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The Acquisition of Weapons Systems

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The Acquisition of Weapons Systems THE ACQUISITION OF WEAPONS SYSTEMS HEARINGS BEFORE THE SUBCOMMITTEE ON ECONOMY IN GOVERNMENT OF THE JOINT ECONOMIC COMMITTEE CONGRESS OF THE UNITED STATES NINETY-FIRST CONGRESS FIRST SESSION PART 1 DECEMBER 29, 30, AND 31, 1969 Printed for the use of the Joint Economic Committee 0 U.S. GOVERNMENT PRINTING OFFICE 41-698 WASHINGTON: 1970 For sale by the Superintendent of Documents, U.S. Government Printing Office Washington, D.C. 20402 - Price S1.25 JOINT ECONOMIC COMMITTEE [Created pursuant to sec. 5(a) of Public Law 304, 79th Cong.] WRIGHT PATMAN, Texas, Chairman WILLIAM PROXMIRE, Wisconsin, Vice Chairman HOUSE OF REPRESENTATIVES SENATE RICHARD BOLLING, Missouri JOHN SPARKMAN, Alabama HALE BOGGS, Louisiana J. W. FULBRIGHT, Arkansas HENRYS. REUSS, Wisconsin HERMAN E. TALMADGE, Georgia MARTHA W. GRIFFITHS, Michigan STUART SYMINGTON, Missouri WILLIAM S. MOORHEAD, Pennsylvania ABRAHAM RIBICOFF, Connecticut WILLIAM B. WIDNALL, New Jersey JACOB K. JAVITS, New York W. E. BROCK 3D, Tennessee JACK MILLER, Iowa BARBER B. CONABLE, JR., New York LEN B. JORDAN, Idaho CLARENCE J. BROWN, Ohio CHARLES H. PERCY, Illinois JoHlN R. STARKi, Exrecutive Director JAZMES W. KNOWLES, Director of Research ECONOMISTS LOUGHLIN P. MCHUGa JOHN R. KARLIK RICHARD F. KAUFMAN COURTENAY M. SLATER Minority: DOUGLAS C. FRECHTLING GEORGE D. KRumRHAAR SUBCOMMITTEE ON ECONOMY IN GOVERNMENT WILLIAM PROXMIRE, Wisconsin, Chairman SENATE HOUSE OF REPRESENTATIVES JOHN SPARKMAN, Alabama WRIGHT PATMAN, Texas STUART SYMINGTON, Missouri MARTHA W. GRIFFITHS, Michigan LEN B. JORDAN, Idaho WILLIAM S. MOORHEAD, Pennsylvania CHARLES H. PERCY, Illinois BARBER B. CONABLE, JR., New York CLARENCE J. BROWN, Ohio (IIJ CONTENTS WITNESSES AND STATEMENTS MONDAY, DECEMBER 29, 1969 Proxmire, Hon. William, chairman of the Subcommittee on Economy in Page Government: Opening statement -1 Keller, Robert F., Assistant Comptroller General of the United States, accompanied by Charles M. Bailey, Director, Defense Division; Hassell B. Bell, Associate Director; James H. Hammond, Associate Director; Harold H. Rubin, Associate Director; and Werner Grosshans, Assistant Regional Manager, San Francisco Office- 4 TuESDAY, DECEMBER 30, 1969 Proxmire, Hon. William, chairman of the Subcommittee on Economy in Government: Opening statement -149 Rule, Gordon W., Director, Procurement Control and Clearance, Navy Material Command Headquarters -150 Wells, Capt. George C., U.S. Navy (retired) -176 WEDNESDAY, DECEMBER 31, 1969 Proxmire, Hon. William, chairman of the Subcommittee on Economy in Government: Opening statement -195 Sanders, Frank P., Assistant Secretary of the Navy (Installations and Logistics), accompanied by Robert A. Frosch, Assistant Secretary of the Navy for Research and Development; Rear Adm. N. Sonenshein, Com- mander, Naval Ships Systems; Rear Adm. Levering Smith, Director, Strategic Systems Projects; Capt. R. G. Freeman, Deputy Director, Naval Material Command, Production and Procurement; Capt. Warren Cobean, Deputy Director, Strategic Systems Projects; and Capt. Edwin E. McMorries, Special Assistant to the Secretary of the Navy (Installa- tions and Logistics) -198 SUBMISSIONS MONDAY, DECEMBER 29, 1969 General Accounting Office: Response to Chairman Proxmire's request to supply for the record the planning estimate figures on the Poseidon program -16 Response to Chairman Proxmire's request to supply for the record the figures on the main battle tank (MBT-70) program -is Response to Chairman Proxmire's request to supply for the record the report on the deep submersible rescue vehicle -is Response to Chairman Proxmire's request to supply for the record the details on the Gama Goat (M-561) -23 Response to Chairman Proxmire's request to supply for the record (1) the actual cost of the aircraft carrier John F. Kennedy, and (2) the cost of modernizing of the aircraft carrier Midway-25 Response to Chairman Proxmire's request to supply for the record the name of the person or division in the Navy that stated there was no planning estimate on the Poseidon program- 28 Response to Chairman Proxmire's request to supply for the record examples of cost data not shown in SAR's -33 Response to Chairman Proxmire's request to supply for the record supplemental data on system performance and schedule slippage due to strikes -37 Response to Chairman Proxmire's request to supply for the record statistics on the percentage of formally advertised procurements-- 47 Response to Chairman Proxmire's request to explain for the record what figures were left out in the prime contractors awards- 48 (m) IV Keller, Robert F.: Page Prepared statement -54 Major systems acquisitions -54 "Should cost" concept -57 DOD's role in "should cost" surveillance - 57 Feasibility of GAO's use of "should cost" principles -57 Trends in military procurement- 58 Contract pricing - 58 Proposals predating issuance of Defense Procurement Circular No. 57 -58 Reviews made subsequent to the issuance of Defense Pro- curement Circular No. 57 -59 Catalog or market prices -60 Contract pricing work currently underway -61 Defense profits study -_ 61 Appendix I -61 Tables: Cost estimates for selected systems -61 Cost growth (recap of above table) - Appendix -- 62 II- 62 Table: Schedule of program cost data appearing on June 30, 1969, SAR's and arranged by acquisition phase and mili- tary service -62 Appendix III - -63 Feasibility of GAO using "should cost" concepts -63 Scope and methodology of study - -63 Definition of "should cost" concepts -64 Government versus commercial procurement objectives. 64 Commercial prime/subcontractor objectives -64 Cooperation between contracting parties -65 Industry procurement practices 65 Need to improve Government procurement practices- 66 Applicability of "should cost" concepts - 66 Tentative conclusions -6- -67 DOD's role in "should cost" surveillance - - 67 Feasibility of GAO's use of "should cost" principles. 67 Appendix IV- 67 Trends in military procurement - - -_ _- _767 Table: Military prime contract awards, mmthodby of procurement - - 68 Appendix V - -68 Prime contracts awarded to small business firms - - 68 Appendix VI -- 69 Collection of subcontracting data - - - 69 Proxmire, LetterHon. William: from Comptroller General to Secretary of Defense, dated May 12, 1966 -23 Interrogation, colloquy, and points of interest: Bell, Hassell B.: CH-47 helicopter -15 Poseidon -15 MBT-70 -18 Gama Goat -- 2 Cost "growth" built into Navy estimates -26 Cost items not reported in SAR -26 Claims not reported in SAR - 27 Cost "growth -27 Poseidon planning estimate not reported - 27 Navy's reasons for cost overrun - 28 No GAO study of contractor's site -29 B- (AMSA) -32 Safeguard - ----------------------------- 34 Nuclear warheads excluded from all SAR's -35 Contract definition -38 Cost overruns total $21 billion -40 V Prommire, Hon. William-Continued Interrogation, colloquy, and points of interest-Continued Grosshans, Werner: Page Pratt & Whitney study -43 Council of Defense & Space Industry Association (CODSIA) 45 CODSIA reluctant to participate -45 Hammond, James H.: Effect of catalog prices on Truth in Negotiations Act -51 Waiver of Truth in Negotiations Act -51 Keller, Robert F.: Selective acquisitions report (SAR)- 5 Classification problem- 5 Information on systems not available centrally- 6 SAR will not include all systems - 8 Packard directive -S SAR system shortcomings- 9 No comparison of technical performance 9 Major systems delivered with subsystems and delays not reported -------- 9 Costs incurred not related to physical progress -10 Changes not reported -10 Schedule slippages not reported - 11 Improvements in SAR system feasible -12 Inconsistencies in data reported -12 Inflation ----- --------------------------- 12 Required program cost data not included in 20 percent of SAR's -14 Blanks in SAR-15 Subroc -16 SAR instructions require -16 Original planning estimate -16 Current estimate to complete -17 Aircraft carrier John F. Kennedy -23 Aircraft carrier Midway - 25 D)E-1052 destroyer -26 Not all cost "growth" can be prevented -29 Cost "overrun" versus cost "growth"-29 Cost "growth" totals -30 Cost-benefit analysis -31 GAO developing capability -31 Costs omitted from SAR's -32 Schedule slippage totals -35 Performance variances -36 GAO plans selective weapons studies -39 Classification problem -39 Should-cost study -40 Uses of should cost --------- 40 Will encourage DOD to use should cost -41 Army interested in "should cost"- 43 Contractor reaction -43 Navy plans no continuing "should-cost" capability -45 Trends in military procurement ------ 46 Advertised competitive bidding -- 46 Small business - ----------------------------------- 47 Contract pricing reviews -- 48 Defense profits study -------- 52 Rubin, Harold H.: Deep submersible rescue vehicle (DSRV) -18 Expected saving did not materialize -19 Cost overrun - 19 Navy to reconsider need for additional DSRV's -20 Two DSRV's would be sufficient -- 21 Poor estimating -21 VI Appendix Packard memorandum, dated August 13, 1969, subject: "Selected Acquisi- Page tion Reports/Program Status Reports"- 71 Letter to Senator Proxmire from Mr. Keller concerning cost growth of major weapons systems- = -_----------------------- 73 Report to the Congress entitled "Status of the Acquisition of Selected Major Weapon Systems (B-163058)," by the Comptroller General of the United States - 75 Report to the Congress entitled "Evaluation Needed of Cost-Effectiveness of Four More Deep Submergence Rescue Vehicles Beforo Purchase by the Navy (B-167325)," by the Comptroller General of the United
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