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thing that happened 2 or 3 years ago that really had nothing to do with the present capability of the contractor and, as you know, sometimes these actions were taken, then they were reversed, and that hasn't made a very good public impression.
But that is not the issue. The issue is that this is a powerful means of dealing with contractors, and it ought to be applied carefully and uniformly. Now, there has been no public outcry about this but, if you think about it, it is the employees who are penalized by this for something that maybe was not their fault at all. There are other means of penalizing contractors and I think that we are simply implying that debarment should be used more carefully and uniformly.
Mr. BRYANT. In view of the lack of any evidence there has been a problem in the area-I am curious, who brought this matter up among the commission to get it included in this report?
Mr. PACKARD. Well, some of the problems, specifically, were that debarment was applied for something that happened 2 or 3 years ago and that it automatically forced the contractor to admit guilt when there may or may not have been guilt. All in all, our main concern about this is that it should be used carefully, should be used in case the contractor is presently not fit to deal with the Defense Department, and should not be applied when something happened 2 or 3 years ago that may have already been corrected.
Mr. BRYANT. Is there direct testimony or evidence of any kind before your committee, in the record, that would indicate the need to take action in this regard? Who, among the group wanted to include a provision in here that would suggest maybe debarment is used too much?
Mr. PACKARD. We set up a special subcommittee of people who had legal background to look at these issues. Bill Clark and Carla Hills were members of this committee. We asked them to look carefully into all of those recommendations that had to do with the contractor or performance. That issue, I think, was investigated carefully enough and we felt these recommendations are justified.
Mr. BRYANT. My only concern-it seems to me, without it, and particularly where you are suggesting it may have been overused in the past, what is the penalty that is in store for the misbehaving contractor? Where is he penalized? How do the stockholders lose money if their manager misbehaves, if you don't have this?
Mr. PACKARD. Again I say, we looked at this issue and think debarment should be used more judiciously than it has been in the past. We think that to clarify what the rules of ineligibility are, and to apply them uniformly, is the only way this should be handled and just to be fair and ethical about the whole thing. That is the fundamental issue.
Mr. BRYANT. I believe my time has expired. I thank the chairman for letting us participate today.
Mr. NICHOLS. Thank you, gentlemen.
The Chair wants to announce there is a vote on the rule on the health services bill. I want to recognize Mr. Hopkins for a brief statement after which the committee will stand in recess for 10 minutes.
Mr. HOPKINS. Mr. Chairman, thank you very much.
Gentlemen, we are on a very fast track here on the House side. If I could just bring this together briefly-we are being driven, if you will, by the Senate, inasmuch as legislation is being put together over there involving reorganization of DOD. We are looking at a March 12 markup for our bill, currently five pieces of legislation, one of which, the JCS bill has already passed the House. That is already gone. It is now in the Senate, standing, if you will, like a fire hydrant before the Senate dog. We don't know what they are going to do with that. But we have four pieces of legislation that we are now looking at here. I know that the chairman, and others, are concerned about all of these pieces of legislation, maybe individual pieces of legislation. There is talk of a combination of the best of this legislation-taking the best, if you will, of the Packard Commission, the best of these bills, and combining those into one bill to go before our markup. That is why I would like to have your priorities, making sure that the very best of what you consider to be in the Packard Commission gets woven into that cloth, if you will, gentlemen.
Mr. PACKARD. Yes. Well, we have had our staff look at those particular pieces of legislation that are coming up and we can provide you with an analysis of those on which our recommendations would match, or where we made a recommendation that is pertinent. There are a number of items in your legislation where we have not yet taken a position, but we would be very pleased to work with you, in any way we can be helpful, to develop those items so that they will be consistent, if you would like to do so.
Mr. HOPKINS. Yes, I would. Thank you very much. Mr. NICHOLS. The Chair has agreed to recognize Mr. Levine for 30 seconds.
Mr. LEVINE. Thank you very much. In light of the time, I would like to add my compliments to you for the thoughtful and provocative work you have done and simply make one request.
On page 17 you have a couple of, I think, very thoughtful suggestions with regard to both competition and operational testing. Those get into some of the specific legislative proposals, particularly in the area of competition. I also would like to be able to flesh those out with you further between now and the time the actual legislation is considered.
I have appreciated the work we have already done together and I look forward to working with you further in these specific areas. Thank you again for your good work.
Mr. PACKARD. Yes. Well, that issue about commercial components has come up a number of times. You might be interested in one specific experience we had. We looked at this in the case of large scale integrated circuits and asked the man who writes the military specifications up at Rome Air Force Base to come down. He made a presentation to us and made a great case that the military spec items were very much more reliable than the other items. It was 5 years out of date and exactly the opposite is true. And you could save ten to one on the cost of these items. We think that is a place that can result both in lower costs and better reliability.
Mr. LEVINE. Thank you very much.
I want to express my appreciation to you, Chairman Nichols, and to the committee for the opportunity to be included today.
Chairman Nichols, if I might, there is this one line of inquiry that I would like to pursue with Mr. Packard, if I might.
Mr. Packard, I don't imagine that you signed very many computer contracts before you knew what the price was, but that is exactly what is going on at the Department of Defense. In fiscal year 1985, unpriced contractual actions, unpriced contracts, exceeded $28 billion. Under these unpriced actions, the contractor is authorized to start work before the price is set. Then the Government is typically responsible for all the costs incurred, up until the time the contract is definitized and the price is agreed upon. It seems to me that the enormity of the $28 billion for these kinds of unpriced orders runs just contrary to what you said in your written statement, which is that we ought to run the Defense acquisition process like a successful commercial business. I want to share with you what I think is the root cause of the problem, and then hear your thoughts with respect to how we might turn it around.
My sense, Mr. Packard, is that the root of the problem is that the system has failed to follow the rules and regulations that are already on the books, that are intended to prevent the abuses of these unpriced orders or unpriced instruments. In our committee, the oversight committee of the Commerce Committee, we looked at one particular case, the F-16 radar arrangement, where we spent about $8,800 for a little pulley puller that could have been manufactured for about $69. What concerned me about the case, and what I think is instructive about it, is that all the rules were violated with respect to this particular case. There was no urgency, for example, which is one of the key rules with respect to these unpriced orders.
The second thing is that it was not definitized. The price wasn't agreed upon within 180 days. It just seems to me that we have got to figure out a way to produce compliance with existing rules in this area.
I think that it illustrates why Congress gets interested in these issues. Mr. Packard, when our constituents hear that we are paying $8,800 for something that costs $69, they call us up and they say, why don't you do something about it?
I would be interested in hearing your thoughts on what we could do to deal with this situation where DOD is not complying with the rules that are already on the books.
Mr. PACKARD. You have certainly raised a very important point, and I have had a little experience in dealing with unpriced contracts myself. Obviously, the only way to do it is to not have unpriced contracts. If you want to change orders, don't authorize them until you get a price. I just heard of a bill out in California, and we rigorously held to that rule, so I know what you are talking about.
There is a great difficulty in getting the rules to be written consistent with the intent of the legislation, and there is a problem getting them enforced. That, of course, is what we had in mind in recommending an Under Secretary, someone to be in charge of this procurement business, to be there fulltime, and to have the responsibility for doing these kinds of things.
I think we always keep getting back to this basic proposition. Here you have one of the largest management jobs in the world, and no one there in charge fulltime, and so I think this recommendation that we are making, to have an Under Secretary at the right level so he has some authority over these people below him to work on this problem full time, will help identify and avoid those kinds of problems.
Mr. WYDEN. I must tell you-and I appreciate the response-I just don't think that is going to do it, Mr. Packard. I think that the problem is really right in the heart of the system.
For example, we on the oversight committee, found that, with respect to one justification for unpriced orders, a Navy directive said that one of the three specific criteria of urgency, which was the concept behind the unpriced orders, was loss of funds. According to the notice, that meant that if appropriated funds are in danger of being lost, due to the imminent expiration of the funding obligation date, that that constituted an urgency. I just don't see how having one person in charge of this area is going to deal with problems as pervasive as the one that I cited where the Navy says it has got to be unpriced just because they otherwise will lose money.
Mr. PACKARD. Well, you are quite right that sometimes these questions of urgency are badly distorted, and quite often when you put things too fast, you just end up having more problems. But I really think that giving an Under Secretary control over these matters, to make sure that these problems are resolved, before you move into full-scale production will work. We can take some of the incentives out of doing the things you are concerned about.
I don't think there is anything wrong with having continuous oversight. Sure, you are going to have these calls if they occur, but we have got to get these people so they do the things right in the first place, and that is the whole objective our recommendations are directed to achieve.
Mr. WYDEN. I think my time is expired. I would just tell you that the existing safeguards with respect to these unpriced orders have clearly failed. The amount of the orders—this isn't a micromanagement issue when we are talking about more than $28 billion. You have a situation where they failed to present the kind of thing that happened in the F-16 radar case. I just don't agree, as sincerely as I know you put it forth, that having some kind of Under Secretary there is going to resolve this. It doesn't do us any good to have these regulations if they are just ignored, and that is what is going on in this area.
Mr. PACKARD. Well, that is a particular issue we haven't looked into, in detail, on the Commission, and as I indicated earlier, we have a number of things that we are going to do in further work between now and June. I am glad to have your thoughts and your concern about that. We will put that on the list to see if we can get a better answer for you before we are through.
Mr. WYDEN. I very much appreciate that initiative, because this is more than $28 billion, and it runs contrary to what you said in your written statement, which is that we ought to purchase weapons the way we do it in commercial business. I meant it in all sincerity when I said that I was quite sure that, over the years, you didn't sign many contracts-
Mr. MAVROULES. Ron, would you yield to me for a moment?
Mr. MAVROULES. On March 18, we are going to have hearings specifically on what you refer to. So I would encourage you to be here in that meeting. We will look that over in detail.
Mr. WYDEN. I very much appreciate the gentleman's comments and Mr. Packard's, as well.
Thank you, Mr. Chairman.
I want to go back to the first area I was asking about in the first round and just briefly, to check with the admiral about it. That is what we are recommending in regard to the CINCs, in the four bills that we have.
Our JCS bill is already through, and I think we are pretty close to what you recommend here, maybe, if you cross some t's and dot some i's. There is a chance for changes between now and final passage. In regard to the CINC's, which is an area we put a lot of emphasis into, Admiral, do you feel that it does make sense to let the CINC's have an area carved out for them, a narrow area, limited funds in the areas of, for example, joint training, joint exercises, maybe some limited command and control funds when modifications are needed to make the systems functional? Do you think it makes sense (and not overburdening them with administrative detail), to let the Secretary of Defense choose the several limited areas where he thinks the CINC's ought to be able to make requests in terms of separate budgets? What is your view on that and the CINC's bill, in general?
Mr. PACKARD. Why don't you go ahead, Jim, and start it.
Admiral HOLLOWAY. I would not disagree that a limited budgeting authority for the CINC's is proper. As a matter of fact, it wasn't too many years ago when the JCS received an appropriation for the same kinds of purposes in order to conduct operations. I believe that, in general, the proposed bill reflects the same concerns and pushes toward the same kinds of solutions that the Commission has come forth with.
However, my personal concerns are that, because your bill for the CINC's goes into really considerable fine-grained detail, it leaves little latitude for adjustment, or discretion, on the part of those who have to manage the entire Department of Defense.
Specifically, the authority for the CINCs in the budgeting and support areas, and having their own administration, really moves too far. I think there is a great danger that the general attitude of the CINC's will shift from war-fighting to in-fighting.
In the past, we have jealously guarded and protected the CINC's from being overburdened with bureaucracies. The people in Washington, at the headquarters, have to defend the budget, have to defend the requirements, and although the CINC's have made their inputs, they have been left relatively free to be prepared to conduct military operations and fight wars. Now, if the CINCs get to the