Selected Significant Audit Findings in the Department of Defense

Published by the Government Accountability Office on 1971-03-08.

Below is a raw (and likely hideous) rendition of the original report. (PDF)


Audit Fin
The Department Of Defense                B-1067P0


                   MARCH 8‘1971
                            COMPTROLLER           GENERAL     OF     TI-lE   UNITED   STATES
                                                WASHINGTON.    DC.       2.0%48

B- 106190

Dear     Mr.    Chairman:

          We are pleased        to submit     our annual     report  of selected    signifi-
cant audit findings       relating     to activities     of the Department       of Defense.
A similar     report   relating      to the civil    departments      and agencies      of the
Government       was submitted         separately.

          In this report        we have included            items      which     we believe       should     be
of interest        and use to the Committee                during      the appropriations           hear-
ings for fiscal         year 1972.        These     findings        and recommendations               have
previously         been brought        to the attention           of responsible       departmental
officials      by means       of audit    reports.        Some       matters      commented         on in
this report         are those     on which the Department                  has ,indicated       that corm
rective      action    either    has been or will be taken.                   The items      have been
included,       however,      in view of their          significance         and of the fact that we
have not had an opportunity                 to evaluate         the adequacy        of corrective         ac-
tions taken.

         We shall       be pleased             to furnish          any additional              information   that
you    may desire.

        We are sending    copies     of this report   to the Department       of De=
fense and to the military      departments      so that they may be in a posi-
tion to answer  any inquiries       that may be made       during  the appropria-
tions  hearings with respect      to these finding;      and recommendations.

                                                                       Sincerely         yours,

                                                                        Comptroller             General
                                                                        of the United           States

The Honorable        George               H. Mahon
Chairman,      Committee                  on Appropriations
House     of Representatives

    Need for improvement             in the career program for
      procurement        personnel                                                1
          Department      of' Defense                                             1
    Need for clarification               of catalog       or market
      price within        the meaning of Public Law 87-653                        4
          Department      of Defense                                              4
    Opportunity       for improving           contract      pricing     and
       administration         through use of "should                cost"
       concepts                                                                   7
          Department of Defense (and other departments
             and agencies)                                                        7
   Need for better          criteria        for and closer surveil-
       lance of waivers of preaward audits                       of con-
       tractors'      noncompetitive           price proposals                    9
          Department      of Defense                                              9
   Problems in gaining             contractors'          acceptance       of
      recommendations           for improving          their     procure-
      ment systems                                                               11
          Department      of Defense                                             11
    Opportunity       for improving           pricing     of contracts
       for ship overhauls                                                        13
          Department      of the Navy                                            13
   Need to ensure that one-time                    costs are excluded
       in negotiation         of follow-on           contracts                   16
          Department      of the Army                                            16
    Need for contracting             officers        to report      to higher
       authority      contractors'          reluctance        to negotiate
      price on a reasonable               basis                                  18
          Department      of the Army                                            18
    Need for selection            of type of contract             most ap-
      propriate       to the circumstances               of the procure-
      ment                                                                       20
          Department      of the Navy                                            20
    Need for closer surveillance                   of Government-owned
      materials       in plants        of overseas contractors                   22
          Department      of Defense                                             22
    Problems in evaluating               claims of communications
       carriers     for termination             of services                      24
          Department      of Defense                                             24

RESEARCH AND DEVELOPMENT                                                            26
    Problems      in allocating          contractors'          independent
       research       and development           costs to Government
       contracts                                                                    26
           Department       of Defense         (and other departments
              and agencies)                                                         26
    Need for consistent              Government       policy      for cost
       sharing      by institutions           in federally          financed
       research                                                                     31
           Department       of Defense (and other departments
              and agencies)                                                         31
    Study needed for uniform                 system of advancing
       funds to universities               for Government's             share
       of cost of research                                                          33
           Department       of Defense (and other departments
              and agencies)                                                         33
    Need for longer           tours of duty for managers of
       major research           and development          projects                   35
           Department       of the Army                                             35
    High turnover         of key military            personnel        in the
       SAFEGUARD antiballistic                missile      (ABM) program            38
           Department       of the Army                                             38
    Savings     available        through      curtailment         of the
       deep submergence            rescue vehicle          program                  39
           Department       of the- Navy                                            39
    Need for improved            evaluation        of incentive          pro-
       visions      in subcontracts           for development            of
       major weapon subsystems                                                     41
           Department       of the Army                                            41
    Need for clarification               of criteria         for identify-
       ing appropriations             available       for financing
       construction         of facilities          for research          and de-
       velopment       projects                                                    43
           Department       of the Air Force                                       43
    Need for improvement              in management of laboratory
       equipment                                                                   45
           Department       of Defense                                             45
    Adverse effects          of large-scale           production         before
       completion       of development           and testing                       47
           Department       of the Navy                                            47

ACQUISITION OF WEAPONS                                                          48.
    Problems in acquisition        of major weapon systems                      48
          Department   of Defense                                               48
    Adverse effects     of large-scale     production  before
       completion    of development    and testing                              50
          Department of the Navy                                                50
    Need for longer      tours of duty for managers of
       major research      and development    projects                          52
          Department   of the Army                                              52

SUPPLY MANAGEMENT                                                               53
    Continuing     problems in supply management in the
      Far East                                                                  53
           Department    of Defense                                             53
    Need for greater        participation           in the program
      for use and redistribution                 of excess materiel
      in the Pacific        area                                                56
           Department    of Defense                                             56
    Opportunity      for avoiding        unnecessary        procure-
      ments through        improvement         in projecting         future
      needs for supplies                                                        57
           Department    of Defense                                             57
    Savings available        through more effective                recla-
      mation of usable parts from excess aircraft                               59
           Department    of the Navy                                            59
    Savings available        through elimination              of dupli-
      cate stocks in the Marine Corps                                           61
           Department    of the Navy                                            61
    Additional     benefits      possible        through    fuller      uti-
      lization     of existing        automated        system for
      small purchases                                                           62
           Department    of the Navy                                            62
    Need for closer control             over transfer         of stocks
      to the General Services             Administration                        64
           Department    of Defense                                             64
    Questionable      use of funds to transport,                 erect,
      and maintain       defective       air-inflatable           shelters      66
           Department    of the Air Force                                       66
    Need for closer surveillance                 of transfers        of ex-
      cess and surplus property                to the Military          Af-
      filiate     Radio System                                                  69
           Department    of Defense                                             69

          Need for adherence        to established    policy            on pro-
            viding      household   furnishings    at military            in-
            stallations                                                                 71
                Department      of Defense                                              71

     MILITARY CONSTRUCTION                                                              73
           Need to keep the Congress                 informed      on construc-
             tion financed          with funds other than military
             construction         appropriations                                        73
                Department        of Defense                                            73
           Need for improvements              in the management of over-
             seas military          construction          contracts                     76
                Department        of Defense                                            76
           Need for inclusion             of overseas        contracts     and
             other contracts            in reports        to the Congress        on
             nonadvertised          military       construction        contract
             awards                                                                     79
                 Department       of Defense                                            79
           Need for consideration               of alternative         methods of
             acquiring      facilities          in Italy                                81
                Department        of the Navy                                           81
           Need for clarification               of criteria        for identify-
             ing appropriations              available       for financing
             construction         of facilities           for research       and de-
             velopment      projects                                                    83
                Department        of the Air Force                                      83

     ADMINISTRATION       OF MANPOWER MATTERS                                           84
,,       Need for greater          accuracy      of data in the auto-
            mated manpower and personnel                management      infor-
            mation     system                                                           84
               Department        of the Navy                                            84
         Problems      in accounting        for payments       to military
            personnel       in advance of regular           pay days                    85
               Department        of the Army                                            85
          Savings    available      through      reduction     of per diem
            payments      to approximate         costs incurred       and con-
            sideration        of other alternatives                                     87
               Department        of the Army                                            87
         Problems      resulting      from civilian        personnel      ceil-
            ings and recruiting           practices                                     90
               Department        of Defense                                             90

      Savings   available    through  improvement     in perfor-
        mance standards      for production    personnel                          92
           Department     of Defense                                              92

MILITARY TRAINING AND EDUCATION PROGRAMS                                          94
      Need for clarification            of objectives           of full-
         time graduate        education      programs        for military
         officers                                                                 94
             Department     of Defense                                            94
      Problems      in attaining       objectives       of Project
         TRANSITION for enlisted             military        personnel            96
             Department     of Defense                                            96
      Problems     in attaining        objectives       of Project        One
         Hundred Thousand for enlisted                 military      personnel    98
             Department     of the Army                                           98
      Opportunity       for improving        effectiveness          of the
         formal    school     training     program for military
         personnel      in Europe                                                100
             Department     of the Army                                          100
      Need for management improvements                  at the United
         States Armed Forces Institute                                           102
             Department     of Defense                                           102

READINESS OF COMPONENTS OF THE ARMED FORCES                                      104
    Problems     in maintaining       readiness     of the Atlan-
       tic and Sixth Fleets                                                      104
          Department     of the Navy                                             104
    Problems     in maintaining       readiness     of the Army
       Reserve Components                                                        106
          Department     of the Army                                             106
    Problems     in maintaining       readiness     of Naval Air
       Reserve units                                                             108
          Department     of the Navy                                             108
    Opportunity      for improving       accuracy     and complete-
       ness of readiness        reports     prepared    by the
       Strategic     Air Command                                                 110
          Department     of the Air Force                                        110

MAINTENANCE AND MODIFICATION OF AIRCRAFT                                         112
     Savings    available    through   more efficient     proce-
       dures and practices         in maintenance     of aircraft                112
          Department      of the Navy and Department        of the
             Air Force                                                           112

     Problems    in carrying  out aircraft           modification
           Department   of the Army

    Savings     available      through    improvement      in commer-
      cial    vehicle      maintenance     practices     in Europe
          Department       of the Army and Department          of the
             Air Force
    Savings     available      through    use of larger      capacity
      refrigerated         vans to move military         food sup-
          Department       of the Army
    Cost and balance-of-payments              advantages     of re-
      placing      foreign-made       buses with American-made
      buses abroad                                                          121
          Department       of Defense                                       121

DEFENSE INTERNATIONAL ACTIVITIES                                            123
    Need for increased          control    over local        currency
       made available        for Vietnam        budget support              123
           Department    of Defense       (and Department          of
             State and Agency for International                  Devel-
             opment)                                                        123
    Purchase      commitment     made to an international             or-
       ganization     prior     to availability          of funds           125
           Department    of Defense                                         125
    Need for improvement          in the combat readiness             of
       a major weapon system provided                  to Far East
       countries                                                            128
           Department    of Defense                                         128
    Questionable      payment of taxes to foreign                govern-
          Department     of Defense       (and Department          of
    Limited     documentary      evidence       furnished     by agen-
       cies in connection         with our review          of U.S. sup-
       port of the Philippine           Civic      Action   Group in
       Vietnam                                                              132
          Department     of Defense       (and Department         of
             State)                                                         132
OTHER AREAS OF OPERATIONS                                             134
    Need for an overall Federal          policy    on food   in-
      spection                                                        134
          Department of Defense (and other departments
            and agencies)                                             134
    Need for coordination       in management and opera-
      tion of the Defense Communications              System          137
         Department   of Defense                                      137
    Need for closer surveillance           of industrial     plant
      equipment retained      for possible       future    use        139
         Department of the Army                                      139
    Savings available     through more efficient           use of
      the Air Force logistics       airlift      system              141
         Department   of the Air Force                               141


Department      of Defense

        Department     of Defense procurement            of weapons, support
equipment,      and other goods and services               totals      tens of bil-
lions of dollars         annually     and involves       hundreds of thousands
of procurement       transactions.           The procurement         transactions
are subject       to numerous statutes,          policies,        regulations,     and
directives      and require       procurement     personnel        with a great
deal of special        knowledge,      skill,    and dedication.             We made
a study of the effectiveness               of the Department's            program
for recruiting,        training,      and motivating         people to pursue
careers in the procurement             field.     Our    report      on the study
was issued to the Congress in August 1970.                        The development
of the current       career program for procurement                  personnel    was
prompted by the Secretary             of Defense in 1965.              Because of
resistance      from some of the services,              however,       the program
was not fully       implemented.

       Our study showed that,            to revitalize         the program, a
major effort       needed to be directed           toward (1) updating            the
program to meet the needs of procurement                     as envisioned        for
the 1970*s and beyond,            (2) recognizing        the conflicting          ca-
reer objectives        of civilians        and of military          officers    in
procurement,       (3) raising       the status of the procurement                field,
 (4) attracting       young, high-caliber          people,       (5) providing
more data to assist          the Defense Procurement               Career Manage-
ment Board in its decisions,               (6) improving         the selection        of
personnel      for procurement         managerial      positions,        and (7)
giving    more intensive        management attention             to the program--
the responsibility         for which is split           between two part-time

        We recommended that the Secretary       of Defense,    to meet
future    needs of procurement,   initiate     action  to update the
current    career program and resolve      other issues raised       in
our report.      To ensure a complete and objective       evaluation
of the program,     it may be desirable     to use experts     from the
Department     of Defense, other Government agencies,        industry,

and educational         institutions.         The evaluation       should       be
directed   to:

      --Creating       one organization         to manage the program                on a
         full-time      basis.

      --Establishing    prerequisite            education      requirements           for
         use at the trainee     level.

      --Studying         the feasibility   of a separate           recruiting
         program       for young trainees.

      --Formulating          a program    to reduce     the turnover         of young

      --Performing       an in-depth      analysis    of the broadened
         procurement      function     to determine      the optimum organi-
         zation    structure      and staffing     requirements      and to
         lay out career patterns           and training     required    to meet
         the staffing       requirements.

      --Establishing          a career    appraisal     and counseling           pro-

      --Considering   establishment   of a Department     of Defense
         procurement  academy for developing    management per-
         sonnel and for direction   of procurement    training,
         regardless  of where the training    is conducted.

      --Establishing      a management information  system to pro-
         vide information     for making decisions  in recruiting,
         training,   and overall   management of the career pro-

      --Formulating     a separate funding      program or taking
         other steps to prevent    disproportionate       cuts in
         training   funds during overall      fund cutbacks.

      --Appraising        the effectiveness       of the Central            Automated
         Inventory       and Referral     System.

      --Determining  the requirements  to raise the status and
         enhance the image of the procurement   career field.

      --Establishing      uniform  standards     for    selection     of per-
         sonnel for    the procurement     function.

      --Ensuring    that the career program provide    full            and
         satisfying    career opportunities for personnel              enter-
         ing the procurement    field.

      --Working   with the Civil      Service Commission on all
         proposed corrective     actions     under its purview.

       We did not request      formal     comments from the Department
of Defense.     Informal   comments       were obtained     and were con-
sidered   in our report.      We were      subsequently     advised that
the Department     of Defense would        undertake    an intensive      ef-
fort to improve its procurement            career development       program
for both military      and civilian       personnel.     (~-164682,     AU-
gust 13, 1970.)


Department      of Defense

        We examined negotiated         contracts       in amounts over
$100,000    to ascertain     whether      determinations--that          negoti-
ated prices       were based on catalog         prices    of commercial       items
sold in substantial        quantities      to the general       public--and
related    policies    of Department       of Defense (DOD) officials
seemed to adequately        carry     out the objectives        of Public
Law 87-653.

       In accordance    with the law, procurement          officials      nor-
mally    rely on the competitive      forces   of market rather         than
on cost or pricing      data in determining       whether      proposed
prices     are fair  and reasonable.       We estimated     that contract
awards based on contractors'         catalog   prices    probably     had
exceeded $1 billion      annually.

         In a report,       issued     to the Congress in December 1969,
on our review         of 68 such contracts,         we stated that con-
tracting     officers      had obtained      a copy of the contractor's
catalog     or price     list    for each of the contracts       prior  to
award at the catalog            price.     However,

       --for    45 of the 68 contracts,       the contracting        officers
           had no record     of having  obtained    factual     information
           from contractors     showing the quantity        of comnercial
           sales during     a specific  recent   period     and

       --for   23 of the 68 contracts,    the contracting officers
           had obtained contractors'   sales data but had verified
           the data for only nine of the contracts.

        DOD policies      and criteria       did not provide           specific
guidance     with respect      to the amount of commercial                 sales
that should be considered             substantial.          This   had   led    to ac-
ceptance     of diverse     and/or     seemingly        minor amounts of com-
mercial     sales as substantial.            In    this    connection,       the
Renegotiation        Act establishes,        for standard        commercial       items,
a specific       percentage    of commercial           sales for determining

whether     the items    are subject      to the Renegotiation            Board's
profit    review.

        Some of the largest       individual     commercial  sales were in
substantially     smaller     quantities     than those purchased   under
individual     DOD contracts.         Under these circumstances,    there
was no assurance      that the prices        paid by the Government    for
the quantities     purchased     would have been paid by commercial
buyers of comparable        quantities.

       DOD has improved      its guidance   with respect      to types of
data to be obtained       from contractors     prior    to the award of
catalog-   or market-priced      contracts.      It has not provided
any new guidance,     however,    with respect       to how the data are
to be used.

      We recommended        that   DOD:

      --Provide      more definite       criteria     for determining   what
         constitutes       substantial       sales to the general     public.
         In this connection,           consideration      should be given to
         establishing       criteria      similar    to those for standard
         commercial      items in the Renegotiation            Act.

      --Revise      the Armed Services           Procurement       Regulation    to
         require      evidence,     as  a   condition       for   acceptance   of   a
         catalog      price,    of recent      individual       commercial    sales
         in quantities         approximately        similar     to the proposed
         quantities        for purchase      by the Government.

      --Consider       requiring      contracting     officers       to (1) obtain
         a certification         from the contractor           that the sales
         data being submitted             are complete     and accurate,
         (2) include        a provision       in each proposal         and any re-
         sulting      contract     which would permit          Government        rep-
         resentatives         to examine the contractor's              pertinent
         books and records          in order to verify           the information
         submitted       in support       of the proposal,         and (3) verify
         sales data obtained            from the contractors.

        DOD stated    that it was undertaking     a more thorough
study of the adequacy of its catalog-pricing            policies     and
practices.       With respect  to our recommendations,         DOD stated
that it did not consider        (1) the establishment      of a specific

percentage    of commercial        sales to be an appropriate        ground
rule for catalog-price         determination     and (2) the criteria
in the Renegotiation        Act for standard       commercial    items to
be analogous      to the bases for substantial         sales to the gen-
eral public     at catalog     prices.      The Department     of Defense,
however,    is considering      a change to its procurement          regula-
tion which,     if adopted,     would substantially        implement    our
recommendations.        (B-39995,      December  3,  1969.)

Department  of Defense
  (and other departments            and agencies)

        The Joint Economic Committee,     through    its Subcommittee
on Economy in Government,        asked us to study the feasibility
of applying      "should cost" analyses   in our audits     and reviews
of Government procurement.         The Committee defined     the
f'should cost" approach as an attempt         to determine   the amount
that a weapons system or product ought to cost given attain-
able efficiency       and economy of operation.      Our report   on the
study was issued to the Congress in May 1970.

     We found        in our study     that:

      --It        is feasible    for us, in auditing     and reviewing   con-
             tractor    performance,    to utilize   "should   cost" analy-

      --The greatest      opportunity     for the Government to bene-
         fit from the application         of "should     cost" appears to
         be through    its use, on a selective        basis,   in pre-
         award evaluations       of contractors'     price proposals.

      --In addition     to preaward reviews,         Government agencies
          should consider     performing     "should   cost" reviews
          selectively   during     the performance     of the contract--
          on a postaward basis.

      --The extent     and depth of the application               of "should
         cost" concepts      should be flexible          and should be based
         upon information      developed      in the initial        stages of
         the review.      The subsequent        detailed     review efforts,
         however,    should be of sufficient            depth to provide
         full  documentation      of inefficiencies          and their    im-
         pact on contract      costs.

      --The success of any "should        cost" work would depend to
         a large extent     on (1) the skill    of a Government team
         in pinpointing     areas for cost improvement     by a con-
         tractor,     (2) genuine cooperation    between the

        Government and the contractor      in providing     adequate
        exchange of information     between "should     cost" review
        teams and contractor    personnel,   and (3) a willingness
        by contractors    to make changes based on the team's
        efforts   when they appear to be constructive        and prac-

(B-159896,   May 20, 1970.)


Department     of Defense

      Department of Defense regulations            provide        that,    prior
to negotiation     or modification      of a contract          resulting      from
a proposal     in excess of $100,000 when the price would be
based on cost or pricing         data submitted       by the contractor,
the contracting     officer    request    the Defense Contract             Audit
Agency to audit the contractor's            price proposal.            This re-
quirement     may be waived by the contracting             officer       whenever
it is clear that information         already     available        is adequate
for the proposed procurement.

       We examined 344 noncompetitive    fixed-price      procurement
actions,   amounting to about $500 million,        awarded in 1967
by six procurement   centers.    Our report    on the examination
was issued to the Congress in August 1970.

     Contracting    officers     had waived the preaward audits    for
130 of the actions,      amounting   to about $51.7 million.    Of
the 130 waivers of preaward audits

       --31 appeared       to be justified         on the basis       of available
          information      and

       --99 did not appear to be justified                  because (1) avail-
          able information           either     was not for comparable          quan-
          tities,      was not current,          or had not been verified            or
          (2) the contractors'              cost or pricing      data were veri-
          fied by price analysts              and technical      specialists       who
          generally      did not have the specialized               audit training
          and experience         acquired       by the Audit Agency's          audi-
          tors.      Of the 99 waivers,            34 were justified,        in part,
          by contracting         officials       on the basis that time was
          insufficient        for an audit.          Defense regulations         do
          not provide       for waiver of audits           on this basis.
       We reported       to the Defense Contract  Audit Agency the
procurement      actions    in which waivers of audit did not appear
to be justified,         and the Agency undertook  postaward  audits

of these procurements.            We recommended         that   the   Department
of Defense:

       --Provide    guidance    to contracting      officers     on the type
          of procuralent     information     considered      adequate to
          justify   waivers    of audit.

       --Require    contracting      officials         to improve     the documen-
          tation   of waivers      of audit,

       --Strengthen   internal audit             surveillance       of the propri-
          ety of waivers of audit.

       --Establish   procedures    for reporting   waivers of audit
          so that the Defense Contract       Audit Agency may con-
          sider postaward    audits of these procurements.

       --Provide   guidance as to what actions should                   be taken
          when there is insufficient  time to perform                   a preaward

        The Department of Defense agreed that waivers of audit
should be better         documented and that internal           surveillance
of such waivers        should be increased.         With respect        to our
other recommendations,          the Department      stated its belief         that
existing    instructions      provided   the guidance we recommended.
We pointed     out that our findings        indicated      that there was
a need for improvement          in the existing      instructions         and sug-
gested that our recommendations           be reconsidered.            (E-39995,
August 3, 1970.)


Department      of Defense

        The Armed Services     Procurement      Regulation      provides      for
the review     of contractors'      procurement     systems.       The reviews
are performed     by the Defense Contract         Administration         Ser-
vices    for the Department      of Defense and the National             Aero-
nautics     and Space Administration.          Subcontracting       practices
are an important      part of the procurement          systems--about
$20 billion     of the $40 billion        spent annually      under Depart-
ment of Defense prime contracts            goes to subcontractors--and
improvement     in the practices       could result      in large     savings
to the Government.

       In a report      issued to the Congress in August 1970, we
stated    that the review program was sound in concept                    but that
its implementation         was not fully      effective.        There was a need
to motivate      contractors,       whose procurement        systems were found
to be unacceptable,         to makeneeded       improvements.          We found
instances     where contractors        had refused       to take action          on
weaknesses     reported      to them, contending         that their      procure-
ment systems were good enough.              The negative        attitude      of the
contractors      did not appear to have diminished               their     ability
to obtain     Government       prime contracts.

      We also     found   a need for:

      --Definitive       standards     for the approval       or disapproval
         of contractors'        procurement   systems.

      --Greater   discretion in scheduling    detailed  annual re-
         views of systems of contractors     whose systems had
         been found to be satisfactory     in the past.

        The Department       of Defense and the National        Aeronautics
and Space Administration            agreed,   in general,   with our spe-
cific     proposals    to improve      the program for review     of con-
tractors'      procurement      systems.    The Department     of Defense,
however,      did not believe       that there was a need to motivate
contractors       to accept recommendations        of the Government        be-
cause, in actual        practice,      most of the contractors      accepted
        We pointed      out that it was inequitable              for the non-
responsive       contractors      to continue       to receive      the same con-
sideration      as that given contractors             who had made efforts          to
devise acceptable          procurement       systems from which the Govern-
ment and the contractor             benefit.       We recommended that the
Secretary      of Defense consider           imposing    penalties,       such as
reductions       in allowable       profits,      on contractors       whose pro-
curement      systems had been disapproved              and who had made no
effort     to make the changes necessary              to improve       the systems.
(B-169434,       August 18, 1970.)


Department     of the Navy

         In a report    issued to the Congress        in March 1970, we
pointed      out that,    although     about 90 percent    of the value of
initialawardpackages            for ship overhauls      was awarded by the
Navy under advertised           contracts,   the circumstances     under
which the awards were made were not conducive                to keen price
competition       because:

      --The Navy's policy   of having  ships overhauled    at or
         near home ports reduced   the number of prospective

      --The number of shipyards        that could do certain  types
         of overhauls   was limited      to the few that had capa-
         bilities   for handling    all sizes of vessels.

      --The specialization    by contractors              within    the   ship   re-
         pair market narrowed   the choice           of    firms.

       When such competitive           constraints      prevail, advertised
procurement       methods should be used only when there are other
assurances      that prices     are fair      and reasonable.     The Navy
tried   to get this assurance           by making its own estimates         and
comparing     them with bids submitted,             but the Navy apparently
lacked    confidence     in the reliability          of its own estimating
system and placed        little    reliance       on the results  of the

        As a rule,      substantial    additional    work was added to the
initial      award package after       a contract    had been awarded.
The price      for the additional       work was generally         negotiated     on
a sole-source        basis because the ship was immobilized               in the
contractor's      yard and it was impractical           to solicit       compe-
tition.       This placed      the Government     in a disadvantageous
bargaining      position.        The Government's    disadvantage        was fur-
ther increased         because:

      --Prices     for the additional   work were frequently     nego-
         tiated   after   the work had been completed    without
         knowledge     by the Navy of the costs incurred.

      --The Navy had no way of knowing,          with respect  to
         changes affecting      the work called     for in the initial
         award package,    what    adjustment   should  be made in the
         initial  award price.

      --Considering    the short period     of contract    performance
         (generally   90 days),   the Navy's procedures       did not
         seem adequate    to handle the tremendous      volume of
         changes on a timely     basis.

      We proposed     to the    Secretary     of the    Navy    that:

      --Invitations       for bids require      contractors        to submit
          itemized    bids and that this      information,         together   with
          Navy estimates,        be used to develop      histories       that
          would i>rovide      a basis for identifying         and resolving
          significant     differences    between bid prices           and Navy

      --Firm     determinations        be made concerning      the adequacy
         of competition         obtained    and the reasonableness        of the
         bid prices       and that,      when the  bid  prices    are  signifi-
          cantly    higher    than the Navy's estimates          and the dif-
          ferences     cannot be justified,        the bids be rejected
         and an attempt         made to negotiate      prices.

      --The many low-dollar          change orders   be negotiated         by
         Navy representatives         stationed   at contractors'         ship-
         yards at the time        the work is authorized.

      --The Navy, should it become necessary     to negotiate  af-
         ter the work is completed,   use as a basis for nego-
         tiation the same cost information   that is available
         to the contractor.

       The Navy agreed substantially            with these       proposals and
stated   that corrective    action     either      had been      taken or was
planned.     The Navy stated     further      that future        contracts
would include    a clause requiring         contractors        to furnish

itemized   costs after   completion    of the work and that such     'I
cost information    would be used to establish       a data bank for
evaluating    bids on future   overhauls.    (B-133170,    March 19,


Department     of
               --- the Army

       The Army negotiated         daily   rental    rates      for barges which
included    the contractor's        costs for towing          the barges from
the Philippines      to Vietnam       and returning        them when no longer
needed.     The towing     costs for a number of the barges already
in service     in Vietnam     had been provided          for and recovered       in
rates negotiated       under prior       contracts.        In a report    issued
to the Congress      in May 1970, we stated            that the Army could
have saved about $664,000,            had the towing         costs been elimi-
nated from the rental         rates     and provided       for in the contracts
as a separate     item to be paid once for each barge delivered
to Vietnam.

         These contracts         were subject      to the requirements        of
Public     Law 87-653,       the Truth-in-Negotiations            Act, which pro-
vided,     among other things,            that contractors       submit cost or
pricing      data and certify         that such data are accurate,            cur-
rent,     and complete,        prior    to the award of negotiated          noncom-
petitive      contracts      over $100,000.          The contracts      also in-
cluded a clause         permitting        the Government      to recover     any sig-
nificant      increase     in the price        that resulted      from the submis-
sion of inaccurate,            incomplete,       or noncurrent      cost or pric-
ing data.

        In response      to our findings,    the contractor     took the
position     that the contracts       were negotiated     on the basis of
adequate price         competition   without   reliance   on the cost or
pricing     data.      We did not agree that there had been adequate
price     competition.

      We recommended        that   the    Secretary    of Defense:

      --Consider      whether    the     Government     is legally entitled
         to price     adjustments        under the    terms of the contracts.

      --Review   the rental  rates negotiated     on a noncompeti-
         tive  basis under other contracts     for supplying   barges,
         tugs,  and other vessels  in Vietnam;     ascertain  whether

        towing    costs that had already           been provided      under
        previous       contracts    were included       in the rental     rates;
        =d,    if so, determine          whether   the Government      is le-
        gally    entitled       to price   adjustments.

      --Negotiate      towing   costs, in future   contracts,  as a
         separate    item to be provided      once for each piece of
         equipment     in continuous   service.

       The Army stated    that it would review           the contracts   and
that the solicitations       for 1971 contracts          would require  the
proposals   to show transportation      (towing)         costs  as a sepa-
rate item.     (B-167714,    May 6, 1970.)

NEED --------
                     - - ----.-.- OFFICERS
                                   -_-~.---- TO REPORT
-------_------.  TO NEGOTIATE
                      - -- - -.-- - -PRICE
                                      .----- ON A
    ._--- --   22Llxs-4&x
         In 1366 the Army procured,              at a contract     price   of
$3.5 million,        eight   rock-crushing         plants    for use in South-
east Asia road construction              activities.         The procurement
was noncompetitive          and subject       to the requirements         of Public
Law 87-653,       the Truth-in-Negotiations              Act, for submission       of
certified      cost or pricing        data.       We reviewed    the reasonable-
ness of t'ne price         negotiated      in relation       to available     cost
information.         Our report      on the review        was issued to the
Congress     in January      1970.

        At the time of negotiations,              cost information        available
to the Army indicated           that the price        proposed    by the contrac-
tor was about $528,000 too high.                  The contractor       would not
agree, however,        to any discussion          of the cost elements          sup-
porting      its proposed     price      and no reduction       was negotiated.
The Army contracting          officer       was aware that the price          was
higher     than indicated      by available        cost or pricing       data
and, under procurement            regulations,      was required       to refer
the matter       to higher    authorities       in the firMy     before    agreeing
to the contract        price.       This,    he did not do.       It appeared
that the Government's          right      to a price     adjustment     under Pub-
lic Law 87-653 had been impaired                since the price        was not ne-
gotiated       on the basis of cost information              submitted     by the

        The contractor     stated  to us that it believed  the con-
tract     price  was fair   and reasonable   and that it had negoti-
ated    fully   and completely    with the Army.

       Although      the price       exceeded the cost of performance             by
about 35 percent,          the contractor        sought to avoid a determi-
nation    of excessive        profits     by the Renegotiation          Board on
the grounds that rock-crushing                plants    qualified     for an ex-
emption     in the Renegotiation           Act with respect       to sales of
new durable       productive       equipment.        The Renegotiation       Board
denied the exemption.              The contractor,       however,     can appeal
the matter      to the Tax Court.

         We recommended        that the Secretary       of Defense emphasize
to procurement       officials       the need for reporting          to top of-
ficials,      as required        by Defense regulations,        proposed    pro-
curement      when the prices        are considered      to be unreasonably
high and when the contractor               refuses    to negotiate.       Had the
regulations      been followed,         top Army officials        would have
been alerted       to consider       whether     other actions      were desir-
able before      the price        was agreed upon.

         The Army stated         that the requirement                for contracting
officers       to report     to higher         authority        situations     where con-
tractors       refused     to negotiate         was not applicable           because the
contracting        officer     did not anticipate,                at the time a letter
contract       was awarded,        the problems          which arose 3 months
later     during     the price       negotiations.           Subsequently,        however,
Department        of Defense officials             stated      that this     requirement
would be applicable            whenever        a final      price was negotiated.
(~-165006,        January    9, 1970.)


Department      of   the Navy

       Early    in 1965, because of the Vietnam              conflict,       an
urgent    demand for general-purpose             bombs developed.           During
calendar     years 1965-67,        the Navy awarded contracts             for the
production      of 4.5 million        250- and 500-pound        bomb bodies.
Firm fixed-price        negotiated      contracts      amounting      to about
$472 million      were awarded to six contractors.                  The contracts
were subject      to Public      Law 87-653,      the Truth-in-Negotiations
Act, which provided         that contractors          be required       to submit
cost or pricing       data and to certify           that such data are
accurate,     complete,     and current.

        We examined     into the prices    negotiated   in 34 procure-
ments totaling       about $343 million.       Our examination       was
directed    to evaluating      the reasonableness     of significant
estimates,      accepted    by the Navy, in relation      to cost data
available     to the contractors      at the time of each negotiatio                      1.
Our report      on the examination     was issued to the Congress        in
December 1969.

        The prices could have been reduced               by millions      of
dollars    if the Navy had:

       --Required    the contractors       to submit or identify      in
          writing   accurate,    complete,    and current  cost or
          pricing   data in support      of cost estimates     included              in
          the price    of proposals.

      --Made adequate         reviews    and evaluations     of the       factual
         data available         to the   contractors     in support       of the

      More    specifically,      we found     that:

      --Prices       negotiated    for 33 procurements       totaling     $309
         million      were higher     by about $13.9 million          than in-
         dicated      by cost or pricing      data available        to the con-
         tractors      prior    to each of the negotiations.

       --Prices   negotiated   for 12 procurements    totaling   $172
          million  included   cost estimates    of about $46 million
          for which sound and realistic      cost or pricing   data
          were not available.

       --Navy      contracting      officials      had not requested   pre-
          award      audits     for eight     of the 34 procurements.
          Where      the Navy requ.ested         such audits,  it imposed
          time     restrictions      which limited      the scope of the
          audits       in several     instances.

        Since the time        limitation      and the absence of realistic
cost data precluded           adequate      documentation    of the contrac-
tors'    proposals     and    adequate performance         of agency audits,
we believed      that the       Navy should not have used firm fixed-
price-type      contracts.         More flexible      types of contracts
would have been more            appropriate.

        We proposed    to the Department       of        Defense (DOD) that it
consider    our findings,      as well as any            additional     information
available,     to determine     the extent     of        the Government's        legal
entitlement      to price   adjustments    with          respect    to these pro-
curements.       The Navy agreed and stated                that actions      had
been started       to make the determinations                we had proposed.

          The Navy did not believe           that it could recover               the
amounts included           in firm fixed       prices     for unsupported           cost
estimates      which had been accepted              by both parties          to accom-
modate the risks           of production.         The Navy stated          that,     at
the time of awards,             there had been an emphasis              by DOD
officials       on the use of firm fixed-price                contracts        to the
maximum extent           and that there had been an overzealous
application         of this high-level         policy     pronouncement          by con-
tracting      officials.          DOD has since recognized            this     overreac-
tion and has issued             instructions       concerning      the misuse of
firm fixed-price           contracts.

        DOD's procurement        management review        group had reviewed
the practices         of its offices    responsible       for ammunition       pro-
curement      and had noted procurement         practices       that needed im-
provement      similar     to those we noted.       Also the Defense Con-
tract     Audit Agency had performed         postaward        audits    of 20
ammunition       contracts    and had reported      prices      higher,     in some
instances,       than those warranted       by the cost or
available      at the time of negotiation.             (B-ll*71~~i',Z~m~ata
ber 11, 1969.)

Department       of Defense

         The Department      of Defense provides     overseas    contractors
with materials        as part of its contractual        agreements,       The
military     services     are responsible     for reviewing    the effi-
ciency     of the contractors'        systems for control     of the mate-
rials     so provided.       We reviewed    management of such material
by the military        services    at five plants    of overseas     con-
tractors.       Our report      on the review was issued to the Con-
gress in June 1970.

         The contractors         were not following          the contractual         pro-
visions      relating     to acquiring         and retaining       Government      ma-
terials.        More specifically,           they were not (1) periodically
reviewing       material     requirement        levels,     (2) properly      comput-
ing use of materials,              (3) giving      full   consideration       to all
available       stoc'k on hand or due to arrive,                (4) canceling        out-
standing       orders found to be in excess of needs, or (5) prop-
erly determining          reserve     levels      of materials,        Many of the
deficiencies         could have been prevented,              or corrected       ear-
lier,     by better      surveillance        of the contractors'         perfor-
mance by Government            personnel,

        Inadequate      administration      of Government        property   by the
contractors       and the military       services     resulted      in unneces-
sary investment         in inventories,       increased     transportation
costs,     and possible      unnecessary      procurement      or shortage     of
materials     at some locations.           As a result       of our tests    and
subsequent      reviews    by the contractors,          about $3.8 million
worth of Government material             was declared       excess and made
available     for redistribution,           In addition,       contractors     had
requested     cancellation        of orders for about $1.4 million
worth of Government material.

        We suggested     that the Secretary         of Defense consider       en-
larging    the property      administration       staffs    and providing
the staffs    needed training         and consider       measures  for achiev-
ing greater     cooperation     by contractors         in more effective
management     of materials     furnished       by the Government.        We
recommended that the Secretary              take appropriate      action   to

monitor  the implementation  of planned actions    by the mili-
tary services  to ensure that satisfactory    progress was being
made to improve the quality   of property  management.

        The Department  of Defense agreed and indicated     a firm
intention,    on its part and on the part of the military        de-
partments,    to ensure that the deficiencies     referred  to in
our report    are overcome,    (B-140389,   June 17, 1970.)


Department-of         Defense

       We reviewed         the settlement        of claims    for termination
of services,        involving        the use of specially        constructed
communications         facilities       and equipment,       because we learned
that the Defense Communications                  Agency (DCA) could not
evaluate     effectively          the acceptability        of amounts charged
for such terminations               by American     Telephone    and Telegraph
(AT&T) and its associated               companies.       Our report     on the re-
view was issued          to the Congress         in December 1969.

          Rates and charges for interstate                   communications            ser-
vices      are established         in tariffs         filed   with the Federal
Communications           Commission       (FCC) by communications                 carriers.
When such services            involve      the use of specially               constructed
facilities         or equipment--       as was the case in the settlement
of claims        that we reviewed--          the tariffs       specify        that the
user must pay for the service                    for a specified          number of
years,       generally      no more than 10 years.                If the user dis-
continues        the service       before      the specified         period       has ex-
pired,      he must pay a termination                 charge.       The maximum
amount of the termination                 charge is specified             in the tariff
and is based upon cost estimates                      prepared      by the carrier.
FCC believes          that termination           settlements        should be based
upon the unrecovered              portion      of actual      cost as long as the
appropriate         portion     of the maximum termination                  liability       is
not exceeded.            FCC, however,         did not require          the carrier         to
submit       actual     cost data.

         Although     many other carriers             provided    cost data to DCA
or permitted         access to their          records,      AT&T and its associ-
ated companies           did not determine          or provide      the actual
costs applicable             to the terminated         portion    of specially
constructed        facilities       and equipment.           DCA therefore      had no
day of evaluating              the acceptability         of termination       charges
proposed       by AT&T and its associated                companies,     except    by
applying       broad-gauge        comparisons       of construction        costs or
by comparing         charges      of one carrier         with those of another

        In two cases in which special        circumstances      existed
and cost data were made available          by one of AT&T's associ-
ated companies,      the actual  costs of the interstate           portions
were less than the estimates--by         24 percent       in one case and
40 percent     in the other.    We therefore       concluded    that ob-
taining    actual   cost data in such eases could result             in
smaller    and more reasonable    termination       settlements      with re-
sultant    savings   to the Government.

       We suggested        that the Secretary          of Defense ask FCC to
revise     its regulations        to require       that carriers     seeking
settlements      for termination          of defense contracts        for com-
munications      services      provide       DCA with the actual      costs of
the specially        constructed       facilities      and equipment     appli-
cable to the contracts            being terminated.          We further     sug-
gested that the Secretary              ask FCC to provide        the necessary
audit    effort    to ensure that cost data submitted                are accurate.

          Prior     to the issuance          of our report,             the Department       of
Defense (DOD) and AT&T held a series                           of meetings        to devise
mutually        acceptable        corrective         procedures.           These meetings
produced         an agreement         with respect         to specially          constructed
facilities          under which DOD (1) can elect                     to have termination
charges for specially                 constructed        facilities         based on actual
costs,       (2)    will    be   provided      supporting          cost    data,    and
(3) will        be allowed         access to records.               FCC representatives
indicated         informally        that procedures             proposed      by DOD and
AT&T to implement              the agreement          would be acceptable.                AT&T
notified        DOD that a revised             tariff      incorporating          these pro-
cedures would be filed                 with FCC to become effective                    about
November 15, 1969.                Similar      action      with regard to termina-
tions      involving        special      equipment       was initiated           but correc-
tive procedures            had not been agreed upon at the time of is-
suance of our report.

        On the basis of the progress       made to date, we are hope-
ful that DOD and AT&T can reach a mutually             satisfactory
solution     to this problem   that will     be acceptable       to FCC.
If a satisfactory     solution     is not reached,    however,      we be-
lieve    that DOD should follow      our suggestion,      stated    above,
that it ask FCC to revise        its regulations.       (~-167611,      De-
cember 9, 1969.)

                            RESEARCH AND DEVEX,OPMENT


Department       of Defense
       (and     other departments           and agencies)

        Independent        research       and development            (I&D)      is that
part of a contractor's              total      research         and development        pro-
gram which is not conducted                   under a direct           contract     or grant
but which is undertaken                at the discretion             of the contractor.
In certain       cases a general           agreement          is negotiated       with the
Government       establishing          a dollar        ceiling      on the cost of
I&D which the Government                 will      accept.        Under policies         of
the Department         of Defense (DOD) and of the National                         Aero-
nautics     and Space Administration                   (NASA), the IR&D need not
be related       to current       or prospective              Government      procurement.
Under the policy          of the Atomic Energy Commission                       (AEC), the
IRSrD cost is allowed           only to the extent                that it benefits
the contract        work.      DJring      1968 major Government                contrac-
tors spent about $1.39 billion                     for IR&D, bid and proposal,
and other      technical       effort.         The Government           paid more than
half    of this     amount --almost           entirely        under DOD and NASA con-

         We made a review       at nine plant      locations     of seven con-
tractors     and at several       Government      agencies.      In our report
on the review,       issued to the Congress            in February    1970, we
identified      a number of significant           problem    areas in the *
Government's      participation         in IR&D programs.        Many of the
problems     had been recognized          for years but had not been re-
solved.      We  submitted      a draft     of our findings      to the various
agencies     and contractors       for review       and comment and suggested

       --An interagency      study be made to establish                    a
          Government-wide     policy on participation                    in contrac-
          tors'  IR&D costs.

       --Consideration       be given to establishing      a more sys-
          tematic     method of disseminating      to Government

             personnel     information    on proposed   projects  contained
             in contractors'        IR&D programs   to avoid unnecessary
             duplication      of effort.

       --A      study be made to determine          whether     the Government
             should receive    royalty-free       license     rights  to inven-
             tions   arising from I&D.

       --Uniform  procedures         be devised      by DOD for      administer-
          ing IR&D costs.

        The agencies concurred,   in general, but opposition                    was
expressed    by the Council   of Defense and Space Industry                    As-

        While our draft      report     was still   in process,         legisla-
tion was enacted       placing      a limitation    in the fiscal          year
1970 Defense Procurement           Authorization      Act on the amount of
IR&D, bid and proposal,          and other technical           effort     costs to
be allowed      under negotiated        Government    contracts.          In devel-
oping the extent       and language         of this limitation,         both the
Senate and House Committees             on Armed Services         stated     that
they planned       to hold hearings        on the subject       of IR&D and
related     costs.

        In our report     to the     Congress,     therefore,   we made the
following     suggestions    for     consideration       in the hearings.

       --Because    no clear      distinction     can be made between
          IR&D and other independent           technical   efforts,   any
          agreed ceilings        on IR&D can be avoided       through  de-
          scription    of an IR&D project         under a different    termi-
          nology,     Therefore,       all independent   technical    efforts
          of contractors       should be considered      as a single     en-

       --Unlike       AEC and NASA, DOD has separate               appropriations
          for procurement         and for research           and development
          activities,      and DOD's share of contractors'                  IR&D
          costs,      in general,     is   absorbed       by  the  procurement
          appropriation       without      identification         as IR&D.      If
          the Congress       authorizes       continuation        of the present
          practice      of allowing      the inclusion          of IR&D as an
          acceptable      cost element        in negotiated        contracts,      DOD

         should    be directed   to break out and identify     sepa-
         rately    in its appropriation     requests   the amount es-
         timated     as required   for this   purpose.

      --The policies         followed    by DOD and NASA on acceptabil-
         ity of IR&D costs differ              from those of AEC, which
         allows    such costs as an element              of overhead only to
         the extent       that they provide          a direct     or indirect
         benefit     to the contract         work.      A policy    should be
         established        by the Congress        stating     the extent     to
         which,    and under what circumstances,                 Government
         agencies      should participate          in the contractors'          in-
         dependent      technical     efforts.

      We also identified       several   issues    and alternatives
which warranted    consideration       in determining      the Government-
wide policy,    as follows:

      --Whether     the present  practice  of allowing    IR&D as an
         acceptable    overhead  cost in negotiated    contracts
         should be replaced     by a system of

         1. extending      the use of direct         research       and develop-
            ment contracts        to include      those IR&D projects
            which the agency wishes to support                  fully    or on a
            cost-sharing        basis and thereby        provide      greater
            assurance      that the desired         work will       be performed
            and that the Government          will      be entitled       to infor-
            mation     and royalty-free      rights      to any inventions
            arising     therefrom     and

         2. authorizing        an allowance        for a stipulated        percent-
            age of the remainder             of the contractor's         total    IR&D
            effort     (irrespective         of the source of the funding),
            either     as a profit        factor     or through     acceptance
            as a recognized          overhead      cost,   as an incentive        to
            contractors        to continue       technical     efforts     beyond
            those directly          contracted      with the Government.

      --Whether       allowances   to contractors      for IR&D should be
         limited      to projects    tha t have a direct     and apparent
         relationship        to a specific    function    of an agency.

      --Whether      financial       support       should be provided     to com-
         panies with similar             capabilities,       which do not hold
         Government       contracts,        as a means of supporting         and
         strengthening         industrial        technology,     if IR&D allow-
         ances by DOD and NASA are continued                    on the present
         basis and are not related                 directly   to current    or
         prospective       Government        procurement.

      These suggestions  were considered   in hearings held in
February   and March 1970 before  the Senate and House Commit-
tees on Armed Services.

        Subsequently,      the Congress   included    restrictions         on the
payments     to contractors      for IR&D and bid and proposal             costs
(section     203 of the DOD Military        Procurement      Authorization
Act of 1971, Public          Law 91-441).    The major provisions           in
the section     are:

      1.    Payments of IR&D and bid and proposal       costs will   not
            be made unless  the work involved    has, in the opin-
            ion of the Secretary    of Defense,   a potential  rela-
            tionship  to a military   function  or operation.

      2.    The Secretary     of Defense must negotiate     advance
            agreements    establishing   a dollar  ceiling   on the
            costs that may be paid to each company which in the
            previous   year received    payments for IR&D and bid
            and proposal     costs of more than $2 million.

      3.   If negotiations     are held and no advance agreement
           is reached with a company, payments         to that com-
           pany will     not be made except    in an amount sub-
           stantially     less than the amount that the company
           would have otherwise     been entitled    to receive.

      4.   The Secretary      of Defense is to annually      report    to
           the Congress     the names of the companies       and the re-
           sults   of negotiations,     the latest    Defense Contract
           Audit Agency statistics        on the payments made to
           major contractors,       the manner of compliance      with
           section   203, and any major policy        changes proposed
           in the administration       by DOD of its contractors'
           IR&-D and bid and proposal       programs.

      s.     The limitation     on IR&D and related   costs   previously
             included     in the 1970 Defense Procurement     Authoriza-
             tion Act was repealed.

(B-164912,     February   16,   1970.)


Department  of Defense
  (and other departments           and agencies)

      Appropriation        acts for fiscal          year 1970 covering     the
major research        agencies     variously      (1) make no provision        for
cost sharing,       (2) require        cost sharing      on grants   only,   or
(3) require      cost sharing         on both grants      and contracts    ex-
cept for research         specifically       solicited     by the Government.

       The Public     Works for Water, Pollution         Control,    and
Power Development        and Atomic Energy Commission         Appropriation
Act, 1970 (Public        Law 91-144,   approved    December 11, 19691,
and the Department        of Defense Appropriation        Act, 1970 (Pub-
lic Law 91-171,       approved   December 29, 19691, do not include
any provisions      in respect     of cost sharing     in research       by the
agencies    covered    in these acts.

       The Departments    of Labor,    and Health,   Education,    and
Welfare,    and Related   Agencies   Appropriation    Act, 1970 (Pub-
lic Law 91-204 approved March 5, 19701, contains             the fol-
lowing   provision    in section   203, relative   to cost sharing.

      "None of the funds provided     herein shall be used
      to pay any recipient    of a grant for the conduct
      of a research   project  an amount equal to as much
      as the entire   cost of such project."

        Section  408 of the Independent       Offices    and Department
of Housing and Urban Development          Appropriation        Act, 1970
(Public     Law 91-126,  approved November 26, 19691, which in-
cludes the appropriations        for National      Aeronautics      and Space
Administration      and National    Science Foundation,         provides

      "None of the funds provided             in this Act may be
      used for payment,       through      grants    or contracts,     to
      recipients     that do not share in the cost of con-
      ducting    research   resulting       from proposals       for proj-
      ects not specifically         solicited      by the Government;
      Provided,     That the extent        of cost sharing       by the

       recipient  shall   reflect    the mutuality                of interest
       of the grantee    or contractor    and the                Government
       in the research."

         In September     1910 we reported         to the Congress          the re-
sults      of our study of the management of federally                    financed
research      by the University       of Michigan.         The report         points
out that the three different             statutory      policies       governing
cost sharing       in federally     financed      research       are in direct
conflict      with the concept      of consistent        policy     of cost shar-
ing which we believe          is both feasible        and desirable           for Fed-
eral research        agencies   and which was advocated              in Senate
Report 91-521 on the bill           that became Public            Law 91-126.

        The existence          of different         statutory    standards        for cost
sharing       lays the groundwork           for controversy         with agency reg-
ulations        which may go beyond these standards.                     The impact
of these different             standards       will    be felt  most by those or-
ganizations          that do research          for several     agencies       whose ap-
propriations           are included      in two or more of the related                   ap-
propriation          acts for 1970.         Such organizations           include,
particularly,           educational      institutions--such           as the Univer-
sity of Michigan--which               conduct       research   under grants          and
contracts        for most, if not all,              the major Federal         research
agencies.          In addition,       the implementation          of three differ-
ent policies           and related      agency regulations          will    undoubtedly
add to the administrative                burden of the educational                institu-
t ions,     as well as to other organizations                  similarly        situated.

       We recommended that the Congress             consider     legislation
to prescribe      a consistent      Government     policy    for cost sharing
in federally      financed     research    for all Federal       agencies.
The Bureau of the Budget (now Office               of Management and Bud-
get> specifically        endorsed     this   recommendation;       none of the
research     agencies    covered in our study opposed it.
(B-117219,     September     25, 1970.)


Department  of Defense
  (and other departments           and agencies)

      Our report    of September        1970 also     discussed     the   funding
of research   projects.

       Federal    agencies     use two general         methods of advancing
funds to the University           of Michigan      for costs incurred          on
research    projects--     advance payments        and reimbursement         of
costs.    To provide       advance payments,         civil   agencies     that fi-
nance a substantial         volume of research           use letters    of credit,
whereas defense        agencies    use special       bank accounts      in local
banks or periodic        predetermined       payments.       For other types
of contracts,       costs are reimbursed         to the University          after
they have been paid.           The University       uses its own funds to
finance    such contracts       , pending reimbursement           by the individ-
ual agencies.

       The method by      which the University     receives     payment for
research   supported      by Federal   agencies   appears to be primar-
ily dependent     upon    the type of contractual       instrument    used
and the particular        agency involved.

      The University       maintains     a separate    fund to account     for
all Federal    funds received         and all withdrawals      made for Fed-
eral projects.       A monthly      reconciliation     of this   fund for
the 6 months ended December 31, 1968, showed that,                  on the
average,   the University        used about $3.6 million        of its own
funds monthly     to cover costs incurred          under federally     fi-
nanced research      projects.

      University        officials        stated    that,   as the University
was allowed      neither        a fee on contracts         and grants   nor recov-
ery of interest         lost      on University       funds used to finance
Government      cost-type         contracts,     the agencies     should provide
the University        with sufficient           advance payments      to cover all
costs on research           projects.

       We concluded  that,    since the University   does not re-
ceive a fee, profit,      or interest,   the use of its own funds
to finance   Federal   research    is, in effect,  additional cost

        We recommended that the Director,          Bureau of the Budget
(now the Office       of Management and Budget),        in collaboration
with other concerned Federal           agencies,   study the feasibility
of adopting      a uniform     system of providing     universities      with
sufficient      advance funds for programs financed           by all agen-
cies.      Such a system should be designed with an aim toward
reducing     the administrative       burdens of the universities         and
the agencies       in handling     payments.

        Except for the Atomic Energy Commission, which did not
express its views, all the agencies covered in our study
concurred     in the objective       of this recommendation.          The Bu-
reau of the Budget advised us that it was giving                  specific      at-
tention     to policies    and procedures       for providing     advance
funds in a new circular,          then in draft      form, on certain        as-
pects of the administration            of research     projects.     The Bu-
reau of the Budget also noted that this matter would be con-
sidered     in the interagency        study of standardizing        administra-
tive requirements        of grant-in-aid       programs under the
President's      Federal   Assistance      Review program.       (B-117219,
September 25, 1970.)

                   --- DEVELOPMENT PROJECTS
Department      of the Army

         The Army Materiel         Command is responsible      for the inte-
grated research,          development,      and production   management'of
the Army's materiel           needs.     The cost of these activities        is
over $8 billion         annually,       About half of this work--involv-
ing the most critical            or costly    programs--is   managed by
military     officers,      called    project    managers.   Because of
congressional        interest      in the tenure of military      management
officials,      we reviewed the project           managers'  tours of duty.
Our report       on the review was issued to the Congress in Au-
gust 1970.

        The Army was not effectively          implementing    existing
policy    and regulations      requiring    that project     managers
serve a tour of duty of at least 3 years (the time consid-
ered essential      for such critical       positions).      Most of the
project    managers had served less than 2 years.              Most had
been reassigned,       and some had retired,         before completing      a
3-year tour of duty.          Overlapping     tours of duty--which       pro-
vide continuity       of leadership      and expertise     and reduce the
need for acting       project   managers--were       almost nonexistent,

       Although   project      managers may be either         military    offi-
cers or civilians       of comparable        grade, the Army had not
given sufficient      consideration        to the use of civilian         per-
sonnel in filling       these positions.          All project      managers
have been military        officers     subject    to high turnover
through reassignment          or retirement.

      The Army agreed        in general        with our findings   and gro-
posals for extending         the tenure        of project  managers.   The

       --Revised      regulations  to stabilize         the tour of duty          of
          project     managers for an "indefinite"          period,

       --Revised      criteria      for selection      of project managers,
          including       exclusion     of officers     facing mandatory   re-
          tirement     withtn     the expected      tour of duty.

       --Arranged   for estimating  requirements for project
          managers 18 months in advance to provide    for an ade-
          quate overlap  of project  managers on a continuing

        The Army believed        it preferable       to fill    project   man-
ager positions       with military       officers      on the basis that they
possessed the breadth          of experience       in the military       art to
give them an understanding             of the problems faced by the
Army in the field.          We pointed       out that this expertise
could be provided         by military     personnel      not necessarily       as-
signed as project         managers.      The Army, in its revision           of
regulations      to stabilize       the tour of duty for an "indefi-
nite"    period,    did not clarify       the term "indefinite"          and, in
its provision       for an adequate overlap            of project     managers
on a continuing        program,     did not establish        a minimum period
of overlap.        Therefore,      we suggested that the Secretary             of

       --Modify         the criteria for selection     of project    man-
          agers       to ensure appropriate    consideration      of civil-

       --Clarify        the term "indefinite"       in the stabilization
       ---Establish       a minimum period      of overlap.

        We found on the basis of limited     tests that conditions
similar    to those in the Army also existed       in the Navy and
the Air Force, and we discussed       them with officials        of the
Department     of Defense and of the Navy, and the Air Force.
We suggested       that the Secretary of Defense ensure that ap-
propriate     action be taken to correct   similar    deficiencies
in the Navy and the Air Force.

      We suggested also that the Congress might wish to urge
the Department    of Defense to use civilians       in these posi-
tions to a greater     extent    to avoid the problems encountered
in the use of military       personnel.

      On November 24, 1970, the Director     of Defense Research
and Engineering,    on behalf of the Secretary    of Defense, re-
plied  to our report   to the Congress,   He stated that (1)

the Department     of Defense is in agreement with our belief
that program managers are extremely           important in the weapon
system acquisition     process and that emphasis must be placed
on the selection,     continuity,      and tenure of these persons
and (2) the Department       of Defense agreed with our findings
and recommendations.        (~-167412,    August 31, 1970.)


Department     of the Army

       In July 1969 we issued to the Joint           Committee on
Atomic Energy a report          on the policies    and practices     of the
Army related       to rotation    of key military    personnel    assigned
to the development         of the SAFEGUARD ABM program.         The re-
port indicated       that the Army's concern over officer           career
development      might preclude      continuity   of knowledgeable      mil-
itary    personnel     in weapon system acquisition       programs.

      Our subsequent   efforts   were directed   to the extent               of
and reasons for departures     from the program and to the                  re-
sults of the Army's study of a personnel        stabilization               pol-
icy which would be tailored      to the future   and peculiar               needs
of SAFEGUARD organizations,        Our report  was  issued to             the
Committee in May 1970.

        We found that,      during the g-month period ended June 30,
1969, only 12 of 135 military            persons,      who were designated
for departure       from key positions,         had completed      the pre-
scribed    tours of duty--       3 years  for    field   grade   officer      po-
sitions    and 4 years for warrant          officer     and enlisted       person-
nel positions.         Of the remaining       123 persons,     74 were reas-
signed to non-SAFEGUARD positions               and 49 were separated
from military       service    for reasons of retirement,            resigna-
tion,    or expiration      of service    terms.

         We were not able to conclude whether the Army could
have avoided or significantly           minimized     the high personnel
turnover.       We expressed    the opinion     that a contributing
factor     was the lack of specific        guidance     in the Army's sta-
bilization      policy.    This condition      might,     in our opinion,
preclude     continuity    of effort    until   an ABM system has be-
come operational.         (B-164250,    May 7, 1970,)


Department    of the Navy

         The deep submergence rescue vehicle          (DSRV) is a 35-ton
submersible        designed for rescue of personnel       from a dis-
abled submarine.           When needed, the DSRV would be transported
by aircraft        to a seaport near the disaster       and carried   to
the site by a supporting           ship or submarine.     The Navy had
purchased two DSRVs and was planning            to purchase four ad-
ditional     DSRVs. We examined into the cost of, and the es-
timated     effectiveness      to be derived  from, the four addi-
tional     DSRVs the Navy planned to buy.

        As stated in our report       issued to the Congress in Feb-
ruary 1970, we found that the program had significant                  cost
overruns     and delays in development.          In 1964 when the pro-
gram was first      recommended, the Navy estimated          that a res-
cue system including       12 DSRVs could be developed          in 4 years
at a cost of about $36.5 million,           including    the cost of
operation     for 1 year.       The Chief of Naval Operations        re-
duced the recommended number of DSRVs from 12 to six.                    By
1969, however,      the Navy estimated      that a rescue system in-
cluding    only six DSRVs would require          10 years to develop
 (1964 to 1974) and would cost about $463 million.                At the
time of our review,       $125 million     had already     been allocated
to the program,       $31 million    had been requested      for fiscal
year 1970, and $307 million          was estimated     to be needed in
fiscal    years 1971 to 1974.

       We noted that the Navy originally    had envisioned    cost
reductions,    when the DSRV system became operational,     through
the phasing out of an existing     rescue system.     The Navy does
not now plan to phase out the existing       system and the antic-
ipated cost reductions    will not be realized.

         Navy officials     estimated    that about $200 million,      of
the $307 million        estimated     to be needed for the program in
fiscal     years 1971 to 1974, would be applied           to the four ad-
ditional     DSRVs. Annual operating          cost, after   fiscal  year
1974, for the four DSRVs was estimated              at over $17 million.

      Our findings     indicated      that submarine disasters      where
rescue might be possible          would be rare--there      have been
only two such disasters          since 1928.     Since two DSRVs appar-
ently would provide       sufficient      rescue capability     for any
one disaster,      the four additional        DSRVs would only provide
backup capability.        In most cases the backup probably          could
be provided    by other systems currently           in use or being devel-
oped by the Navy.

        .We proposed that the Secretary           of Defense evaluate     the
cost of purchasing         and operating     the four additional      DSRVs
in the light      of their    estimated    usefulness.       We suggested
that a prompt decision         would be valuable        since a determina-
tion that the additional           DSRVs were not needed would halt
further     expenditures.       In  reply we were advised that the
Chief of Naval Operations           had directed,      on April  29, 1969,
that a study be undertaken            on a priority     basis and that con-
struction      of the four additional        DSRVs not be undertaken
until     and unless their     usefulness      had been shown to justify
the cost.

      The Na.vy began its study in December 1969--g months
after    it had been directed        to do so. Because of the delay,
we recommended that the Secretary              of Defense take steps to
ensure that the Navy promptly            conducted    a meaningful     study
to provide      & suitable     comparison     of the probable    usefulness
of the four additional          DSRVs in relation      to their    cost.
On April     22, 1970, the,Navy        advised us that its policy         was
that no additional         DSRVs would be procured       until   and unless
their    usefulness     had been shown to justify        their   cost.
(B-167325,      February    20, 1970.)


Department      of the Army

        We had previously          reported      to the Congress on improve-
ments needed in the management of the NIKE-X antiballistic
missile       (ABM) development         program.       (B-164250,       November 28,
1969.)       This report      included      improvements         needed in the use
and administration          of contract        incentive       provisions,       de-
signed to reduce costs,              meet schedules,          and improve perfor-
mances, and improvements              needed in the retention              of records,
for review         by responsible       Government      officials,        concerning
multi-million-dollar            negotiations       between a weapon system
prime contractor          and its subcontractors.                In other reviews
we had found indications              that contract         incentives      were used

        As part of our response           to the request     of the Joint
Committee      on Atomic Energy for continuing            review   of the
SAFEGUARD ABM program,           we examined     into the cost-plus-
incentive-fee       subcontract      for development      of the SPARTAN--
the SAFEGUARD's long-range             missile   subsystem.      The subcon-
tract    price   at completion       was estimated      at $300 million.
Our report      was issued      to the Secretary      of Defense,     with an
informational      copy to the Committee,           in November 1970.

        Current      instructions        in the Department        of Defense and
National      Aeronautics         and Space Administration           Incentive      Con-
tracting       Guide are that (1) the incentive                plan must identify
the critical         performance       elements    and their      alternative       tech-
nical     levels --the       minimum acceptable,        the expected          or target,
and the maximum desirable              --and (2) significant           personal
judgments       used to quantify           an incentive      element      should be
carefully       documented        and retained     so that a basis exists             for
review      and evaluation.           The Guide states       that expected         per-
formance       goals warrant        target    fees only,     while     added fee in-
centives       should motivate         the contractor      to achieve        higher
performance        levels      of value to the Government.

       We found that the available         records  of the subcontract
negotiations--     contrary     to the requirements   of the Armed Ser-
vices    Procurement     Regulation   (ASPR) and the prime contract--

did not set forth   the details   leading  to the agreed incen-
tive plan.    In the absence of such documentation,     our eval-
uation  could not be conclusive     and was limited  to specific
aspects  of the incentive   plan.

        For example,      we were unable to determine              whether      there
was a valid      basis for paying          added incentive       fees for ac-
complishment        of a single,      specified      flight   test performance
objective.       The guidelines         state   that achievement         of ex-
pected performance         goals warrants         only target      fees.      We
found,     however,    that the incentive          plan does not establish
an "expected"        or target     performance       for which only target
fees are allowed         and, in fact,        appears to allow        incentive
fees for "expected"          performance.

       We suggestedto       the Secretary      of Defense that,      in the
negotiation      of the follow      on to the present       SPARTAN subcon-
tract --due to expire         December 31, 1970--emphasis         be given to
ensuring    that    (1) the incentive       fee arrangements      are in ac-
cord with the intent          of the Department      of Defense guidelines
and (2) documentation          is prepared     and retained    for use of
reviewing     authorities      of the details     in support    of the judg-
ments used in negotiating           the target    fee and the value to
the Government        of incentive     fees provided     by the incentive

        In view of the absence of clear            requirements     in the
ASPR, we further        suggested    action     to (1) include,     in cost-
reimbursement       prime contracts,       clauses     requiring  the prep-
aration     and retention     of records      of negotiations     for large
dollar     amount subcontracts       and (2) specifically        provide    that
these records       show the factors       which were considered         in
negotiating      the agreed-upon      incentive      fee plan.    (~-164250,
November 23, 1970.)

                     ---     AVAILABLE FOR

Department       of the Air      Force

          The Air Force constructed             two research      and development
facilities--the           Celestial       Guidance    Laboratory     and the Laser
Research Facility--for              which it used funds appropriated              for
research,         development,      test,     and  evaluation     purposes     (RDT&E)
rather       than funds appropriated            specifically      for construction.
The expenditures           from the RDT&E appropriations               for these fa-
cilities         amounted to $861,700.            We sought to ascertain
whether        the Air Force had statutory              authority    to fund the
construction          from its RDTGrE appropriations.               A report    on our
findings         was issued     to the Congress in February              1970.

         Under sections          of the United       States    Code (10 U.S.C.
2353 and 10 U.S.C.              26741, RDT&E appropriations              may be used
for construction             of certain     contractor-operated            research      fa-
cilities       and for construction            of projects       costing       $25,000 or
less.       Since the facilities            in question       were Government-
operated,       as well as Government-owned,                and their        individual
cost exceeded the $25,000 limit,                   the question         arose as to
whether      the construction           lay within      the purview        of 41 U.S.C.
12.      This section         of the code prohibits           contracting         for
erection,       repair,       or furnishing       of any public         building      or
improvement         that will       bind the Government          to pay a larger
sum of money than the amount in the Treasury                          appropriated
for the specific            purpose.       We believed      that the two facil-
ities     constituted         the erection       of public     buildings        or im-
provements        within      the meaning of this          section      of the code
and concluded          that:

       1. The buildings   could not properly    have been funded by
          RDT&E funds because those funds were not appropriated
          by the Congress    specifically   for construction  pur-

       2. The Air Force did not have statutory        authority      to
          fund from RDT&E appropriations     construction       projects,
          of the type discussed    in our report,     in amounts over

         We recommended that the Secretary        of Defense take steps
to ensure that the Air Force construe            and apply its criteria
for using RDT&E funds,          in financing  the construction      of fa-
cilities      for research    and development    projects,    in a manner
consistent       with decisions    of the Comptroller      General.

       The Air Force took steps to review,       at headquarters
level,     all proposed research   and development    construction
projects      costing  in excess of $25,000 to more closely        con-
trol    the use of RDT&E funds.     (B-165289,   February    4, 1970.)


Department      of Defense

       As a result    of our earlier     findings   and subsequent
hearings     before the House Committee on Government Opera-
tions,    the Committee made certain        recommendations    in October
1967 to the Department        of Defense and the General Services
Administration      designed to improve management of laboratory
equipment,       We made a review in the Department         of Defense
 (DOD) t0 de t ermine how effectively         the Committee's    recom-
mendations      had been carried    out.

       Although     DOD had taken certain                actions    on the recom-
mendations,      some of the weaknesses in management continued
to prevail,       At the six laboratories                 included     in our re-
view, there was no formal,                   systematic     procedure     requiring
top management to walk through                    the laboratory       and identify
unneeded or little-used                 equipment.       (Our partial       walk-
throughs     with agency representatives                  turned up excess equip-
ment with an acquisition                  cost of about $1,7 million.)              Four
of the six laboratories                 had equipment pools but they were
not operated      efficiently;             one had no equipment pool; and
one had an inventory              listing      of equipment which it con-
tended --and we disagreed--                served the same purpose as an
equipment     pool.      (A major benefit             of equipment pools is the
elimination      of duplicate             purchases.)       Elapsed-time      meters--
useful     in obtaining        usage data for calibration                scheduling
and for identifying            little-used          equipment--were       not being
used in four of the six laboratories.

       We recommended         that   DOD:

       --Require       laboratory    management to conduct systematic,
          documented walk-throughs           to identify   unneeded and
          little-used        equipment    and make it available    for re-
          distribution        or declaration    as excess,

       --Require      the use of equipment            pools,

       --Provide   guidance on the use of elapsed-time                       meters
          for equipment management purposes.

We recommended also that the military     audit agencies   in-
clude verification  of these procedures    in their  scheduled

      DOD was in general   agreement with our recommendations
and outlined   the actions  being taken to implement them.
(B-160140,   November 24, 1970.)


Department    of the Navy

       (See narrative   under   caption   "Acquisition   of Weapons,"
p.   50.1

                       ACQUISITION     OF WEAPONS'


Department    of Defense

      We examined into the status of selected     major weapon
systems because of the large acquisition     costs involved   and
because of the interest   of the Congress in the acquisition
of major defense weapon systems.     Our report   on the examina-
tion was issued to the Congress in February      1970.

      The Department       of Defense (DOD) did not maintain     a cen-
tral  file    on the total    number of systems being acquired     or
their    costs.    Data furnished    to us as of June 30, 1969, by
DOD showed that a total        of 131 major programs were in vari-
ous phases of the acquisition         process and that their   costs
were estimatedtoaggregate          about $141 billion.   Through
June 30, 1969, about $55 billion          of this amount had been
funded to the programs by DOD.

      On the basis of a review of the status of 57 major
weapon systems as of June 30, 1969, we concluded  that:

      --There was considerable         cost growth on many current
         development programs        and the cost growth was continu-

      --There were significant      variances,      existing  or antici-
         pated, between the performance        originally    expected
         and that currently    estimated    for a large number of
         the systems.

      --There were slippages,      existing     or anticipated,    in
         the originally  established       program schedules    of
         6 months to more than 3 years on many of the systems.

        Sufficient       detail    to permit a comparison      of costs es-
timated      at different       points   in time was available     for only
38 of the 57 systems.             We found that the current       cost es-
timates      through program completion          for these 38 systems were
$62.9 billion,         or about 50 percent higher        than the original
planning       estimates     of $42 billion.      Reasons most frequently

cited for cost growth were inflation,       capability     increases,
contract    cost increases, quantity  increases,       and poor ini-
tial   estimates.

        We have concluded         from our work that one of the most
important      reasons for cost growth is related                to decisions
to commence acquisition             of a weapon system before adequate
demonstration         that the prescribed        prerequisites       for advanc-
ing into the contract           definition     phase have been satisfied.
Another     significant      reason for cost growth can be traced to
the initial        documents which define         the system mission re-
quirements       and technical       performance     specifications,       in-
cluding     the estimates       of costs to achieve them.

         In February   1968, DOD established          the Selected  Acquisi-
tion Reporting       (SAR) system as a means of obtaining           informa-
tion on the progress        of selected     acquisition     programs and of
comparing the progress with the planned technical,                 schedule,
and cost performance.          We concluded     that the system, in con-
cept, represented       a meaningful      management tool but that,        in
common with most new management systems, it had certain
shortcomings.        DOD recognized     the need for improvement,         and
we made specific       suggestions    to DOD for its consideration           in
refining     the system.

        We made no recommendations      in our report.       During our
review,     however, we made many suggestions       for the improve-
ment of acquisition      management, and DOD took action          on our
suggestions.       A new instruction    on the SAR system, issued
in December 1969 and revised         in June 1970, significantly
improved upon the data required         to be included     in the re-
ports and should enhance their         usefulness.     Also, a Defense
Systems Acquisition       Review Council was established         to ensure
that prerequisites      for each phase of the acquisition          cycle
are met before programs progress          into subsequent     phases.
 (B-163058,    February   6, 1970.)


Department    of the   Navy

       Large-scale    production     of major weapon systems prior
to completion      of development     and testing--concurrent          devel-
opment and production,         or concurrency--is      a primary     cause
of cost growth because of problems in attempting                to produce
items on the basis of unproven designs.               We examined into
five systems of the Navy, developed             and produced concur-
rently     at a cost of about $2 billion,         and reviewed      a Navy
study of 13 weapons, nine of which also were produced con-
currently.      The purpose of our work was to obtain             informa-
tion on the extent of concurrency           in the Navy; how it was
managed, how the Navy decided that it was necessary                  and
likely     to be successful,     and what success was achieved.
Our findings      were reported    to the Congress in November 1970.

      Most of the Navy's major weapon systems were approved
for large-scale       production       before completion    of development
and testing.      The weapons frequently           would not perform all
the functions     intended      and sizable      amounts of time and money
were spent to correct          deficiencies.       It appears that de-
ployment    of effective       weapons may not have been accelerated
by concurrency      and, in fact,         may have been delayed.

         Since concurrency      can seriously    affect  cost and readi-
ness, it is wise to limit           its use to those cases where the
risk is necessary         and there is a reasonably      good chance of
success.      The Navy procedures        for concurrency   were not suf-
ficiently      effective.     Decisionmakers    were not presented
with all the information          that should have been available        to
them in considering         whether to proceed into production.

       The Blue Ribbon Defense Panel--appointed       by the Presi-
dent and the Secretary        of Defense in July 1969 to study the
organization,    structure,     and operation  of the Department   of
Defense--recommended        on July 1, 1970, that:

      "A new development  policy   for weapon systems and
      other hardware should be formulated       and promul-
      gated to cause the reduction     of technical    risks

      through   demonstrated    hardware before full-scale
      development,     and to provide     the needed flexibil-.
      ity in acquisition     strategies."

The Panel stated that the new policy         should provide     a gen-
eral rule against   concurrent   development      and production,
with the production    decision  being deferred      until   successful
demonstration   of developmental    prototypes.

      We recommended that the Navy revise         its instruction   on
concurrent   development     and production   to provide    for submis-
sion of the following       data to the Assistant     Secretaries  who
make concurrency     decisions.

      --A comparison of design performance           requirements    with
         actual performance based on testing.

      --An assessment of how essential    an unproven   component
         is to the weapon system and the feasibility     of either
         delaying   production or using a substitute  for the

      --Documented    views of Government activities          and con-
         tractors  involved  in the project,     as well      as the
         project  manager, concerning     the feasibility       of pro-
         ceeding on a concurrent    basis.        ‘

      --An assessment of the contractor's           ability    to produce
         the weapon under normal production          conditions.

        The Director      of Defense Research and Engineering  and
the Navy agreed,        in general,with   our recommendations and
outlined      the actions    the Navy had taken or had planned to
take.      (B-163058,     November.19,  1970.)

Department   of   the   Army

      (See narrative      under   caption   "Research   and Development,"
p. 35,)

                             SUPPLY MANAGEMENT


Department     of Defense      *

       In 1966 we examined into the responsiveness                      of the mil-
itary    supply and distribution           systems in the Far East and
observed that they were not sufficiently                  flexible       to meet
emergency demands efficiently.                In 1967 we examined into
Army supply management in Vietnam and observed that the sys-
tem had supplied        the combat needs of military               units   in Viet-
nam despite       adverse conditions,           However, the high level           of
support was achieved          through costly       and inefficient         supply
procedures.        As a result      of these reviews the military             de-
partments      stated that they either           had taken or would take
action to improve the effectiveness                of their      supply systems.
To appraise       the results     of these actions,         we made a review
at various       supply activity       locations     in the Far East and at
inventory      control    points    in the continental         United States.
Our report      on the review was issued to the Congress in April

        The military     services     had continued   to provide    adequate
support to units       in the Far East--particularly          the combat
forces in Southeast        Asia.      The supply systems in the Far
East, however,       as well as the supporting         systems in the con-
tinental    United States,        continued    to be costly   and ineffi-

       We found:

       --Substantial  differences             between   inventory     records    and
          stocks on hand.

       --Use of inappropriate    methods and incorrect  data for
          computing quantities   of stocks needed and resultant
          excesses and shortages   in stock levels,

       --Inadequate      controls     over repairable      components and
           equipment    and resultant      failure    to return   the items
           for repair    and reissue,

      --An excessive      volume of high-priority            requisitions
         and resultant     increased handling        cost.

      --Supply    problems at supply activities     in the United
         States   and resultant shortages     at Far East locations.

       We recognized     that it was unrealistic      to expect the
maintenance     of inventory     records under combat conditions      in
Vietnam at a level       of accuracy as high as that expected        at
other supply activity        locations.    The records at locations
outside   Vietnam,    however, were not accurate        enough to be
relied   upon for effective        management.

     We recommended       that    the Secretary     of Defense:

      --Take steps to reduce the frequent         and voluminous
         catalog   data changes,   such as unit-of-issue       changes
         and stock-number    changes, which result       in misidenti-
         fication   and loss of stock,,

      --Require   implementation     of the inventory control   pro-
         cedures prescribed      in January 1969 by a Department
         of Defense study group.

      --Provide    a method      for consistent    application in com-
         puting   quantities       of stock needed and require   all
         supply   activities       to follow   the method,

      --Establish   uniform  procedures   and criteria    for re-
         view of items on order but not received        and for
         prompt cancellation    of unneeded quantities.

      --Establish      a direct-exchange       program for all repair-
         able items of high value and critical            need in the
         Army.    This would require        that,   when a new item is
         issued,   either     the unserviceable      item is returned  or
         the nonreturn      is documented.

      --Establish   procedures     for challenging     the validity   of
         the assignment   of high priority       to requisitions    and
         procedures  for reporting     the results     to management,
      --Require  major     supply activities to establish     proce-
         dures designed     to bring to the attention    of top-level

         management those supply situations,        and their
         causes, which are potentially    critical.

        The Assistant Secretary    of Defense (Installations        and
Logistics)    agreed,  in general,   with our findings       and recom-
mendations    and said that actions     had been taken or were
planned to improve the conditions        noted in our report.

       He did not believe,          however,    that there was a need for
procedures     for bringing       greater    management attention      to
bear on potentially        critical       supply situations,    but we
pointed    out that existing         procedures     were not detecting
potential     problems before they became critical.

        The military     services    refined    major factors      used in
their    requirements     computations       and improved their      proce-
dures for identifying          and canceling      outstanding    requisitions
for materiel       no longer needed.         These actions    resulted      in
reduction      of stock requirements         and cancellation      of orders
for unneeded supplies          amounting     to about $49.6 million,
 (B-160682,     April   21, 1970.)


Department     of Defense

        To obtain maximum use of the materiel              in the Pacific
area, the Department          of Defense established         a special      pro-
war4      conducted    by  the  Pacific   Command  Utilization         and   Redis-
tribution       Agency, Okinawa, to promote redistribution                of ex-
cess materiel       within    and among the military         services     in the
Pacific      area.    We reviewed     the program to evaluate          its ade-
quacy and effectiveness.            Our report   on the review was issued
to the Congress in August 1970.

       During fiscal        year 1969 excess materiel            costing
$603 million       was reported       and about $23 mFllion          worth of
these excesses was redistributed.                 We  found    that    more excess
materiel     could have been redistributed              had there been
greater    participation         in the program.        Air Force contractors
and some military         activities        had not reported      their   excesses
to the Agency nor had they used the Agency as a possible
source of supply for their              requirements.       Since the Govern-
ment received        only about $0.075 on each $1 worth of materiel
sold as surplus,         greater     effort    should have been made to use
excess items rather          than to sell them as surplus.

        The Agency served merely as an information          center.   The
management responsibility        was fragmented    and no one organiza-
tion had an overview       of the entire   program.     Also, the mili-
tary services     did not have clear criteria       for defining    ex-
cess materiel,      and some of the materiel     reported    as excess
was not actually      excess and could not be delivered        when re-
distribution    was requested.

         We made a number of suggestions         to the Secretary    of De-
fense to improve the effectiveness           of the Pacific     Command
Utilization     and Redistribution      Agency and to clarify       and im-
prove criteria     for identifying      excess materiel.       The Depart-
ment of Defense stated that the Army had been directed                to im-
prove the effectiveness          of the operations.      (B-169427,   Au-
gust 14, 1970.)


Department       of Defense

       In our prior   reviews we had observed that the inven-
tories    of the Defense Supply Agency included             substantial
stocks in excess of needs,          We made a review of the poli-
cies, procedures,     and practices      followed      by the Agency in
determining     its needs for stock.         Our review covered three
of the five inventory       control   points,     called    Defense Supply
Centers,    under the management of the Agency.              A report   on
the review was issued to the Congress in May 1970.

        As of December 31, 1968, over $250 million              worth,   or
about 23 percent,        of   the stocks  managed   by  the   three    Centers
were excess to all known military           needs.     The accumulation
of a substantial        portion   of these excesses could have been
avoided had the Agency maintained           tighter    controls     over the
following    situations:

      --The Centers,    in projecting      future   requirements     on the
         basis of experienced      demand, included       in the experi-
         enced demand "one-time       need" requisitions       and requi-
         sitions which the issuers had canceled.

      --The Centers initiated       action for procurement         of new
         stocks without   adequately      considering    all stocks on
         hand and without    considering      the actual    length   of
         time needed to obtain      delivery     from the suppliers.

      We proposed that the Agency revise                  its procedures      for
determining   stock levels at all Centers                 to ensure that:

       --Requisitions         for   stock   are identified     as recurring         or

       --Stock     on hand is properly           considered.

       --Requisitions        for unusually      large quantities      are ques-
          tioned,     confirmed   by the issuers,        and appropriately
          considered      in computing     future    requirements.

       --Procurement     lead      times actually        experienced   are sub-
          stituted   for the       standard  lead      times currently    being

      The Department      of Defense stated        that changes were be-
ing made to reduce the accumulation             of stocks      and that the
Agency's    new computer    system,   the Standard        Automated     Mate-
riel  Management System (SANMS), being installed                 by the
Agency y  will  establish    uniform    data    processing      procedures     at
ail inventory    control    points.     In its report        of October     6,
1970, the House Committee         on Appropriations        requested     that
we make a comprehensive        review   of SAMMS in line with previ-
ous directives     of the Committee.        The review       is in progress
and our report    will    be issued early       in 1971.

        The Department        of Defense stated         that it would continue
to include       nonrecurring       demands for stocks          in its projections
of future      needs because,         although     the demands may be non-
recurring      to individual        users,     the wholesale      level      may expe-
rience     a repetitive       pattern      of such demands from all users
and should provide          for it.       We suggested       that the Department
reconsider       this point      and include      nonrecurring        demands only
in those instances          where inclusion          is clearly     justified.
(B-146828,      May 28, 1970.)


Department      of the Navy

         Excess aircraft        not needed by the military              services     are
mothballed       at the Military         Aircraft     Storage and Disposition
Center,     Arizona.       When there is no longer any foreseeable
need for them, they are scrapped.                   Since many components and
parts of these aircraft             can be used in repairing             operational
aircraft,      they are reclaimed           before the aircraft          are
scrapped.        During    fiscal     year    1969  the   Center    reclaimed,
from aircraft        which were to be scrapped,              items which had
originally       cost about $83.5 million.              We   made   a review of
the reclamation         program to test the effectiveness                 with which
the military       services       were recovering        needed components and
parts and were reducing             their     purchases     accordingly.         Our
report     on the review was issued to the Congress in August

       Our review of two reclamation            projects      of the Navy, in
which items costing       $3.1 million      were to be reclaimed           from
144 aircraft     scheduled to be scrapped,             showed that addi-
tional    items, costing     $410,000,     were needed and should have
been included      in the reclamation        projects.        The Navy pur-
chased $252,100 worth of new parts to cover its need for
parts that should have been included               in the reclamation
projects.      The Navy criteria       excluded      the following      catego-
ries of items from consideration             for reclamation        even though
requirements     for them might have existed:                (1) those for
maintenance     demands related      to models of aircraft           other than
the ones being scrapped,         (2) slow-moving,          low-demand consum-
able items,     (3) consumable items with a unit price under
 $10, and (4) consumable items designated                 as having a shelf

       Our review of another aircraft            disposal    program of the
Navy showed that the aircraft            had been scrapped without       a
reclamation     project     having been established        for the disposal.
These aircraft       contained     items costing     about $507,000 that
the Navy needed.         Had the Navy reclaimed         the items, it would
have avoided purchasing           $120,800 worth of new items.

         The reclamation criteria and procedures      of the Air
Force and the Army were generally       effective   in identifying
needed items to be reclaimed.      Minor areas in which improve-
ments could be made were brought      to the attention      of local

       We found that the controls     of the three services       did
not ensure that items to be obtained        from reclamation      were
considered    in making decisions   to procure      needed stock.     As
a result    new items were procured    unnecessarily.

      We proposed  that the Secretary       of Defense require             the
Navy to consider   the following   criteria     for reclamation              of
parts  from excess aircraft:

      --Needed    items,   regardless          of whether  there   is a main-
         tenance demand recorded             for the particular      model of
         aircraft    being disposed          of.

      --Needed     slow-moving,     low-demand       items.

      --Needed    low-unit-price        items where (1) total   quanti-
         ties  available       or needed are great enough to warrant
         the effort      of reclamation      or (2) unit prices  have
         changed considerably.

      --Needed,  although  unserviceable,      shelf-life   items
         that can be economically     restored   to serviceable             con-

We proposed       also that the Secretary        of Defense (1) require
that all excess aircraft           being disposed      of be screened      for
total   reclamation       requirements      and (2) require    that the mil-
itary    services     establish    appropriate     procedures    to ensure
consideration        of the items to be obtained          from reclamation
before    purchases      are made.

        The Department  agreed      with our proposals         and cited    the
actions    taken to implement       them.   (B-157373,        August 6,


Department         of the Navy

       The Marine Corps manages and stores many items that ei-
ther are designated       for management under a single manager
within   the Department       of Defense or are managed and stored
for all Government users by the General Services                Administra-
tion.    In our report      issued to the Congress in November 1970,
we pointed    out that this results       in a sizable     duplicate      in-
vestment in inventories         and in substantial     additional      costs
in supply management.          As of June 30, 1969, the Marine Corps
Supply Activity      had265,POO items, valued at $280.5 million,
on hand and on order.          About 185,000 items (70 percent),            val-
ued at $148 million,       were also managed by the Defense Supply
Agency, the Army Tank-Automotive          Command, or the General Ser-
vices Administration.

      Although the Marine Corps and the Department        of Defense
had been aware of this duplication    for several     years,  the
Marine Corps had resisted   efforts to require    it to relinquish
its management and stockage of the duplicated       items.

      We proposed        that    the Secretary   of Defense   either

      --require         the Marine Corps to reduce existing      dupli-
         cated       stocks and to direct    using activities    to requi-
          sition      directly    from the designated   managers, or

      --direct    the Defense Supply Agency and the Marine Corps
         to develop a plan which would retain   the duplicated
         stocks at Marine Corps depots but under the manage-
         ment of the Defense Supply Agency.

        The Assistant    Secretary       of Defense (Installations          and
Logistics),     although     agreeing      with the intent     of our first
alternative,      said that neither         of our proposals     would be im-
mediately    implemented.        He did not comment on the second al-
ternative    but stated that a materiel            management system
would be developed       for the Marine Corps to support deploy-
able forces effectively          and economically.         We believe     that
the proposed action        is not responsive        to the problem and
that prompt and aggressive            action    is necessary.      (g-146828,
November 10, 1970.)


Department        of the Navy

        As of June 30, 1968, the Navy Aviation                Supply Office
(ASO) was responsible           for the management of over 323,000
different     aeronautical        spare parts and assemblies.           During
fiscal    year 1968 it processed about 93,000 small-purchase
transactions     --purchases       under $2,500 each--totaling           about
$72 million.        About 70 percent of these transactions                were
processed by automation.             We reviewed       the policies,    proce-
dures, and practices          followed     by AS0 in operating       the auto-
mated procurement         system to determine          whether more effec-
tive use of the capabilities             of the system could be realized
in processing       small-purchase       transactions.        Our report    on
the review was issued to the Congress in December 1969.

     We observed that the system could                 be improved     by pro-
gramming the automated equipment to:

      --Assist   buyers       in making    price     analyses     of small     pur-

      --Solicit       quotations    from all       known supply     sources.

      --Consolidate        requirements.

      --Make maximum use of basic order agreements        (BOAS).
         (A BOA is a written   understanding    with a contractor
         that describes   goods or services    which might be pur-
         chased from the contractor     and provides  a method for
         pricing  them.)

      --Process   many of the         small purchases  that continue              to
         be processed without          the aid of automation.

      We also noted a lack          of comprehensive  reviews          of the
automated   system by audit         groups of ASO, the Navy,           or the
Department   of Defense.

      During our review AS0 made changes                in its automated
system which should help to ensure that                 requirements   for
like items are consolidated     and that sole-source         require-
ments are placed,  as applicable,     under existing        BOAS,

       We suggested that AS0 (1) consider         programming     the au-
tomated system to perform price analyses,            to solicit     all
known supply sources,        and to process other small purchases
and (2) provide     for a periodic     review of the operation          of
the system so that management could be informed              of problem
areas.    In view of the present       and potential     use of auto-
mated procurement       systems by other activities        and the need
for improvements      in the existing     system at ASO, we suggested
also that the Secretary        of Defense establish      programs to
monitor   the implementation       and improvement     of automated
procurement    systems.

       The Navy and the Department     of Defense advised us of
actions   taken or planned by them which were generally      re-
sponsive to our suggestions.       (B-162394,   December 17, 1969.)


Department      of Defense

       In May 1967 we reported          to the Congress        that a transfer
of handtool    and paint     inventories      from the Department         of De-
fense (DOD) to the General           Services    Administration        (GSA)
showed a need for improved           transfer    procedures       and greater
coordination     between the agencies.           The transfer       was the
first    of a series   leading     to a coordinated        national     supply

        As a follow-up,     on July 1, 1967, we examined          into the
transfer    of stocks    valued     at about $19.5 million       and,repre-
senting    52 Federal    supply classes.           Our report on the exam-
ination    was issued    to the Congress         in March 1970.     Although
DOD and GSA took considerable            action     to solve mutual prob-
lems relating      to the 52-class       transfer,     some of the problems
cited    in our previous     report    remained.

       Inventory       tests    at selected         DOD depots after         the trans-
fer showed substantial             quantity       differences      between GSA's
recorded     inventory       and actual        stocks     on hand.      After   we
brought    these discrepancies             to GSAss attention,           DOD took
physical     inventories        at several        depots and compared their
counts with GSA's inventory                records.        These comparisons
showed that stocks           valued      at about $5 million           had not been
recorded     on GSA's records            and were "lost9'       to the supply sys-
tem.     As a result,        GSA purchased          some identical       stocks    and
did not, in some cases,             fill     requisitions       timely     because it
did not know that the items were on hand.

       We concluded   that these deficiencies     arose because                   the
transfer   procedures    adopted as a result    of our previous                   re-
port had not been effectively      implemented.

       We recommended        that   DOD and GSA:

       --Implement      transfer    procedures        adopted     as a result       of
           our previous     report.

       --Take physical        inventories,       on the basis of up-to-date
          stock locator       records,     of   all stocks  to be transferred.

     --Take periodic    physical inventories   of stocks'remain-
        ing in the custody of the transferring     agency-.and
        transmit  all resulting  changes to the managing

     --Show all GSA-managed stocks      stored   at DOD depots     on
        GSA inventory records.

        Both DOD and GSA agreed with our recommendations     and
advised us that additional       management controls  would be ap-
plied to future     transfers.    We have not yet determined  the
effectiveness     of the actions   promised by DOD and GSA.
(B-161319,    March 9, 1970.)

Department     of the   Air   Force

       In June 1970 we reported      to the Secretary         of Defense
that   the Air Force was distributing       air-inflatable        shelters
from   which they experienced    unsuccessful        results.

        The 2750th Air Base Wing, Headquarters,        Air Force Lo-
gistics    Command, bought 384 double-wall,     air-inflatable
shelters    from an American    firm. The shelters,        which cost
$8.9 million,     were bought to meet urgent    requirements      for
buildings     in Southeast  Asia.

        Testing  of prototypes         of the shelters        proved unsuccess-
ful but the Logistics          Command, in view of          the extreme ur-
gency s lowered     production       test requirements          and accepted   de-
livery    of the entire      quantity.       Unsuccessful        results  with
the shelters     in Southeast        Asia caused the        Commander in Chief,
Pacific     Air Forces,    to ask on December 14,             1966, that no
more of the shelters         be sent to the Pacific            Air Forces.
Prefabricated      metal buildings        subsequently        were bought
abroad for use in place of the inflatable                   shelters.

        The Construction      Branch,   Engineering  and Construction
Division,    Office     of Civil   Engineer   at the Logistics     Command
was assigned      supply management responsibilities           for the
shelters    until   about September      15, 1969, at which time the
Robins Air Materiel        Area, Robins Air Force Base, Georgia,
assumed these responsibilities.

         From the information   developed    in our review,    we noted
that none of the shelters       issued    had been used successfully
for any extended       period of time.     Nevertheless,    as recently
as February      1970, 10 of these shelters       had been shipped     to
Spain and Germany for attempted         use at U.S. Air Force in-

        The Robins item manager's           records   showed that no shel-
ters were issued        to the Pacific        area after   refusal of the
Commander in.Chief,        Pacific     Air Forces,      in 1966 to accept
additional    deliveries.         Nevertheless,     Robins continued    to

ship shelters      to other locations.         For example, we observed
that,    as of March 13, 1970, the         item manager's     records
showed that 90 shelters,       many of       which were defective,       had
been issued to activities       in the       continental    United States
and Europe.       Of the 90 shelters,        21 found their     way into
disposal    yards.

       Although     transportation cost figures      were not readily
available,      they must be substantial,      since each shelter     re-
quires from 21 to 31 containers,          averages 800 cubic feet in
volume, and weighs about 12,000 pounds.

        We noted that Detachment I-C, 4500th Support Squadron,
Tactical      Air Command, located         at Robins Air Force Base, was
issued eight shelters          during     1968.     These shelters     were
stored in an outside          area and never used.           On the basis of
instructions        from the Tactical        Air Command, two of the shel-
ters were sent to South Vietnam and two to Seymour Johnson
Air Force Base, North Carolina.                 The remaining     four shelters
were turned in to Base Supply where they had been stored
marked "condition        unknown.“        The detachment      commander had
not tried      to use the shelters         because one of his personnel,
who had been specially           trained,     reported    that they were de-
fective      and that it was time-consuming             to erect and maintain
them.      In the Commander's opinion,            their   disadvantages     far
outnumbered       their   advantages      and, had he been required         to
use them, most of his staff's              time would have been required
just to maintain        them.

        Two companies (the Goodyear Aerospace Corporation          and
the Air Cruisers      Company) agreed to inspect     and evaluate    the
shelters    to determine     whether they could be modified     and ef-
fectively     used.   We learned    that one of the companies had
completed     its evaluation     and had concluded that modification
could not be done without         major redesign.

        Because of continued       unsuccessful     results     with the air-
inflatable      shelters,    we questioned      the expenditure      of addi-
tional     funds for transporting,       erecting,     and maintaining
them in use until         and unless design deficiencies           or other
deficiencies      were corrected.

       We therefore       recommended to the Secretary     of Defense
that   the United      States Air Force be directed    to:

       --Suspend      shipments   of air-inflatable    shelters    to using

       --Evaluate      prospects    for successful utilization       of the
          shelters,     on the basis of the experience         of using
          units     and the evaluations    which have been performed
          by private      companies and military    testing     units over
          the years.

        Department     of Defense officials     concurred     in our re-
commendations.         We were advised that action had been taken
to suspend the shipment of shelters            and that a determina-
tion was to be made of whether an Air Force requirement
existed     for these shelters.        We were informed     that,   if no
requirement      existed     or if repair   was not economically       fea-
sible,    disposal     action would be taken.       (B-163389,    June 18,


Department       of Defense

        The Military        Affiliate          Radio System was established             by
the Department         of Defense (DOD) to provide                auxiliary        commu-
nications     to military,            civil,     and disaster     relief      officials
on a local,       national,         and international         basis during periods
of emergency,          Generally,           the System handles a large volume
of quasi-official           messages and phone calls              for the morale
of military       and U.S. Government civilian                 personnel       through-
out the world.          Units of the System operate within                     each of
the military       departments.               The System includes        radio sta-
tions,    clubs,     and operators,             both civilian     and military.

       Transfers  of excess and surplus        Government property
are made to the System on a priority           basis primarily      to sup-
plement and improve the operating          capability     of member sta-
tions.     We made a review to ascertain        the validity     of the
System% requirements       for transferred      property     and the ade-
quacy of its controls      over the property,         A report   on our
review was issued to the Congress in February              1970,

       During fiscal       year 1968, the Army, Navy, and Air Force
System organizations         acquired         excess and surplus      Government
property    originally      costing         $56 million,    Substantial       quan-
tities   of the property        were not needed by the organizations
that acquired       them but were needed, in many instances,                    by
other Government agencies.                  The System exercised      little      con-
trol   over either      the property          acquired   and held in its ware-
houses or the property           issued to individual          members.       Equip-
ment was issued to individual                 members without    consideration
of their    needs or their         ab'ility     to use certain    types of
equipment and to former members no longer entitled                         to re-
ceive it.

      We recommended that            the Office       of the Secretary    of De-
fense establish   adequate           procedures       and controls   that would:

       --Limit  the transfer           of excess and surplus property                 to
          the System to only           that property which is needed                 and

         can be used by member stations         to improve       their
         operating  capability,

      --Provide   adequate accountability         for   excess    and sur-
         plus property    transferred,

      --Require  accountability       over property   issued to mem-
         bers and recovery      of property   from former members.

      --Promote   increased     emphasis    by management review
         groups s including     internal    auditors,  on review of
         System activities.

      DOD concurred    in our conclusions       and recommendations
and advised that more effective,       uniform       procedures    would
be developed   for the acquisition,      distribution,        and use of
Government property      by the System and that action had been
taken to increase    the surveillance      of the operations        of the
System by management review groups,            (B-144239,     February   27,
1970. >


Department       of Defense

      In November 1969 we issued        a report      to the Congress     on
our review      of management of household       furnishings     at mili-
tary installations       overseas, including       Alaska    and Hawaii,

        We made a similar         review      at military       installations
within    the contiguous        United      States.       A report       on this       re-
view was issued       to the Congress           in May 1970.           We found that
the instruction       of the Department             of Defense governing               the
providing      of household       furnishings        did not contain             adequate
guidance     to ensure adherence            to the policy         established          by
the Bureau of the Budget (now Office                    of Management and Bud-
get).     The Bureauss       Circular      No. A-15, as revised                in May
1962, states      that Government-owned              furnishings,          with certain
exceptions,      are not to be provided              in housekeeping             quarters
within    the United      States,        In authorizing         the exceptions,              the
Bureau specified        the conditions          which must exist,              or the
determinations       which must be made, to justify                    providing         fur-
nishings     under the exception.

         Our tests   at six military      installations          of the three
military     departments       showed that the installations            did not
have procedures       to ensure that individuals              receiving
Government-owned        furniture    were entitled         to such furniture
under the provisions           of the Bureau's       Circular     No. A-15.

        Officials      of the Department         of Defense advised  us that
the    practice      of providing      furniture    at installations  within
the    contiguous      United    States     would be phased out as stocks
were    depleted      and that procurement         of new furniture  had
been    curtailed.

        We suggested         that    the   Secretary       of Defense:

        --Prescribe     procedures    to be followed     by the military
           departments     to ensure compliance      with the policy       of
           the Bureau of the Budget on providing           furniture     for
           housekeeping      quarters   within  the United    States.
       --Emphasize     that military      personnel      must   ri?y   on the
          use of their     own furniture.

       --Consider      transferring   unneeded furniture,        being re-
          tained   for housekeeping     quarters     within   the United
          States,    to nonhousekeeping     quarters      and to overseas
          housekeeping       quarters where needed.

         The Department         of Defense concurred      and, on March 11,
1970, issued        instructions        to the military     departments     which
restricted       the providing        and repairing     of supplemental
Government-owned           furniture      and which should facilitate        re-
distribution        within      the United    States.    These instructions
reflect      more closely         the intent   of the policy     of the Bureau
of the Budget.           (B-167490,      May 14, 1970.)

                           MILITARY     CONSTRUCTION


Department      of Defense

       The Department of Defense (DOD) managed 98 active
Government-owned,           contractor-operated        industrial       plants   orig-
inally     costing    $2.2 billion        for land and improvements.             We
noted that large additions               were being constructed           at some
of these plants.           Accordingly,       we reviewed      the procedures
and controls       relating       to expansion      and replacement        of indus-
trial    plants    and examined into acquisition               of facilities      con-
structed     between late 1965 and 1968 at two Air Force and
three Navy installations.                Our report    on the review was is-
sued to the Congress in January 1970.

         Each major addition          to facilities      at military       installa-
tions requires          congressional      review and approval          and is
paid for out of military              construction      appropriations.           Kajar
additions     to facilities          at Government-owned,          contractor-
operated     defense plants,          however, normally        are financed        with
funds from procurement             or from research,        development,        test,
and evaluation          (RDT&E) appropriations.            Under the latter
procedure,     proposed acquisitions              are included      in separately
identified      facility      categories       in procurement       or RDT&E bud-
get requests       submitted       to the Congress and the projects                 are
sometimes individually             presented      to the congressional          commit-
tees concerned.

         We found that in some cases DOD had authorized                 contrac-
tors operating       Government-owned    plants    to provide      the financ-
ing for new facilities         and to recover the costs involved
through overhead charges against          Government supply and re-
search and development         contracts   over a period       of years--
usually     5 years.     Title  vested in the Government when the
facilities      were built.     Proposed acquisition         of facilities
under this method was not specifically             identified      in budget
presentations       to the Congress.

       At the five installations   we reviewed,   new buildings
costing   $31 million   had been acquired   by the Air Force and

the Navy under supply and research              and development       contracts
and financing     had been provided       by the contractors          who were
being reimbursed      over a period of years.             We did not ques-
tion the legality      of these indirect         acquisitions      but pointed
out that the lack of disclosure           of such acquisitions            to the
Congress was inconsistent         with the procedures          applicable
to construction     projects    funded directly         by the Government
under military     construction      appropriations         or under procure-
ment or research     and development       appropriations.

        There are no specific         provisions       in DOD procurement
regulations    covering      facility     acquisitions      by the Government
through contractor       financing       and subsequent      reimbursement
of the contractor       under a supply or research             and develop-
ment contract.       Consequently        DOD does not require        reporting
of such projects      to the Congress in the budget process,                  nor
does it provide      guidance as to when this method of financing
should be used.

          We did not inquire            into the relative       economy of acquir-
ing facilities          indirectly          through contractor      financing     com-
pared with acquiring              facilities        under the traditional        method
of direct       financing       by the Government.           With respect       to the
financing       charges,      however, we noted that interest                on the
contractors'         investments          in the facilities      had not been
charged to the Government.                     Also the profit    earned by the
contractors        on the facility             costs charged as overhead over
the amortization           period appeared to be less than the in-
terest     cost that the Government would have incurred                       if it
initially       had paid for the construction.

         We recommended that the Secretary                      of Defense take ac-
 tion to revise           DOD's budgetary         procedures,           as appropriate,
 to effect      full      disclosure        in applicable         budget submissions
to the Congress of all proposed expenditures                              from procure-
ment and RDT&E appropriations,                    either      directly        or indirectly,
for construction             of Government-owned            facilities.          We recom-
mended also that,              if it were deemed desirable                  to have con-
tractors     provide         initial     financing       for Government-owned              in-
dustrial      facilities,            the Secretary       of Defense have the
Armed Services           Procurement         Regulation       revised,       as necessary,
to (1) provide            clear criteria         concerning         when this method of
financing       should be employed and (2) spell out the controls
to be exercised.

        DOD advised us that it was reviewing          its current      bud-
get policies      and procedures     and that appropriate      revisions
would be made in internal        regulations     to ensure that future
acquisitions      of industrial    real property    are financed       di-
rectly     and that proposed acquisitions        are disclosed      in bud-
get submissions      to the Congress.

         The House Committee on Appropriations,             in its report
accompanying       the Department       of Defense Appropriation      Bill
for fiscal      year 1970, cited our findings           and stated that
the Cormnittee desired          that in the future      all proposed major
improvements       to, and construction         of, Government-owned       fa-
cilities     funded in any manner with procurement             and RDT&E
appropriations        be clearly     identified     in budget requests,
(B-140389,      January 21, 1970.)


Department      of Defense

      In September      1970 we reported       to the Congress that the
Department    of Defense (DOD) early         in 1966 directed         a U.S.
Navy construction       contractor,    a joint     venture,      to obtain
equipment,   materials,       and personnel      sufficient      to complete
a large and complex $960 million            construction       program to sup-
port the buildup      of U.S. military       forces      in Vietnam.

      At the height   of the Navy contractoris         mobilization,         in
May 1966, DOD departed     from that plan and authorized             the Air
Force to hire a separate      contractor    to build    a fighter-plane
base at Tuy Hoa, north of Cam Ranh Bay.            The estimated        cost
of this project    was $52 million,      on a cost-type      contract.
        The Navy had proposed       to DOD that the Tuy Hoa project
be constructed      by its joint     venture     as a part of its as-
signed responsibility.          The  Navy    advised  DOD that its con-
struction    contractor     had proven capability,         that construction
equipment    had been purchased        in specific    anticipation     of the
Tuy Hoa project,        and that using a second cost-type          contrac-
tor would mean duplication          of many expenses.

         In view of the Navy's           substantial        contractor      construc-
tion     forces    and necessary       equipment        then available        in Viet-
nam, we examined          into the justification              for the Air Force's
engaging       a separate     contractor      to build        a single    airfield.
Essentially,        the Air Force's        justification          was that the air-
field      had been needed so urgently              that no other course of
action      could be considered.           We believe         that the Navy con-
tractor,       with a known construction              capability       and with equip-
ment already        purchased     for the Tuy Hoa project,               could have
completed       the airfield      in the time required.

       We believe     also that,    had the Navy proposal  been fol-
lowed,   several     million  dollars   in added costs could have
been avoided.        The added costs consisted     of:

       1. Duplicate equipment   purchases--The      subcontractor                 for
          the Air Force purchased     construction     equipment               for
          about $9.5 million.    Similar     equipment   costing               about
           $7.4 million      had already        been purchased        by the
           Navy's   contractor.

       2. Premium prices       paid for equipment--The         Air Force
          subcontractor      purchased      construction   equipment      di-
          rect from equipment         dealers     or other third    parties
          instead    of direct     from the manufacturers         or through
          the Government       supply system.

       3. Duplicative       overhead  and administrative              costs--The
          Air Force and its contractor          incurred           $3.9 million
          in overhead and administrative           costs         to establish    a
          logistical      pipeline   which duplicated            the one estab-
          lished     by the Navy and its contractor.

       4. Disproportionate       fee payment--The   fee rate paid by
          the Air Force to its contractor         was more than double
          the rate paid on other DOD cost-type         construction
          contracts      in Southeast  Asia.

         We proposed      in our draft       report      that DOD use a single
military      construction      agent in any one overseas            geographic
area, with contractor           capability       being increased      as the con-
struction      agent requires;         ensure that a contractor          operating
under a cost-reimbursable              contract       receives  adequate    instruc-
tions     on procurement      procedures;        and ensure that a parity
exists     in construction--contractor              fees.

        DOD stated      that its policies       were in agreement     with our
proposals     and were considered         to be operative       in the case of
the Tuy Hoa project          but that this project        was approved     as a
specific     exception.       We believe,     however,    that duplicative
contract     costs can be avoided         in the future      if an assessment
is made of the cost advantages              and disadvantages      of augment-
ing the capability          of a single     contractor    or using multiple

       We recommended that in the future                   the Secretary       of   De-
fense direct      military      construction         agents to submit for           DOD
consideration      the military        justification           and a detailed       es-
timate    of the duplicate        overhead        and equipment       costs ex-
pected     if more than one cost-type               construction      contractor
is considered      for a geographic            area; give consideration             to
strengthening      administrative          procedures        on cost-reimbursable

         contracts,         particularly        in connection      with procurement,      in
         a manner       similar       to that in the guidance          now being devel-
         oped by      the Navy; and require,              in cost-type    construction      con-
         tracts,      that military         construction      agents obtain      advance
         approval       from the Office           of the Secretary      of Defense for
         fee rates        that are exceptions           to those prevailing        in a par-
         ticular      overseas        geographic     area.    (B-159451,    October    28,




Department     of Defense

     In August 1970 we issued             to the Congress a report     on
our survey of certain     aspects         of the award and administra-
tion of military   construction           contracts.

         Under the military      construction       authorization      acts,     the
military      departments     are required       to report     to the Congress
all nonadvertised--negotiated            --military     construction      con-
tract awards.         The fiscal   year 1968 reports           listed  110 non-
advertised      contract    awards, totaling        $91 million,      and indi-
cated that about 91 percent            of the amount of military             con-
struction      contracted     for in that year had been advertised,

        We found that the reports      to the Congress did not in-
clude most of the nonadvertised          military     construction    con-
tract    awards for work overseas.        We identified       125 awards
of this type:        100, totaling   $184 million,       in Southeast   Asia
and 25, totaling        $7 million,  in the Republic        of Germany.
Inclusion     of these overseas awards in the nonadvertised              con-
tracts    reported    to the Congress would have shown the propor-
tion of advertised-contract         amounts in fiscal        year 1968 to
be 72 percent      rather   than 91 percent.

         We also noted that the Department                of Defense was not
required      to report     to the Congress nonadvertised              construc-
tion contract        awards financed         with other than the military
construction        appropriations.          We identified     nonadvertised
military      construction       contract     awards of $98 million          in fis-
cal year 1968 that had been funded from other appropria-
tions --principally         procurement       appropriations,        In addition,
we had found in an earlier              review that subcontracts           for con-
struction       had been awarded by prime contractors                holding     ne-
gotiated      defense contracts         for research       and development       and
for production        of materiel,

         We suggested that the Department     of Defense require          the
military     departments    to improve their  practices      in reporting
to the Congress,         In response the Department     stated that

other means had been used to keep the Congress informed           of
the overseas awards discussed       in our report,    The Depart-
ment, however,     concurred in our suggestion     and cited new
instructions    that had been put into effect      to ensure proper
reporting    in the future.    (B-133316,  August 18, 1970.)


Department      of the Navy

         Under the lease-construction            method of acquiring         facil-
ities,     the   lessor  agrees      to  construct     a  building     or build-
ings in accordance with general               guidelines       prepared   by the
lessee,       The   Navy has    acquired    a   considerable       number  of
buildings       under this method for the use of the Naval Support
Activity      in Naples,    Italy.       Rents for these buildings           were
about $900,000 in fiscal             year 1969.       The Navy plans to in-
crease its leasing        in future       years.      We examined into the
Navy's use of the lease-construction                  method for acquiring
these facilities.         Our     report   on   the   examination      was issued
to the Congress in January 1970.

       Acquisition       of facilities         in foreign        countries     through
lease-construction         has certain         advantages        and disadvantages
compared with acquisition              through the military             construction
program.       Therefore    the     major    factors      affecting       acquisition
of a facility       should be thoroughly             reviewed and documented
prior   to selection       of a particular           method.

         The Navy established        a policy     in 1956 of acquiring       fa-
cilities      in Naples exclusively          by leasing     with no considera-
tion's     being given to acquisition           through     the military    con-
struction       program.    The Navy had no indication            in its files
that it had considered           estimated     costs of construction,        es-
timated     appraised    values,      local rental      rates,   or other fac-
tors in establishing         rental      rates for the leased facilities.

        The leased buildings           were built    to lower standards       than
U.S. military       specifications         and contained    numerous defi-
ciencies    in design,       workmanship,      and quality     of materials.
Also the lessor's         responsibility       for maintenance     was not
clearly    established.         This resulted      in disagreements      as to
who should bear the cost of maintenance                  and in lengthy      de-
lays in having the work done.

       We suggested        that:

       --The Navy's procedures             for acquisition      of facilities
          by lease-construction            be revised     to provide     for

        consideration      of acquisition       through    the military
        construction      program.

      --Records     of future     negotiations      for lease-construction
         projects     contain   full    documentation      of factors    con-
         sidered    in establishing        rental   rates.

      --The Secretary       of the Navy issue instructions          provid-
         ing additional      guidance   for entering   into      and admin-
         istering    lease-construction     contracts.

      --The Navy withhold      a sufficient      amount from rental
         payments for the Naples complex to compensate for
         construction  deficiencies        and for extraordinary        main-
         tenance that the Navy had to perform as a result                of
         the failure  ofthelessor        to make required      repairs.

      The Assistant   Secretary     of the Navy (Financial    Manage-
ment) agreed,    in general,    with our conclusions     and agreed
to take appropriate     action.     (B-167807,  January 6, 1970.)


Department   of the Air     Force

      (See narrative      under   caption   "Research   and Development,"
p. 43.)


NEED FOR GREATER ACCURACY OF DATA IN                       '

Department      of the Navy

        The Navy's automated manpower and personnel           management
 information    system is designed    to furnish    accurate     and
timely     data on its 1.2 million    active    and reserve     officer
and enlisted     personnel*    The data provide     information       for
use in making decisions       on such matters     as personnel       assign-
ments, promotions,       and school  selection.     In   June   1970    we
 issued to the Congress a report        on our review of the sys-

         On the basis of our tests,            we estimated       that,     at the
activities      we visited,       at least 83 percent          of the records
of officers       and 79 percent        of the records of enlisted             men
contained      one or more errors.            Inaccuracies      were found in
various     types of information,           such as data on the qualifi-
cations,      achievements,       and prior      assignments      of personnel
on active      duty.     At   our   suggestion,      the   Navy   established      ac-
curacy standards         for many data items.            The error rates we
found on specific          data were considerably           higher      than those
the Navy standards          indicated     were acceptable.

        At the activities  we visited,  existing  procedures    for
finding    and correcting  errors were not followed    and inter-
nal reviews were not made to inform management on adherence
to procedures     and the degree of accuracy attained.

      We suggested that the Navy strengthen                     the error detec-
tion and correction     procedures,  establish                 appropriate     ac-
curacy standards    for all data, and request                   the Navy Auditor
General to make an independent      assessment                 of the validity
of the system data.

        The Navy stated that its existing      error detection and
correction    procedures   were adequate when complied with and
that it would take the necessary        action  to achieve compli-
ance B (B-169031,      June 23, 1970.)


Department      of the Army

        We reviewed    the controls       and procedures        established      by
the Army to make sure that payments to its military                       person-
nel in advance of regular         pay days--called           casual and par-
tial    payments --were properly       adjusted      through      subsequent
payroll    deductions.     We had noted that,            in January 1968, the
Army had discontinued       its program for verifying                the collec-
tion of such payments because of staffing                  limitations      and
because of other personnel          ceiling     restrictions         imposed by
section    201 of the Revenue and Expenditure                Control     Act of
1968.     Our review covered the period            January through June

        In a report      issued to the Congress in April        1970, we
stated that overpayments            of about $3.5 million     were made
during    the 6-month period because certain            of the casual and
partial     payments had not been deducted in subsequent             payroll
periods     from the pay of the recipients        of such advance pay-
ments.      Contributing      factors   to loss of control     over casual
and partial      payments were that:

       --Individual        financial    records apparently    were not ad-
           equately     protected    from unauthorized     access and some
           records     of payments were lost or removed.

       --Army regulations    did not provide  for the maintenance
          of permanent records of the disposition    of casual
          and partial   payment documents.

       --There was a lack of uniformity     in the disposition     of
          casual payment documents when the paying office        was
          unable to determine  the new station    of a recipient
          of a casual payment.

       --It     normally     took      from 3 to 4 months to determine   the
           duty station        of     a recipient  of a casual payment and
            this resulted        in    additional  handling  and delay and in
           possible      loss of       pay documents.

         Since 1966 the Department           of Defense,    in coordination
with the military          services,    has been engaged in developing
a Joint Uniform Military             Pay System.     One of the features
of the proposed system is the computerized                  maintenance      of
pay accounts on a centralized              basis.    The Army-wide       imple-
mentation       of the proposed system, tentatively              scheduled     to
be operable        by January 1972, should improve control               over
casual and partial          payments and should reduce the incidence
of overpayments.           Because the estimated        losses under the
existing      system were so significant,          however, we believed
that immediate        action     to improve internal       controls    was
needed.       We made several        suggestions    designed     to improve in-
ternal      controls,    and the Army took action          on some of them.
We recommended that:

       --The Secretary      of Defense direct    that the Army main-
          tain its verification       program at an acceptable    level
          until  an effective     system of internal     control over
          its payroll    procedures    has been established.

       --The Secretary       of the Army consider      the feasibility
          of requiring     the paying finance     offices    to institute
          follow-up    controls    for collecting     casual payments.

       --The Secretary      of the Army direct       the Army Audit
          Agency to test periodically          the procedures  followed
          at all field    installations      in making and controlling
          casual and partial        payments to make sure that the
          procedures   are adequate.

       The Army agreed,      in general,       with our observations      and
conclusions.      Also with the repeal of section            201 of the
Revenue and Expenditure        Control Act of 1968, which had im-
posed personnel      ceiling   restrictions,       the Army reestablished
its centralized      program for verifying         the collection    of ca-
sual and partial      payments.       The program, however, was sup-
ported only through fiscal         year 1970 because of further
planned reductions        in manpower for economy reasons.            In June
1970 we were advised that the program would be supported
through    fiscal  year 1971.       (B-125037,     April  1, 1970.)


Department      of   the Army

       Student     officers       at the Army's Fort Rucker were re-
quired    to reside       off the base during            16 weeks of temporary
duty because the Army, in accordance                     with Department         of De-
fense regulations,            considered       the existing        bachelor    offi-
cers'    quarters      inadequate        for their      use.      The Army paid the
maximum cash allowances              permitted       for lodging--averaging
about $356 a month --although                students       returned    question-
naires    indicating        that their       lodging     costs in the surround-
ing communities          averaged $145 a month.                Fort Rucker offi-
cials    were aware of lodging              costs but had taken no action
to bring     the cash payments into line with the costs in-
curred by the students.                Internal      audit     agencies     of the De-
partment     of Defense had not reviewed                  the need to pay cash
allowances      for temporary         lodging      at Fort Rucker.

       In a report       issued    to the Congress     in March 1970, we
stated   that about        $800,000     a year could be saved by reducing
the cash allowances           to the average reported         costs incurred
by students.       We    also estimated       that savings      from a minimum
of about $600,000          to as much as $1.7 million           could be
achieved    at Fort      Rucker by other alternative           methods of pro-
viding   temporary       lodging     for the student     officers:

       --Savings      of about $660,003         a year by earlier     construc-
          tion of new bachelor         officers'      quarters   planned for
          incremental     construction        during   fiscal  years 1973
          and 1974.

       --Savings    of about $1.7 million    a year if existing
          bachelor   officers'  quarters  currently    classified in-
          adequate   by the Army were renovated     for use on a
          temporary   basis.

       --Savings   of about $1 million               a year   by leasing      mobile
          homes for use as bachelor              officers'     quarters.

        --Savings   of about $667,000   a year by changing         the
           quarters  assignment  policy  to require      student     offi-
           cers to occupy adequate bachelor     officers'        quarters.

        We recommended          that:

        --The Secretary      of Defense select                a less costly      method
           of providing    temporary   lodging              for student     officers
           at Fort Rucker.

        --The Secretary    of the Army exercise     his authority   to
           reduce the per diem rate for lodging        at Fort Rucker
           to a rate commensurate      with the average lodging    costs
           incurred  by student   officers.

        --The Department     of Defense establish        and monitor     re-
           view procedures     to ensure that the military         services
           are giving   proper audit     consideration      to the neces-
           sity for paying     cash allowances       for lodging.

        --The Secretary         of Defense consider       the advantages     of
           introducing       simple     techniques   for controlling     per
           diem payments such as a sliding              scale,   used by some
           Government      agencies,       which ties per diem rates      to
           actual    lodging     costs.

        The Army recently         changed its quarters             assignment          pol-
icy at Fort Rucker to provide                permanently        assigned        officers
the option       of either     occupying      adequate bachelor             officers'
quarters      or residing      off base.        (Authorized        cash allowances
for quarters        for permanently        assigned      officers        are sub-
stantially       less than those for officers                on temporary           duty.)
This change in policy           made adequate bachelor               officers'
quarters      available     for about 300 student             officers        and could
result     in annual savings         of about $600,000.              Also the De-
partment      of Defense agreed that audit emphasis                      should be
placed on the necessity            for payment of cash allowances                      and
stated     that the military         services     would include           this      aspect
in their      internal     audit programs.

        The Department         of Defense generally  did not concur in
our suggestion      that       there be adopted at Fort Rucker alter-
native,    less costly         methods of providing  housing  for use by
student    officers    on      a temporary basis.   The Department   cited

the problems          that would be involved,           such as military          con-
strtiction      priorities         and procedures,      constraints       on the
availability          of ftinds,     long-range     and Army-wide       requirements
for bachelor          officers'      quarters,     and the interests         of the
individuals         involved.        We pointed     out that about 700 offi-
cers on temporary              duty at Fort Rucker were still             receiving
cash allowances            far in excess of their          average reported
lodging      costs and that,           in our opinion,      the Department
should reconsider              its decision,       (B-146912,      March 3, 1970.)


Department      of Defense

         At the request     of the Chairman, Manpower and Civil               Ser-
vice Subcommittee,        House Committee on Post Office              and Civil
Service,      we reviewed    the management by the Department               of De-
fense of its civilian          personnel  ceilings--annual          budgetary
limitations      on the number of civil         service      employees autho-
rized for an agency-- and its related              recruiting      practices,
Our review was performed           at 12 Army, Navy, and Air Force in-
stallations      of various     types.   Our report         on the review was
 issued to the Congress in December 1969.

        The system for managing civilian           personnel       ceilings
lacked sufficient       flexibility,      Efforts     of military         officials
to obtain     approval    for additional     civil    service     positions
were lengthy,      cumbersome, and often unproductive.                  There
also were recruiting         problems.    These factors        resulted         in
the uneconomical       and otherwise     undesirable      practice        of con-
tracting    for the needed services        from private        firms,

        Some contracts      for personnel     services      were awarded de-
spite the fact that cost comparisons               indicated     that civil
service     workers could perform the same work more cheaply.
Other contracts      were awarded for work which officials               pre-
ferred    to have performed       by civil    service      employees in or-
der to develop and maintain          technical       capability,     to achieve
more effective      control     over the work, and to lessen depen-
dence on contractors.

        Some installations          needed to improve and intensify
their    recruiting       efforts    and to take action            to provide   every
possible      employment incentive.            Ineffective         recruiting   prac-
tices included        failure     to advertise       in trade and profes-
sional     journals     for needed employees,            inability       to make firm
commitments to prospective              employees because of hiring             ceil-
ings, delays in selecting              candidates      and in contacting        them,
uncompetitive        salaries     offered,     and failure         to offer   desir-
able tours of duty after             completion      of duty in remote areas--
practices      followed      by Defense contractors             and other agencies
of the Government.

     We proposed     that   the Secretary      of Defense:

      --Direct   the military         departments      to review their   sys-
         tems for managing personnel            ceilings     in order to
         provide   greater    flexibility,

      --Ensure      that the military    departments     intensify     their
         recruiting      efforts   and use all available       resources
         and methods to obtain qualified          personnel,

        The Assistant   Secretary of Defense (Comptroller)     agreed,
in general,     with our findings  and proposals  and outlined     the
corrective    actions   that were being taken.   (B-165959,    Decem-
ber 30, 1969,)


Department      of   Defense

        We reviewed        the performance      standards  used to measure
the work production            of civilian     personnel  at three Defense
industrial      activities--one          Army, one Navy, and one Air
Force.     A report        on the review      was issued to the Congress
in December 1969.

        At one of the activities,         the Yorktown          Naval Weapons
Station,     use of invalid     standards      resulted       in significant
amounts of idle time in operating              a bomb-production           line.
We estimated      that,    even after   certain       corrective      actions
had been taken by the Navy, about $280,000 a year was still
being spent unnecessarily          because of overstaffing.                We found
no conclusive       evidence   of overstaffing         at the other two lo-
cations    included      in our review.

        There were weaknesses          in the development            and evalua-
tion of performance          standards     at all three locations             which
limited     usefulness      of the standards       in controlling          work
loads and in ensuring           economical     and efficient          management
of labor.        The weaknesses      were primarily         attributable        to
shortages      in staffing      and incomplete       training        of certain
specialists       in performance       standards     at two locations           and
to an unsuitable         plan of standards       development          at the third

      We proposed to the           Secretary       of Defense     that     action     be
taken to ensure that:

       --The military     departments           provide    fully    trained    and
          qualified   personnel    for         development       of performance

       --A satisfactory         system of internal          review       of perfor-
          mance standards        be implemented.

       --Standards  for bomb-production     work at the Yorktown
          Naval Weapons Station   be reviewed    to determine  the

         most efficient        procedures           and economical   use of man-

       In response,    the Department         of Defense (DOD) stated
that it considered       its existing       training     programs for the
development     of standards      personnel      to be adequate to meet
the objectives      of our first      proposal       and that steps would
be taken to strengthen         the effectiveness         of internal    review
and evaluation      of standards      to meet the objectives          of our
second proposal.       In response to our third             proposal,   the
Navy eliminated      13 positions       from the bomb-production          line
at Yorktown'

        We believed     that DOD training       programs,       although      sig-
nificant,       had not provided     adequate staffing          of the stan-
dards function       at the industrial       activities      we reviewed         and
that,     although   the Navy had eliminated            13 positions       from
the bomb-production         line at Yorktown,         improvements       in balanc-
ing the work load could result            in a further       reduction        of
manpower requirements           by more than 40 employees at a saving
of about $280,000 a year without             adverse effect          on bomb
production.        _

       Therefore     we recommended         that:

       --The Secretary     of Defense take actions     to ensure that
          the Army, Navy, and Air Force reevaluate         staffing re-
          quirements   and place increased     emphasis on training
          and staffing   for their   standards   programs?

       --The Secretary       of the Navy initiate      and monitor   a re-
          view of the bomb-production        functions    at Yorktown to
          redefine    jobs, establish    new standards,     balance the
          work load between sections       and operators,      and adjust
          the staffing     in accordance   with the findings       in the

       On March 6, 1970, DOD outlined       to us the steps it had
taken to implement our recommendation         and advised us that
the Secretary      of the Navy had requested      the Chief of Naval
Operations     to review bomb-loading    operations    at naval activ-
ities,     (B-167982,    December 29, 1969.)



Department        of Defense

       A memorandum issued by the Joint            Chiefs of Staff        in
1964 established      criteria    for determining       graduate      education
requirements     for military     officer   positions,       During fiscal
year 1969 over 4,200 officers           were enrolled      in full-time
graduate    education     programs at an estimated         cost of at
least $70 million.

        In a report      issued to the Congress in August 1970, we
pointed     out that the criteria         for identifying       military     of-
ficer     positions    requiring    graduate     education     and the ways
in which the criteria           were applied     were so broad and permis-
sive that almost any officer            position       could be certified        as
requiring        such education.     Positions      were certified       as re-
quiring     graduate     education   although     the need for such edu-
cation had not been established.                Certifications       were re-
quested and approved without             adequate consideration          of:

       --Work      experience    or short training     courses        as alterna-
          tives     to full-time    graduate   education.

       --Inconsistencies      between the official          job     descriptions
          which did not require       graduate   education,          and the
           job descriptions    submitted     for certification            of grad-
          uate education    requirements.

       --Use      of civilians    in the positions         where possible.

       --Inconsistencies     among the services    concerning    the
           need for graduate   education  in similar    or identical

       --Essentiality       of graduate        education    for   performing
          duties      of the position.

Furthermore,         many officers     having      graduate      education          were
not assigned         to positions    requiring        their     specialized          edu-

       We suggested        that   the Secretary        of Defense:

       --Issue      a policy'statement     expressing               more clearly       the
           objectives      of the graduate   education               program.

       --Order revision     of the existing              criteria        to limit      the
          broad, permissive    interpretations.

       --Obtain       the advice of the Civil     Service Commission                       or
          other      qualified  body in developing      the new criteria.

       --Require     uniform    application         of the new criteria               by
          the military      services.

       --Consider       using civilians          in positions         requiring
          graduate      degrees.

       --Review the assignment      policies      and practices     of the
          military  services for ensuring        maximum use of per-
          sonnel having specialized        graduate   education     for
          those jobs having such education          as a prerequisite,

       The Department      of Defense noted that we had failed      to
take into account the intangible          accepted values and bene-
fits    of graduate    education.     We pointed  out that the cri-
teria    of the Joint    Chiefs of Staff did not justify      the pro-
gram on these generalized         bases but on the requirements     of
specific    positions.

        The Department       of Defense position       indicated      little
early corrective       action    in response to our findings               and
suggestions.       We suggested that,          in view of the Department's
position     and the announced plans of the military                 services
to expand the graduate          education     program,     the Congress may
wish to consider       limiting     the full-time,       fully    funded grad-
uate education      program to (1) those positions              for which
such education      is essential       for the satisfactory          perfor-
mance of duty and (2) only those officers                  who can be used
primarily     in those positions.          (B-165558,      August 28, 1970.)


Department      of Defense

        Project    TRANSITION was developed              by the Department        of
Defense      (DOD) in 1968 to provide             educational      and vocational
training      designed     to increase       the chances for employment            of
enlisted      men in civilian       life     after    separation     from service.
As of March 31, 1969, 250 installations                    were participating
in the project.          We reviewed       -the project       at the five mili-
tary installations          having     the longest       experience      in the pro-
gram, to obtain        information        on administration         of the pro-
gram and to identify           areas in which corrective             action    could
reduce costs or improve            effectiveness         of the program.        Our
report     on the review was issued             to the Congress        in December

        In view of the relative     newness of Project                TRANSITION,
we were not in a position       to express  an opinion                on its
overall    effectiveness.     We found, however,     that             certain   im-
provements     were needed if the stated    objectives                of the pro-
gram were to be attained.

       Many enlisted   personnel       eligible      to participate        in the
program were not identified           during    their     last  6 months of
service.    Many others     identified        as eligible      were not eon-
tacted   to determine    if they wanted to participate.                  Also,   a
large number of Career Plans Questionnaires,                   which had been
given to eligible     servicemen,       were not returned           to the local

        DOD considers        counseling      to be the keystone            of the pro-
gram.       At three of the five          installations          we visited,     how-
ever,     the counselors        did not have descriptions               of the courses
offered      by the program or adequate               current     information     on
available       jobs.    Also in many instances               the counselors      were
keeping      inadequate      records    of the assistance            given to each
serviceman.          The criteria      used for determining             needed train-
ing courses were inadequate              in some instances.

       Other deficiencies         were noted in        accounting      for   costs
,and in the recordkeeping          and reporting        procedures.

     We proposed    that DOD take appropriate     action   to correct
the matters  revealed    by our review.

       Officials      of the Office   of the Secretary of Defense
were generally        aware of the areas which needed improvement
and advised        us that corrective   action had been taken to
strengthen       the administration    of the program.
(~-164088,       December 8, 1969.)


Department     of the Army

        Project   One Hundred Thousand (POHT) is a continuing
program developed      by DOD in 1966 to accept for military           ser-
vice men who previously         would have been disqualified       under
existing     mental and physical      standards.     We reviewed   the
program to obtain      information     on the administration     of its
early phases and to identify          areas where corrective     action
would improve its effectiveness.             Our report   on the review
was issued to the Congress in December 1969.

       The Army had a marked degree of success in                   attaining
the objectives       of the program.        Certain   problem       areas, how-
ever, required       continued    attention     by the Army       to realize
increased    benefits      from the program.        The more      significant
problem   areas follow.

      --Many POHT individuals          were not receiving          needed
         reading instruction         because of insufficient           instruc-
         tors and facilities.

      --Restructuring    of certain    regular     training     courses           to
         accommodate POHT individuals        resulted       in additional
         investment   in training   aids and personnel.

      --There was a relatively          high discharge rate for cer-
         tain individuals       accepted under the Medically    Reme-
         dial Enlistment      Program (MREP)--a program which per-
         mits acceptance      into the Army of men with selected,
         correctable     medical conditions.

      --Not    all   additional   costs associated         with    the POHT
         program     were readily   identifiable.

      --The reporting        system contained         deficiencies,    partic-
         ularly   pertaining       to recycling       during training.
         (Recycling      is the requirement         that an individual        re-
         peat certain      portions     of training       because he has not
         met the standards         of a particular         phase of training.)

      We suggested   that,     to improve the         effectiveness        of the
program,  the Secretary      of Defense take          the necessary        action

      --Reevaluate     MREP to determine       whether     there is a need
         to revise    acceptance     standards     or to exclude   individ-
         uals with    certain    physical    defects    from the program.

      --Prevent     acceptance   into MREP of         individuals       who would
         require    more than the prescribed            approximate      6-week
         period    of treatment.

     We suggested     also that     the   Secretary       of   the Army      take
the necessary   action    to:

      --Ensure    that adequate   local  implementing             instructions
         are prepared   governing    the information            required       to
         be forwarded   for use by management in               evaluating        the
         PORT program.

      --Establish    a system for obtaining    more reliable  cost
         data for certain    areas of training   and other pro-
         grams operated    specifically   for PORT personnel.

       DOD agreed,    in general,     with our findings        and sugges-
tions    and stated   that the suggestions         contained     in our re-
port were helpful       in improving      the management of the pro-
gram.     Regarding   the MREP, DOD advised         that it would further
evaluate    those conditions      which had resulted         in high separa-
tion rates     and lengthy   periods      of noneffective      time.
 (B-164088,    December 8, 1969.)


Department     of the Army

       Inasmuch as the Army operates           a large service       school
system in the continental         United     States,   we reviewed      the
reasons for, and the effectiveness             of, the Army's extensive
formal training    organization        in Europe.      A report     on our re-
view was issued to the Congress in January 1970.                    Our re-
view was conducted      primarily      at the U.S. Army School, Europe,
the largest    Army training      organization       in Europe.      During
fiscal    year 1968 the school conducted 88 courses attended                 by
about 32,000 military        students    at an estimated        cost of about
$10 million.

      Maximum benefits        were not being obtained   from the for-
mal training  program        because many of the students:

       --Were being trained             in skills        not    related   to their      as-
          signed duties.

       --Had   attended     similar       courses        previously.

       --Had been wor'king           in their   s'kill         for   more than   1 year
          prior to attending           courses.

       --Had left   the U.S. Army, Europe (USAREUR), subsequent
          to the training   and prior to the time when their
          training  would have been of service   to the command.

       --Had not    satisfactorily           completed          courses   of instruc-

        This resulted    because many            of the allocations      of school
spaces were not related         to actual           needs.    In some cases men
were sent to school to fill          the         allocated    school spaces
rather     than to fill   their   units'           need for men trained     in the
particular      s'kills.  Also school            training   requirements    were
not being properly       developed.

     The assignment   practices              of the Army contributed     to the
need for an extensive    formal            training  effort   in Europe.

These practices           included    rotating      personnel   to and from
Europe and not providing              a sufficient       number of replacement
personnel     trained         in the s'kills    needed to perform assigned
duties    adequately.           An extensive      formal training    effort    in
Europe will       be needed as long as these practices               continue.
Also USAREUR was not assigning                 personnel,     in some instances,
where their       s'kills      were authorized       and needed.

       We proposed that the Army ta'ke action               to (1) ensure
that USAREUR provides           uniform guidance to its using units
for determinations         of training      requirements,      allocation      of
school spaces, and selection             of school candidates          and (2)
attain    greater    coordination      between the training          require-
ments in the United States and those in USAREUR in order to
reduce the possibility           of duplication      of training        in Europe.
USAREUR took action         to implement these proposals.
 (~-167664,     January 9, 1970.)


Department       of Defense

          The mission of the United States Armed Forces Institute
is to provide           to members of the Armed Forces educational
 services      and materials       on subjects      normally   taught in civil-
ian academic institutions.               The annual budget of the Insti-
tute is about $6 million.               To determine       the effectiveness
of the Institute's            education    programs and its management of
field      inventories,      we reviewed      the completion      rates experi-
enced in the correspondence              and group-study       programs and
the control         over educational       materials     issued to field     in-
 stallations.           Our report    on the review was issued to the
Congress in October 1970.

        The Institute      had experienced           low course-completion
rates in recent years         --about       10   percent   in the correspon-
dence program and about 31 percent to 39 percent                        in the
group-study       program.      Internal       auditors    of the Department
of Defense reviewed the programs in 1965 and, in a report
on the review,        expressed concern about the low completion
rates and made recommendations                 for improvement.         When we be-
gan our review in 1969, we found no evidence that the In-
stitute    had taken action          on the recommendations.              During
our review,       however,    the    Institute       took  action    to   deal with
the low-completion-rate            problem --including          a study to pro-
vide an information         base on dropouts            and student nonstarts
 (students    who, after      enrolling,         do not submit lessons).

        Also, prior       to July 1969, the Institute                    was issuing
from its Madison,          Wisconsin,         inventory         to field      installa-
tions more than a million                dollars'       worth of educational              ma-
terials     annually      but was not keeping records of the loca-
tion,    quantities       on hand, or disposition                   of the materials.
This condition         contributed        to the Institute's              denying en-
rollment     to servicemen         in courses when the Madison inven-
tory had stock shortages.                 Institute         officials       informed      us
that,    when Madison had stock shortages,                        in all probability
 stock was available           at field       installations           and could have,
been provided        to at least a portion                of the applicants.              In
July 1969 the Institute              introduced          procedures       intended      to
improve its control            of inventories            at field      installations.

         We recommended that the Secretary             of Defense take ac-
 tion to ensure (1) that the study to provide                    an information
 base on student dropouts          and nonstarts       is completed       timely
 and that the corrective         action   suggested by the study is
 taken and (2) that the inventory             control     procedures      initi-
 ated during our review are properly               employed and that at-
 tention    also is given to other areas that appear to warrant
management attention.           We recommended also that procedures
 be established      to provide     the Institute        with information,
 for management purposes3 on future              trends in course enroll-
ments and completion        rates.      The Deputy Assistant            Secretary
 of Defense (Manpower and Reserve Affairs)                  stated that the
 Department     of Defense agreed with these recommendations.
'(B-169062,     October 8, 1970.)

                   -         OF COMPONENTS
                                 -         OF THE- ARMED FORCES

---       IN
       --           AND SIXTH FLEETS

Department      of the Navy

        In June 1970 we issued   to the Congress      a classified
report(secret)    on our review    of the combat readiness         of the
Navy's Atlantic     and Sixth Fleets.    An unclassified         summary
of our findings    follows.

         Supply,     personnel,       and equipment        problems       were prevent-
ing the Atlantic           and Sixth Fleets          from achieving          and main-
taining       a desired      state    of readiness.         The fleets'         own eval-
uations       had concluded        that,     under current        conditions,        the
fleets      were capable        of handling       a contingency         but were only
marginally        capable     of maintaining         a high level         of sustained
wartime       operations.         Many of the problems           were due to fac-
tors beyond the direct               control     of the Navy, such as funding
restrictions,          the use of available            resources      in Southeast
Asia,      and the age of the ships.               There were other           signifi-
cant problems,           however,     directly     related      to the need for
more effective           management of the resources               available      to the
Navy.       These problems         included

       --the     lack   of timely          support    from     ashore,

       --inadequate          supply    management           aboard   ships,   and

       --the    lack    of    sufficient        qualified       personnel.

       Improvement       was also needed in the criteria              used for
measuring     and reporting       combat readiness.         The criteria          did
not permit     uniform     application      of readiness     standards
throughout     the two fleets         and therefore     did not result          in
comparable     readiness     evaluations       of the capabilities           of sim-
ilar   units.     There was also a need for greater                surveillance
of the readiness-reporting             system to ensure that the reports
to higher     authorities      reasonably     reflected     existing        condi-

     We recommended   that             the Secretary of Defense follow
the measures  being taken              by the Navy to improve  readiness

through      more effective      management of existing        resources.
We also suggested         that   the Congress may wish the Department
of Defense to reexamine            the status    of the current      force
structure      of the fleets.         We offered   the following       alterna-
tives     for consideration.

       1. Reduction     of naval units     in the Atlantic          and Sixth
          Fleets    to a level    that could be supported            effec-
          tively    with available     resources.

       2. Allocation     of additional        resources    to upgrade the
          combat-readiness       status      of the Atlantic    and Sixth

       3. Maintenance    of the status   quo and assumption   of the
          risk   of reduced operational    capability   in the event
          that action    by these forces   is required.

(B-146964,     June   30,   1970.)

Department       of the Armv
       We reviewed   the readiness   of 10 selected     units    of the
Army Reserve Components       (Army National   Guard and Army Re-
serve)   as a part of an overall     readiness   review    program.     A
report   on the review was issued      to the Congress in January
1970 ‘

       Reserve units    selected           as having the highest        degree of
readiness    and deployability             were designated     "Selected     Re-
serve Force (SRF) units"         by        the Army in October        1965.   The
SRF designation     was eliminated              in September   1969--subsequent
to our review--but      contingency             plans provided    for early    de-
ployment    of Reserve units      of         the type included      in our review.

        The 10 SRF units       that we reviewed             were not ready to
mobilize      and deploy as rapidly            as planned        in the event of
war or national       emergency because of deficiencies                       in organi-
zation,    training,     equipment,         and management.            Records        showed
that about half       the personnel          in the sample which we tested
were not qualified        to perform         assigned       duties      in their       mili-
tary occupational        specialty,         were receiving          training       incom-
patible    with needs of their            units,      or might not be immedi-
ately    available    if their      units      were mobilized.             Among the
reasons    for including      nonavailable            members was the failure
of the units       to obtain     current       availability         agreements         from
members who had already           fulfilled         their    military        obligations
or who were qualified          for release          because of personal              hard-

       Material      programmed for SRF had been sent to Southeast
Asia,   which left       only limited        material   available       for the Re-
serve Components.           There were significant           shortages      of re-
quired    major equipment          and spare parts,      and some equipment
on hand was not compatible             with the units'        missions.        These
shortages      affected     training     capability     and prevented        the
units   from meeting        their    mobilization     requirements.

       Assessments   by higher    authorities       of the true                state  of
readiness    were hindered    by the lack of standardized                       manage-
ment and of a periodic      reporting       system.
       Because our findings         related  to the basic organization,
personnel,      material,     and reporting    systems, we expressed     the
belief     that the findings      were characteristic    of problem
areas existing        throughout    the Army Reserve.    Therefore    we
proposed      to the Secretary      of Defense that:

      --Reserve     units        be specifically       assigned  to like     units
         in the Active           Army to ensure      the improved     organiza-
         tion,  training,           and equipping      of such units.

      --Uniform     standards       for    all   units,    both   Active    and Re-
         serve,    be established          for   determining      occupational
         specialty     qualifications.

      --The Army Audit Agency (AAA) or the Army Inspector
         General   be requested    to select,   as "special  interest"
         areas,  those   items  which  we   had identified  as  prob-
         lem areas.

        The Deputy Assistant       Secretary     of the Army (Manpower
and Reserve Affairs)        expressed     general   agreement with our
findings    and cited    the actions      taken by the Army to solve
the problems.       These actions      included:

      --Initiation      of a test to determine      the degree of readi-
          ness that could be attained      by affiliating     Reserve
          units    with similar  Active Army units.

      --Development     of a means to project               Reserve    Component
         training   requirements.

      --Adjustment     of        the AAA audit    concept     to recognize
         changes to the            Reserve Component structure        and initia-
         tion of action            to provide  reports     that would summa-
         rize   the results          of AAA audits     for Army National
         Guard and Army            Reserve commanders and for higher          man-
         agement levels.

(B-148167,     January      7,    1970.1


Department     of the Navy

       Naval Air Reserve units        at the four naval air stations
that we visited     were not achieving         their   primary     purpose of
having trained     units    and suitable      equipment    available      for
active   duty in the Armed Forces in time of war or national
emergency,     These units had aircraft           which lacked certain
equipment    needed to perform assigned primary missions;
there were various       types of supply and maintenance              problems;
and there were shortages        of aircraft       and maintenance        sup-
port equipment which impaired          training,

       In two recent readiness/administrative              inspection     re-
ports that we examined,       little      emphasis was placed on the
material   readiness    of the units and no mention was made of
needed improvelnent     in the management of aircraft             maintenance
support equipment.        The priority       being given to furnishing
the Active    Navy with equipment resources           was a contributing
factor   to the low-readiness         status of the Naval Air Reserve
units;   however,    the substantial        costs incurred     to maintain
Reserve units     suggested a need to determine            whether alter-
native   courses of action       were advisable.

        In April     1969 the Navy approved the development      of a
five-year    plan to improve the readiness       of the Naval Air
Reserve.     As of June 30, 1970, however,       the plan had not
been fully       developed.   The development   and implementation
of the plan would provide         a sound basis for the corrective
actions    needed.

       Assuming that the present Naval Air Reserve force
level   would be maintained,       we suggested two alternatives          to
the Secretary     of Defense-- allocation          of additional    re-
sources to upgrade the readiness             status of the Reserves or
maintenance     of the status quo and assumption              of the risk
of reduced operational       capacity      in the event that mobili-
zation    of the Reserves is required.             The Navy generally
concurred    with our first     alternative.

       On other matters noted in our review,             we recommended
that   the Naval Air Reserve inspectors   give           increased

emphasis   to the reporting   of material      readiness    and that
the Secretary     of Defense give attention       to the completion
and implementation     of the five-year     plan to improve     the
readiness    of the Naval Reserve.      (B-146964,     November 30,
1970 .)


Department      of the Air     Force

        We found that,    under the criteria        established      by the
Joint    Chiefs of Staff      and prescribed      by the Air Force, the
manned-bomber     and ballistic      missile    forces were maintaining
a high state of readiness         at all five Strategic          Air Command
bases that we visited         and apparently      were capable of ful-
filling     their assigned missions.         In our report       issued to
the Congress in March 1970, we stated that we were irn-
pressed with the management emphasis and techniques                   employed
to stress the importance         of combat readiness         and, we be-
lieve    that other military       services    could profitably       adopt
some of the procedures,

       We noted, however,     several   opportunities     to improve
the accuracy and completeness         of the readiness      reports   pre-
pared by the Strategic      Air Command and to increase           the use-
fulness   of the reports    to management.         These improvements,
if adopted,    would result    in the reporting       of

      --reduced   capability           of individual  units with    less
          than the acceptable           number of personnel,

       --training    deficiencies  which occur         upon conversion      to
           new items of equipment,   and

       --locations    and probable    reaction time of aircraft            and
           crews on temporary    duty away from home stations.

        We   proposed that the Secretary         of Defense initiate       ac-
tion to      have other military        services  adopt internal     sur-
veillance       procedures   similar     to those of the Strategic        Air
Command      and that certain      changes be made in the readiness
reports      to increase   their     accuracy and completeness,

         In response,      the Office    of the Secretary    of Defense
requested      the other military        services  to evaluate    the ap-
plicability       to their    operations     of the techniques    used by
the Strategic       Air Command for measuring         the readiness   of

key combat units,   and the Air Force concurred    in our pro-
posal for changes   in the readiness  reports.    (B-146896,
March 9, 1970)



Denartment     of the Naw and
Department     of the Air Force

       The Navy and the Air Force have about $40 billion                in-
vested in various       models of aircraft         and have spent about
$5.5 billion     annually    to keep them in operation.           In our
previous     work we found that the Navy and the Air Force had
been following     substantially      different        procedures and prac-
tices in the maintenance         of their     aircraft.

      We made a review to evaluate           and compare the way the
two services    scheduled     their   maintenance     operations;     we did
not evaluate    the quality      or the effectiveness         of the main-
tenance actually     performed,       Cur review was based on the
F-4, a supersonic,      all-weather     aircraft,     because it is used
by both the Navy and the Air Force.               Cur findings     in the re-
view were reported      to the Congress in May 1970.

      We found    that:

      --The Navy could realize       savings by following      the Air
         Force practice     of basing organizational      inspections
         and maintenance      (that performed   by the operating
         units in support of their        own operations)    on flight-
         hours rather    than on elapsed days.

      --The Navy could reduce downtime by following              the Air
         Force practice      of performing   maintenance      on a cycle
         or phased basis,      between periods     of use of the air-
         craft,   rather   than by performing      the entire    scheduled
         maintenance     at one time.

      --Had the Navy followed         procedures    similar    to those of
         the fir    Force for organizational       maintenance,      the
         equivalent     of 40 additional      F-4 aircraft    could have
         been available     to the Navy during fiscal         year 1968
         and organizational      maintenance     costs might have been
         reduced in fiscal     year 1967 and 1968.          (The Navy's

        costs for that period were about $4.3 million                  higher
        than the costs incurred    by the Air Force for               an
        equivalent  number of aircraft.)

      --Neither     the Navy nor the Air Force had given             suffi-
         cient recognition      to the results      of studies,    and to
         their  own experience,       in determining      the frequency
         of depot-level     maintenance     (that which is major and
         is performed    at industrial-type        maintenance    depots).
         Less frequent     depot maintenance       appeared to be war-
         ranted in some instances.

      We suggested     that:

      --The Navy test the phased maintenance      concept which
         the Air Force had implemented    and reach a decision
         regarding    its applicability to the F-4 and other air-
         craft   in the Navy.

      --The Air     Force make a servicewide        review and evalua-
         tion of    the frequency      with which depot-level    mainte-
         nance is     performed   on individual     F-4 aircraft  and es-
         tablish    realistic   criteria     for the frequency   of such

      --The Navy and the Air Force establish                 procedures    to
         ensure continuing         review of the criteria           for the fre-
         quency of depot-level           maintenance     of first-line     air-
         craft     important     to strategic,     tactical,      defense,   or
         logistics      posture.

        The Department   of Defense agreed in substance with                these
suggestions.      The Navy also agreed with the suggestions                 and
started    action  to put them into effect.

      The JIir Force pointed     out that its existing       procedures
for annual reviews of the frequency         of depot-level      mainte-
nance served the purpose of the review and evaluation               we had
suggested.     The Air Force stated,     however,   that it had
changed the existing     procedures    to ensure that the summaries
of the annual reviews include       the rationale      and the analyti-
cal findings    which are the bases of decisions.          Although
this change may be beneficial,        we expressed    our belief     that

the Air Force should adopt reporting      procedures   to ensure
that effective     action  is taken on the results   of the annual
reviews.     (~-152600,   day 7, 1970.1


Department    of the Army

         Aircraft      are modified     to make them safer,     more effec-
tive,      operationally       compatible   with newer equipment,     and
easier      to maintain,        The Army spent about $120 million         for
'kits,     parts,     and tools for modifying       aircraft   during the
fiscal      years 1965 through 1968.           We reviewed   the procedures
and techniques           used in Army management of its aircraft         mod-
 ification        program.     Our report   on the review was issued to
the Congress in January 1970.

         In many cases, modifications--including           those classi-
fied as being urgent --were not applied            promptly.     For ex-
ample 2 an urgent modification         wor'k order involving      safety
of the aircraft        was issued in February      1967; however, a year
later      the Army records showed that 223 of the 1,650 affected
aircraft      had not been modified.        As late as August 1969, 24
aircraft      were still   unmodified,     of which 17 had been flown
an average of 75 hours in that month,

       The volume of modification   work orders resulted       in
work loads beyond the capacity     of maintenance  activities.
More effective    management review of proposed modifications
was needed to ensure that work loads could be accomplished
within   the specified  time.

         The Army found it necessary       to procure more modifica-
tion 'kits than were required,         on a one-for-one    basis for
aircraft,      because of apparent     loss of kits by local using
units.      Also, modifications      were delayed    in some instances
because kits were not received           in time for economical     in-
stallation      concurrently    with overhaul    of the aircraft.

      We recommended      that:

      --The Army require     responsible  commanders to specifi-
         cally justify   delays in modification   work,

      --Adequate      controls  be established    to ensure that no
         modification      work order be approved unless a state-
         ment of all prerequisites         for completion  of the work,
        as well as anticipated      penalty    for nonadoption      of
        the modification,     is prepared     and reviewed.

      --Recommendations       for management of aircraft    modifica-
         tions,    as presented   by Army Aviation   Systems Command
         officials     to the Army Materiel   Command and the Army
         Deputy Chief of Staff for Logistics,        be given immedi-
         ate attention      by the Army.

      --The Army improve management controls             to ensure that
         officials      responsible     for significant   modification
         programs have continuous            visibility of the status of
         modification        work-order    kits from the time the con-
         tractor     delivers     them to the time they are used.

     We also made other recommendations          to improve      manage-
ment of modification  kits.

         The Army implemented     the third   one of our four recom-
mendations.       The Army took no position        on the other three
recommendations,       pending completion     of its own study and of
a joint     study of the subject     being performed     by the three
military     departments.     (B-157373,    January 14, 1970.)

                    MANAGEMENT OF VEHICLES           OVERSEAS


Department      of the Army and
Department      of the Air Force

        In August 1970 we issued    a report  to the Congress on
our review     of the Department   of Defense management of com-
mercial    vehicle   maintenance in Europe.

        The costs to the Army and the Air Force for maintain-
ing their     commercial      vehicles      in Europe during       the fiscal
year 1969 were about $7 million,                or $2.8 million        higher
than planned.        Factors     contributing       to higher    costs in-
cluded frequent        and large volumes          of repetitive      repairs,
excessive     preventive     maintenance        and inspections,         and ex-
cessive    time spent on repairs            and inspections.         Neither     the
Army nor the Air Force were using established                    standards       for
direct    and indirect      labor to measure efficiency              and produc-
tivity    of the maintenance          operations.

       As of January    31, 1969, about 23 percent             of the Army's
commercial    vehicles    qualified      for replacement.        Replacements
were not available,      however,       and the Army approved        about
 $234,000 for expenditure          on repairs   to vehicles      which were
considered    uneconomical       to repair.     The Army stocked        a large
inventory    of vehicle    repair     parts at Frankfurt,        Germany, in
addition   to stocking     similar      parts at six maintenance         cen-
ters and at 48 motor pools in Germany.               The Frankfurt       inven-
tory was unnecessary       and its elimination        would have saved
about $475,000 annually--principally              in salaries.

        A single     purchasing  office for commercial       vehicle
parts--     serving    both the Army and the Air Force--would          have
been feasible        and could have resulted     in reduction       of ad-
ministrative        costs and in larger   discounts    for quantity       pur-

     We suggested:

     --That the Secretary     of Defense reemphasize     to the
        Army and the Air Force the need to use and enforce
        labor standards   to measure and improve efficiency
        and productivity    of the maintenance  operations.

     --That the Army in Europe report            to higher headquarters
        the uneconomical        effect   of the lack of new replace-
        ment vehicles      and the repair      of old vehicles    beyond
        economical     repair,     and that the reports     be used by
        the Secretary      of Defense as the basis for requests
        for additional       funds for replacement      vehicles.
     --That the Army consider          eliminating     the Frankfurt    au-
        tomotive      parts center   and having the six equipment
        support centers order        directly      from the manufacturers'

     --That the Army and the Air Force consider     establish-
        ing a single  purchasing office for automotive      parts
        serving  both services.

       The Department of Defense cited the actions   taken or
planned with respect   to our suggestions.  (B-133244,    Au-
gust 11, 1970.)

Department     of the Army

     In June 1970 we reported       to the Secretary   of the Army
that costs could be saved in Europe if the Army procured           and
used larger  commercial-type    refrigerated     vans coupled with
the use of fewer drivers     and truck tractors.

        The U.S. Army, Europe,         in supplying    its troops,     moves
refrigerated        food supplies    by military    highway from German
and Benelux        ports to individual      cold stores    and commissaries
located      throughout   Germany and the Benelux         countries.     These
movements are accomplished           by using 7-l/Z-ton      military-
design refrigerated        vans which carry       an average payload      of
5 tons a trip.

       Although      we did not question      the need of using military-
design vehicles         in Europe for local      deliveries      and in areas
with small roads,         we believed   that the infusion         of larger
capacity     refrigerated      vans could result       in faster    and less
costly    movements of refrigerated         food supplies.

      In Europe we found that the traffic            of refrigerated
food supplies   had increased     over the years and that the
cargo movements were such that larger            capacity     vans could be
used in most instances.       Larger    capacity     vans could handle
about three times the former        average payload.

        U.S. Army, Europe,     officials     agreed,      in principle,       that
savings     could be obtained      but informed       us that ZO-ton refrig-
erator     vans, on which such savings        would be based, were not
available.       That is, the 7-l/2-ton       refrigerator          van is the
largest     van listed   in the military       inventory       (although
20-ton commercial       vans meet military        specifications)         and
present     plans do not contemplate        acquisition        of large capac-
ity vans.

      The U.S. Army,       Europe,    had 174 7-l/2-ton        vans, all
about 14 years old,        in need of replacement          in the near fu-
ture.    One shipment      of 50 new 7-l/2-ton       refrigerator     vans
had already   arrived      to replace    50 old vans.

     Transportation      officials       in Europe     informed    us that,    af-
ter our review      was completed,       an attempt      was made to replace
the 7-l/2-ton     vans with larger         capacity    vans; this,    however,
was to no avail.

       We learned     in Washington,      D.C., that the U.S. Army had
approximately     144 of these vans earmarked           for shipment    to
Europe,    in addition    to the 50 already       sent.    We estimated
that about $600,000       in costs could have been saved by buying
and using the larger        commercial-type     van.

       We understand     that,     in Germany, an exception             was made
during   1964 to procure         commercial-designed          tractors    as re-
placements    for the military-design             trucks     needed for a mili-
tary transportation        unit.     It appears to us that such simi-
lar exception      should be granted         for the acquisition          of some
larger   capacity    commercial-design          refrigerator        vans.

       Department      of the Army officials     concurred,    in general,
with our report        and stated    that they intended     to look further
into the matter        by having U.S. Army, Europe,       recommend the
appropriate      mix of refrigerator-van       equipment    to meet its
needs.      (B-153869,    June 11, 1970.)


Department     of Defense

        We reviewed      the Department    of Defense's          practice   of
leasing    foreign-made       buses at its overseas           locations   to
learn whether        the practice    was justified--particularly              since
dollar    payments      abroad could have been reduced by using
American-made        buses.    Our report   on the review was issued to
the Congress       in February     1970.

        The Congress expressed       concern at the leasing           of
foreign-made       buses and in September      1968 added section          404
to the Department        of Defense Appropriation       Authorization         Act
for fiscal      year 1969 (Public     Law 90-5001,     prohibiting       the
use of any appropriated         funds for the purchase,          lease,
rental,    or other acquisition       of multipassenger        motor vehi-
cles (such as buses) other than those manufactured                    in the
United    States.      The Secretary   of Defense was authorized             to
make exceptions        in cases where the acquisition          of U.S. vehi-
cles would not be economical          or would adversely         affect    the
national     interest.

       Our review    showed that the armed services              could have
reduced their     overall    budgetary     costs and could have real-
ized significant      balance-of-payments          advantages     by using
American-made     buses at some locations           where transportation
services    had been provided       through     leasing    arrangements    us-
ing foreign-made      buses.

         The Department      of Defense leased about 1,700 foreign-
made buses at a cost of $7,7 million           during    calendar     year
1968.      Included     in this amount were vehicle-leasing         costs
and, in many cases,          operating  costs, maintenance      costs,     and
drivers'      salaries.

        There are certain        practical       difficulties    in estimating
overall     financial     advantages       that could have been realized
by substituting        American-made         buses for foreign-made       buses;
but there can be little           doubt that the advantages          would
have been substantial,            On the basis of calculations            we made
at selected       overseas    locations,       we estimated    that dollar
payments    abroad could have been reduced by more than
$3.1 million     and that cost savings   from one-third      to one-
half million     dollars  could have been realized      annually.

         We recommended       to the Secretary         of Defense that the
military      services     develop    better     local    operating      and main-
tenance cost data to serve as a factual                    basis    for evaluating
the comparative         costs of leasing         foreign-made       buses as op-
posed to buying American-made                buses.      We made also a series
of recommendations          designed     to increase       the usage of
American-made        buses abroad,       particularly        at locations     where
our cost calculations            showed that the greatest             savings   could
have been realized          through    such usage.

        Department    of Defense officials       were in general        agree-
ment with our findings         and recommendations      and advised         us
that they were taking        appropriate     steps to improve        local
operating      and maintenance    cost data to be used in cost stud-
ies.     They agreed also to make appropriate           provisions        for
future    procurements     of American-made      buses whenever        cost
studies     show economic    advantages    to the United       States.
 (B-163869,     February   5, 1970.)



      Department  of Defense
        (and Department   of State       and
         Agency for International         Development)

            During a 1966 investigation         of economic assistance       pro-
     videdtovietnam,       the Foreign     Operations   and Government In-
     formation      Subcommittee,  House Committee on Government Opera-
     tions,     found that the U.S. Agency for International          Develop-
     ment (AID) mission had not established            adequate controls
     over U.S. owned or controlled          local currency    made available
     for support of Vietnam's        civil    budget.

              In July 1970, we issued a report       to the Congress on a
    . follow-up     review as to the effectiveness      of corrective     ac-
      tions taken as requested      by the Chairman of the Foreign Op-
      erations    and Government Information       Subcommittee,    House
      Committee on Government Operations.

              The equivalent     of about $629.7 million       in local     cur-
     rency was made available            to support Vietnam's     military     and
     civil     budgets in calendar         years 1966 through    1968.     The U.S.
     Military      Assistance    Command was responsible       for administer-
     ing the equivalent         of about $431.4 million       designated     for
     the military        budget and the AID mission was responsible              for
     administering        the equivalent       of about $198.3 million      as-
     signed to the civil         budget.

             Since 1966 the AID mission had strengthened              its admini-
     stration     and controls   by increasing      its participation        in
     the formulation      of Vietnam's     civil   budget and by earmarking
     piasters     for specific   programs.       The U.S. Military       Assis-
     tance Command in Vietnam had also developed               procedures     which
     should provide     a reasonable     degree of control        over the plan-
     ning for the use of funds for military             budget support.

             Our review showed that further         strengthening      was needed.
      Controls   and procedures  established        would generally      not

detect or prevent   improper payments        by Vietnamese,     such as
payments for unauthorized    activities       or for padded     payrolls.

        The AID mission made few postaudits        of civil     expendi-
tures whereas the Military       Assistance     Command did not make
postaudits      of military expenditures     but relied     upon an un-
derstaffed      Government of Vietnam audit group; the result
was that local currency      was released     for both the military
and civil     budgets on the basis of unreliable          and unverified
Vietnam Government reports.         As a result,      a few of Vietnam's
civil    agencies had accumulated      the equivalent      of about
$25.4 million      in local currency     by December 31, 1968, rep-
resenting     unspent funds released      in 1968 and prior      years.

      The Department   of Defense and AID advised us that ac-
tions had been and would be taken to strengthen           controls
over the local currency     for support of Vietnam's       military
and civil  budget.    Both agencies believe       that control      and
review practices    in use plus actions      to be taken,    including
procedural   changes and staff    increases    needed to monitor
the funds and programs,will     provide     adequate control.

       We believe,   however,    that considerable   improvements
are still    needed, especially      with regard to verification
or other measures to ensure that Vietnam's         reports      of obli-
gations   and expenditures      are reliable.

         We therefore      recommended that the Department   of De-
fense and AID establish           a system in Vietnam for verifying
and inspecting        pertinent    Government of Vietnam reports    and
activities.         (B-159451,    July 24, 1970.)

Department     of Defense

        The Department        of Defense (DOD) entered           into a written
agreement in 1960 with a consortium                  of five North Atlantic
Treaty Organization           (NATO) countries        formed for the purpose
of producing       HAWK surface-to-air          missiles    in Europe.      U.S.
participation        included     providing     certain    materials,     equip-
ment, and technical           services     needed for production        along
with purchasing          four of the missile         systems.      Part of the
assistance      provided      was to be applied         as an offset    to the
cost; however,         the total     cost was not stated         in the agree-
ment.       The agreement contemplated           that preproduction        per-
formance would begin immediately                and it did.

      The DOD had only a portion       of the funds available         to
purchase the four missile      systems when the 1960 agreement
was signed.    In lieu of making sufficient           funds available
or limiting  U.S. liabilities,      the Department        of Defense had
a clause inserted     into the agreement stating          that the U.S.
purchase commitment was "subject        to availability        of funds."

        In September 1970, we reported             to the Congress that no
express authorization       existed       in law allowing         DOD to enter
into the purchase commitment without                having sufficient         funds
available,      and thus DOD's action         did not comply with the in-
tent of the Anti-Deficiency           Act.      By this act Government
agencies are required       either      to have estimated          funds avail-
able, or to have advance congressional                 approval      before en-
tering     into contractual     obligations,         This affords        the
United States some financial            protection       and control       by en-
suring that the Congress has the opportunity                    to approve or
disapprove      contractual   obligations        for which it will          be re-
quired to appropriate       funds.

        We concluded    that,     by signing   the 1960 agreement and
providing    assistance      to the consortium        which made it possible
to proceed with production            of the missile      systems, DOD had
firmly    committed the United          States to buying four missile
systems at an unknown cost.              DOD's actions     had the effect    of
committing     the Congress to appropriating            the additional
funds after      the fact,     notwithstanding      the proviso     "subject
to availability       of funds,"     and there was little   practical
control    that the Congress could exercise         over the amount of
funds it would subsequently           be required to appropriate      if
the United      States was to meet its contractual        commitments
under the international          agreement.

        We also found that DOD had funded the commitment in-
crementally,      consistent    with the annual assistance           require-
ments, but with little         or no relation     to the costs of the
four systems because the funding            was less than the projected
costs of the systems.          As of June 30, 1969, DOD estimated
the total     costs of the four systems in millions             of dollars,
It was also estimated        that a payment of several          millions      of
dollars    would have to be made to the consortium,              the exact
amount depending       upon the resolution       of an $11.9 million
claim to the NATO consortium           regarding    documentation,       tech-
nical    and engineering     services,     and depreciation      costs.
The final     cost was not expected to be Known or final                payment
made until     1972 or 1973.

        We recommended to the Secretary             of Defense that a re-
port be made to the President,            through the Director,         Office
of Management and Budget, and to the Congress of all perti-
nent facts concerning        this matter and any action           taken or
to be taken,     as required      by law.      In addition,     we recom-
mended that this matter be brought               to the attention     of ap-
propriate     DOD officials     to point     out that decisions       on the
making of contractual        obligations      of the Government should
be consistent     with the requirements            of law and pertinent       DOD

        In commenting on our draft        report    in October 1969, DOD
stated that it did not agree with the findings                  and recom-
mendations.       DOD stated also that section          105b of the Mutual
Security     Act of 1954, as amended, was the authority                for its
actions     and that the term "subject        to availability         of funds"
was used in accordance with the then-current                  Comptroller
General decisions.         It stated further     that the Congress had
been clearly      advised of the agreement,        through      the military
assistance     budget estimates,      of U.S. funding         support for the
NATO-HAWK weapons production          program on an incremental            basis.
In addition,      it was stated that the U.S. obligation               for
funding     an additional     amount to cover the total           U.S. liabil-
ity was of a contingent         nature and not an actual           recordable
      In May 1970, we were informed that $9.1 million        of the
claim had been tentatively       accepted and that the current
cost projection    for the four systems was higher      than previ-
ously estimated;     several millions    of dollars  had been obli-
gated for a tentative       payment to the consortium,

       After considering   DOD's comments, we still      believe    that
a violation   of the Anti-Deficiency      Act occurred   and that DOD
should tdke appropriate     action   as recommended.     (B-160154,
October 2, 1970.)


Department      of Defense

        We reviewed   the readiness   of a major weapon system
provided     to Far East countries    under the military     assistance
program.      Units  of the system were furnished      for incorpo-
ration    into and augmentation     of the defense    system of the
Pacific     Command.    The system is subject    to U.S. control      in
the event of hostile       actions.

         Our review     showed that the combat-readiness              condition
of the units       of the system was being seriously               impaired     by
inadequate       supply and maintenance           support.     They had not
been combat ready (i.e.,           fully      capable   of accomplishing        as-
signed mission)         for extended     periods      of time.    A U.S. Army,
Pacific,     regulation     requires     full     combat readiness       at all

        In one country,       the major reasons       for the low-readiness
condition      were (1) the shortages        of required        repair     parts
due to failure         to stock mandatory      items and delays          in or-
dering    replenishments        and (2) the inability        of the recipi-
ent country       maintenance     shop to make timely         repairs.        Also,
continental       United   States   and recipient       country      supply
sources did not provide           adequate   support.

        The low combat readiness            of similar    units   provided      to
another       country     was due primarily       to inadequate    repair
parts     support      by the U.S. Army.        Supply management problems
experienced         by the Army included        (1) excessive     order and
shipping       time,     (2) shortage   of funds to purchase         replenish-
ment stocks,          and (3) filling     low-priority     orders while
high-priority          orders   for the same part remained         unfilled.
To improve        support,    the U.S. Army implemented          a separate
depot system for this             type of weapon system.

         The Department     of Defense (DOD) stated         that our find-
ings were generally         valid  for the period      (July    to December
1967) covered by the initial            review   but that,     subsequent
to that time,      corrective     actions     had been taken and the
 situation    had been improved.

       We performed      a follow-up      review and found that,    al-
though some improvements           had been made, a low level     of read-
iness continued      primarily       because of inadequate   supply and
maintenance     support.

      We submitted      a report  to the Congress           in January    1970
to call   attention     to the low state of readiness             of the sys-
tem*    In view of the low-readiness          condition       of these units
of the Pacific       Command defense     system,     we recommended       to
the Secretary       of Defense that the need for continued              im-
provement    be stressed     to appropriate      officials.

         In commenting        on our report,         DOD stated    that the sup-
ply and maintenance             deficiencies       cited   in the report         were
being gradually           corrected       and that responsible         U.S. mili-
tary commands and advisory                 groups,     as well as recipient
country     military       authorities,        were fully     aware that sub-
stantial      improvement        was still      needed before      full     combat-
ready status         could be sustained.             DOD also stated        that the
Commander in Chief,             Pacific,      was being requested         to submit
semiannual        reports     of progress       in accomplishing         corrective
action.       (~-161764,        January      14, 1970.)


Department  of Defense
  (and Department   of State)

      Through arrangements        with various      governments,       gener-
ally by agreement or understanding,             the U.S. Government is
exempt from foreign     taxes and import duties            on U.S. pur-
chases in a country     and on supplies         and equipment       it imports
into a country    for the collective         defense or for other pur-
poses which are in their       mutual national        security      interest.
In January 1970, we reported          to the Congress that substan-
tial  tax costs had been incurred          in several      countries.         Ex-
amples of significant      direct     and indirect      tax costs in-
curred by the United States over several              years are:

                Vietnam                               $    28 million
                Thailand                                    4       "
                Germany                                  2.2        "
                United Kingdom                         890,000
                Philippines                            600,000
                Republic    of China                   300,000

        These taxes were paid in connection          with leases of
prope-rty ,   rentals     of family   housing,  procurements    in the
various     countries,     and imports of supplies      and equipment.
They involved        real property    taxes, local   or municipal    taxes,
business     and trade taxes, excise taxes,         and import taxes.

         The wide variety      of problems associated            with the admin-
istration     of tax matters         affecting      defense expenditures        in
other countries       indicates       a need for (1) clearly            stated
guidance     and criteria      relating        to tax-exemption      provisions
in various      agreements,       (2) better       delineation    of responsi-
bilities     by the Department          of Defense (DOD), and (3) im-
proved management to ensure the development                     and implementa-
tion of procedures         useful     to identification,         measurement,
and elimination       of significant           taxes from procurements.

      We believe that,  when the financial     burden of a for-
eign tax is passed on to the United States indirectly        and
the tax is substantial,   such action    is inappropriate,
especially in view of the substantial                 U.S.   expenditures       for
the common collective defense.

      We believe  also that the United States has the right
to expect that host countries     should honor their     commitments
in regard to tax-relief    agreements or understandings.

        We recommended that the Secretaries          of State and De-
fense (1) jointly        develop and promulgate      specific      guide-
lines which will        define   the U-S. tax-exemption       policy,     (2)
clearly    establish     the responsibilities     of the concerned
U.S. agencies,       (3) provide    for an adequate management sys-
tem to operate an effective           tax-relief  program,     and (4) ne-
gotiate    adequate tax-relief        agreements with the Governments
of Vietnam and Thailand,

        The Departments     of Defense and State in joint                  comments
generally     agreed with our findings             and recommendations           and
recognized      that tax-exemption       problems existed.               A number
of corrective       actions were reported           as being taken,          or to
be taken,     to correct    the present        situation,        including     the
establishment       of the Defense Committee on Foreign Taxation,
the issuance of a DOD directive,               and the State Department's
focusing    more departmental        attention        on foreign       tax matters,
We were also informed         that preparatory            studies were neces-
sary before proceeding          with any negotiations              regarding     tax
agreements with the Governments of Thailand                      and Vietnam,

       We believe that benefits  derived    from these actions   to
improve management will    have a favorable     impact on the U.S.
balance of payments and will    also provide     more funds for
direct   defense and other aid.    (B-133267,    January 20, 1970.)


Department  of Defense
  (and Department   of State)

       In March 1970, at the request          of the Chairman,     Subcom-
mittee   on U.S. Security     Agreements      and Commitments    Abroad,
Senate Committee    on Foreign     Relations,       we reported  on a
study of the payments made to the Government               of the Republic
of the Philippines    by the Government          of the United    States
in support    of the Philippine     Civic     Action   Group (PHILCAG) in

         We reported      that our work had been seriously            hampered
and delayed        by the reluctance       of the Departments        of State
and Defense to give us access to the documents,                     papers,    and
records     which we considered         pertinent    to our review.         Gen-
erally     we were given access to only those documents,                   papers,
and records        which we were able to specifically             identify     and
request     and then only after         time-consuming     screening       at
various     levels     within   the Departments.       We stated      that,    in
view of the restricted            access to records,     there was the pos-
sibility      that the agencies        may have withheld      information
which was pertinent           to our study.

        On the basis of the limited           documentary      evidence    made
available       for our review,      we were able to verify          that quid
pro quo assistance        was given to the Philippine             Government.
Our study was directed           toward investigating         (1) payments     for
the cost of per diem and overseas              allowances      of PHILCAG per-
sonnel in Vietnam,         (2) material      and logistic       support   pro-
vided to PHILCAG by the U.S. Military                Assistance      Command in
Vietnam,       and (3) related      material   assistance      given to mil-
itary     units    in the Philippines.

       The assistance,       which was funded by the Department             of
Defense,     consisted     of approximately     $35 million       in equipment
and logistic       support   and about $3.6 million         in direct    pay-
ments to the Government          of the Philippines.          There was also
evidence     that other forms of U.S. assistance              to the Philip-
pine Government,        such as military     and economic       aid funded

under    the Foreign   Assistance Act, were increased               during    the
period     of the PHILCAG commitment   to Vietnam.

        The $3.6 million       of direct    payments    included        in the as-
sistance    was appropriated        by the U.S. Congress          for the De-
partment     of Defense and paid to the Philippine                Government
in quarterly       payments between October         1966 and October          1969.
One additional        payment was made in January          1970.       We were
unable to ascertain,         however,     whether   the PHILCAG troops
actually     received     the per diem and overseas          allowances       ac-
cording    to the daily      rates which were used to compute the
amount of the quarterly          payment by the United           States.      We
pointed    out that our inquiries          in this matter        were confined
to U.S. sources        and that no information         was required        of or
received     from the Philippine         Government    on the disposition
of the funds paid to them by the United                States.        (~-168501,
March 21, 1970.)
                         OTHER AREAS OF OPERATIONS


Department  of Defense
  (and other departments                and agencies)

         Federal       food inspection             started     in 1891.      The function
evolved       from piecemeal             legislation        and regulations        de-
signed      to solve specific               problems       as they arose.        Because
of their        relatively         limited        scope, the laws and related             reg-
ulations        do not provide             a clear      expression     of overall      Fed-
eral policy          on food inspection.                 As a result      parts    of the
function        are performed           by many Federal,           State,    and local
organizations.              In June 1970 we issued                to the Congress a
report      on our review            of the roles          of the Federal       organiza-
tions     in this        function.

        Federal  food inspection     activities    are performed         by
the Departments      of Agriculture,      of Defense,     of Health,       Edu-
cation,     and Welfare,   and of the Interior.          About 14,500
people are involved      in Federal     food inspection        at an annual
cost of about $185 million.          About $48 million         of this
amount is reimblJrsed      by users of certain        inspection      ser-

        Similar   inspection   activities      are frequently  performed
by more than one organization,            at the same commercial     es-
tablishment,      and often on the same food product.          For   exam-
ple,    at a dairy    products  company we visited:

       --Military     veterinarians      made monthly     sanitary     inspec-
          tions    and obtained     bimonthly  milk samples which were
          analyzed    for bacteria      and for butterfat       content.

       --One group from the Department          of Agriculture     checked
          plant   sanitation  quarterly     to qualify     the plant   for
          grading   services,  while    another   group obtained      butter
          and cheese samples eight       times a month.

       --Personnel        of the Food and Drug Administration       in-
          spected      periodically  for potential  health    hazards.

       --The State health      department    inspected for sanitation
          and analyzed   fluid   milk for bacteria,    at least      quar-
          terly,  to qualify    the plant    for the approved   listing
          of the U.S. Public      Health  Service.

       Many of the inspections      are made for different    purposes
and vary in degree.      We believe,    however,   that a more effec-
tive    and economical  method of performing     the Federal   food
inspection     function could be devised,,

       Several      Federal  agencies       have established     food stan-
dards,     some    for the same item.          Although   more than one
standard     for     the same food item may not be improper             in it-
self,    it has      caused dissatisfaction          among food suppliers.

        Agreements     have been made between organizations         to es-
tablish     clearer    lines    of responsibility,    to make more ef-
fective     use of the skills        and experience   of each, and to
reduce overlap.          Reaching    such agreements   has been time-
consuming,       and the agreements       sometimes have been difficult
to administer.

      There are basic differences       in        the   concepts  and prac-
tices  of the inspecting   organizations.               Some of the differ-
ences involve:

       --The extent     of relianceplaced         on food    venders     for
          product  quality.

      --The desirability      and extent  of use of statistical-
         sampling  techniques    for product  inspection.

       --Federal      surveillance        of State and/or    local     inspec-
          tions     in lieu     of direct    Federal inspection.

       We recommended       that the Director,       Bureau of the Budget
(now Office      of Management and Budget),          make a detailed
evaluation     of the food inspection        function      to determine       the
most effective      method of improving        the administration         of
the function.       The study should determine           the feasibility
of consolidating        at least   some of the inspections,            and it
could draw upon the skill          and experience       of the agencies
performing     inspections.      The findings       and recommendations          of
the evaluation       should be reported      to the Congress       as soon
as possible   since     reconsideration         of existing   legislation
may be involved.

       Federal      agencies   that make foDd inspections           agree that
there is a need for reassessing              the food inspection        func-
tion,    and   the    Bureau  of   the  Budget   has   agreed   to  make   the
evaluation       of the function       when sufficient      resources     are
available.         (B-168966,    June 30, 1970.)


Department     of Defense

        In 1960 the Department     of Defense (DOD) established       the
Defense Communications       System and the Defense Communications
Agency to supervise       the System.     Although   some progress   has
been made toward the integrated          communications    system envi-
sioned at that time, much remains to be done.              As stated in
our report     issued to the Congress in October 1970, we found
significant      problems in organization       and management which
appeared to hamper accomplishment          of the objective.

        Other than the Secretary            of Defense,     there was no one
person or office          serving   as a focal point having authority
and responsibility           for coordinating      all aspects of communi-
cations.         There was a lack of coordination             among the organi-
zations       involved    in communications,       including     the staff     in
the Office of the Secretary             of Defense,      the Joint    Chiefs of
Staff,     the Defense Communications           Agency, and the military
departments.           We found many examples of the costly            effects
attributable,          at least in part,      to fragmented      and uncoordi-
nated management.            Some of the examples follow.
        An uncoordinated       program, begun in 1965, to procure
data subscriber       terminal     equipment (equipment   at the end of
transmission     circuits      used to send or receive    data) required
more than 1,000 changes in specifications             at a cost of
$29 million.       These changes delayed delivery,        and additional
millions     of dollars     were spent to lease equipment.

       The uncoordinated        development       of Project     Advent,   under
the satellite        communications       program, resulted       in duplica-
tions,    inefficiencies,       and-delays.        About $170 million        had
been spent on this project           when it was canceled.            Despite
that experience         current  satellite      projects     were being devel-
oped with an organization           similar     to that of Project       Advent.

      Lack of     coordination,  between the Defense Communica-
tions Agency     which manages the main trunk lines of the Auto-
matic Voice     Network (DOD'S main voice system) and -the users
who control     the access lines    to the Automatic   Voice Network,
was the chief      reason for an inadequacy    of access lines   and

                                       137        -
a low rate of completed          calls--45     to 53 percent       in   a sample
6-month period.

        In early November 1969 a reorganization                 plan prepared
by the Deputy Secretary           of Defense proposed         the establish-
ment of the position           of Assistant     to the Secretary         of De-
fense (Communications).            We recommended that,           in the pro-
posed reorganization,           consideration      be given to removing         the
Defense Communications           Agency from the chain of command un-
der the Joint         Chiefs   of Staff     and making the Director         of the
Defense Communications           Agency responsible       directly       to the
new Assistant.           This would permit      greater    autonomy in the
functions        of the Defense Conmrunications         System.       We recom-
mended also that consideration               be given to making the posi-
tion of Director          of the Defense Communications             Agency a ci-
vilian     post.      This would remove any question            of the Direc-
tor's     partiality      toward his own military        department.

        On May 21, 1970, DOD established             a new position    of As-
sistant    to the Secretary         of Defense (Telecommunications)          and
appointed    a civilian       to fill   the position.       DOD stated    that
the new assistant        would consider      our first    recommendation.
With respect     to our second recommendation,            DOD did not agree
that the directorship           of the Defense Communications         Agency
should be a civilian          post.    DOD felt    that,  since the Agency
was a military       organization,      the Director     should have mili-
tary experience.         (B-169857,     October 19, 1970.)


Department     of the Army

       We reviewed the overall        management, by the Army com-
mands, of industrial        plant equipment reserved         to meet pro-
duction    contingencies      in time   of war,      Such equipment,      re-
ferred   to as "packages,"       is either     retained   in factory      pro-
duction    lines and ready for start-up           and use or set aside
in storage and not ready for immediate use.                 A package in-
cludes the equipment necessary            to produce a specific       artil-
lery gun, rifle,       tank, ammunition      casing,    or similar    item.
About 34,000 pieces of industrial            plant equipment,      valued
at about $500 million,         were assigned to 176 packages.             Our
report   on the review was issued to the Congress in April

        In a number of cases, the packages retained                 by the
Army did not meet retention              criteria     of the Department      of
Defense (DOD). Some of the packages provided                     the capability
for production        in quantities       which exceeded the planned
production     requirements'or         for production       of items for
which there were no planned requirements.                    Other packages
did not include         enough equipment          to meet the planned pro-
duction    requirements.         Also,     for    some of the packages,      the
specific     contractor      or Government plant where the planned
production     requirements       were to be met had not been desig-

         During one 6-month period,     the possibility      existed
that the Government had purchased new equipment--estimated
to cost about $6 million--even        though similar      equipment,
not needed and not reported       as being available       for redis-
tribution,      was held in the packages of the two Army com-
mands covered in our review.        Conversely,       some of the equip-
ment needed in the retained       packages had been either           trans-
ferred     or loaned to others.

         We recommended that the Secretary    of Defense take
steps to make sure that packages which do not meet DOD's
criteria      for retention  are not retained  and that the in-
dustrial      plant equipment not needed is reported    promptly to

permit redistribution      to meet other requirements.       We rec-
ommended also that the Secretary         of the Army ensure com-
pliance  with established     procedures    for identifying   and re-
porting  excess industrial     plant equipment     in packages and
for making loans of such equipment.

     DOD concurred,   in general,      with   our findings   and rec-
ommendations and stated that:

      --A limited   number of packages would be reviewed      for
         factors  to be considered  in a full-scale  evaluation
         of the need for the packages.

      --Army commanders had been directed    to make sure that
         industrial plant equipment not identified     with a
         package was reported  to the Defense Industrial    Plant
         Equipment Center as excess.

      --The proposed program to inventory        each package and
         verify its readiness--   scheduled    to begin in 1970
         and to be completed    in 1973--would    be speeded up.

(B-140389,   April   7, 1970.)


Department    of the Air     Force

       The Air Force contracts     for a logistics        airlift      system
with commercial    carriers    to ship high-priority          cargo within
the continental    United States.       This system, known as
LOGAIR, costs the Air Force $35 million            annually.       Its pri-
mary function   is to provide     daily    support for all firstline
weapon systems of the Air Force.          Another    important       func-
tion is to provide      support to Air Force bases in remote
areas which lack adequate commercial          transportation,           We
made a review of the management of the LOGAIR system.                    A
report   on the review was issued to the Congress in December

       The cargo capacity   requirements     for LOGAIR were not
forecast   accurately.    On some routes,     more capacity  was
scheduled   than needed; on others,      less was scheduled   than
needed.    We also found that the cost of day-to-day        opera-
tions could be reduced by:

      --Establishing        controls   to encourage prompt revisions
         to existing      routes and thereby      avoid the costs of
         chartering      extra flights    to provide    additional capac-

      --Reducing       the number of flights      to some stations.

      --Using  truck service,         instead   of LOGAIR service,      be-
         tween stations  near        one another.

      --Attaining  greater  utilization    of available  aircraft
         space by improving   the procedures   for making cargo
         available for movement by LOGAIR.

        We proposed that the Air Force Logistics           Command
(AFLC) devise a system that would enable it to accumulate
accurate     and complete data with respect       to the movement of
cargo eligible       for air transport   throughout    the continental
United States.        We proposed that AFLC study the possibility
of using automatic       data processing    equipment    to assist     in
solving    the difficult     problem of constructing       and revising

LOCAIR routes that provide     optimum service         at minimum cost.
We proposed also that the Air Force evaluate             the need for
more than one daily LOCAIR flight         to locations       other than
its Air Materiel     Areas and Aerial     Ports of Embarkation        and
that AFLC take appropriate     action     to ensure that the poten-
tial  benefits   of LOCAIR are fully      exploited     by its userso
In addition,    we proposed to the Secretary         of Defense that
an analysis    be made of the possibility         of substituting
truck service    for LOCAIR between stations         less than 100
miles apart.

     The Air      Force concurred,     in general,      with   our findings
and proposals      and stated that:

      --Action   had been started to standardize      procedures
         and improve accuracy of forecasts     of airlift     require-

      --The frequency      of LOCAIR service         to one station           had
         been reduced.

      --Five   installations      previously     served by LOCAIR would
         be served by truck       operations     from other nearby
         LCGAIR stations.

      --Corrective      actions    to attain    more effective     utiliza-
         tion of LOCAIR aircraft         had been initiated       at sev-
         eral installations        and would be applied        to other
         LOCAIR stations       where practicable.

(B-157476,      December 18, 1969.)

                                                                 U.S.   GAO   Wwh.,   D.C.