oversight

Problems in the Installation and Operation of a Communications System in Thailand

Published by the Government Accountability Office on 1971-07-13.

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

 ro     ms In The
Installation And Operation
                         ystem           ’       ’
                 B-168097
                                     0       a

Department of Defense




UNITED STATES
GENERAL ACCOUNTING          OFFICE
DEFEMSE   DIVISIBN




                     B-168097




                     Dear     Mr.    Secretary:

                               This is our report          on problems      in the installation       and
                     operation      of a communications             system    in Thailand.      The re-
                     port has been revised            to include      the comments        on a draft    of
                     the report      furnished     us in your behalf         by the Assistant        Sec-
                     retary     of Defense     (Installations        and Logistics).

                              This report         contains      several     recommendations            for
                     your consideration.              Your attention         is invited    to section       236
                     of the Legislative          Reorganization          Act of 1970 which           requires
                     that you submit         written       statements       of the actions       taken with
                     respect     to the recommendations.                  The statements          are to be
                      sent to the House and Senate                 Committees         on Government           Cp-     1
                     erations      not later     than 60 days after            the date of this report
                     and to the House          and Senate         Committees         on Appropriations           in   ?
                     connection.with         the first       request    for appropriations           submitted
                     by your agency          more     than 60 days after           the date of this report.

                              Copies   of this report    are being  sent to the Director,     Of-
                     fice of Management        and Budget;’   the Secretary    of State;  and the
                     Secretaries     of the Army      and the Air Force.

                                                                     Sincerely      your    8,




                                                                     Director,      Defense       Division
                                                                                                         +

                     The    Honorable
                     The    Secretary       of Defense




                                           50 TH ANNIVERSARY              l921-   1971
 1
 i
i       '
            GEiiEmLACCOUUTIIVG
                            OFFICE                            PROBLEMSIN THE INSTALLATION
I           REPORTTO THESECRETARY
                                OF DEFENSE                    AND OPERATIONOF A COMMUNICA-
I                                                             TIONS SYSTEM IN THAILAND
                                                              Department of Defense B-168097
I
I
I           DIGEST
            ----_-
I

I
I
            WHYTHEREVIEWWASMADE
                  The General Accounting Office (GAO) reviewed the management practices
                  related to the installation     of the Integrated Wideband Cotiunications
                  System  in Thailand because  it   cost more than $120 million.
                   .,. ,-
                  The contract implementing phases I and II of the system and a train-
                  ing f&ility      in the United States was negotiated for $48.7 million    in
                  May 1966. A change in the contract for phase III was negotiated for
                  $18.4 million      in September 1967. Subsequently the overall contract
                  was modified many times due to changes in requirements and aggregated
                  $97 million    as of May 1969. With the addition of $25 million     for op-
                  eration and maintenance, Government-furnished       equipment, and other re-
                  lated activities,      the total cost applicable to the system in Thailand
                  was $122 million.        (See p. 10.)

I
I           FIlvDIiVGSANDCOiVCLUSIOiVS
I
I
I
                  Reviews by the Army showed that the management system responsible
                  administering   the contract was split among many commands--i.e.,
                                                                                       for
                                                                                    frag-
I
I
                  mented--and was further complicated by a lack of guidance on policies
                  and procedures.    This created administrative confusion.  (See p. 12.)
I
I
I                 The Army Strategic   Cotununications Commandcorrected the condition    in
 I                1968 by centralizing   responsibility  for overseas administration  of
    I
    I             strategic communications contracts in one contracting     officer.
    I             (See p. 13.)
    I
    I
    I              Unnecessary costs of at least $1.2 million    were incurred for an allow-
    I
    I              ante paid to the contractor's   employees because they were denied access
    I              to post exchange and correnissary facilities.   Further, because the em-
    I
    I
                   ployees had to make purchases on the Thai open market, the U.S. inter-
    I              national balance of payments was adversely affected.       (See p. 16.)

                   Additional  costs of $350,000 were incurred for materials   and supplies
                   because (1) Government-owned gasoline was not furnished to the contrac-
                   tor prior to July 1968, (2) taxes were paid to the Thai Government, and
                   (3) the co;tSrac;r2;if   not buy common materials and supplies from U.S.
                   sources.     ee .      .
    I
    I
            Tear
            __- Sheet
    I




                                                                      JULY13,1971
                                                                                        I
                                                                                        I
                                                                                        I
                                                                                        I
                                                                                        I
                                                                                        I
   Additional contract costs of $113,000 were incurred,    primarily for     *      ’   i
   labor, because the contractor   scheduled system acceptance tests pre-               I
   maturely.  In addition,   the tests resulted in costs of $45,000 for GOV-            i
                                                                                        I
   ernment observers.    (See p. 28.)
                                                                                        I
                                                                                        I
   Contract modifications   were approved in Thailand   without adequate price          I
   analysis and were almost always negotiated after     the contractor  had              I
                                                                                         I
   completed the work.    (See p. 33.)                                                   I
                                                                                         I
   There were no procedures established   for analysis of the contractor's               I
                                                                                         I
   performance in relation  to costs incurred.    (See p. 37.)                           I
                                                                                         I
                                                                                         I
   The division   of responsibility for operating the system between the Army             I
   and the Air Force resulted in unnecessary duplication    of management                 I
                                                                                            I
   overhead.    (See p. 40.1                                                                I
                                                                                            I

   Notwithstanding  these problems, the communications system, as observed                  I
                                                                                            I
   by GAO during its review from December 1968 to June 1969, appeared to                    I
   be performing in accordance with planned objectives.                                     I
                                                                                            I
                                                                                             I
   The contractor    for the communications system in Thailand, Philco-Ford                 I
                                                                                            I
   Corporation,   furnished comments on several of the GAO findings.     (See               I
   pp* 31, 35, and 38.)                                                                     I
                                                                                            I
                                                                                            I
                                                                                            I
RECOMMENDATIONS
            ORSUGGESTIONS                                                                   I
                                                                                            I
                                                                                            I
   Several recommendations which were designed to correct      the problems were            I
                                                                                            I
   made by GAO. (See pp. 19, 25, 31, 35, 38, and 41.)                                       I
                                                                                            I
                                                                                             I
                                                                                             I
AGENCY
     ACTIONSANDUNRESOLVED
                       ISSUES
                                                                                                ;
                                                                                                I
   The Department of Defense {DOD) said that the problems were related to                       I
   the accelerated planning and rapid buildup of combat operations in Viet-                     I
                                                                                                I
   nam. In retrospect,   DOD agreed that some areas of activity might have                      I
   been handled more advantageously.    DODmade several comments on GAO's                       I
   recorunendations, as shown below.                                                            I
                                                                                                I
   Prior to the award of overseas contracts involving     need for significant                  I
   quantities  of gasoline,  the contracting officers   would be required to                    i
   determine the feasibility    of savings b furnishing   Government-owned gaso-                 I
                                                                                                 I
   line, as GAO recommended. (See p. 25.f                                                        I
                                                                                                 I
                                                                                                 I
   The problem of tax relief     for U.S. military   agencies was beyond the con-                I
   trol of the contracting    officer    because the existing agreements between                 I
   the United States and Thailand were vague and did not clearly set forth                       I
                                                                                                 I
   the tax relief  available.      A new agreement between the two countries                     I
   would be needed to clarify      the tax relief  question.  (See pm 26.)                       I
                                                                                                 I
                                                                                                    I
   Several years ago the Armed Services Procurement Regulation Committee                         I
                                                                                                  I
   considered incorporating the "My United States Here" techniques into                             I
                                                                                                    I
                                                                                                    I
                                    2                                                               I
                                                                                                    I
                                                                                                    I
                                                                                                    I
                                                                                                     I
                                                                                                     I
        the Regulation and concluded thqt no change was necessary as existing
        language was considered adequate.      GAO believes,   however, that the
        availability   and need for greater use of this program should be called
        to the attention   of overseas contractors.      (See p. 26.)

       DOD agreed that future communications contracts should clearly specify
       the requirements to be met in tests and incentive    provisions to be in-
       cluded, where appropriate,  to encoura e contractors   to meet all require-
       ments on the first  test.  {See p. 32.3
        Procedures have been established which should ensure that    timely   and
        adequate price analyses are performed.  (See p. 35.)

       'The various control procedures which have been implemented to date do
         not completely enable onsite evaluation  of contractor performance versus
         cost.   The Army, however3 will continue to develop requirements for con-
         tractor progress and cost reporting systems which will provide data to
         permit onsite analyses.   (See p. 39)

       The decision to assign total responsibility   for operation and maintenance
       of the system in Thailand to a single service has been deferred until the
       outcome of the military  deescalation  in Southeast Asia has been clarified.
       (See p. 41.)
        DOD did not comment on GAO's recommendation that service regulations    per-
        taining to the policy for providing commissary and post exchange privi-
        leges to contractor  pers'onnel in overseas commands be reexamined.  DOD
        said, however, that such privileges   had been extended in Thailand.
         (See pa 19.)
       The Department of State advised GAO that the number of contractor   per-
       sonnel in Thailand had decreased significantly and that post exchange
       and commissary privileges had been granted to all contractor  personnel
       from the United States engaged in Integrated Wideband Communications Sys-
       tem work in Thailand as of June 1970. (See p, 19.)




Tear   Sheet




                                       3
                         Contents

                                                          Page

DIGEST                                                      1

CHAPTER

  1       INTRODUCTION                                     4

  2       FRAGMENTATIONOF THE OVERSEASMILITARY CON-
          TRACT MANAGEMENTSTRUCTUREFOR THE IWCS PRO-
          GRAM IN THAILAND                                12
              Corrective actions                          13

          ADDITIONAL ALLOWANCETO COMPENSATECONTRAC-
          TOR EMPLOYEESFOR THE LOSS OF POST EXCHANGE
          AND COMMISSARYPRIVILEGES                        16
              Denial of access to Government facilities   16
              Department of State comments                18
              Conclusions and recommendation              19

          ADDITIONAL COSTS BECAUSEOF DEFICIENCIES IN
          THE PROCUREMENTOF MATERIALS, SUPPLIES, AND
          SERVICES IN THAILAND                            20
              Government-owned gasoline not furnished
                 to Philco-Ford                           21
              Thai Government taxes included in local
                procurement costs                         21
              BUSH supply sources not utilized   by
                Philco-Ford                               24
              Recommendations                             25
              Agency comments and GAO evaluation          25

          ADDITIONAL COSTS BECAUSEOF PREMATURESCHED-
          ULING OF SYSTEMACCEPTANCETESTS                  28
              Contractor  comments                        31
              Recommendation                              31
CHAPTER                                                            Page

        6   DEFICIENCIES IN THE NEGOTIATION OF CONTRACT
            MODIFICATIONS IN THAILAND                              33
                Contractor   and agency comments                   35
                Recommendation                                     35
                Agency actions                                     35

        7   LACK OF EVALUATION OF CONTRACTORPERFORMANCE
            RELATED TO COSTS INCXRRED                              37
                Contractor   comments                              38
                Recommendation                                     38
                Agency actions                                     38

        8   DIVIDED RESPONSIBILITY FOR OPERATION AND
            MAINTENANCEOF IWCS IN THAILAND                         40
                 Recommendation                                    41
                 Agency comments                                   41

        9   SCOPE OF REVIEW                                        42

APPENDIX

        I   Letter dated March 19, 1970, from the Deputy
              Assistant   Secretary of Defense (Installa-
               tions and Logistics)  to the General Account-
               ing Office                                          45

   II       Letter     dated May 11, 1970, from the Assistant
               Secretary      of Defense (Installations  and Lo-
               gistics)     to the General Accounting   Office     46

 III        Letter dated June 30, 1970, from the Deputy
              Assistant   Secretary for Budget and Finance,
              Department of State, to the General Account-
               ing Office                                          48

   IV       Let@er dated February 25, 1970, from the
              Vice President     and General Manager, Com-
              munications    and Technical    Services Divi-
               sion, Philco-Ford    Corporation,    to the
               General Accounting    Office                        50
                           ABBREVIATIONS

ASPR   Armed Services       Procurement    Regulation

BUSH   Buy United      States    Here

DOD    Department      of Defense

GAO    General      Accounting    Office

Iwcs   Integrated      Wideband Communications          System
- GENERAL
        ACCOUNTING
                 OFFICE                          PROBLEMSIN THE INSTALLATION
  REPORT
       TO THESECRETARY
                     OF DEFENSE                  ANDOPERATION OF A COMMUNICA-
                                                 TIONS SYSTEMIN THAILAND
                                                  Department of Defense B-168097


 DIGEST
 -m-e--

 WHYTHEREVIEWWASMADE
     The General Accounting Office (GAO) reviewed the management practices
     related to the installation  of the Integrated WidebandConnnunications
     System in Thailand because it cost more than $120 million.

     The contract implementing phases I and II of the system and a train-
     ing facility     in the United States was negotiated for $48.7 million    in
     May 1966. A change in the contract for phase III was negotiated for
     $18.4 million      in September 1967. Subsequently the overall contract
     was modified many times due to changes in requirements and aggregated
     $97 million    as of May 1969. With the addition of $25 million for op-
     eration and maintenance, Government-furnished       equipment, and other re-
     lated activities,      the total cost applicable to the system in Thailand
     was $122 million.        (See p. 10.)


 FINDINGSANDCONCUJSIONS
     Reviews by the Army showed that the management system responsible for
     administering   the contract was split   among many commands--i.e., frag-
     mented--and was further complicated by a lack of guidance on policies
     and procedures.    This created administrative   confusion.  (See p. 12.)

     The Army Strategic   Cornnunications Commandcorrected the condition    in
     1968 by centralizing   responsibility  for overseas administration  of
     strategic communications contracts in one contracting     officer.
     (See p. 13.)

     Unnecessary costs of at least $1.2 million    were incurred for an allow-
     ance paid to the contractor's   employees because they were denied access
     to post exchange and correnissary facilities.   Further, because the em-
     ployees had to make purchases on the Thai open market, the U.S. inter-
     national balance of payments was adversely affected.       (See p. 16.)

     Additional  costs of $350,000 were incurred for materials  and supplies
     because (1) Government-owned gasoline was not furnished to the contrac-
     tor prior to July 1968, (2) taxes were paid to the Thai Government, and
     (3) the co$racrr2iif    not buy common materials and supplies from U.S.
     sources.     ee .    .




                                     1
   Additional contract costs of $113,000 were incurred,    primarily for  *         .
   labor, because the contractor   scheduled system acceptance tests pre-
   maturely.  In addition,   the tests resulted in costs of $45,000 for Gov-
   ernment observers.    (See p. 28.)

   Contract modifications   were approved in Thailand   without adequate price
   analysis and were almost always negotiated after     the contractor  had
   completed the work.    {See p. 33.)

   There were no procedures established   for analysis of the contractor's
   performance in relation  to costs incurred.    (See p, 37.)

   The division   of responsibility for operating the system between the Army
   and the Air Force resulted in unnecessary duplication    of management
   overhead.    {See p, 40.1

   Notwithstanding  these problems, the communications system, as observed
   by GAO during its review from December 1968 to June 1969, appeared to
   be performing in accordance with planned objectives.

   The contractor    for the communications system in Thailand, Philco-Ford
   Corporation,   furnished comments on several of the GAO findings.     (See
   pp* 31, 35, and 38.)


RECOENDNDATIONS
            ORSUGGESTIONS
   Several recommendations which were designed to correct      the problems were
   made by GAO. (See pp. 19, 25, 31, 35, 38, and 41.)


AGENCY
     ACTIONSAND UNRESOLVED
                        ISSUES
   The Department of Defense (DOD) said that the problems were related to
   the accelerated planning and rapid buildup of combat operations in Viet-
   nam. In retrospect,   DOD agreed that some areas of activity  might have
   been handled more advantageously.    DODmade several comments on GAO's
   recommendations, as shown below.

   Prior to the award of overseas contracts involving    need for significant
   quantities of gasoline,   the contracting officers  would be required to
   determine the feasibility   of savings b furnishing   Government-owned gaso-
   line, as GAO recommended. (See p. 25.7

   The problem of tax relief     for U.S. military   agencies was beyond the con-
   trol of the contracting    officer    because the existing agreements between
   the United States and Thailand were vague and did not clearly        set forth
   the tax relief  available.      A new agreement between the two countries
   would be needed to clarify      the tax relief  question.  (See p* 26.)
   Several years ago the Armed Services Procurement Regulation Committee
   considered incorporating the "Buy United States Here" techniques into

                                    2
.   the Regulation and concluded that no change was necessary as existing
    language was considered adequate.     GAO believes,   however, that the
    availability   and need for greater use of this program should be called
    to the attention   of overseas contractors.     (See p. 26.)

    DOD agreed that future connnunications contracts should clearly specify
    the requirements to be met in tests and incentive    provisions to be in-
    cluded, where appropriate,  to encoura e contractors   to meet all require-
    ments on the first  test.  (See p. 32.3
    Procedures have been established which should ensure that     timely   and
    adequate price analyses are performed.  (See p. 35.1

    The various control procedures which have been implemented to date do
    not completely enable onsite evaluation of contractor  performance versus
    cost.   The Army, however, will continue to develop requirements for con-
    tractor progress and cost reporting systems which will provide data to
    permit onsite analyses.    (See p. 39)

    The decision to assign total responsibility   for operation and maintenance
    of the system in Thailand to a single service has been deferred until the
    outcome of the military  deescalation  in Southeast Asia has been clarified.
    (See pe 41.)
    DOD did not comment on GAO's recommendation that service regulations    per-
    taining to the policy for providing commissary and post exchange privi-
    leges to contractor  personnel in overseas commands be reexamined.   DOD
    said, however, that such privileges  had been extended in Thailand.
    (See p. 19.)
    The Department of State advised GAO that the number of contractor   per-
    sonnel in Thailand had decreased significantly and that post exchange
    and commissary privileges had been granted to all contractor  personnel
    from the United States engaged in Integrated Wideband Communications Sys-
    tem work in Thailand as of June 1970. (See p. 19.)




                                    3
                               CHAPTER1

                             INTRODUCTION

        The Integrated     Wideband Communications System (IWCS)--
part of the worldwide         defense communications       systeG:pro-
vides the primary U.S. communications 'in Southeast Asia.
The system consists        of tropospheric      scatter,   diffraction,
and line-of-site       microwave links in Vietnam and Thailand
and is composed mainly of fixed stations               at major nodal
points.     Some transportable        equipment is used where perma-
nent communications        facilities     cannot be justified.

      The IWCS equipment employs transmitters,           ranging from
1 watt to 10,000 watts, with antennae ranging in size from
4-foot parabolas    for some microwave links to 120-foot
squares for the longer troposcatter         links.     The individual
channels of communication provided on each link vary from
12 to 300.   These facilities      enable IWCS to integrate        long-
distance communications      equipment in Southeast Asia into a
single subsystem and to interface        with the long-distance
defense communications      system external     to Southeast Asia.
A simplified   system diagram and related          IWCS pictures   are
shown on pages 5 through 9.

       The need for IWCS resulted   from the rapid and signifi-
cant buildup of U.S. forces in Southeast Asia beginning         in
1965.    As the American buildup in Thailand increased,      espe-
cially   at the air bases, more communications     sites were con-
structed   and new radio links were added.      The expanding sys-
tem was installed   as a multiphase    project,

       Phase I of the IWCS program was approved by the Secre-
tary of Defense in August 1965 and provided for the instal-
lation   of 13 new links in Thailand.

       In September 1965 the Department of the Army awarded
negotiated   cost-plus-a-fixed-fee        letter   contract   DA 28-043-
AMC-01694(E) to the Philco Corporation            (currently   the
Philco-Ford    Corporation)      for implementation      of IWCS in
Thailand.
5
6
r it
  .’
 --
f




    8
9
       In October 1965 extensive     additional   requirements    gen-           '
erated by the accelerated      troop buildup were identified.
They dictated    the necessity    of expanding many phase I build-
ings, power plants,     radio equipments,     and ancillary    support
items.    Phase II of the IWCS program was approved in January
1966 and provided for installing       12 new liriks and upgrading
nine existing    liriks in Thailand.

       In August 1966 the Secretary of Defense approved
phase III,   the final phase, which provided for installation
of eight new links and channel expansion on two existing
liriks in Thailand,

       The contract       implementing       phases I and II of the Thai-
land system and a training            facility     in the United States
was negotiated        for the estimated        amount of $48.7 million      in
May 1966.      The contract      change for phase III was negotiated
for the estimated         amount of $18.4 million         in September 1967.
Subsequently,       due to changes in requirements,            the contract
was modified many times and it aggregated $97 million                   as of
May 1969. With the addition              of $25 million     for operation
and maintenance,         Government-furnished        equipment,   and other
related   activities,       the total      cost of the Thailand portion
of IWCS was $122 million.

        The Commander, U.S. Military      Assistance     Command, Thai-
land, is responsible      for coordinating,      evaluating,  and val-
idating    communications    requirements   in Thailand,     The oper-
ation and maintenance responsibilities           of IWCS are divided
between the Army and the Air Force.           (See ch. 8.)

        IWCS was procured by the Army Electronics          Command, Fort
Monmouth, New Jersey.        The contract   administration      in the
United States was performed by the Defense Contract Adminis-
tration    Services.     The Army Strategic    Communications Command
was responsible      for contract  administration      overseas.

       During our review in Thailand we observed that the sys-
tem appeared to be performing    in accordance with its planned
objectives.

         We requested and received comments on a draft of our
report     from the Department of Defense, the Department of


                                      10
State, and the contractor   (see apps. I through IV>.    These
comments have been incorporated     in the report where appli-
cable.  In this connection    DOD also advised us that:

     "In consonance with the current national           policy
     to reduce U.S. troop strength         in Southeast Asia,
     the disposition      of the Integrated    Wideband Com-
     munications     System sites in Thailand is being
     studied by the Department of Defense.           *** In
     this respect the study group will also benefit
     considerably     from your timely report."




                                  11
                                CHAPTER2

                   FRAGMENTATIONOF THE OVERSEAS

             MILITARY CONT.RACTMANAGEMENTSTRUCTURE

                 FOR THE IWCS PROGRAMIN THAILAND

       A report   by the Office     of the Assistant        Secretary   of
the Army (Installations        and Logistics)      criticized     the frag-
mentation    of the overseas military         contract     management
structure    for the IWCS program in Thailand and pointed out
that this fragmentary       condition   was complicated        by a lack
of policy    and procedural     guidance which created confusion
along contract     administration     channels.

       After   the award of the contract       to furnish,    install,
operate,     and maintain    IWCS in Thailand by the Army Electron-
ics Command in Fort Monmouth, administration             of the contract
was transferred        to the Defense Contract    Administration       Ser-
vices'    administrative     contracting  officer    in  Philadelphia,
Pennsylvania.

       The Defense Contract       Administration     Services designated
the Army Strategic        Communications Command's Pacific        Contract
Administration      Office   (in Hawaii) as a secondary contract          ad-
ministration    office.      This office    appointed   a secondary ad-
ministrative    contracting      officer   and a secondary property
administrator,     with responsibility        for overseas contract     ad-
ministration,    and located these two functions           in its Pacific
Southeast Asia Suboffice         in Bangkok,

         In February 1967 the Army Communications        Systems Agency
was established        to manage development and acquisition         proj-
ects assigned by the Strategic          Communications Command. Ac-
cordingly,      the command assigned these management responsi-
bilities     for the IWCS acquisition      program to the Army Com-
munications       Systems Agency;    In this capacity    the agency
provided technical        direction  through contracting     officers'
representatives        in Thailand.   The  test  and  acceptance    pro-
gram was monitored        by personnel of the Test and Evaluation
Directorate      of the Army Strategic     Communications Command.


                                      12
      A diagram of the contract   management relationships  de-
scribed   in the preceding paragraphs  is shown on page 14.

      In January 1968 the Office of the Assistant              Secretary
of the Army (Installations       and Logistics)       made a management
review of the overall      responsibility     of the Strategic        Com-
munications   Command as single manager for strategic
communications-electronics       contracts    administered      .overseas.
As part of this review,       the contract     for installation       of IWCS
in Thailand was examined from contract            placement in the
United States to onsite contract          administration      overseas.

      The management review team reported   that the fragmented
arrangement for the management of strategic     communications
contracts  overseas indicated  a need for the establishment    of
a cohesive contract  management system within    the Strategic
Communications Command.

       The report also stated that prompt and vigorous                 action
was required     by the command to establish           an effective     con-
tract   management system to include (1) more definitive                  mis-
sion assignments,        (2) vertical     alignmentofthe       organizational
structure     of the Army Strategic         Communications Command for
contract    management, (3) clear definition             of the interrela-
tionships     among the various organizational            elements involved,
and (4) issuance of policy and procedural                guidance from com-
mand headquarters        to ensure full understanding          by contract
administration       organizations     and personnel at all levels of
their responsibilities          for effective     onsite surveillance        of
contractor     performance      and total    contract    management.

CORRECTIVE ACTIONS

         In response to the needs set forth          in the management
review report,      in July 1968 the Strategic         Communications
Command placed total        responsibility       for contract     administra-
tion overseas in the command's administrative                 contracting
officer.       More specifically,      this procedure placed in the
office     of the administrative       contracting    officer     the author-
ity and responsibility          to correlate     the actions of the ad-
ministrative      and technical     personnel.

       On October 4, 1968, the command directed a reorganiza-
tion   of its subordinate commands to place the function   of

                                       13
CONTRACT MANAGEMENT RELATIONSHIP FOR OVERSEAS.
        Strategic Communications Systems




                                                                               DEPARTMENTOF
                                                                                 THE ARMY
                                                                               WASHINGTON,  D.C.
                                                     1




       ARMY                                                                                                                                                                 DEFENSE   CONTRACT
       COMM                                                                                                                                                                    ADMINISTRATION
                                                                                                                                                                                  SERVICES
                                                                                                                                                                               ALEXANDRIA,    VA.




 I
                    :i
                    ;,         I          I
                                          L-,
                                                      L   1       ARMY COMYUNICATlONS                  t- -   -     -f       P.ROCURlNG   t


 I                     I                                  -L         SYSTEMS AGENCY
                                                                     FT. MONMOUTH   N.J.

                                                                                                                                                                        1                           I
                                                                                                                                                                                          I :
                                                                                                                                              I                                           I. :-
        ARMY STRATEGIC                                                                                                                        I
        COMMUNICATIONS                                                                                                                            -m---m
       COMMAND-PACIFIC

                                                                                                                                                                        PHILCO-FORD
                                                                                                                                                                      PHILADELPHIA,         PA.




                                   :
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                                                                                                                     ARMY STRATEGIC
                                                                       29th     SIGNAL
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                                                                                                                                                           THAILAND           -   -   l
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     -                       COMMAND LINE
     -                       PROCUREMENT     DIRECTIVE
     . . ..a.                CONTRACT   ADMINISTRATION                  AUTHORITY
     .I..........            MISSION ASSIGNED OVERSEAS                  CONTRACT         MANAGEMENT
     . -        -        -   TECHNICAL   DIRECTION




                                                                                                        14
contract    administration     under the supervision  of the logis-
tics staff     officer    at each level of command to achieve verti-
cal alignment of contract        management functions  and to create
organizational       checks and balances between contract    per-
sonnel and technical        management personnel.

      A report dated December 3, 1969, on a follow-up             review   .
conducted by the Office of the Assistant            Secretary   of the
Army (Installations    and Logistics)      concluded that the re-
vised arrangement had centralized        total     contract   management
(business and technical)      in the Strategic       Communications
Command administrative      contracting    officer     and had given
him adequate responsibility       and authority      to manage the
overseas portion    of the contracts.

      We believe that the actions taken by the Strategic        Com-
munications    Command improved its ability     to manage overseas
Government communications     system contracts.




                                  15
                                 CHAPTER 3

         ADDITIONAL ALLOWANCETO COMPENSATECONTRACTOR

            EMPLOYEESFOR THE LOSS OF POST EXCHANGE

                       AND COMMISSARYPRIVILEGES

       Additional    costs of at least $1.2 million         were incurred
because the U.S. Military        Assistance   Command in Thailand de-
nied Phibco-Ford's       employees access to Government facilities,
such as post exchanges and commissaries,            during most of the
period prior      to June 1970. Because the contractor's           employ-
ees were prohibited       from patronizing     these facilities,     they
found it necessary to purchase goods on the 'local economy.
The increasedpurchasesby         the contractor's     employees from
local sources resulted        in an adverse effect      on the U.S. in-
ternational     balance of payments.

DENIAL OF ACCESS TO GOVERNMENTFACILITIES

       The initial      letter   contract     between the Government and
Philco-Ford     for   the construction        and installation     of IWCS in
Thailand provided         for the use of      Government facilities     by
the contractor's       personnel.       The   letter   contract   dated Sep-
tember 3, 1965,       stated,    concerning       the use of these facili-
ties:

      "US Facilities  - US Post Exchange,             commissary, of-
      ficers  club and medical facilities             will be avail-
      able to all US personnel."

        Regulations    of the military      services   state that the over-
seas command has jurisdiction           over the issuance of identifi-
cation and ration       cards needed to obtain access to Govern-
ment facilities.        On November 23, 1965, the U.S. Military
Assistance      Command, Thailand,      determined   that identification
and ration      cards would be issued to only the 60 Philco-Ford
employees then in, or enroute to, Thailand.                No additional
Philco-Ford      personnel arriving      in Thailand were to be issued
identification       or ration   cards.    We noted, however, that the
Adjutant     General of the command, on his own initiative,              is-
sued identification        and ration    cards to some Philco-Ford

                                       16
employees in addition to the 60, giving            these   employees   lim-
ited access to Government facilities.

       This denial of access to Government facilities          for some
Philco-Ford      employees was based on lack of adequate facili-
ties to accommodate all of the contractor's         personnel.     In
recognition      of the possible  lack of adequate facilities,       the
letter    contract    was amended on January 22, 1966, to state
that Government facilities       would be available   to contractor
employees 'I*       within  the capability  of the Command."

         When the letter  contract was definitized on May 27,
1966, the following      provision for the use of Government fa-
cilities    was included in the contract:

      "U.S. Facilities.    Post Exchange, Commissary and
      Medical Facilities  will be available      to all con-
      tractor personnel within    the capability    of the
      Command. APO [Army Post Office]     mailing priv-
      ileges will be extended to the contractor        and to
      all his U.S. National   personnel."

      Effective     August 12, 1966, however, all identification
and ration     cards issued to Philco-Ford    employees were revoked
and access to Government facilities        was denied.

      The next contract      for operation   and maintenance of the
WCS sites covered fiscal        year 1969 and included no provi-
sions for the use of Government facilities           by Philco-Ford
personnel.    Included in the contract       cost, however, was an
amount specifically     related   to the nonavailability       of post
exchange and commissary facilities         to contractor    personnel.

         Philco-Ford   officials  advised us that, prior to October
1966, the post exchange and commissary facilities                in Thailand
were not adequate to satisfactorily          accommodate the contrac-
tor's      personnel.    Commencing in October 1966, however, new
facilities       in Thailand were put into service which could
have accommodated Philco-Ford         personnel  satisfactorily.

        As stated previously,     service regulations     stipulate   that
the overseas command may decide whether access to Government
Facilities     will be granted to contractor      personnel.       We
noted that the final      decision    to deny Philco-Ford     personnel

                                     17
access to Government facilities,       effective      August 12, 1966,
was based on a determination      that criteria       in the service
regulations    had not been met,     The regulations       state that
logistic    support (including   post exchange and commissary fa-
cilities)    may be furnished  if certain      conditions     are met and
if the items

      'I*** cannot be obtained from local civilian
      sources or cannot be imported from other sources,
      or are not reasonably   available, whether from lo-
      cal civilian  sources or by importation."

      The criteria   set forth in the service regulations    do
not consider monetary savings that might accrue to the Gov-
ernment by providing    logistic support to DOD contractors,
Further,  they do not consider the use of this technique for
improving the U.S. balance-of-payments     position.

      Because post exchange and commissary facilities        were
not made available     to Philco-Ford    personnel, the contractor
increased the per diem and living        allowances paid to its em-
ployees by $2 a day effective       August 15, 1966.    The Govern-
ment contract    administrators    approved this increase as an
allowable   contract   cost.    We determined that,   as of April 30,
1969, the additional      cost to the Government amounted to
about $1.2 million.

       Further,    because the contractor's  employees were not al-
lowed to utilize      Government facilities,  they found it neces-
sary to purchase goods on the local economy which they might
otherwise    have purchased in Government facilities.      These
purchases from local sources adversely       affected  the U.S. in-
ternational     balance of payments.

DEPARTMENTOF STATE COMMENTS

        The Department of State advised us that U.S. military
support facilities,      such as post exchanges and commissaries,
operated in Thailand exempt from local tax and licensing
laws as U.S. Government agencies or instrumentalities.
Therefore     access to post exchanges and commissaries   selling
tax and duty-free      goods could only be accorded to persons
entitled    to exemption from applicable    Thai tax and customs
laws.

                                   18
        In the case of Philco-Ford        personnel,   there were no
specific     arrangements     with the Thai Government to grant such
personnel duty-free       importation     privileges.     To avoid the
risk of provoking the Thai Government into placing any lim-
itations     on existing    informally    granted privileges,     it was
decided to withhold       the post exchange and commissary priv-
ileges from the contractor's           employees.

       The Department of State stated further     that these were
matters of judgment and that the limits       of what was consid-
ered possible    had varied over the years.     The Department
stated that the number of contractor      personnel in Thailand
had decreased significantly    and that, as of June 1970, post
exchange and commissary privileges      had been extended to all
U.S. contractor    personnel engaged in IWCS work in Thailand.

CONCLUSIONS AND RECOMMENDATION

        The decision  to not furnish     post exchange and commissary
privileges    to Philco-Ford   employees in Thailand during most
of the period prior to June 1970 resulted          in additional con-
tract costs of at least‘$l.Z       million   and in an adverse ef-
fect on the U.S. balance of payments,

        We recommend that the Secretary       of Defense consider
having the service regulations         revised to provide for fur-
nishing logistic       support,   such as post exchange and commis-
sary privileges,       to contractor   personnel  in overseas areas
or at remote locations         where such arrangements would have a
significant     effect   on contract   costs or on the U.S. inter-
national    balance of payments.

      DOD did not comment on this recommendation except to
state that post exchange and commissary privileges  had been
extended to contractor  personnel in Thailand.




                                  19
                                CHAPTER4

            ADDITIONAL COSTS BECAUSEOF DEFICIENCIES
                                                  --
           IN THE PROCUREMENTOF MATERIALS, SUPPLIES,
                                              .I -
                       AND SERVICES IN THAILAND

      Our review of Philco-Ford's       overseas procurement and
subcontracting   activities  identified      avoidable contract
costs totaling   about $350,000, as follows:

               Reason for     avoidable    costs             Amount

      1. Government-owned gasoline          not fur-
         nished to Philco-Ford                             $191,000

      2. Thai Government taxes included            in
         local procurement costs                             150,000

      3. %uy United       States Here"    (BUSH) sup-
         ply sources      not utilized    by Philco-
         Ford                                                  8,300

           Total                                           $349,300

      Procurement and subcontracting          functions   under the
IWCS contracts     were performed by the contractor's           Communica-
tions and Electronics        Division   in Philadelphia,     with a
branch purchasing     office     in Bangkok.     Overseas procurements
and subcontracting     for IWCS by this Division,         as of
arch    31, 1969, totaled      about $35 million      of which the Bang-
kok office   was responsible        for approximately    $3 million.

        Pursuant to Armed Services Procurement Regulation
 (ASPR) Supplement NO. 1, the military        contracting      officer
should have evaluated and approved the contractor's               procure-
ment system to ensure that it was efficient           and effective        in
the expenditure       of Government funds.    We  noted   that     the con-
tractor's     stateside    procurement system had been reviewed
and approved annually by the administrative           contracting      of-
ficer     but that there was no evidence that its overseas pro-
curement and subcontracting         system had ever been reviewed
or approved      as required by the regulation,
                                     20
       The procurement deficiencies   which       caused the avoid-
able added contract    costs are discussed        in the following
sections.

GOVERNMENT-GWRRD GASOLINE NOT
FURNISHED TO PHILCO-FORD

       Additional    costs of about $191,000 were incurred   from
January 1966 through June 1968 because the Government did
not furnish     Philco-Ford  with gasoline for vehicles   used in
direct   support of the contract.

       Beginning in January 1966, shortly           after Philco-Ford
established     its IWCS program field      office     in Thailand,   the
contractor     operated a fleet     of leased vehicles       in support
of the contract.       Since  the   Government     did   not furnish  gas-
oline for contractor      vehicles,     it was necessary for Philco-
Ford'to    purchase the gasoline on the local Thai economy.
We found that the average price of gasoline purchased on
the Thai economy was 39 cents a gallon in Bangkok and
52 cents a gallon outside of the Bangkok area; whereas the
average U.S. Army stock-fund         price for gasoline was 12 cents
a gallon.

        In &y 1968 Philco-Ford     brought to the attention        of
the Government contract     administrators      the potential     savings
available    if the Government would furnish         gasoline  for its
leased vehicles.     As a result,     Philco-Ford     was given au-
thority    to use Government-furnished       gasoline as of July 1,
1968.

THAI GOVEXNMENTTAXES INCLUDED
IN LOCAL PROCUREMENTCOSTS

       We observed instances where Philco-Ford      had paid iden-
tified    Thai business taxes included in the cost of local
subcontracts.      We were informed by contractor     procurement
personnel that, in other cases, such taxes, although not
specifically    set out, were probably included in the price
paid under local subcontracts.       We estimate  that    the total
construction    subcontract   cost of about $6.8 million     as of
arch    31, 1969, included business taxes amounting to about
$150,000.


                                    21
        ASPR includes guidance to contracting         officers        in
placing contracts      with American and foreign        contractors
for work to be performed,         or services and supplies to be
provided,      outside the United States.       ASPR states that, at
the time of negotiation        of the contract,    the contracting
officer     shall obtain and include in the contract            files    de-
tailed    information    concerning the specific      types and amounts
of taxes normally applicable         to the transaction       from which
the Government is exempt under the provisions              of applicable
tax agreements.

      At the time when the letter           contract   with Philco-Ford
was awarded and later when the contract              was definitized,      no
mandatory tax exemption clause was included in the contract
and the contract       files   were not documented concerning         for-
eign taxes from which the U,S. Government should be exempt.
We were informed by DOD that, when the contract                was negoti-
ated, the contracting        officer     had made inquiry    concerning
the availability       of relief     from Thai taxes and was advised
that relief      could not be made available.          He therefore     did
not include the article          in the contract.

      The foreign  tax clause required    by ASPR later was added
to the contract   by contract modification;    however, we found
no evidence that any attempt had been made to obtain exemp-
tion from Thai business taxes.

        The underlying  reason for the tax exemption problem in
Thailand is that existing       agreements are vague and do not
clearly    set forth the relief     available    to U.S. military
agencies and their     contractors.      As a result    there has been
little    or no guidance regarding      tax exemption issued by the
American EImbassy or the Military        Assistance   Cormnand, Thai-
land, for the use by Government contracting           officers.

       We believe that the Military  Assistance Command, 'I'hai-
land, should issue a clarification    of the tax exemption pro-
visions   of the agreement between the Governments of the
United States and Thailand for use by Government procurement
agencies.

      A more complete discussion of our observations    on prob-
lems related  to Thai taxes paid by the U.S. Government is
included in our report to the Congress entitled     "Questionable

                                      22
Payment of Taxes to Other Governments   on United States   De-
fense Activities Overseas" (B-133267,   Jan. 20, 1970).




                             23
BUSH SUPPLY SOURCESNOT
UTILIZED BY PHILCO-FORD

      We found that a procurement technique designed to im-
prove the U.S. balance-of-payments      position,     as well as to
obtain more favorable    purchase prices,     had not been used.
The BUSH program is based on a concept of buying commercial-
type U.S.-manufactured    end products from companies located
overseas to (1) achieve a more favorable         delivered     cost, (2)
improve overseas logistic     support by offering       faster    deliv-
ery, and (3) improve the U.S.     balance-of-payments         position.

       In the Far East, Air Force major commands have entered
into BUSH contracts      for common-type items, such as automo-
tive supplies,     hardware, and office  supplies and equipment.
Any U.S. Government agency or Government contractor      with a
cost-type    contract   can place orders against BUSH contracts.

      The types of items available     under BUSH contracts,
which were purchased elsewhere by Philco-Ford,           included (1)
paints and paint supplies,     (2) electrical     supplies,     (3) of-
fice machines, and (4) reproduction        equipment and supplies.
We could not readily   determine from Philco-Ford's          overseas
procurement records the quantity      of BUSH-type commodities
purchased or the total    savings which might have been
achieved had BUSH contracts     been utilized.

       However, a selective     examination    of the procurement re-
cords showed, for example, that as of December 31, 1968,
Philco-Ford      had purchased locally    about $15,700 of a type
of paint.      We found that the same type and quantity       of paint
purchased through BUSH contracts         would have cost about
$10,000, a savings of $5,700.          In another case, we noted
that, during calendar year 1967, Philco-Ford          had purchased
reproduction       supplies at a price of about $4,400 while iden-
tical    supplies,    available through BUSH contracts,     would have
cost about $1,800, a savings of $2,600.           These examples il-
lustrate    the savings that could be realized       through utili-
zation of BUSH contracts.

       Local Army officials    told us that they did not know
why Philco-Ford    had not been furnished    information   about
the BUSH program.      The responsible   Government contract    ad-
ministrators    apparently  had not been fully    aware of the

                                    24
BUSH program.     The officials   stated that they would require
all authorized    Government contractors    within their jurisdic-
tion to utilize    BUSH contracts    to the extent possible   in   the
future.

RECOMMENDATIONS

      We recommend that     the Secretary    of Defense:

        1. Require that, prior     to the award of overseas con-
tracts    involving  need for significant     quantities     of gaso-
line,    contracting  officers    determine  the feasibility     of ob-
taining     savings by furnishing     Government-owned gasoline       in
direct     support of the contract.

      '2. Emphasize to contracting    officers    the need to obtain
exemptions from foreign     government taxes for overseas local
purchases and subcontracts,      in accordance with applicable
agreements,   and to document the contract      files    to show that
the prices are,    to the extent   possible,   exclusive    of for-
eign government taxes.

        3. Foster use of the BUSH procurement program by appro-
priately    revising    ASPICor other DOD policy directives   and by
requiring     review procedures    to periodically  ascertain that
BUSH contracts       are utilized  to a maximum extent.

AGENCY COMMENTSAND GAO EVALUATION

        DOD agreed with our recommendation for furnishing
Government-owned gasoline to the contractor.        In the case
of Thailand,     however, DOD stated that no such provision     was
made in the original      letter contract  because at that time
DOD was incapable of supplying       the gasoline.  DOD stated
further    that, when the supply became available,    contractual
assignments had been made to support the contractor        with
Government-owned gasoline.

      During our review we were informed,        however, that the
Government had had contracts      with certain    major oil companies
beginning about October 1965 for furnishing         gasoline through
commercial service-station      outlets  in Thailand to U.S. mili-
tary vehicles.    We believe    that Philco-Ford,    as a cost-type
Government contractor,     sholuld have been authorized     to obtain

                                   25
Government-furnished       gasoline through the same sources as
the military    at significant     savings to the Government.        Only
after   the contractor,     through a value-engineering       proposal,
informed the Government of the potential           savings available
was it authorized       to use Government-furnished      gasoline.

      With regard to Thai taxes included in the cost of local
subcontracts,    DOD commented that the problem of tax relief
for U.S. military    agencies and their contractors  was beyond
the control   of the contracting   officer because of the vague-
ness of the existing    agreements between the United States
and Thailand.

      Both the Department of State and DOD stated that, in
order to explicitly     describe exemptions for the U.S. Govern-
ment from Thai taxes, a new comprehensive mutually              satisfac-
tory agreement would be needed.          They indicated     that they
would take coordinated      action to strengthen        the management
of the U.S. foreign     tax relief    program by added surveillance,
continuous  monitoring,     and advising    the overseas military
commands with respect      to pertinent    host-country     tax infor-
mation.

      With regard to the nonutilization         of BUSH contracts     by
the contractor,     DOD stated that several years ago the ASPR
Committee had considered       the advisability    of incorporating
the BUSH techniques      into ASPR and concluded that no change
was necessary as the existing        language, particularly      section
III,  part 4--Types of Contracts,        was considered    adequate to
cover this technique.        DOD stated further    that Army procure-
ment activities     in the Pacific     and Europe had utilized      these
contracts     for purchases of supplies.

        We have noted, however, that, although the language in
ASPR covers procurements     under indefinite   delivery  type con-
tracts which include the BUSH techniques,        there is nothing
in ASPR that emphasizes the desirability       of using BUSH con-
tracts.     Such emphasis would bring the BUSH program to the
attention     of procurement personnel and Government contract
administrators     and, we believe,  could lead to substantial
savings to the Government.

        Tine ASPR Committee appeared to have considered  several
years    ago only the contracting   method used under BUSH

                                   26
contracts    and not the need for greater utilization       of BUSH
contracts.      We believe that the availability      of BUSH con-
tracts    should be called to the attention      of the overseas
Government contractors     and that periodic     reviews should be
made to ensure utilization     of BUSH contracts      when savings
to the Government may be realized.




                                 27
                               CHAPTER 5

       ADDITIONAL COSTS BECAUSEOF PREMATURESCHEDULING

                   OF SYSTEMACCEPTANCETESTS

       For some acceptance tests for several IWCS links,
Philco-Ford   did not make adequate pretest    preparations.    We
believe that this lack of preparation    resulted    in test fail-
ures and subsequent reruns which unnecessarily       increased
costs by about $158,000.

        Contract provisions  required   that each lirik pass a cer-
tain    acceptance test prior to becoming operational.       This
test    was called the Link Conditional     Acceptance Test.   The
part    of this test designed to measure radio path performance
was    called the 4-27 test procedure.

       Because of urgent Government operational         requirements,
the Army decided to activate         certain   links as soon as a lim-
ited communications      capability     existed even though the con-
ditional    acceptance test had not been made. A so-called            In-
terim Test Program was applied to determine the capability
of links to handle a limited         amount of comnrunications.      As
a result,     most of the links received the conditional         accep-
tance test after activation         instead of prior to activation
as originally     planned.

        In the testing   of a total    of 32 IWCS links,       the results
of the 4-27 tests were considered unsatisfactory               for 13
liriks,   which necessitated    various additional       preparations
and reruns of the tests.        In the reruns performed on these
13 links,     three links demonstrated     further     unsatisfactory
results    which made a second rerun necessary and one link re-
quired three reruns before satisfactory            test data were ob-
tained.

        As called for in the contract,   Philco-Ford  advised the
Government test representative      when the tests were scheduled
to be run so that Government observers could be present.         On
many occasions,     however, problems were encountered    during
testing    that should have been resolved prior to test


                                    28
commencement. Resolving these            problems consumed many addi-
tional    man-hours of Government        and contractor personnel
participating     in reruns.

       For example, Philco-Ford         requested that Government ob-
servers be present on November 16, 1967, to start the test-
ing for a particular       link.      The observers arrived       at the
scheduled time.       Testing was started        but had to be stopped
after less than 2 hours because the equipment needed main-
tenance.      The test was halted for almost 6 hours to cali-
brate the equipment.         During this time the contractor           de-
cided to run another part of the test.               It then determined,
however, that capacitors          had to be added to the channel
equipment before this part of the test could start.                  Most
of the next day was spent installing             the needed capacitors
in equipment at both ends of the link.               Also, faulty    or
miscalibrated     equipment caused additional           delays, and test
data which had taken 18-l/2 hours to run had to be rerun.
In summary, the testing          of this link took excessive time to
complete because of inadequate pretest              preparation    by the
contractor.

       In December 1967 the Government test representative
told Philco-Ford   that time was being lost because tests were
being scheduled without first    taking adequate steps to en-
sure that the links were ready for testing,      Philco-Ford
replied   to the Government test representative   on December 19,
1967, as follows:

      I'*** we have initiated     a program whereby Philco-
      Ford will,    well in advance of the LCAT [Link
      Conditional    Acceptance Test] start      date, send
      personnel to the sites to verify        site and equip-
      ment readiness.      Any repairs,   adjustments   and
      recalibration     to be required   will be accomplished
      prior to LCAT."

        In February 1968, however, the Government test repre-
sentative    informed the contractor    that this program had not
been properly      implemented and that the same problems were
continuing.      We noted at least five unsatisfactory   4-27 tests
that were performed after this revised procedure had been
initiated.


                                    29
     A total   of 4,017 test hours was expended on reruns of
the 4-27 procedure.    On the basis of the number of rerun
test hours, we computed the following     estimate of additional
costs incurred   for performing  the reruns.

Added contract      co3-t:
    Direct labor                                              $ 58,700
    Fringe benefits                                             12,000
    Per diem                                                    16,400
    Overseas bonus                                               2,700
    Burden                                                       8,700
    Interdivisional        general and adminis-
       trative    expense                                         4,500
    Corporate general and administrative
       expense                                                   10,200

          Contractor   cost   for   rerunning   tests           113,200

Cost of Government observers
  (computed from Government records)                             44,500

          Total                                               $157,700
      This amount is for actual test time only and does not
include any other added costs, such as those for the general
lengthening  of the period of the test program or for nontest
time expended on identifying   and correcting problems.

       When we discussed this matter with Philco-Ford   offi-
cials,   they contended that the 4-27 test reruns had been
caused by failure    to meet a desired level of carrier  inten-
sity which the contractor    was not contractually  bound to
meet.

     The 29th Signal Group commander advised us, however,
that the Government's  position   was that the purpose of the
test was to ascertain  whether the equipment met the perfor-
mance levels predicted  by Philco-Ford    and that the contrac-
tor was expected to meet the prediction     it had established.

        Philco-Ford    officials     further stated that the majority
of the IWCS links had been in operation             for some time prior
to being tested.        They contended that many of the equipment
failures     encountered      during testing  resulted   from normal

                                     30
operational   use and would      not have been encountered when
testing   a newly installed      system,  We believe,   however, that
the fact that a link was        operated prior to testing    had no
appreciable   effect   on the    outcome of the testing   program for
the following    reasons.

      1. During the Interim Test Program, which was designed
         to determine the ability      of links to handle limited
         conmUnications,   unsatisfactory      4-27 test results   were
         recorded on the majority       of the links tested.     I
      2. The link which experienced          the greatest    number of
         unsatisfactory  4-27 tests        did not become operational
         ,until over 5 months after        it finally     successfully
         completed the 4-27 test,

      3. Since Philco-Ford     also had operation and maintenance
         responsibility    for the IWCS, it would seem reason-
         able to expect the contractor     to have maintained  the
         system at a high level of performance.

         In ozlr opinion, the contract     clauses and specifications
and the test plan subsequently         developed by the contractor
in accordance with the contract         specifications        clearly   showed
that it was the intent       of the contract      and the design of the
test plan to develop acceptable         carrier     intensity     values or
criteria     that should be met during the 4-27 test.

CONTRACTORCOMMENTS

        In commenting on our draft report,      Philco-Ford     restated
its position      that it had made adequate pretest      preparations
to assure itself       in advance that the equipment would meet
the test requirements.        The contractor   contended that the
problems encountered were not due to lack of pretest             prepa-
rations    b,ut to concurrent    operational requirements     for the
equipment during the test period.

RECOMMENDATION

      In view of Philco-Ford's     contention concerning   contract
ambiguities,  we recommend that the Secretary      of Defense em-
phasize to contracting    officers   the need in contracts   for


                                     31
communications    systems to clearly      specify the requirements
to be met in tests.       Consideration    should be given to in-
cluding incentive     provisions,    where appropriate,    to encour-
age contractors    to meet all requirements       on the first  test.

        DOD agreed with that portion        of our recommendation per-
taining   to clearly     stating requirements.        With respect to
the recommendation for incentive          provisions,     DOD stated that
it was possible      that future situations,        especially   overseas,
might sometimes involve circumstances            under which parameters
could not be satisfactorily        structured     to produce an accept-
able minimum level of performance on which to base perfor-
mance incentives.




                                    32
                                             CHAPTER6

                       DEFICIENCIES IN THIZ NEGOTIATION
                                                     --.- OF
                       CONTRACTMODIFICATIONS IN THAILAND
                                                   ---
         We found that price proposals    for contract  modifica-
 tions approved by the secondary administrative        contracting
 officer    in Thailand had not been analyzed adequately       and
 that prices for the modifications      almost always had been
 negotiated     after the contractor  had completed the work in-
 volved.

       We examined six contract    modifications       approved by the
 secondary administrative    contracting      officer    in Thailand.
 These comprised all modifications       initiated     in Thailand and
 estimated   to cost $25,000 or less.       Modifications     initiated
 in the United States and/or estimated          to cost in excess of
 $25,000 were the responsibility       of the primary administra-
 tive contracting   officer  in Philadelphia,

          A schedule of the modifications                               and related           informa-
 tion     which we reviewed follows.
                Contractor's                                                               Percent of
                   proposal                Negotiations                                  work completed
Modifi-      Amount                    Amount                           Work effort          prior    to
 cation
 --         (note a>         Date     (note a) Completed                 completed        negotiations

  A012      $27,426        9-22-67    $24,995           Oct.   67          Sept.   67            100
  A013       20,160      10-31-67      20,160           Nov.   67          Apr.    67b            33b
  A015        4,764      I-2-20-67      4,370           Mar.   68          Jan.    68            100
  A016
  A018=      13,296      12-19-67
                           4- 3-68     12,000           Mar.
                                                        Dec.   68
                                                               68          Jan.    68            100
             24,875                    23,400                              July    68            100
  A019        5,059       9- 6-68       5,000           Mar.   69          Aug.    68            100

  aThe amounts of the modifications             represent      increases       in estimated     contract
   cost plus any increases   in fixed            fee.
  b
   Modification       A013 covered   three   separate       projects;       one was completed       prior
    to negotiation.

  'Modification      A018 was approved by the secondary   administrative   contracting
    officer;    however, price negotiations  were conducted    by the primary   admin-
    istrative    contracting  officer.




                                                   33
                                                                                    .


        As shown in the schedule, work on five of the six mod-
ifications     approved by the secondary administrative    con-
tracting    officer   had been completed by the contractor   prior
to the time the price was negotiated,      and in the remaining
instance    part of the work had been completed prior to ne-
gotiations.

        In May 1967 the Bangkok branch office               of the Defense
Contract Audit Agency issued an audit report                   to the second-
ary administrative        contracting       officer,    which criticized
Philco-Ford      for negotiating       the price of a subcontract           after
the subcontractor      had completed 75 percent of the work.
The report stated that this practice                 was resulting     in cost-
plus-a-percentage-of-cost           type of contracting.            It should
be noted that all of the belated negotiations                    for the mod-
ifications     discussed above took place after the issuance of
the audit report criticizing             this practice.

      We also observed for the above contract        modifications
that adequate cost or price analyses had not been performed.
The secondary administrative     contracting   officer    stated that
he did not have adequate cost information       with which to ana-
lyze the contractor's    cost proposals.     The Defense Contract
Audit Agency had not been requested to review any of these
proposals.

      We could not identify    any specific unnecessary costs to
the Government resulting    from these negotiating    practices.
However, when we stated to the Commander, 29th Signal Group,
our opinion that the Government's interest       had not been ade-
quately protected  and that the contractor     had not been pro-
vided with the proper incentive     to hold costs to a minimum,
he responded:

      "It is possible     that had lower target costs been
      negotiated    before completion    of the work *** ,
      Philco-Ford    would have incurred    less cost in order
      to meet the target.      In addition,    it is also pos-
      sible,   that a lower fee may have been negotiated
      due to lower estimated     costs."

     Allowing a contractor       to incur        costs prior      to negotiat-
ing an agreement on estimated        costs       and fee has the attri-
bute of cost-plus-a-percentage-of-cost               contracting.      This

                                        34
form of contracting     reduces the contractor's   incentive          to
minimize his costs     and is contrary  tb the pr&i‘&ns,of
ASPR.                                                 .

CONTRACTORAND AGENCY‘COMMENTS                    -'       '& .

        The contractor    stated that, for the'most part; these
modifications      were restricted    to emergency conditions      which
required     immediate implementation     and that definitization       of
a number of minor contract         changes in many cases did not
occur until     after job completion.      The contractor    -stated
further    that proposals, were submitted prior td~completion.
of work in almost all instances,

       DOD stated that,   in the instances       described in our re-
port, the secondary administrative          contracting   officer did
perform a partial    price analysis       and that all proposals were
reviewed for technical     proficiencies.        DOD stated also that
completion    of the communications       system was of primary im-
portance and that limited      manpower hindered negotiations.

RECOMMENDATION

       Although thevolume andsize of the modifications           in-
volved were relatively     small, a similar   deficiency     might
exist in the administration      of other contracts    by the Army
Strategic    Communications Command. We therefore        recommend
that the Secretary     of Defense have appropriate     corrective
action taken to ensure that adequate cost and price analyses
are performed and that timely price negotiations           are con-
ducted.

AGENCYACTIONS

        DOD stated that the Army Strategic       Communications Com-
mand had directed     each of its overseas      administrative  con-
tracting    officers  to:

     1. Ensure that     timely   and adequate    price     analyses   are
        performed.

     2. Require the technical    representatives            within his des-
        ignated organization   to make timely            recommendations
        for refining  the actual requirement,             time frame,

                                    35
        scope, and Government           cost estimate   relating   to
        each price proposal.

     3, Review the documentation       and, if the price analyses
        are favorable,      issue contract    modifications       or, if
        the cost and price analyses are beyond the capabili-
        ties of the administrative         contracting    officer,     for-
        ward the documentation       to the appropriate        procuring
        contracting    officer   for completion       of action.

      We believe that the actions outlined    above, if properly
implemented,    will provide for better price negotiations.




                                   36
                                cHMTER7

         LMX OF EVALUATION OF CONTRACTORPERFORMNCE

                      REMTED TO COSTS INCURRED

       The January 1968 report by the Office of the Assistant
Secretary   of the Army (Installations      and Logistics)    on a re-
view of the management of IWCS (see ch. 2) stated that no
management tools or standards existed with which to perform
an evaluation    of the contractor's    performance related     to
costs.    The report recommended that procedures be estab-
lished to provide cost control.        At the time of our audit in
June 1969, no procedures had been established          to evaluate
the contractor's    performance as recommended by the report.

        Army officials     in Thailand informed us that no attempts
had been made to compare the contractor's              progress with in-
curred costs.        Apparently,   necessary    information--such       as
cost data, budgets, planned milestones,              and other perfor-
mance standards--was         not available    to contract     administra-
tors in the field.         They also stated that attempts were not
made to obtain such data from U.S. sources.                They stated
further    that the evaluation       of contractor     progress versus
costs was performed in the United States in the office                   of
the project     manager at the Army Communications Systems
Agency and that progress reports           and detailed     financial     sum-
maries prepared by the contractor           formed part of the basis
for such evaluation        and detailed    analysis.

       We found, however, that the financial            summaries in
these reports     were inaccurate      and that the costs shown for
individual    sites were not complete.         When we questioned
Philco-Ford    officials    on this,    they advised us that these
reports were prepared for the Government at its request and
that Philco-Ford       did not utilize     the reports.

      Army Communications Systems Agency officials     in the
United States advised us that a monthly evaluation      was per-
formed as a tool for summarizing the financial     status of the
program and for detecting  a program cost overrun situation
but that this review was not designed to evaluate contractor


                                      37
performance.   They further   stated their      belief  that     contrac-
tor performance was primarily     evaluated     in Thailand.

CONTRACTORCOMMENTS

       Philco-Ford    stated in its comments on our draft report
that the format and the content of the monthly progress per-
formance reports were determined by the Government.           These
reports contained milestone       charts and tabular   schedule in-
formation     on all facets of the program.     A financial   man-
agement report and supplementary        data were also provided to
the Government on a monthly basis in which certain          costs
were prorated      on a site basis.

      Philco-Ford    stated that the purpose of the report was
to provide an approximation      of the value of any given site
in the system.     The report was believed to have been useful
to the Government in evaluating        the status of the program,
but the data did not reflect       the way the program was managed
by Philco-Ford    and therefore    were less useful from the
standpoint    of cost management and control      than Philco-Ford's
own more detailed     cost control    and performance review sys-
tem.

RECCHMENDATION

      We recommend to the Secretary   of Defense that, for fu-
ture contracts  of this type, appropriate     controls  be estab-
lished to enable Government contract     administrators   to eval-
uate the performance of the contractors.

AGENCYACTIONS

      DOD, in its comments, informed us of actions taken by
the Strategic   Communications Command to require    the overseas
administrative   contracting  officer to control  the contrac-
tor's  cost by:

     1. Evaluation of the contractor's    level of manning and
        class of personnel being utilized     at the site.

     2. Administration    of the contractor's      use of overtime.

     3. Surveillance of the contractor's    offshore           purchasing
        system, when authorized    in the contract.
                                38
     4. Surveillance     of the contractor's     in-country    travel.

      5. Administration     of Government-furnished     property    to
         ensure that Government property        is delivered     to the
         contractor     on a timely basis to preclude increased
         cost resulting     from delays caused by the Government.

      6. Full utilization of the services        of the Defense Con-
         tract Audit Agency.

      DOD stated further     that the Strategic    Communications
Command recognized that these cost control         procedures    did
not completely   enable onsite evaluation       of performance ver-
sus cost and that the command would continue to develop the
necessary contractual     requirements   for contractor     progress
and cost reporting    systems which would provide data to per-
mit onsite analyses.

       In addition,   DOD stated that the Strategic        Communica-
tions Command project      manager in the Communications Systems
Agency in the United States was establishing          a cost analy-
sis group which would perform detailed        costs-versus-perfor-
mance analyses using data submitted by contractors             and re-
ports from onsite Government field       representatives.        This
group will also provide guidance to the overseas commanders
to ensure effective      implementation  of the cost control       and
cost avoidance procedures currently        in effect,     pending es-
tablishment     of improved contractor   progress and cost re-
porting   systems.




                                  39
                                CHAPTER 8

           DIVIDED RESPONSIBILITY FOR OPERATION AND

                  MAINTENANCE OF IWCS IN THAILAND

      The operation     and maintenance responsibility             for IWCS
in Thailand   is divided between the Army and the Air Force.
The Army is responsible        for 27 sites,      and the Air Force is
responsible   for seven sites,        including    two sites which had
not been constructed      at the time of our review.             We found
no valid justification       for the split       in operation      and main-
tenance responsibility.         The Army had been assigned by DOD
the task of designing,       engineering,       and installing       a wide-
band communications      network in Southeast Asia.             In Thailand,
however, the Air Force has the predominant              combat mission
and the major requirement         for communications        services    to
support its mission.

        In view of economies which could be expected to result
from single service responsibility        for IWCS in Thailand,      a
DOD survey team, in a report       on contract  services    in the
Pacific    Ocean area, recommended that DOD direct       the Joint
Chiefs of Staff     to investigate   and report   on the feasibility
and desirability      of assigning  single service responsibility
for operation     and maintenance of all defense communications
system facilities      in Thailand to the Air Force.

        The basis for the recommendation that the Air Force be
considered    for this responsibility          in Thailand was that
(1) the Air Force had the predominant             requirement     for com-
munications     services   to support its mission,          (2) the Air
Force had sufficient       trained    military    personnel    to operate
all IWCS sites with only minimum contractor               technical    as-
sistance,    and (3) such an assignment to the Air Force would
facilitate    the diversion       of skilled    Army personnel      to Viet-
nam or to other areas where a military             personnel     shortage
was causing continued        reliance     on contractor     support of the
military    communications      system.

      Both the Commander in Chief,   U.S. Army Pacific,  and the
Commander in Chief,  Pacific   Air Force, have stated that the
arrangement of split  responsibility    between the two services

                                     40
results  in duplication  of management overhead.    For a vari-
ety of reasons, however,   each  service  contends that it
should be assigned total   responsibility   for IWCS in Thai-
land.

      Our review revealed no justification      for the division
of operation   and maintenance responsibility      in Thailand be-
tween the Army and the Air Force.        It appears that this
arrangement is not only conducive to unnecessary management
overhead costs but also to decreased system efficiency.

RECOMMENDATION

      We recommend that the Secretary    of Defense determine
which service should be assigned total      operation and main-
tenance responsibility     for IWCS in Thailand and assign that
responsibility   accordingly.

AGENCYCOMMENTS

      In commenting on our draft report,         DOD informed us
that the issue of assigning       total   responsibility         for opera-
tion and maintenance of IWCS in Thailand to a single ser-
vice was under study.       DOD also stated that the benefits             to
be derived from designating       a single manager at this time
would be carefully    weighed against budgetary            and associated
manpower reductions,     organization    postures,       logistics     sup-
port and training    costs,   and   the future   role     of   the   com-
munications   system in Thailand,

       DOD subsequently  informed us of its conclusion   as a
result   of the study that the final   decision on this issue
must be deferred until     the outcome of the military  deescala-
tion in Southeast Asia has been clarified.




                                     41
                                 CHAPTER 9

                             SCOPEQF REVIEW

        Our review was directed       to ascertaining     what problems
arose in the installation         and operation      of a large-scale
communications        system in a foreign     country far removed from
the offices      of the project    manager and the procuring          con-
tracting    officers      and what might be done to avoid similar
problems in future programs of this nature.               We did not at-
tempt to assess the overall         effectiveness      and efficiency      of
the Government in procuring         the system or of the contractor
in furnishing       the system.

        Our fieldwork  was performed at various locations    in the
United States and Thailand during the period from December
1968 to June 1969.       We reviewed agency and contractor   rec-
ords, interviewed     responsible   officials, made physical   obser-
vations,    and examined reports    prepared by various Government
officials.




                                     42
APPENDIXES




    43
                                                                                       APPENDIXI


                                 OFFICE OF THE ASSISTANT SECRETARY OF DEFENSE
                                              WASHINGTON,   D. C. 20301




                                                                                19 MAP 1970
INflAUANONS   AND LO(llSNC5


              Mr. Charles M. Bailey
              Director, Defense Division
              U.S. General Accounting Office
              Washington, D.C. 20548
              Dear Mr. Bailey:
              This is a partial response to your letter of January 20, 1970 to
              the Secretary of Defense which forwarded copies of the Draft Report
              on "Management of the acquisition, operation and maintenance of a
              communication system in Thailand", 86053 (OSD Case #3069).
              Because of the diverse areas, identified  as problem areas in the
              report, and the wide range of sources from which data must be gathered
              on corrective actions taken or contemplated to improve the management
              of the communications in Thailand, additional time will be kequired to
              prepare a complete reply to the report.   A reply will be submitted by
              30 April 1970.
              However, it     should be noted at this time that:
                    1. It is the policy of the Department of Defense to employ
              transportable communication facilities  in overseas locations and
              that the original decision to use fixed facilities  in Thailand was
              based to a great extent on equipment availability.
                    2. In consonance with the current national policy to reduce
              U.S. troop strength in Southeast Asia, the disposition of the Integrated
              Wide Band Communications System sites in Thailand is being studied by the
              Department of Defense. Among other things the assignment of the opera-
              tion, maintenance, and management responsibilities   for the Communication
              System in Thailand will be thoroughly examined. In this respect the study
              group will also benefit considerably from your timely report.




                                                            3eputy hseiatEil;l Seoretary of DefanEIe




                                                            45
         APPENDIXII

                                         ASSISTANT    SECRETARY OF DEFENSE
                                                WASHINGTON,    D.C.   20301




INSTALLATIONS   AND LOOMTICS




                Mr. Charles     M. Bailey
                Director,   Defense    Division
                U. S. General    Accounting     Office
                Washington,    D. C. 20548

                Dear   Mr.     Bailey:

                This is in response     to your        letter  of January  20, 1970, to the Secretary
                of Defense    which forwarded           copies of the Dra.f% Report  on “Management
                of the Acquisition,    Operation           and Maintenance   of a Communications
                System    in Thailand,  I’ Code        86053 (OSD Case #30693.

                In our letter   of 19 March     1970, you            were advised   that, beca,use of the
                diverse    areas identified    as problem             areas in the report,     and the wide
                 range of so-urces from which data                 must be gathered      on corrective     actions
                taken or contemplated       to improve             the management      of the communications
                in Thailand,    additional   time would             be required   to prepare     a complete
                reply.

                A detailed   reply to the findings     and conclusions    on page 1 of the report,
                and to each of the recommendations          and suggestions      on pages 3 aqd 4,
                is contained    in Attachments     1 and 2. Comments        on the introduction   to
                the report   are in Attachment      3.

                You were also advised         that in accord     with the current       national      policy   to
                reduce     US troop  strength     in Southeast     Asia,   the disposition       of the
                Integrated    Wide Band Communications              System     sites in Thailand        is being
                 studied   by the Department        of Defense.      Among     other things,       the assign-
                ment of the operation,        maintenance,      and management          responsibilities
                for the Communications          System     in Thailand     will be thoroughly         examined.

                 The study is progressing       satisfactorily       and should be completed     in 3rd
                Quarter   CY 70. In addition        to the Department       of Defense,   the study
                involves  the Department       of State,       the American    Embassy  at Bangkok
                and the US Military     Assistance       Comma nd, Thailand.

                We agree that there were problems              in Thailand      incident       to the greatly
                accelerated      planning    and rapid build-up       of an integrated         communications
                system      to meet military     exigencies    directly    associated         with combat




                                                              46
                                                                                        APPENDIX II


                                                                                                         2

operations   in Vietnam     . We share with the GAO an identification            of some
areas of activity    which might,     in retrospect,       have been more advantageously
handled.    Actions    are underway      to improve     the management    of Telecom-
munications     in Thailand   as indicated     in attachments     hereto.

Information     obtained     from the Procurement            Management       Review       Report
issued by the Office        of the Assistant       Secretary     of the Army      (Installations
and Logistics}      in January       1968 and the Report        of Survey of Contract            Services
in the Pacific     Ocean area issued by the Secretary                 of Defense     Contract       Survey
Team in December           1968, included     in your Draft Report,           may be released            to
the public.     Classified      information     included     in the report     may be made avail-
able to appropriate        Congressional      Committees,          individual    members         of
Congress,      and Executive        Agencies.




GAO note:           The attachments             to this letter  are not included
                    in this report             because of their  security  clas-
                    sification.




                                                     47
APPENDIXIII

                          DEPARTMENT                OF      STATE

                                Warhinqton.   D C        20520


                                                                    June   30,   1970


  Mr. Oye Stovall
  Director of International Division
  General Accounting Office
  Washington, D. C. 20548

  Dear Mr. Stovall:

  The Secretary has asked me to reply to your two letters to him of
  January 21, 1970 about a GAO report regarding Thailand. The follow-
  ing information is unclassified with the exception of bracketed
  portions, which we wish to have treated as secret.

  The bulk of the GAO draft report on “Management of the Acquisition,
  Operation and Maintenance of a Communications System in Thailand”
  deals with contractual and managerial matters not involving the
  Department of State, the American Embassy at Bangkok, or the U. S.
  Military Assistance Command, Thailand inasmuch as the IWCS in
  Thailand was initiated by higher headquarters in the context of
  Southeast Asia-wide communications planning.


                       [See GAOnote 1, p. 49.1



   Section 2 of the draft classified supplement (page 15) states that
   because PX and commissary privileges were not made available to
   contractor personnel the contracts with Philco-Ford Corporation were
   increased by about $1.16 million *~ck..


                       [See GAOnote 2, p.49.1




                                              48
                                                          APPENDIX III



U. S. military support facilities, such as PX’s and commissaries, cperate
exempt from local tax and licensing laws as U. S. Government agencies
or instrumentalities.   U. S. goods and merchandise foreign to the host
country are imported by the U. S. Government exempt from taxes and
customs duties. Accordingly, access to PX’s and commissaries selling
tax and duty-free goods can only be accorded to persons entitled to
exemption from applicable Thai tax and customs laws. Thus, the basic
question was whether to extend PX and commissary privileges to Philco-
Ford contractor personnel in the absence of arrangements with the
Royal Thai Government granting such personnel duty-free importation
privileges. We believe it should be pointed out that decisions in this
area were matters of judgment that involved weighing the extension of
privileges against the risk of provoking RTG into placing limita tions
on existing informally granted privileges. As these were mat t ers of
judgment and of informal arrangements, the limits of what was considered
possible have varied over the years. At the present time, the number of
contractor personnel in Thailand in general has decreased significantly,
and it has been deemed possible to extend such privileges to the remaining
ones. Thus, in fairness the GAO report should include the fact that as
of now all U. S. contractor personnel engaged in IWCS work in Thailand
have PX and commissary privileges.



                            [See GAO note    1. I



                                    Sincerely,



                                     Joseph F. Donelan, Jr.
                                     Deputy Assistant Secretary
                                     For Budget and Finance



 GAO note:
   1. Classified     information    has been omitted.

    2. The deleted comments relate to matters           which were dis-
       cussed in the draft report but omitted           from this final
       report.


                                    49
Henry E. Hockeimer                                                   Philco-Ford Corporation
Vice President and General Manager                                   Communications and TechnIcal
                                                                     Services Division
                                                                     4700 Wissahickon Avenue
                                                                     Philadelphia, Pennsylvania 19144


                                                                     February        25,   1970


United States General       Accounting             Office
Defense     Division
Washington,        D. C. 20548

Attention:       Mr.     C. M.       Bailey,   Director

Gentlemen:

The purpose        of this letter    is to comment        on the draft report   enclosed    with
your letter      of January     20, 1970, relating        to the management     of the acquisi-
tion,   operation     and maintenance        of a communications        system   in Thailand.
Philco-Ford        appreciates     this opportunity       to make the following     comments
on the findings       and recommendations           contained    in your draft report:




                                      [See     GAOnote, p. 52.1
                                                                                        APPENDIX IV


United   States General          Accounting        Office
Page 3
February     25, 1970




                                  [See GAO note,               p. 52.1




Contract      Modifications         Negotiated      in Thailand       - Definitization         of a
number      of minor       contract    changes       in many cases did not occur until after
job completion.           For the most part,           dollar   value of these modifications
was small       and was restricted            to emergency       situations       that required
immediate        implementation,            In almost     all instances,        proposals      were
submitted      prior     to completion         of the effort.     In a number         of instances,
significant      savings     to the Government           were realized         by Philco-Ford’s
quick reaction        in implementing           necessary     changes       through     the use of
available     site personnel.

‘IWCS Test and Acceptance                    Program            - Philco-Ford         did make adequate
 pre-test      preparations          to assure        itself   in advance      that equipment           would
 meet the test requirements.                      There      were instances        where,      due to
 concurrent         operational        requirements           for the equipment          during      the test
 period,      routine       equipment       failure     s occurred      during     testing     after    approx-
 imately      one year’s         operation.         The equipment         was in operational             use
 at all times        prior     to and during         the test periods        at the Phase I and II
  sites where        test reruns        were requested.            Some problems            were encountered,
 but these were not due to lack of pre-test.                           This conclusion          is supported
 by the fact that no test reruns                   were required         on the Phase III links which
 were     tested      prior     to being turned           over to operations.

Evaluation       of Contractor       Performance            to Costs Incurred             - The format
and content       of the monthly       progress         performance        reports      were determined
by the Government.              These reports          contained     milestone        charts    and tabular
schedule     information         on all facets       of the program         including      engineering,
procurement,          construction,       installation,        O&M and software.              We believe
the progress        reports      did contain      meaningful       indicators       of progress.        They
not only contained          progress     for the previous           month,      but also contained




                                                   51
United   States   General           Accounting        Office
Page 4
February      25, 1970                   .


milestone         charts      and tabular        data indicating          future     target       dates for work
to be performed.               In addition,        monthly      program          status meetings             were
conducted         at Headquarters,            CSA, Fort Monmouth,                    to review          the progress
of the program             and to anticipate          and resolve          any problems.               A financial
management            report     and supplementary              data were also provided                    to the
Government           on a monthly         basis for use in evaluating                   Philco-Ford’s            cost
performance.              It is true that Philco-Ford                 did not utilize          the supplementary
financial       report      for its own management                 and control          of this program.
Although        we believe       the report         was useful        and meaningful             to the Government
in evaluating          the status      of the program,            Philco-Ford’s             cost control         and
performance            review      system       provided     substantially           more       detail.      In the
 supplementary            data it was recognized              that certain          costs,       such as
engineering,           provisions,        etc.,     were    prorated         on   a  site   basis.         These
data,      although       useful    to the Government,              did not reflect           the way the
program         was managed           by Philco-Ford            and were,          therefore,          less useful
from      the standpoint         of cost management               and control.            The purpose           of
the report         was to provide         an approximation               of the value of any given site
in the system            and we believe          the report       effectively        served        this purpose.

We appreciate      the opportunity   of replying   to your request and will                                   be
available   to discuss   any aspects    of this reply at your convenience.

                                                                Very     truly     yours,




GAO note:            The deleted comments relate                                 to matters which
                     were discussed in the draft                                 report but omitted
                     from this final  report.




                                                                                                 0.~   GAO,    Wash.,   OK-

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