualifications that he had for the

repair of tanks in Europe.

Mr. IGNATIUS. The Research Analysis Corp. has made some studies

for the Army on failure rates of tracked vehicles that have been very

well done and have been very helpful to the Army, to provide a basis

for predicting what, the failure rate will be based on age and condition of the vehicle which then provides a basis for logistics planners

to stock in anticipation of what the failure would likely be in the

event of combat.

Mr. GROSS. I am in a rather difficult situation this morning, Mr.

Ignatius. I really should be in a subcommittee of the Foreign Affairs

Committee, of which I am a member, looking into another contract
12 USE OF CONTRACTOR PERSONNEL IN THE DOD

operation, that of Camelot in Chile. This contract deals with behavioral sciences, whatever that is. We get various definitions of it.

I am impressed to a point with Mr. Paul's statement this morning,

but I am not yet convinced that you are getting out of the contract

business in some fields—in which I doubt very much that you ought

to be contracting out responsibilities and duties—which I had always

thought the military was capable of handling. In this case, from

what I have heard of it so far, I do not think you have any business

in Chile with a contract on behavioral sciences.

Mr. CLEVENGER. Would the gentleman yield?

Is not behavioral science the science that would study situations

that some Members might find themselves in when they are in one

committee when they want to be at another committee?

Mr. GROSS. It could be. It might be well to have a study of behavioral science with respect to the Members of Congress. I do not

know.

That is all.

Mr. HENDERSON. Mr. Gross, I have one or two other questions.

Right along that line let me ask the Secretary one question.

The Research Analysis Corp. has performed most of this work for

the Army?

Mr. IoNATirs. This is my understanding. Most of the work has

been done for the Army. Occasionally they have done it for other

parts of the Department of Defense, but by and large it has been for

the Department of the Army.

Mr. HENDERSON. It might be in view of your interest that we would

pursue that with the Secretary of the Army. I might also say for the

benefit of the members this has nothing to do with the Department of

Defense. I do not mind it being on the record.

In view of our interest of the contract industry in the poverty

program, I was told yesterday they have done a study for the Appalachia group with regard to the locations of highways in Appalachia.

Some of our members are quite unhappy with that contract. Again,

I do not know how thin we can spread ourselves in this subcommittee

on the use of contractors.

Mr. Secretary, in your statement I note that you state that you

have developed comparative cost criteria for comparison of in-house

and contract costs. I commend you for that. In the next sentence

you say that you expect to be consistent with the Bureau of the Budget

guidelines in this respect.

Have the Bureau of the Budget guidelines been changed since our

hearings of last year in this respect?

Mr. PAUL. Do you want to take that?

Mr. IGNATTOS. Mr. Chairman, Mr. Moot who directed our study of

contract support services, as you know, worked very closely with the

Bureau of the Budget and indeed the Civil Service Commission in

the conduct of the study. Perhaps he might be best qualified to comment on that question if you desire.

Mr. HENDERSON. Yes, sir.

Mr. MOOT. The specific answer to your question, Mr. Chairman,

is "No." The Bureau of the Budget has not published any revised

bulletin concerning—what will be now an "A" circular—its cost

guidelines. However, the cost studies that we ran during this study
USE OF CONTRACTOR PERSONNEL IN THE DOD 13

we did after consultation with the Bureau of It is

along this line that Mr. Paul's statement was ink if

the Bureau of the Budget does publish the k" were

using during the study, we will have a rea ic basis for c. estimate. Jo 30

We believe that the true cost of an in-h qiagration shou be

computed by using full appropriated costs nd adding th of

income tax revenue, interest, and any administ 4,44icitosts rvices

provided to us by any agency in the Government. MAL

On the other side of the ledger, we believe tha rs e contract

price there needs to be added the Government cost of contract administration plus costs of standby facilities and underutilization of facilities. Therefore by computing all contract costs for comparison with

complete in-house costs, we believe that we have the basis for a realistic cost comparison between contract and in-house operation.

Mr. HENDERSON. For the benefit of the members as well as others

who may be interested, our real objective in starting the hearings

today and starting with you gentlemen is our concern with regard

not only to the items for which we have commended you and items

which we recognize that you require more time to accomplish, but I

am quite concerned that the Bureau of the Budget has not concluded

its position with regard to the subcommittee recommendation in this

area.

I anticipate that we will have representatives from the Bureau of

the Budget before us very shortly with regard to this problem as we

see it. We have been very hopeful that by July 1 of this year they

would have something far more definitive than we have seen because

we have seen nothing. Apparently from their response, there has

been some thinking going on over there. I am glad to hear you say

that you think that in line with that thinking and work you have

done that your figures will still be realistic and at least they are the

type of figures that can be questioned both by the Bureau of the

Budget and this subcommittee.

Mr. GROSS. Mr. Chairman, along that line, I would like to read

into the record at this point a very brief statement, if I may.

Mr. HENDERSON. Yes, sir.

Mr. GROSS. This statement was made a year ago by,Mr. William H.

Ryan president of District 44 of the National Association of Machinists, A.FL—CIO, who said :

* * * I will now address myself to an existing policy which in the opinion

of our organization is responsible for the improper use of and waste of skilled

manpower. I am referring to the policy enunciated by the Bureau of the

Budget Bulletin 60-2. This policy requires agencies to contract out any and

all Government work which can be performed by private contractors.

Mr. HENDERSON. I am delighted to see Mr. Ryan is interested

enough or has continuing interest to be here this morning, Mr.

Gross. Certainly members of the subcommittee that have been in

this in quite some depth are still interested in it.

Mr. HANLEY. Would the gentleman yield?

Mr. HENDERSON. Yes.

Mr. HANLEY. With respect to the cost element here, the testimony

indicates the inclusion of depreciation in the computation of inhouse costs. Do you include the depreciation of facilities?

52-252-65--3
14 USE OF CONTRACTOR PERSONNEL IN THE DOD

Mr. MotnalPirp,,,,,r, l we do. We do consider it a realistic cost,

howev,14—be`cause Offithe fact we have to come up with military construc appropria s for large overall repair and maintenance,

projf.s as, well as corp ruction projects. When we compute depreciatiim as a'pArt if th overnment cost, we are in effect just reflecting thyf which is-a•frultost to our operation.

MitANLEY. For instance, on a naval base, what is the situation?

Mr. Móor. The, .ftwility can be fully depreciated and therefore

have no*Nist"itpplied on the Government side. In other words, we

estimate the useful life of the facility computed in terms of straightline depreciation over a normal period of time. For example, a 40-

year life at $40,000 would be $1,000 a year depreciation cost. On

the 41st year, there would be no charge.

Mr. HANLEY. Assuming this is the case, depreciation would not

be a factor.

Mr. Moor. Under your illustration, depreciation would not be a

factor, that is true.

Mr. HANLEY. Thank you.

Mr. HENDERSON. I would like to say to the gentlemen, we certainly want to test that factor out because it has been a big contention with our members that in some of these cost comparisons, fully

depreciated Government installations are depreciated a second time

for studies. You have made a very excellent point and one which

has given our members a great deal of difficulty in past years.

Along the same line, perhaps Mr. Moot or Secretary Ignatius can

answer. Your special study group report has been summarized

informally to our staff as follows: For lesser skilled work such as

custodial, fueling of aircraft, food service and laundry, contractor

operation can do the job as cheaply or at less cost than it can be

done through in-house capacity; and for other types of support work,

those requiring considerable training and experience in personnel,

the in-house operation costs less than the contractor operation.

Would you care to comment on that?

Mr. MOOT. Yes, sir. I think it fair to say that in the support

services versus products, there is normally not a very large capital

investment. Therefore, a large part of the contract or the in-house

operation cost is involved in labor.

Mr. HENDERSON. When you say capital investment 

Mr. MOOT. I mean in plant investment or facility investment.

Mr. HENDERSON. Would you include in that training of the

personnel?

Mr. MOOT. Training of the personnel is a service cost, and I was

not thinking of training as a part of the initial investment. Therefore, with labor being a large part of the total cost of the operation,

when you consider such operations as contract technical services,

such operations as cataloging where the operation is fairly technical,

such services as come under the Davis-Bacon Act, for example, construction and painting and even repair of office and laborsaving

equipment—when you take those types of service that have a fairly

high labor skill, either labor skill with rates controlled by legislation or a higher paid skill because of the type of work, the answer

that we normally found was a favorable cost for in-house performances. On the other hand, services with labor that is riot as rate
USE OF CONTRACTOR PERSONNEL IN THE DOD 15

controlled or protected as the case may be, such as custodial services,

refuse collection, rodent and pest control, and that type of operation, we found the reverse to be true. We found in these cases it

was more economical to contract simply because we were getting the

work done at less average labor cost.

Mr. HENDERSON. That leads me back to your formal statement

where you say that some contractors have even paid less than the

Fair Labor Standards Act and the Department of Labor takes the

position that work at military installations is generally covered and

has brought several court actions on this subject which are now

pending. I would like you to expand on that and perhaps I or

other members of the subcommittee will have some questions on this

point. I am interested in the court action and what you are talking

about there.

Mr. MOOT. The situation as I am going to describe it is from my

own background which may be relatively narrow in terms of the

total situation. During our study, particularly down in Texas, we

ran into a situation where the contract laborers in the service function on base were being paid well under the $1.25 Fair Labor Standards Act. We found that the last two contractors on one of the

bases had currently had court suits pending from the Department of

Labor. The very last contractor that I am thinking of defaulted

because of a strike situation last March. He is being sued because

of infraction of the Fair Labor Standards Act. His predecessor

contractor was also being sued. Neither contractor was defaulted

for cause or lack of performance. One had to default because of

a strike.

On the other hand, in correspondence with the Labor Department

it has been suggested to the Department of Defense that invitations

for bid cite the Labor Department's position on application of the

Fair Labor Standards Act so contractors bidding on service contracts

will be aware of the fact that it is the Department of Labor's position

that $1.25 minimum does apply for these particular services.

We generally are very sympathetic to that position simply because

it gets us above the very minimum labor rate and therefore gets

us a better level of skill. We have so determined in this particular

case that I am talking about, that in any future contract in this area,

which is a depressed labor area, the invitation for bid will carry this

notification of the Department of Labor's position.

Mr. HENDERSON. I want to commend you for that. I think this is

a very definite step in the right direction. I would like to ask you,

did you get any information with regard to a contract at Craig Air

Force Base in Alabama? I know the gentleman from Alabama

would be interested.

Mr. Mocrr. No, sir. We are aware of the contracting practice at

the Craig-Vance complex and the tests that went on, but we did not

cover it.

Mr. HENDERSON. I shall ask Mr. Bray, who is more familiar with

this than I am.

Mr. BRAY. The Government lost the first round of its case at Craig

Air Force Base on the minimum pay requirements. They lost in the

district court there. So things may not be as rosy as you might think.

The district judge held that the Fair Labor Standards Act did not
16 USE OF CONTRACTOR PERSONNEL IN THE DOD

apply to this contract at Craig, and therefore the officials talking to the

staff feel that legislation will be necessary to bring these contracts

under the Fair Labor Standards Act.

Mr. HENDERSON. Can you tell us whether the contract at the Craig

Air Force Base provided for payment of the minimum pay under the

Fair Labor Standards Act.

• Mr. Mom. They do not, sir, because legally we are not in position

tol require that the contract provide that.

- Mr. GROSS. That leads to the specific question: Do you need legislation to provide that these contractors pay a minimum wage?

Mr. PAUL. I do not believe that is necessary, if the proper administrative steps are taken, Mr. Gross.

Mr. HENDERSON. Mr. Paul, will you ask the counsel's office of the

Department of Defense to submit formally his opinion in response to

Mr. Gross' question, because I think it is important. If he is not

in a position to do so because of court cases involved now, a statemknt from him of the problem as he sees it would be very helpful

to us in our considerations here.

Mr. PAUL. We should have that, Mr. Chairman.

Mr. BRAY. There is a long list of GAO decisions, and again the

Department of Labor officials indicated to us that these decisions did

not allow the Defense Department to put minimum pay in their advertisements for bids.

Mr. HENDERSON. I am sure the counsel will recognize that and brief

us on this.

Mr. PAUL. Yes.

(The information referred to follows:)

The Comptroller General has held that "there would appear to be no legal authority—as there would appear to be no need—for the inclusion in Govern- ment contracts of a requirement for compliance with the Fair Labor Standards Act of 1938, or of any other reference to the statute" (20 Comp. Gen. 24). The rationale for this conclusion, as restated in 42 Comptroller General 1, is that "contract stipulations tending to restrict competition and to increase the cost of performance are unauthorized unless reasonably requisite to the accomplish- ment of the legislative purposes of the contract appropriation involved, or unless such stipulations are expressly authorized by statute." Accordingly, the Department of Defense believes that legislation is necessary to permit Government contracts for base services to specify that the contractor must abide by the minimum wage rates specified by the Fair Labor Standards Act.

Mr. HENDERSON. This is a problem that is DOD—wide. It is certainly a national problem and one that we will need to reckon with

as we go forward.

I have taken a great deal of the time and I am ready to yield to

the gentleman from Iowa.

Mr. GROSS. Along this line, just one other question. I do not know

whether the gentleman is prepared to answer today or not, but I

think it could very well be supplied for the record. What were the

causes of the strikes that have taken place? You do admit you have

had strikes, do you not?

Mr. MOOT. This particular strike I am talking about, Mr. Gross,

was occasioned by a wage scale problem.

Mr. GROSS. Let us have a brief review or resume of the cause of

the strikes you have had, the labor difficulties if not strikes, leading

up to this trouble.

Mr. HENDERSON. I think that would be very helpful.
USE OF CONTRACTOR PERSONNEL IN THE DOD 17

(The information follows:)

CAUSE OF STRIKE BY CONTRACTOR EMPLOYEES AT LAREDO AFB, TEX., WHO

WERE PERFORMING EASE SUPPORT SERVICES

For the past several years base support service activities at Laredo AFB

have been performed by contract personnel. These base services included:

1. Automotive maintenance 7. Insect and rodent control

2. Aircraft refueling 8. Custodial services

3. Food service 9. Roads and grounds maintenance

4. Contractor supply 10. Base housing administration

5. Vehicle operations 11. Photographic services

6. Refuse collection

At 2400 hours on March 7, 1965, approximately 200 employees of Defense

Contractors, Inc. ( the contractor for base services), went on strike in an

attempt to obtain an initial labor-management contract. As a result of this

strike the contractor was unable to carry out his required service functions at

Laredo AFB.

Mr. GROSS. Mr. Chairman, if no one else has a question at this

point.

Mr. HENDERSON. I yield to the gentleman.

Mr. GROSS. I have been asking questions, and I defer to other

members. Go ahead, Mr. Clevenger.

Mr. CLEVENGER. Mr. Paul, what is the status now of the supply of

doctors and dentists to the military in terms of the need? Is there

an oversupply? Do you have more doctors and dentists than you

can use?

Mr. PAUL. No; definitely not.

Mr. CLEVENGER. Is there a shortage?

Mr. PAUL. There is a shortage.

Mr. CLEVENGER. How serious a shortage?

Mr. PAUL. We are barely able just to keep pace with the demand,

and I mean just barely, because we still have a doctor draft. It is

more of a problem with medical doctors than with dentists. Without the draft we could not possibly come anywhere near filling our

quotas.

Mr. CLEVENGER. I raise this because of the experience I have had

recently where a town without a sufficient number of doctors tried

to get a doctor who was subject to the draft, and there was a great

deal of trouble. At the same time, not too far from them at one

of the military bases, an Air Force base, a change of policy has

occurred which now provides that off-base dependents who live

about 20 miles from the base would be given medical care on the

base. Is this a unique situation where they would be increasing the

amount of medical attention to dependents?

Mr. PAUL. Yes.

Mr. CLEVENGER. Is this something that you advocate?

Mr. PAM,. Dependents are entitled to medical care. If it is not

available in military facilities, they are entitled to benefits under

the medicare program which was established by the Congress in

1956. There is no policy that provides for any increase in on-post

medical care for dependents. On the contrary, the tendency is generally in the other direction.

We are programing less in new construction for facilities to take

care of dependents than I believe we have done in prior years. We
18 USE OF CONTRACTOR PERSONNEL IN THE DOD

have been severely criticized, I might add, by members of other

committees of Congress, and we have had a number of complaints

from service people about this particular matter.

The case you cite

'

I am not personally familiar with.

Mr. CLEVENGER. What I was interested in is how the movement

is. Is it toward giving greater care by service physicians to dependents, or is it because of the lack of supply of doctors that you

give less and try to provide other means to see that dependents

receive care?

Mr. PAUL. I think the trend is definitely in the latter direction.

Mr. CLEVENGER. I will pursue this at some appropriate point.

Let me ask, if I may, Mr. Secretary, whether any analysis has been

made of the type of activity of military enlisted men, whether there

is any relationship between what the enlisted man is doing in service

and the reenlistment rate. Have you made any specific studies to

see who reenlists and whether there is a relationship between his

duties and the reenlistment?

Mr. PAUL. Definitely. I would say my office spends about 70 percent of its man-hours on that particular problem because the most important problem we have to deal with in manpower is the retention

rate of people we want to keep. It is a very complicated subject.

Let me just summarize.

The people we have the most difficulty keeping are the people whom

we spend the most money training. That is to say, we have an investment over a period of a 3-year enlistment of some $40,000, let us say,

in a particular electronics specialty, a man who is a high school graduate, a bright young man and with the capacity to learn. We train

him. At the end of that period we lose him because his particular

specialty, which we in a way have given him, is in great demand in

industry. So our retention rates in the technical skills are far lower

than we would like to see them.

On the other hand, in certain of the, you might say, lesser skills—

by that I mean simply lesser technical skills—we have more than the

percentage of retention we want. I would say the more technical

the skill the man has. the tougher job we have holding on to him.

Mr. HENDERSON. Has any thought been given to trying a longer

enlistment period for those men to whom you propose to give such

costly training?

Mr. PAUL. Yes, sir. We have before the Congress now, and it is

in the bill which was reported out recently by the House Armed

Services Committee, a proposal for a variable reenlistment, bonus in

which we would provide, depending upon the criticality of the skill

the individual has, additional bonus at the time. of his reenlistment in

the hopes this would attract more of these people to stay in. In addition to that, we now have and have had for several years, a program

known as the proficiency pay program where we actually pay a

premium of varying amounts, depending again on the criticality of

the skill, to the man's pay. You cannot overdo this because the combat skills, the men who have the basic military skills that we will

always require and the men who generally end up in combat, do not

have these specialties and do not require them. All they need to do

is to know how to operate their weapons. We have to be careful
USE OF CONTRACTOR PERSONNEL IN THE DOD 19

that we do not pay too much of a premium to the technical people

who in most cases will not ever see combat.

Mr. GROSS. Here we make the full turn back again to the so-called.

nonprofit "think" factories. These people drain off your skilled military personnel, do they not? When their enlistments expire, they get

a job with the "think" factory people, the contractors.

Mr. PAUL. Most of them, Mr. Gross, we lose to industry as a

whole, not to the "think" factories. I was talking about enlisted

personnel, Mr. Gross, who have technical skills.

Mr. GROSS. I am talking about enlisted personnel, the people that

you want to retain in the service above all others, I would think.

Mr. PAUL. Indeed we do, but I would guess a very small percentage of those go into what you describe as the "think" factories.

Mr. GROSS. They all receive offers if they are good enough, or

practically all of them?

Mr. PAUL. From industry; yes, sir.

Mr. GROSS. Industry and from these contractors. You have a

difficult time competing with any form of incentive pay to get these

people. By the way, do you audit the salaries of the contractors,

the "think" factory officials, and their employees?

Mr. PAUL. I am sure in connection with the contracts themselves

we have done that, although this is something Mr. Hitch would

know better.

Mr. GROSS. If so, who does it

Mr. PAUL. I would imagine it would be done through the Office

of the Comptroller, Mr. Hitch.

Mr. HENDERSON. Mr. Secretary, as I recall the testimony last year

with regard to this point of losing your highly skilled enlisted personnel to industry, we were quite concerned that many of them were

going into the contract technician group, which will be eliminated

by the action you have taken upon our recommendation last year.

Is that not true?

Mr. PAUL. No doubt some of them will be eliminated because of

that.

Mr. HENDERSON. Also in response to the gentleman's question, my

recollection is that the services testified last year that they make

some effort to audit the salaries. For the benefit of Secretary Ignatius and Secretary Paul on this specific point, you might be interested in reading the testimony last year, because my recollection is

that their responses to the subcommittee questions did not indicate

that they had a real tight audit system over salaries of the nonprofit organizations. My concern at this point is that perhaps no

one at the Department of Defense level has really looked to see whether

they are doing a better job now than before. We might press them

on that point.

Mr. GROSS. A further question is: What is the fee paid these corporations and how do you account for a fee or profit concept with

a nonprofit corporation?

Mr. IGNATITTS. There are small fees paid, and the concept, I believe, is that these fees provide funds which can be used by the

corporation for purposes such as staff development and matters of

that kind.
20 USE OF CONTRACTOR PERSONNEL IN THE DOD

Mr. HENDERSON. Mr. Gross, if you would agree, in view of Secretary Paul's response that Mr. Hitch, the Comptroller, might respond

on this, I would like to ask that you advise him of our interest again

this year, and perhaps he would supply to us a statement with regard

to what was done. The Comptroller's shop was in our hearings last

'year. If they would furnish us a statement for the record at this

time, of what action their shop has taken to insure that these salaries

are audited, it would be very helpful, and I think it would' be responsive to the question the gentleman raises.

Mr. PAUL. Yes, sir, we will supply that for the record.

Mr. BUCHANAN. Could we also have the definition of the word

"small" in relation to fees?

Mr. IGNATIUS. We will include that in the statement which we submit for the record.

Mr. BUCHANAN. Thank you.

(The information follows:)

As indicated in the testimony given by Mr. Morris last year, the salaries and

wages paid by all contractors, both profit and nonprofit, performing under costreimbursement-type contracts are audited by Government auditors. The principal standard used in making such audits is whether compensation for personal services paid under the contractor's established policy conforms generally

to compensation paid by other firms of the same size, in the same industry, or

in the same geographic area, for similar services.

In making the audits emphasis is placed on reviews of the contractors' policies, procedures, and practices for determining the salaries and wages of employees. This is done to gain an insight as to the reasonableness of amounts

paid from the standpoint of how positions are evaluated, how salary and wage

scales are established, and the extent and nature of comparisons made with

compensation paid by other firms. The auditors also make appropriate use of

available data on salaries and wages compiled through surveys conducted by

the Bureau of Labor Statistics and by industry.

Mr. CLEVENGER. I am intrigued by this problem of training people

to technical skills which on the civilian market command a higher

pay than you can afford to pay them in the military. You still are

going to need the skills, are you not?

Mr. PAUL. Yes, sir, increasingly.

Mr. CLEVENGER. The route so far has been to use contractual services to get these skills, and many times you are hiring back the people

whom you trained while they were in the service.

Mr. PAUL. No, I would say the principal route has been through

the turnover and retraining, which is a very expensive process, of

military personnel. These skills are in most cases not the kind you

can contract out for. These are skills that are needed on ships, overseas, radar technicians, jobs for which you simply cannot hire

civilians.

Mr. CLEVENGER. If it is a skill that is of value to a civilian company, it is a skill that they still use.

Mr. PAUL. The important thing to remember here is that one of

the unique attributes of military service is that a man who puts on

the uniform has really no choice about where he goes. He goes where

be is ordered and he responds to military requirements. We cannot

extract the same degree of discipline from civilian employees. So,

we still have to have a major number of people in uniform with these

skills. There is no alternative.
USE OF CONTRACTOR PERSONNEL IN THE DOD 21

Mr. IGNATMS. A radar technician aboard xample, acquires skills that he can use as an emplo . a 'ny in the

electronics industry. It is this kind of au l has

in mind.

Mr. CLEVENGER. That is what I am t ingboit3.0 You re still

going to need that type of skill. You t on the

market.

Mr. GROSS. Mr. Clevenger, I would b did not

find aboard ship some of the same skilled pe ere there in

Navy uniform, back under contract hire.

Mr. CLEVENGER. YOU Say you would 132 surprised if you found

them?

Mr. GROSS. If you did not find them.

Mr. CLEVENGER. I think we all would be, and I do not think you

would deny that.

Mr. PAUL. I am not sure whether I would or not. I am not sure I

understood the question.

Mr. MOOT. We have tried to answer that by saying that since last

year we have studied this and we are phasing these people out and

we are coming in-house, either military or civil service.

Mr. HENDERSON. The result is that we are saving the taxpayers

$30 million in this effort. We certainly want to commend these

gentlemen for being responsive to our recommendations of last year

in this regard. We feel this is perhaps a partial solution. We may

find at the end of 1966 that it still does not work, but at that time we

certainly will take another look if they find they have to have contract technicians abroad.

Mr. CLEVENGER. I suppose we will wait and see. I question

whether you will be able to hire under civil service provisions someone for $10,000 who can earn $15,000 in a non-civil-service job. I

wonder if we are going far enough. I am thinking of your reply

before, Mr. Paul, in which you said if you start paying some members of the service who have technical skills an extraordinary

amount of money, those in combat units have a tremendous morale

problem.

Mr. MOOT. I wonder if I could tell you what our study found in

this area. In terms of the contractor personnel versus civil service

personnel, we found that despite the fact that we were paying more

money for the service being rendered to us, the employee of the contractor had a salary very comparable to our civil service salary.

As a matter of fact, in terms of the data that we collected, we found

it practically even. It runs from about our grade to about grade

11. In that salary range we found this is what the contractors were

paving.

What Mr. Paul was talking about was a little different. It was

the cost of military personnel and here there is a difference in cost.

You must include the basic training cost. When we hire civil

service employees, we hire them fully qualified. They are hired

as trained and qualified personnel, but not at Government expense.

When we have military personnel, it is necessary for us to incur a

training cost for those military personnel. It was this training that

makes the individual become more valuable as he reaches the end of

his enlistment tour.
22 USE OF CONTRACTOR PERSONNEL IN THE DOD

Mr. GROSS, would like to see the salary scale of the officials of these conti4 outfits.

Mr. M " That is co tely different, sir.

Mr. &Ross. You bet yijf life it is different. If the gentleman will yield, thettii:are, glit ng buildings housing "think" factories, constructed in Washingto D.C. They had to get a profit out of this som6where to get the oney to put up the structures. I am not forgetting Brno-Wooldridge, among others, which went from noth- ing to a multimillion-dollar fortune, a couple of men, do you re- member? We had that story before this committee. I do not know what they paid the people down in the lower levels in that contract

outfit, but certainly they built multimillion-dollar fortunes out of

Government contracts. These were not production contracts. These

were "think" factory contracts.

Mr. PAUL. If I may, I would like to clarify one point that I was discussing with Mr. Clevenger when I said I was not sure I understood the question. I thought I might have understood that there

is an impression that we have contractor personnel serving on military installations or vehicles, such as a submarine. I think the

example of a ship was used. I know of no case in which any of the

technical personnel on a submarine, for example, or any other naval

ship which is actually operational, are anything but people in

uniform. When they go on shakedown cruises, of course, they will

send representatives of the manufacturers, North American, Lockheed, et cetera, to be sure the equipment is ready to go. Once that

ship becomes operational, from then on it is entirely militarily

manned.

Mr. CLEVENGER. I was not addressing myself to that. I am

concerned, but I am not critical of that. My approach to this and my

understanding of this problem, as an admittedly very junior member

of the committee, is that we have to have certain services performed.

No matter what else you do, the services have to be performed, and

bow are you going to do it? It is a question of how you cut this up.

We can kid ourselves that in some way we can do it cheaper if we

have them in service, and then we say, but we have to train them.

Mr. IGNATIUS. You put your finger on a major problem. As Mr.

Paul testified, a large proportion of the time of his staff and of the

Department itself is spent on this. It is particularly difficult, as he

has indicated, in what are called the hard skill areas.

Mr. CLEVENGER. Here you are getting into an area, if Congress

follows this question of comparability, where you seek to have Government employees paid equally to what they would be paid in

private industry, and you start applying that concept to military

personnel, I suspect you would find an entirely different level of

pay.

Really what we are talking about is how we are going to get a job

done at what cost. If you restrict it solely to military personnel,

you are going to find they are popping out here. If you close that

by putting on civilian civil service employees, you find you will have

to pay them more. If you look at the cost and restrict that, rather

than trying to get the job done, you will end up at different levels.
USE OF CONTRACTOR PERSONNEL IN riii DOD 23

Sure, I agree with Mr. Gross, you are going to find people making

nioney, but perhaps this is the result of some of the policies that we

have.

Mr. GROSS. This Camelot behavioral science contract was a negotiated contract. These are not for the most part competitive contracts. They are negotiated contracts. The sky can be the limit.

Mr. CLEVENGER. I suspect these gentlemen will try to do the job,

and our job is to point out some of the places where the system does

not work. As soon as we can get a system that works perfectly, our

job will not exist any longer.

Mr. GROSS. To try to look over their shoulders and see what they

are doing.

Mr. HENDERSON. Mr. Buchanan.

Mr. BUCHANAN. Gentlemen, I note in your 40 case studies you

found in about half your present method of performance was probably appropriate, and in the other half a change in one direction or

the other would probably result in economies. Further, you are now

embarking on a 3-year program to adjust the method of performance

of function on a case-by-case basis. I want to commend you both for

the program of doing it on a case-by-case basis as the committee

recommended. It seems to me, as you have discovered, this is the

wise approach. However, I do have two or three general questions.

In the subcommittee's review of reasons why the military services

used contract technicians, we found a major reason to be 'the lack

of skilled talent in the services." This special study group, on page

46 and page 47 of your report, discovered thousands of people with

talent in the Department, with the various skills that are being

bought from contracts in many cases. Have you any idea why this

situation exists?

Mr. MOOT. Yes, sir, I think I can answer it. It sounds as though

it is inconsistent, but we believe there is a consistent answer. The

services have consistently said they could not get comparable skills,

but they were primarily talking about military personnel and the

rapid turnover. When we and the Civil Service Commission and

each of the services tried to find problems of civil service employees'

lack of availability in specific skills, we did not come up with any

that we could document. On the other hand, it was readily evident

that there was a severe military skill turnover problem such as Mr.

Paul has addressed himself to. So, despite the fact that we ran

a population survey of the entire employment in the Department of

Defense and came up with the figures you indicated in the report, it

does not mean that there is an excess of available skills in the

Department of Defense. They were all very gainfully employed.

Our problem was this additional 8,000 contract technical personnel and how to solve the problem of legality and optimum readiness. As you note by the figures which we have supplied, they will

primarily be civil service employees. Only where they will be in

tactical units or afloat will they be military personnel.

Mr. LEE. If I may add a word there, part of this is a matter of

timing. When the new weapons systems came in, in times past, to

get started on the new weapons systems when we had an even lower

reenlistment rate than we have, we started some of these contracts.
24 USE OF CONTRACTOR PERSONNEL IN THE DOD

I think one of the main conclusions is that they have really run on

too long, and they need to be cleaned up. That is just what we are

doing.

Mr. HENDERSON. Mr. Lee, I think the statements of both the Secretaries were very responsive on this point. You took a look and

decided as a matter of DOD policy that you needed faster in-house

capability for new weapons and new weapons systems, and that it

could be done by within-house civilian employees.

Mr. BUCHANAN. Then as far as this 3-year problem, you are taking care of this as you indicate.

Mr. IoNATrurs. In a 1-year period we are converting the contract

technicians, 1 year beginning virtually today, starting that process.

The other support services will be over the 3-year period.

Mr. BUCHANAN. Following this, do you feel the tight civilian personnel ceilings have caused to any extent the use of contractor

personnel?

Mr. IGNATIUS. I do not know of any cases where one has led to

the other.

Mr. BUCHANAN. How about using military personnel? Has this

anything to do with the use of military personnel in support-type

work? Has this been a problem to you?

Mr. PAUL. To be perfectly honest, I think at certain installations

it has resulted in that to some degree. But I do not think that is a

reason to let up on the tightness of our civilian ceilings. We have

to keep the pressure on for greater productivity.

Mr. HENDERSON. One problem is to look at how soon that will

work.

Mr. PAUL. Absolutely.

Mr. BRAY. The subcommittee has a very large file of local activity

cases which tend to prove that it was the tight ceiling in many instances that is causing contracting-out of work, and also the use of

military. As both Mr. Ignatius and Mr. Paul know, we are always

happy to discuss these with their staff.

Mr. BUCHANAN. May I ask one more question along this line.

There are various civilian controls, such as pay grade, average salary, GS-14 and above. Are these hampering management of local

defense activities, to your knowledge?

Mr. PAUL. I do not believe so. The problem that these controls

are addressed to is a general Government-wide program of grade

escalation. As Government civilian salaries rise, as they are doing,

we have to be increasingly careful that we buy an improved product

with the increased money we are offering to people who enter Government service.

The Bureau of the Budget and the Civil Service Commission are

much more competent to discuss this than I am, but we have found

an alarming rate of grade escalation. For that reason, these controls

were put on. I do not think it will materially affect the conduct of

this program.

Mr. HENDERSON. This subcommittee has been interested in grade

escalation since 1958. I know it has been since I was here. With the

passage of the 1961 Salary Act, members of the subcommittee—and

Mr. Gross certainly can be commended for his effort in this—wrote
USE OF CONTRACTOR PERSONNEL IN THE DOD 25

into that salary bill very strong language about proper control of

grade escalation. One thing I think I can point out here is if we as

Members of the Congress do not continue at least to work toward

the idea of comparability, which the gentleman mentioned, we can

expect inevitably to have grade escalation. As long as we work

toward comparable pay, our theory of giving civilian employees and

the military complement the rate of industry, then the tight control

on grade escalation is warranted and we should not have to worry

about it. If we do not have it, the only way the agencies can get the

job done is to escalate the positions in order to get the money to get

the people. We have to keep this in mind as we deliberate on the

salary acts as they come before us.

Mr. BUCHANAN. May I ask one more question along a quite different line. I recognize differences in wage board pay, but can you tell

me how you justify the three wage board systems in the Department

of Defense—Army, Air Force, and Navy?

Mr. PAUL. It is simply a practice which has grown up over many,

many years.

Mr. HENDERSON. May I inject to say you might not want to

justify it at the present time.

Mr. PAUL. I do not feel too enthusiastic about justifying it,

frankly. As the chairman and other members of the subcommittee

know, it is a, very tough problem. The problem of a consistent wage

board policy in the Government is one of the most pressing problems

we have before us as a government. We in Defense will have to take

our lead from the Government as a whole, from the President and the

Bureau of the Budget, and the Civil Service Commission. I hope

that within the coming months we will develop a rational and consistent policy. That is about all I can say right now.

Mr. HENDERSON. This is one of the most pressing and, in fact, I

think following our hearing today is the most pressing problem that

I see the Defense Department has and the one we are the most interested in. I hope in a very few days either informally or in a

formal session we will have the Civil Service Commissioner and the

Bureau of the Budget before us on this very question and, for example, one of the questions that needs to be answered and should have

been answered before now by the Department of Defense is whether

or not we are aiming at a unified wage board system within the

Department of Defense or Government-wide. Speaking personally,

I have not been able to arrive at a conclusion as to what is best. The

problem is so pressing that I think if the President or the Bureau

of the Budget would tell the Department of Defense or if Secretary

McNamara would make the decision that they are going to have a

unified system, we would begin to tackle the problem.

I am appreciative of the gentleman's raising the question, but the

problem is so great and so broad, maybe we do not want to get into it

in depth at this time.

Mr. PAUL. The Secretary, I know from my -personal knowledge, is

quite prepared to act, but it is a matter of Government policy and

whether or not we are to take the lead or to be part of a broader

effort.

Mr. HENDERSON. I think our effort is to get that decision and get it

as quickly as we can for you.
26 USE OF CONTRACTOR PERSONNEL IN THE DOD

Mr. Hanley?

Mr. HANLEY. Secretary Paul, if I interpreted the testimony, correctly, I am somewhat intrigued with the Research Analysis Corp.

Would you please repeat the specific service that is rendered by this

corporation?

Mr. IGNATrus. I would comment on that. This is a nonprofit

corporation which provides services primarily for the U.S. Army.

These are operations analysis-type studies primarily, concerned with

war gaming, concerned with studies of tracked vehicles, concerned

with comparative cost analysis, alternate approaches to weapons

problems, and matters of this kind. The studies are largely in

support of the research and development side of the military staff in

the military departments, and to some extent in support of the military operations side.

Mr. HANLEY. How long has this corporation been in existence?

Mr. IGNATIUS. The Research Analysis Corp., as such, was formed,

I believe, in calendar year 1961 or 1962, but we will have to provide

the exact date for the record.

(The information follows:)

The Research Analysis Corp. was formed August 31, 1961.

Mr. HANLEY. With respect to personnel, would you say that to

a great degree it is 'staffed by former U.S. military personnel?

Mr. IGNATIUS. There are former military personnel on the staff of

the Research Analysis Corp., and we can provide for the record the

exact numbers if you desire it.

(The information follows:)

The total number of personnel employed by the Research Analysis Corp.

Is as follows:

Professional

full time

Retired military 

Other 

Tot al 

27

235

262

Consultants

part time

Administrative support

Officer Enlisted Other Total

1 26 8 17 

304

78

539

26 8 17 304 617

1 44 consultants are hired on a part-time basis. The average employment per consultant is 136 days per

year. This is approximately 26 professional man-years.

Personnel are recruited by the Research Analysis Corp. (RAC) by advertisement in the labor market and direct correspondence between RAC and those

personnel whose services they seek to obtain. Approximately 13 percent of

the total employed are retired military personnel.

Mr. HANLEY. What do we do in the way of control here with

respect to security within this corporation?

Mr. IGNATrus. Let me say again, this is in another part of the,

Department, other than the area with which I am primarily concerned, but I am quite certain that both the facility itself in which

the individuals work as well as the individuals themselves are very

closely controlled from the standpoint of security. There are rules

governing the facility itself, and then of course the individuals have

to be cleared. Much of the work that is done by the Research
USE OF CONTRACTOR PERSONNEL IN THE DOD 27

Analysis Corp. is sensitive and the individuals must be cleared for

appropriate access to classified information.

Mr. HANLEY. Aside from the cost factor, I personally would look

upon the use of this type of service as an extremely dangerous one.

I would base this remark on the degree of dependence our military

might place on this type of corporation. It was quite a revelation

to me to learn this type of service is provided on a civilian basis.

Mr. IGNATIUS. Yes, the first effort of this kind, at least to my

knowledge, was the Rand Corp., which came into being following

the end of the Second World War, I believe

'

as I understand it,

largely as a result of efforts made by the then Chief of Staff of the

Air Corps and later the Air Force. It was intended to provide a

means of bringing scientific and mathematical talent to bear on

military problems, to assist military personnel in analyzing complex

technical matters. My general impression is that through the years,

corporations such as the Rand Corp. have provided much useful

advice

'

many useful studies which have borne fruit.

The Research Analysis Corp., which we spoke of a moment ago, is

similar in general purpose. It tends to work for the Army, looking

at Army problems, whereas the Rand Corp. tends to work for the

Air Force.

Mr. HANLEY. With respect to cost, can you tell us what the cost

of the most recent contract with this corporation is?

Mr. IGNATIUS. We will have to provide that for the record, Mr.

Hanley.

(The information follows:)

The cost of the Army contract with the Research Analysis Corps., DA-49-

188—ARO—I, is as follows:

Fiscal year 1962, $7,038,000; fiscal year 1963, $7,198,841; fiscal year 1964,

$7,908,300; and fiscal year 1965, $8,501,232.

Mr. HANLEY. No further questions, Mr. Chairman.

Mr. HENDERSON. Mr. Ignatius, before I conclude my last question,

I want to say to you that I am especially appreciative of your attendance this morning. However, since I notice you might be losing

Secretary Paul, I am especially glad that you did come, because I

think the position you now hold is even more important to the interest of our subcommittee in this area than the position you held last

year when you were very helpful to us in our study.

There is one area I want to touch on now, and perhaps I can do it

as well by making a positive statement rather than asking you a

question.

This is an area which I feel, based upon studies and recommendations of the staff, is now perhaps the weakest area in this entire field,

specifically based on a recent visit by Mr. Bray of our staff and consulting with management officials at Tinker Air Force Base. He

tells me that on that visit he questioned officials specifically with regard to the very large overhaul and repair contract there with such

firms as Douglas, Fairchild, Lear, and Boeing, and they admitted

they had a very definite lack of comparative cost data which they

could use to justify the contracts, and stated they came about as a

result of an overload of the Air Force facility at Tinker, its inability

to take on the specific jobs, and thus they were contracted out.
28 USE OF CONTRACTOR PERSONNEL IN THE DOD

Upon this being called to my attention, the question immediately

arose as to what consideration has been given—I realize this is within

the Air Force, but it seems to me it could be an even broader problem

of DOD—to using facilities that are not now at capacity, particularly since the result found at Tinker occurred at the time or close

to the time that the Department had reached the decision to close

two or three large Air Force repair facilities. This gives us some

concern. I thought it would be well for us to wrap up this morning

by giving you an opportunity to tell us what you think about this,

and perhaps what your present thinking might be.

Mr. IGNATIUS. Yes, sir. The area of depot level maintenance is ft

very important area to the readiness of our forces and a very significant area in terms of the cost involved. Of the $8 billion base

support cost, which Mr. Moot alluded to today, roughly half or

about $4 billion is involved in overhaul, repair, and modification of

equipment.

We constantly need to study our capacity for doing this work, and

the relationship of the industrial base to which we can turn for

work of this kind. We must assure ourselves that we have adequate

capacity in terms of facilities and capability as well as in terms of

individuals in order to assure a proper degree of readiness of military essential equipment. We need in-house to provide capacity as

a basis for training our people and to provide a means of rotation for

those military people who may be involved in this functional area.

Mr. HENDERSON. May I ask a specific question here. I am sure

your military capability is a very important item for consideration

at your level.

Mr. IGNATIUS. Yes, sir; it is.

Mr. HENDERSON. Can you give us some idea of whether you test

the required capability of industry? Is this a factor in your

decisions?

Mr. IGNATIUS. You mean the ability of industry to do the job?

Mr. HENDERSON. Let me say with reference to the Tinker installation, on which Mr. Bray reported, you had such isolated repair jobs

that I could not conclude that you were going to get any industry

capability by these various and numerous contracts. When you talk

about the military capability, you think industry capability is also

an item, I am sure.

Mr. IGNATIUS. I am not familiar with the Tinker case, but I will

become acquainted with it. I got the impression from what you

said that this may have been an overload, that Tinker's facilities

were fully utilized and it was necessary to go to a contractor for the

overload.

Mr. BRAY. Yes.

Mr. HENDERSON. We did not have the impression that when the

overload came the question was asked, Can this work be done at

other Air Force installations?

Mr. BRAY. That is correct.

Mr. HENDERSON. But the contract procedure was automatically

triggered by the overload.

Mr. IGNATIUS. We have all pointed to the desirability of case-bycase analysis of these matters. Let me look at this particular case
USE OF CONTRACTOR PERSONNEL IN THE DOD 29

and see if there were some particular reasons why the action was

taken.

Mr. HENDERSON. We are taking this matter up with the Air

Force Mr. Secretary, but we thought it would be very helpful to let

you know that, so again you can see we use the case-by-case technique to find what we often consider DOD-wide problems.

Mr. BRAY. Mr. Chairman, I thought it was an interesting item to

bring before the newly appointed Under Secretary as soon as he

takes the job.

Mr. PAUL. As far as I know, my name has not even been submitted to Congress.

Mr. HENDERSON. We are very pleased with the assignment, Mr.

Secretary, especially if we have the opportunity to continue to work

with you on manpower problems.

Unless there are other questions, may I close by commending you

gentlemen on your splendid response to our subcommittee work of

last year. I feel more than ever that our subcommittee's efforts will

be most rewarding to the taxpayers if we continue to have these

sessions from year to year. I realize that the time of responsible

officials such as you is important, and it is also important to us to

see that we are making progress. While we will be giving more attention to other agencies and departments, we feel even there we can

be helpful in some of the problems you have in DOD. I am very

appreciative of your responses this morning. I would especially like

to commend Mr. Moot and Mr. Lee. I think what they have contributed has been most helpful to us this morning. I feel a great

deal has been accomplished as a result of some of the very fine work

they have done in their positions. I want to commend them.

Mr. PAUL. Thank you very much.

Mr. HENDERSON. Without objection, the subcommittee stands

adjourned.

(Whereupon, Tuesday, July 13, 1965, the subcommittee adjourned.)