Study of the Program Established by the Department of Defense To Reduce and Control the Number of Management Systems Imposed on Contractors

Published by the Government Accountability Office on 1971-08-19.

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

Dear Mr.   Secretary:

        The General Accounting      Office has made a study of the program estab-
lished by the Department of Defense (DOD) to rxe                   and control     the number      7‘
of management systems imposed on contractors            by the military        services--and
defense agencies.         The Government requires    that contractors         establish     and
maintain management systems to provide information               for their own management
purposes as well as to provide a basis for furnishing                information       to the
military    services    so that they may be assisted        in managing contracts         from
the standpoint       of the Government.    Costs incurred      by contractors        to provide
the various systems required         by the services    ultimately      are borne by the

      The purpose of our study was to obtain information        on the status of
the program, the procedures      used in carrying  out the program, and the prob-
lems being encountered     in its implementation.    During our study we inter-
viewed personnel    from various offices   of the Secretary    of Defense, the mili-
tary departments,     the Defense Supply Agency, and military     procurement     cen-
ters.   ??e also discussed the program with officials       of the Council of De-
fense and Space Industry     Associations   (CODSIA) and selected    contractors.

       In November 1966 DOD and CODSIA formally          chartered    an Advisory     Commit-
tee for Management Systems Control.           The objective     of this joint    effort     was
to curb the proliferation        of management systems, which was resulting             from the
varied requirements      then imposed on contractors        by the individual     services
and defense agencies.        Efforts   were directed   toward making recommendations
for reducing   the duplication       and overlapping   of existing     systems and for
establishing   procedures     to eliminate     further proliferation.

        The advisory  committee examined into the need for and use of management
systems; reviewed the directives,      instructions,  and regulations which pre-
scribed the systems; and recommended revisions       or improvements.  It also
drafted    procedures  to be followed  in developing  new systems and applying
them on contracts.

        The committee recommended that DOD (1) publish the procedures            as in-
structions,    (2) publish a single list     of authorized     management systems, and
 (3) include in the Armed Services Procurement Regulation            (ASPB) a provision
to ensure adherence to the use of the authorized           list when contracts     are being
prepared.     The report on the committee's     work, containing      its recommendations,
was submitted     to the Assistant Secretary    of Defense (Comptroller)       in March


                              50 TH ANNIVERSARY        1921- 1971

      DOD implemented the committee's    recommendations    by publishing,    on
June 6, 1968, Instruction    7000.6 to control    the development of new manage-
ment systems and Instruction    7000.7 to control    the selection    of management
systems and their use on contracts.     DOD published    also an initial    list of
management systems and included in ASPR a requirement        for its use.

        To compile a single list      from which systems could be selected        for ap-
plication    on contracts,    an inventory    was made of all documents represented
to be management systems in existence          throughout     the military services     and
defense agencies.       There was no requirement,      however, for an analysis       of each
document to determine whether it was a management system or a part thereof.
Progress in eliminating       similar    and duplicate    systems from this inventory       of
over 1,200 documents was slow.

       Although the program started       in 1966, proliferation          of management systems
was still     evident 3 years later.      The S-3A aircraft        contract   provides an ex-
ample of such proliferation.          The contract     requires    the contractor     to submit
a Contract      Functional  Cost-hour   Report and a Cost Information          Report Func-
tional     Cost-Hour Report.      (See encs. I and II.)         The reports   provide similar
information      on labor hours; labor dollars;        and overhead, material,        and other
costs.      Each report,   however, requires     a different      system to provide the nec-
essary data.       These reports    were designed to meet the needs of the Naval $!a-
terial     Command and the Office of the Assistant           Secretary    of defense (Systems

         In October 1969 CODSIA wrote to the Deputy Secretary                 of Defense and ex-
pressed its concern over the lack of emphasis being placed on the program to
eliminate      the large number of redundant,           duplicative,      and conflicting    systems
available      for application      on contracts.       The Deputy Secretary        of Defense then
sent a memorandum to the Assistant              Secretaries      of Defense (Installations       and
Logistics)       and (Comptroller)     and to the Director,          Defense Research and Engi-
neering,     requesting     that they I'*** get together          *** to assure that necessary
priorities       and resources     are provided    to meet an accelerated         completion

        Shortly thereafter  DOD, with the assistance        of contractors,     began to
review and analyze the systems.        This effort    resulted   in the publication        in
July 1970 of the first     Authorized   Management Control      Systems List which author-
ized the use of 170 systems.        The list was reviewed to eliminate          overlapping
and to combine systems into joint-service          documents, where possible,         so that
they could be used by all services        and defense agencies.        A revised list      con-
taining    129 authorized  systems was issued in Narch 1971.

     This revised list,     however, still    contains management systems which over-
lap.  For example, there are three authorized         systems relating    to the Contract
Funds Status Report,    three relating     to Cost Information   Reports,   and several

relating  to PERT time      and cost.     We were advised       that   the revised    list   was
undergoing review.

        In Karch 1971 the instructions     which had been issued in June 1968 were
combined into a single Instruction        7000.6 titled   "Acquisition    Xanagement Sys-
tems Control."        This change was made to clarify   the instructions,      to combine
similar    information    contained  in each, and to modify the established       proce-
dures for the program.

        The present requirements     placed on contractors    for management systems are
costly,    and the program established      by DOD to reduce and control      these systems
has moved at a slow pace.        Although we did not develop formal estimates         of the
annual costs of requiring       contractors    to maintain  and furnish  information       on
their defense contracts,       we believe   that there is good potential      for signifi-
cant savings in procurement       costs through a reduction      of management systems.
There is overwhelming      agreement among DOD personnel and defense contractors
that the program to reduce and control           the number of management systems was
long needed and should be completed.           It seems to us that DOD could complete
the work by increasing      emphasis on, and applying more resources        to, the

       The new instruction       decentralizes       authority  by transferring        responsibil-
ity for approval of new management systems to the military                    services     and de-
fense agencies.        One of the major problems cited as a cause of proliferation
at the time the program was initiated              was the absence of centralized           manage-
ment control.       This problem was recognized           in June 1968 and was the reason
for placing control        in the Office of the Assistant          Secretary     of Defense
 (Comptroller)     at that time.      In February 1969, however, a temporary moratorium
was placed on centralized         control    and approval authority         was given to the
service    Secretaries     and defense agencies.          This authority     was made permanent
in March 1971.        Since the absence of centralized           control    once was considered
a major cause of the proliferation             problem, we believe       that the March 1971
decision     to decentralize     will bear watching to see whether there is any indi-
cation of renewed proliferation.

      We shall appreciate receiving    your comments on the above observations.
If you desire,  we shall be pleased to furnish     you with any additional    infor-
mation we have on this study.     Copies   of this letter  are being  sent to   the

Director,     Office of Management and Budget; the Secretaries   of the Army, Navy,
and Air     Force; and the Commission on Government Procurement.
                                         Sincerely   yours,

                                         Director,   Defense   Division

Enclosures     - 2

The Honorable
The Secretary        of Defense
                                                     ENCLOSURE 1


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                                                  ENCLOSURE II

                                                 7041.2   (End 2)


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