TABLE OF CONTENTS CHAPTER I. OBJECTIVES AND SCOPE

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP96B01172R000900030001-0
• Release Decision: RIPPUB
• Original Classification: T
• Document Page Count: 282
• Document Creation Date: December 16, 2016
• Document Release Date: September 29, 2004
• Sequence Number: 1
• Content Type: STUDY

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Our study could have been extremely complicated because of
the necessary compartmental organization of the Agency. However,
this was not the case. We received excellent cooperation from all
the Agency personnel who participated with us in the review or whose
systems were being reviewed. Moreover, we found a general acceptance
and enthusiasm for the need for assessment of the system. In some
cases, procedural changes were put into effect immediately which
reflected joint decisions by Agency personnel and our representatives.
In other cases, where suggestions involved more complex and extensive
changes, steps were taken by Agency personnel to begin implementation.
We wish to express our appreciation for the many courtesies
extended to us during the study.
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NRO and USAF review(s) completed.
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TABLE OF CONTENTS
CHAPTER I. OBJECTIVES AND SCOPE
1.0 Statement of Tasks
2.0 Approach
3.0 Accuracy of Data
CHAPTER II. SUMMARY OF FINDINGS
1.0 Characteristics of Agency Procurement
2.0 Definitions
3. 0 Summary of Findings
3. 1 R&D Procurement
3. 1. 1 Over-all Management
3.1.2 Division of Responsibility
3.1.3 Policies and Procedures
3. 1. 4 Management Information
3.1.5 Responsiveness
3. 1.6 Contract Type Selection
3.2 Logistics Support
3. 2. 1 Logistics Supply System
3. 2. 2 OSA Supply System
3.2.3 Interdepartmental Requisitioning
3.2.4 Covert Procurement
3. 3 Budgeting, Funding and Accounting
3. 3. 1 Research and Development
3.3.2 Logistics Procurement and Inventories
3.4 Contract Accounting
3.5 Security
3.5.1 Findings
CHAPTER III. RESEARCH AND DEVELOPMENT
AND RELATED PRODUCTION PROCUREMENT SYSTEM
1. 0 Procurement System Overview
1. 1 Identification of Procurement Systems
1..2 Characteristics of Procurement Systems
1. 2. 1 Characteristics of Procurement by OL
1.2.2 Characteristics of R&D Procurement by OSA
1.2.3 Characteristics of Procurement by OSA for Major Systems
1. 2.4 Characteristics of Procurement of Support Systems by OSA
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1. 3 Responsiveness of Procurement System
1.3.1 Time
1.3.2 Over-runs
2.0 Assessment of Procurement by Office of Logistics
2. 1 Organization
2. 2 Characteristics of Procurement Policy
2.2.1 Solicitation of Proposals
2.2.2 Proposal Evaluation and Source Selection
2. 2. 3 Contract Negotiation
2.2.4 Award of Contracts
2. 2. 5 Contract Administration
2.3 Assessment of Procedures and Practices
2.3.1 Evaluation of Contractors
2. 3. 2 Source Selection and Sole Source Procurement
2.3.3 Feed-back Information on Negotiations
2.3.4 Approval for Obligation
2.3.5 Certification for Payment
2.3.6 Contract Administration
2.3.7 Work Order/Task Order Routine Under Basic Agreement
2.4 Management Controls
2. 4. 1 Recurring Reports
2.4.2 Consolidated Contractor Information
2.4.3 Contract Status Reporting
2.4.4 Management Information System
2.5 Responsiveness
2. 5. 1 Quick Reaction
2. 5. 2 Negotiation
2. 5. 3 Contract Administration
2.5.4 Examples of Procurement in Practice
2. 6 Summary of Findings - L Procurement
2. 6. 1 Divided Responsibility and Its Consequences
2.6.2 Responsiveness
2.6.3 Negotiation
2.6.4 Contract Administration
2. 7 Recommendations for R&D and Related Production Procurement
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3. 0 Assessment of Procurement by DDS&T/Office of Special Activities
3. 1 General Procurement Background
3.2 Organization
3.3 Contract Statistics
3.4 Procedures
3.4.1 Major Systems
3.4.2 Support Systems
3. 5 Management Controls
3. 6 Responsiveness
3. 6. 1 Major Systems
3. 6. 2 Support Systems
3. 7 Summary of Findings
4.0 Assessment of Technical Participation in Procurement
4. 1 Deputy Director for Science and Technology
4. 1. 1 Program Approval
4. 1.2 DDS&T Contract Statistics
4. 1.3 Research and Development Information System
4. 2 Office of ELINT
4. 2. 1 Organization
4.2.2 Statistics
4.2.3 Procedures
4. 2.4 Managements Controls
4.2.5 Responsiveness
4. 2.6 Summary of Findings
4. 2. 7 Recommendations
4. 3 Office of Research and Development
4.3.1 Organization
4.3.2 Statistics
4.3.3 Procedures
4.3.4 Management Controls
4.3.5 Responsiveness
4.3.6 Summary of Findings
4.3.7 Recommendations
4. 4 National Photographic Interpretation Center
4.4.1 Organization
4.4.2 Contract Statistics
4.4.3 Procedures
4.4.4 Management Controls
4.4.5 Responsiveness
4.4.6 Summary of Findings
4.4.7 Recommendations
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4. 5 Technical Services Division
4.5.1 Organization
4.5.2 Statistics
4.5.3 Procedures
4.5.4 Management Control
4.5.5 Responsiveness
~r 4. 5. 6 Summary of Findings
4. 5. 7 Recommendations
4.6 Office of Communications
4. 6. 1 Organization
4.6.2 Statistics
4.6.3 Procedures
4. 6.4 Management Controls
4.6.5 Responsiveness
4. 6.6 Summary of Findings
4. 6. 7 Recommendations
5. 0 Contract Auditing
5. 1 Industrial Contract Audit Division
5. 1. 1 Overview
5.2 Problem Identification
5. 3 Recommendations
5.3.1 Industrial Engineering
5.3.2 Burden Rates
5.3.3 Sign-offs
5.3.4 Contractor Education
5.3.5 Assignment
5.3.6 Organization
5.4 Audit Staff
5.4.1 Findings and Problem Identification
5.4.2 Recommendations
6. 0 Budgeting, Funding and Accounting for Research and Development
6. 1 Findings
6.2 Recommendations
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1. 0 Supply System
1. 1 Problem Identification
1. 1. 1 Critical Factor Consideration
1.1.2 Cost-Value Considerations
1.1.3 Stock Status Report
1. 1.4 Programmed Items
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Behavior of Re-Order Controlled Items
Economic Order Quantities
Lead-Time Information
Inventories
1. 1.10 Current Attempt to Revise System
1.. 1.11 OSA Inventories
1.2 Recommendations
1.2.1
1.2.2
1.2.3
1.2.4
1.2.5
Assign Critical Factors
Assign Cost-Value Factors
Determine Reporting and Review Frequency
Behavior Analysis and Classification
Redetermine Economic Order Quantities
1.2.6 S ecific
1.2.7
Lead-Times
1.2.8 Report and
Summarize Customer Usage
1.2.9 Inventory Status and Activity Reporting
1. 2.10 Determine Best Computer Configuration and Location(s)
1.2.11 Control of Inventory Management
1..2..12 Study OSA Inventories
2. 0 Interdepartmental Procurement
2. 1 Overview
2.2 Problem Identification
2. 3 Recommendations
4. 0 Budgeting, Funding and Accounting for Logistics Support
4. 1 System Overview
4. 2 Problem Identification
4.2.1 Station Information
4.2.2 Customer Complaints
4.2.3 Pricing Data
4.2.4 Obsolescence
4. 2. 5 Increases in Inventories
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4.2.6 Lead-Time
4.2.7 Discipline
4.2.8 Lack of Control
4. 3 Recommendations
4. 3. 1 Revolving Stock Fund
4. 3. 2 Informal Stock Fund
'4. 3. 3 Statistical Accounts
4.4 Property-In-Use
5.0 Allocation and Priority Assistance
5. 1 Priorities with and for Contractors
5. 1.1 Findings
CHAPTER V. OVER-ALL PROCUREMENT
AND MATERIEL MANAGEMENT
1.0 Management Review and Coordination
1. 1 R&D and Related Production Organization and Control
1.2 Logistics Support Procurement Organization and Control
1. 2. 1 Production Contracts and Federal Stock Items
1. 2. 2 Inventory Management
1.3 Over-all Management Review and Coordination
2. 0 Procurement Management Information System
2. 1 R&D Procurement Information System
2.2 Other Procurement and Materiel Management Information
2.3 Need for Rapid Response to Inquiry
2.4 Overview
2.5 Recommended Approach
2. 6 Policy Reviews Required
1. 0 Procurement Organization
1.1 Assign Responsibility for Over-all Agency Procurement
Management Coordination and Control
1.2 Establish a Contract Review Board
1.3 Production and Logistics Procurement
1.4 Inventory Management
1.5 Centralization of R&D Procurement under DDS&T
1.6 Centralization of Contract Auditing
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2. 0 R&D and Related Production Procurement
2. 1 Modification and Addition to Procedures
2. 1. 1 Solicitation of Proposals
2.1.2 Evaluation of Proposals
2.1.3 Operational Requirement Procedure
2. 1.4 Evaluation of Contractors
2. 1.5 Contractor Reports
2. 1.6 Contract Status Reviews
3. 0 Logistics Support Procurement
3. 1 Supply System
3. 2 Interdepartmental Procurement
3. 3 Covert Procurement
4. 0 Procurement Management Information System
5. 0 Budgeting, Funding and Accounting
6. 0 Contract Auditing
7. 0 Security
Exhibit A - Contract Statistics
Exhibit B -
Exhibit C - OL -Procurement Division Recurring KeportR
am Exhibit D -
Exhibit E -
Exhibit F - Overview of Administrative
and Production Contracts
Exhibit G - DDS&T Data Base
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Operations on
Exhibit I I
Exhibit J - Glossary of Terms
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OBJECTIVES AND SCOPE
1.0 Statement of Tasks
2.0 Approach
3.0 Accuracy of Data
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I. OBJECTIVES AND SCOPE
The objectives of the study are best understood by reviewing the
work statement prepared jointly by Inspector General and contractor
representatives, which follows:
1.0 STATEMENT OF TASKS
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"The contractor will use his best efforts, but will not apply more
than ten man months of professional talent, to accomplish the following
tasks by June 15, 1966:
Task I. Appraise the effectiveness of the Research and Develop-
ment Procurement System including:
1. Analysis of (a) requirements determination,
(b) responsiveness of procurement to needs, (c) operating
procedures including data processing, and (d) manage-
ment control;
2. Identification of major current and potential
procurement problems, including the possible need
for allocation and priority assistance; and
3. Identification of alternate courses of corrective
action for any problems cited.
Task H. Appraise the effectiveness of the Logistics Support System,
including:
1. Analysis of (a) requirements determination,
(b) responsiveness of procurement to needs, (c) operating
procedures including data processing, and (d) manage-
ment control;
2. Identification of major current and potential
procurement problems, including the possible need for
allocation and priority assistance; and
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3. Identification of alternate courses of corrective
action for any problems cited.
Task III. Appraise the impact of programming, budgeting, funding,
accounting and auditing systems on procurement activities.
Task IV. Appraise the procurement organization in terms of its
impact on security and on the efficiency of the procurement
activities.
Task V. Submit a report to the Inspector General summarizing the
findings together with supporting data reached as a result
of the appraisals conducted in Tasks I through IV. "
After receiving a number of briefings from components on Agency
operation, organization and procedures, we divided the study into three
principal sections, namely:
. A study of Research and Development and related
procurement.
. A study of Logistics Support.
. A study of budgeting, funding, and auditing functions
and operations as they apply to procurement.
A number of offices, divisions and branches were visited. Inter-
views were conducted with management and support personnel. Selected
reports, contract files and related records were reviewed. Financial
and statistical data were compiled by our representatives or by Agency
personnel under our direction.
Specific directorates, divisions, staffs and offices which were
reviewed were:
. For the study of Research and Development
National Photographic Interpretation Center, DDI
Technical Services Division, DDP
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Office of Communications, DDS
Office of ELINT, DDS&T
Office of Research and Development, DDS&T
Office of Special Activities, DDS&T
Office of Special Projects, DDS&T 1
. For the Logistics Support study
Procurement Division, Office of Logistics, DDS
Supply Division, Office of Logistics, DDS
Selected supply customers:
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Far East Division, DDP
Office of Communications, DDS
Technical Services Division, DDP
Covert Procurement Branch, Office of Logistics, DDS
Covert Proprietaries, Office of Logistics, DDS
Office of Finance, DDS
Industrial Contract Audit Division, Office of Finance, DDS
Audit Staff, Office of Inspector General
Office of Planning, Programming and Budgeting
Office of Computer
Office of Logistics, DDS
Office of Logistics, DDS
DDS special supply management study group
Some of the more important procurement and support locations
which were not visited or reviewed are:
Operating proprietaries
Stations
Because of the recent separation of the Office of Special Projects
(OSP) from OSA, OSP was not surveyed in depth. Procedures
currently in effect were described to be similar to those used by
OS A.
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support inventories
Agency contractors
OSA inventory support locations
Financial and statistical figures contained in this report are
approximate but not necessarily precise. They were obtained from a
variety of Agency reports and records without audit.
In many cases the data were very difficult to extract and assemble.
It was generally necessary to work with manual rather than automated
records. Moreover, we were unable to work with control totals and the
files and records lacked uniformity among components. Nevertheless,
we feel that they are substantially correct to serve the purpose of the
study.
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SUMMARY OF FINDINGS
1.0 Characteristics of Agency Procurement
2.0 Definitions
3.0 Findings
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AGENCY PROCUREMENT SYSTEMS
DDI
DDP
DDS&T
DDS
SECRET
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Ii. SUMMARY OF FINDINGS
1.0 CHARACTERISTICS OF AGENCY PROCUREMENT
Certain characteristics of Agency procurement have been identified
which have an important bearing on the responsiveness of the system to
Agency needs. In succeeding chapters these characteristics are treated
in detail. It is fitting, however, to identify them in summary form as a
backdrop for the assessment and recommendations which follow.
Multiple Procurement Systems
Several procurement systems exist which should perhaps more
aptly be called sub-systems. This is because an over-all procurement)
system cannot be i entified within the Agency in erms o procurement
po. icy and control.
The three principal systems are shown in Figure II-l. One system
includes procurement through the Office of Logistics, Procurement
Division OL PD A second involves procurement through the Deputy
Director for Science and Technology (DDS&T), Offices of Special Activities
(OSA) and Special Projects (OSP). A third system deals with procurement
fir ugh proprietary companies,
A variety of lesser channels of procurement exist. While they are
not sub-systems in stature, they are worthy of note because they contribute
to the multiplicity of procurement means.
As an example, the technical components of the National Photo-
graphic Interpretation Center (NPIC) and DDS&T procure Research and
Development (R&D) in support of the National Reconnaissance Program
(NRP) through OSA and OSP. Procurement by technical components also
takes place directly through the Procurement Authorization Request (PAR)
arrangement in OSA and the Work Order Routine in the Office of Logistics
(OL) under basic agreements negotiated by OSA and OL respectively.
Expenditure Classifications
Additional important features of Agency procurement can be iden-
tified by classification of expenditures in terms of organization and in
terms of the type of procurement.
>E~ Some covert procurement through proprietaries takes place through OL.
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Classification by Organization
Figure 11-2 shows the expenditures for R&D and related production
in terms of the originating organizations. Figure 11-3 similarly illustrates
expenditures for Logistics Support and Programmed Production by directorate.
As can be seen from these figures, expenditures through DDS&T (OSA/OSP)
dwarf expenditures through OL/PD. Significantly, procurement expenditures
for the Air Force portion of the NRP are several times larger than expen-
ditures of Agency funds from this source.
Classification by Type of Procurement
Expenditures can also be classified by type and method of procure-
ment employed. R&D procuret, including follow-on production, is
one classification. This type of procurement is carried out by both OL
and 'OSA/OSP. The use of performance specifications typifies the method
because final products cannot be defined precisely in terms of design
specifications. A relatively high degree of technical knowledge and under-
standing concerning the nature and use of the item required is needed to
buy R&D effectively. Follow-on production is included in this category
because production runs are small, intimately connected with R&D, and
frequently involve numerous technical changes.
The second classification of procurement is Logistics Support and
Program procurement. Here the product can be defined precisely. Design
specifications, completely describing the product configuration, quality,
and operating characteristics typically are used as the basis for procure-
ment. Frequently a manufacturer's identification number defines the
product. Relatively little knowledge or understanding of the product is
needed by contracting personnel for this type of procurement. Procure-
ment expenditures for Logistics Support and Programmed Production are
shown in Figure 11-3.
In summary, as shown in Figure 11-4, total Agency procurement
expenditures by type of procurement are:
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Research and Development
Logistics Support
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Significance of Expenditure Classification
It is significant that total Agency procurement expenditures are:
Predominantly one type.
Predominantly originated in
one directorate.
Predominantly procured by
one directorate.
Procurement Management
Procurement management within the Agency is decentralized and,
consequently, there is `not a single, centralized organization with respon-
sibility for coordination and control of Agency procurement activities.
The decentralization of responsibility is greater in practice than
is made apparent by examination of policy and the organization structure.
Technical components carry out several procurement functions indepen-
dently of the procurement office. For example, sources are identified
and qualified, requirements are established, proposals are solicited and
evaluated, and a source selected prior to involvement of the procurement
office. These activities involve close association with contractors and
are generally referred to as "pre-cooking the deal".
Procurement policies and procedures followed by OL/PD differ
widely from those followed by the OSA and the OSP in DDS&T.
example, the recently issued Procurement Policy Guide
applies only to procurement by OL/PD which amounts to less an
of Agency procurement expenditures.
Representatives from eight different technical components and
three purchasing organizations deal directly with contractors. Two or
more technical components and two or more purchasing organizations
within the Agency often contact the same company. Approximately 20%
of the Agency's R&D contractors negotiated contracts with two or more
Agency buying organizations. Because the Agency does not exercise over-
all control of its procurement efforts, contractors encounter a variety
of policies and procedures.
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There is no Agency-wide review monitorin
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procurement), over-all review of procurement programs is carried out
by the Office of Planning. Progr rxlmin and Budgeting (O/PPB) through
the medium of Catalog Forms. However, the-M-ice lacks the tech-
nical capability to assess these programs or to insure re a'vo'oi~an e"
unwarranted duplication.
divided responsibili ,}es frequently result in lack of coordination
among the technical, procurement, and audit functions in the Agency s
purchasing activities.
2.0 DEFINITIONS
Each interested reader may not be totally familiar with the termi-
nology used in this report. For that reason and also because variations
in terminology convention exist within the Agency, a glossary of terms
has been included in Appendix J.
Of particular importance because their characteristics influence
procurement, a distinction is made between two types of production. As
used in this report:
Frequent use of the expression "R&D and Related Production"
is made. ' elated Production" is defined as all that production 7
which is related to a particular R&D rogram, whether the pro
-
duction
duction is included in the same R&D contract or not. Subsequent
. , .. .. ._ . .. ..
repeat production runs are also included in the definition of the
terms. Further, in OSA considerations -the logistics support
for the operation of programs which result from R&D contracts
is included in the meaning of the term.
Programmed Production
The term "Programmed Production" is used in connection
with general Agency Logistics Support. The term applies to
non-Agency developed items which are produced under contract
for inventory.
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Distinction Between Related Production and
Programmed Production
A clear distinction between Related Production and Pro-
grammed Production is made.because the method of procurement
is influenced by the characteristics of each. The following
characteristics are important:
Quantity - Related Production is usually very
limited in quantity. Programmed Production fre-
quently involves relatively large quantities.
Specifications - Related Production most usually
involves only performance specifications in which
the definition of what's wanted is less than exact.
Programmed Production involves design specifica-
tions, (not infrequently a catalog number), in which
the definition of what's wanted is precisely known.
Production Changes - Related Production almost
always involves changes, frequently quite far along
in the production cycle. Changes derive from such
factors as: needs to more closely meet specifications,
changes in the original specifications themselves,
or modifications to improve performance over original
requirements. Programmed Production seldom
requires changes and when changes are required,
they are usually minor in complexity.
Impact of Production Characteristics on Procurement
The characteristics of Related Production and Programmed
Production call for procurement which is different in some major
respects, such as:
Product Knowledge - Because technical considerations
play such an important part, considerably more product
knowledge is required for Related Production procure-
ment than for Programmed Production.
Procurement Knowledge - Because major changes fre-
quently occur, considerably broader knowledge of con-
tracting procedures and contract administration is
required for Related Production than for Programmed
Production.
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Continuity - Because the interrelationship of technical
changes is often complicated and occur frequently over
relatively broad spans of time, including the opera-
tional phase, there is more need for continuity of
assignment of personnel in Related Production than in
Programmed Production.
3. 0 SUMMARY OF FINDINGS
Our principal findings are summarized in this section.
3.1 R&D Procurement
3.1.1 Over-all Management
There are several R&D procurement channels in existence
without over-all Agency policy, procedures, anTcontrol.
3. 1. 2 Division of Responsibility
With the exception of major system procureme nt in OSA and
OSP, there is a division of procurement responsibility between the
technical, procurement, and audit functions in all phases of procurerne nt.
This division of responsibility is the chief contributor to a lack of team-
work and on occasion results in ineffective negotiations, limited price and
cost analysis, frequent sole source procurement, limited time for nego-
tiations, delays in negotiation and uncoordinated contract administration.
Existing documented procurement policy applies to only 5. 3070
of R&D procurement. (It applies to less than 15% of total procurement. )
Reporting, . quirements placed on contractors differ widely
and for the most part provide inadequateinformati. for contract manage-
....,-: ..,:-u~~ ~...:.n..:.
meat Notably lacking are estimates-to-complete which are very important
because of the p-reedominance of CPFF contracts. Personal contact with
contractors is, heavily ee rea upon to monitor technical progress. Require-
ments for contractor written reports is minimized. Heavy burdens on
personnel time is therefore required when trips to contractor sites are
involved.
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3. 1. 4 Management Information
There is a lack of adequate information to permit effective
management by the exception princile.
The current efforts to provide the information necessary
for management of RR rocurement are no being approached on an
acceptable system desi9gn basis.
3.1. 5 The responsiveness of the R&D procurement systems is
generally good with certain notable exceptions.
A very high number of contracts are delivered late.
The average degree of late delivery is not excessive but
important contracts are seriously late on occasion and the
total pattern of extensions and delays signals the need for
attention.
and negotiating contributor does[nogpl ufficientl decisive
There is a lack of capability to perform adequate cost
analysis.
I
A very high number of procurements are on a s
source basis which, in conjunction with a general lack of cost
analysis, casts doubt on the soundness of costs.
3.1.6 Contract Type Selection
The selection of the type of contract to be employed appears
to be based primarily on the premise in technical components that Cost
Plus Fixed Fee contracts provide the singularly best medium for giving
the flexibility needed. There is a reluctance to consider other types
principally because the administrative burdens are too great. The
existing procedures and division of responsibility make CPFF administra-
tion eases' r ut, not necessarily the best. No "best" type can be identified
as a generalization. Fixed rice contracts, for example, when nego-
tiated without adequate cost analysis, provide no means for recovery if
excess profit prevails. Incentive contracts which include features
which are impossible to measure are equally difficult.
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The selection of contract type appears to be made too often
in favor of CPFF without sufficiently thorough evaluation of the relative
advantages of other types.
3.2 Logistics Support
3.2. 1 Logistics Supply System
The management of inventory levels for different classes of
technical materiel is the responsibility of the various components who
have the necessary technical knowledge to select the items originally.
Responsibility for administrative and housekeeping supplies is delegated
to the Supply Division of the Office of Logistics (OL/SD). We believe
this type of or anization to be ro er and desirable,
However, the manner and frequency in which the inventory
status of many of the supply items are being reported, analyzed and
controlled raises some basic questions. All items, whether they are of
the type that can be programmed (planned time consumption) or the type
which are drawn down through issues and automatically replenished, are
managed with similar decision rules which may be inappropriate in
many cases.
Further, the frequency and form in which the inventory
status of a particular item is reported, analyzed and controlled bears
little relationship to the item's importance to continuance of Agency
operations or its cost. A grenade- rifleis reported in the same manner
as a paper stapler. Both are re orted at the same time intervals.
The exclusion from the inventory reportin
system is a problem because i t prec u es oth a complete know edge of
the current inventory status of items as well as information pertaining
to the application and consumption of property and supplies.
In general, the present reporting and control system on one
hand contains voluminous information that in many cases is simply too
much to review, analyze and digest. In other cases we find that the
frequency of reports, their formats, content and the decision rules used
for control may be inadequate to insure the lowest ,pss ; einveenntor
investment which will properly satisfy Agency needs without_endangering
or impe mg its missions. - `'
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In summary, the effectiveness of logistics supply inventory
management could not be appraised because the current reporting system
does not:
. Rank items in accordance with their importance
to Agency operations, or their costs, for the purpose of
determining how frequently their status should be reviewed.
. Utilize different decision rules and report formats
for items with different behavior characteristics.
Include all pertinent inventories, or complete /
information, concerning their application or consumption.
3.2.2 OSA Supply System
OSA inventories in support of air operations are found in
several locations, some under the cognizance of the United States Air
Force (USAF).
The techniques required to manage this class of inventory
differ substantially from normal housekeeping items because of planned
preventive maintenance programs, the need for usage correlation with
different flight plans and so forth.
While we did not review the inventory management systems
and records applicable to these operations, we found great concern in
OSA with the lack of modern, automated records and reports available
under the USAF systems.
3.2.3 Interdepartmental Requisitioning
The Interdepartmental Requisitioning unit performs the
important function of procuring stock items from other Government
agencies and departments. We believe that it is unable to operate as
effectively as it should because:
. It is understaffed.
. In some cases, high priorities are assigned to
interdepartmental orders which appear to be unnecessary
and possibly may become embarrassing to the Agency.
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. An automated information system is not available to
enable the unit to properly manage outstanding requisitions.
The unit appears to be burdened with unnecessary
administrative detail.
3.2.4 Covert Procurement
The Covert Procurement Branch appears to be a necessary
branch performing important functions and handling actions which would
upset normal routines if they were to be routed through regular procure-
ment channels. We believe that certain existing policies and procedures
are ineffective because:
Many low cost items are procured utilizing a paper-
work system the cost of which exceeds by many times the
cost of items procured.
. There is some question whether covert procurement /
routines are justified for all actions to which they are applied.
. The system appears to be burdened with unnecessary
accounting detail.
Personnel. have not been rotated sufficiently.
3.3. Buageting, Funding-and Accounting
3.3.1 Research and Development
Budgeting, funding and accounting for Research and Develop-
ment (R&D) are handled differently than for logistics procurement.
Because of the need for security, the identification and pro-ration of
appropriations and funds is often highly complex and we agree that this
is necessary.
Annually, the Office of Planning, Programming and Budgeting
(O/PPB) is gradually increasing the detailed information required for
budget calls and with this we concur. The present system is good and it
is thorough. However, OSA and OSP have requested and need an auto-
mated system to replace their current, manual accounting systems.
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3.3.2 Logistics Procurement and Inventories
Rather than utilizing a formal allotment system with or without
a revolving stock fund, the Agency utilizes a system of "Property Requisi-
tioning Authority". This system places the responsibility on the user to
maintain control records of his unused PRA and the total of all components'
PRA is given to the Office of Logistics (OL) in the form of a general pro-
curement fund to replenish inventories or to make direct purchases as
requisitioned by the components.
This system has not responded effectively in the past during
periods of heavy mission activity. There appear to be many reasons for
this, the principal ones being:
. Communications and hence updating of control
records have lagged with the result that OL has completely
dissipated procurement funds during the fiscal year.
. Operators, in some cases, don't understand the
system and have confided that they do not trust the system.
. The pricing and funding methods do not appear to
have made proper allowances in the past for obsolescence,
price increases, spoilage and increases in lead-times and
inventory levels.
. There is an apparent lack of discipline if a com-
ponent exceeds its PRA.
. In the past, issues from inventories have been
handled in the same manner as new stock procurements for
inventories with apparent resulting confusion on the part of
components.
. Information feedback from Headquarters to the
components apparently has been insufficient to enable them
to properly plan and control their PRA.
3.4 Contract Auditing
Contract auditing, pre-award cost and price analysis is handled
by a number of different units throughout the Agency with varying degrees
of effectiveness.
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Industrial Contracts Audit Division (ICAD) handles audit aspects
for procurement contracts which are issued through OL.
Our findings are:
ICAD audit roceduresare Lood. However, this division
is not sufficiently equipped with the types of talent necessary to
perform proper cost analyses.
ICAD audit recommendations may be over-ridden by
Contractin 0 ffic rs without proper "sign-off". Audit partici-
pation during negotiations appears to be ineffective in some cases.
The Agency is apparently experiencing unnecessary mis-
understandings with some contractor ncerning its authority
to perform post audits of Firm Fixed Price (FFP) contracts.
The Defense Contract Audit Agency (DCAA) appears to
be attempting to introduce itself into l gency audit activities.
Audit Staff/IG activities were found to be very effective.
3.5 Security
Divided responsibility for procurement, coupled with divided
responsibility Jor *ecurity, has resulted in duplicate and inconsistent
secur_ itr procedures that often are incompatible with the real environment
in which procurement "cover" activities are conducted. The Inspector
General's Survey of Industrial Security in September 1965, and several
earlier studies, identified duplication and inconsistencies in the industrial
security program which until recently was the responsibility of OL/PD
and DDS&T. A new Industrial Security Division has been established
by the Director _of.- Security to maintain central cognizance of the Agency's
industrial security program. It can be expected that this organization
will overcome the defects previously identified in procedures for con-
trolling security of contractors who handle classified work. for the Agency.
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It is suggested that the new Industrial Security Division also examine the
following apparent inconsistencies in procurement security procedures
identified by this survey.
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RESEARCH AND DEVELOPMENT
AND RELATED PRODUCTION
PROCUREMENT SYSTEM
1.0 R&D Procurement System Overview
2.0 Assessment of Procurement by OL
3.0 Assessment of Procurement by DDS&T/OSA
4.0 Assessment of Technical Participation in Procurement
5.0 Contract Auditing
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ORGANIZATION - R & D RELATED COMPONENTS
EXECUTIVE DIRECTOR-
COMPTROLLER
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STAFF
BI;
INSPECTOR
GENERAL
C ACTION
STAFF
GENERAL
COUNSEL
Research activity not
included in study
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III. RESEARCH AND DEVELOPMENT
AND
RELATED PRODUCTION PROCUREMENT
The objective of this portion of the report is to appraise the R&D
,won procurement system in terms of how well it is responding to the R&D
needs of the Agency.
The results of the appraisal are intended to portray identification
of problems, alternative courses of corrective action, and recommendations.
The appraisal includes the usual activities of procurement: identification
and qualification of sources, solicitation of proposals, evaluation of pro-
posals, selection of source, negotiation, contract administration, and
contract settlement. In addition, activities not normally considered within
the definition of procurement but closely associated with it have been
examined. Activities in this category include planning, programming,
budgeting, funding, accounting, and auditing.
Within this broad scope, a specific level of effort has been applied
to meet the primary objective of assessing the responsiveness of the pro-
curement system to Agency needs. The depth to which each subject has
been treated varies. Consultation with the sponsor of the study from
time to time throughout the course of the study provided guidance on
where emphasis should be placed.
The Agency organizational components engaged in R&D are illus-
trated in Figure III-1. Of these, DDI/OBI, DDI/ORR, DDS&T/OSI, and
DDS&T/FMSAC are engaged in research which does not of itself ultimately
result in hardware. It was decided for that reason, and because the budgets
are relatively small, to concentrate on the research and development
hardware-oriented organizations. Therefore, while some information
about them is included, these non-hardware research groups were not
visited.
The initial analytical approach taken in this study was a determina-
tion of elapsed time between major milestones in the procurement cycle.
Elapsed time, while only one, is an important measure of responsiveness.
Unusually long times frequently flag the need for examination of contri-
buting causes.
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CONFIDENTIAL
MEASUREMENT OF RESPONSIVENESS
Start of Delivery of
technical Submission of requisition Executed Product
effort project plan to logistics contract delivery
ESTABLISH
REQUIREMENT
OBTAIN
APPROVALS
CONFIDENTIAL
ADMINISTER
CONTRACT
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The major milestones selected are shown in Figure 111-2. It was
difficult to establish a single point, consistently meaningful for all com-
ponents, at which the in-house technical effort for a given contract
commences ? (Phase A). This was true for a variety of reasons; i.e.,
records were not maintained, formal assignment of technical personnel
was not made, the over-lap of one phase with another masked the point.
Consequently, the first clearly identifiable point in time in the process
was the submission of documentation to management for approval of a
requisition.
While exact time measures could not be made, Phase A was not
ignored as a contributor to the over-all elapsed time. The work content
of that phase, including such activities as writing requirements, proposal
solicitation, evaluation, and source selection, was examined and estimates
of the total time involved were determined.
In addition to .this time measurement, each component's organiza-
tion, procedures, work content and management controls were examined
and analyzed as required to assess responsiveness of the system to needs.
In this assessment the answer to one basic question was sought.
Does the system provide goods and services which meet specifications,
on time and within cost?
The treatment varies in depth from subject to subject. An attempt
was made to supply examples in detail to illustrate general conclusions
and still reach and primary over-all objective within the prescribed
limits of effort. Certain contracts were selected as illustrative of capa-
bilities and limitations, but were not taken from each component. These
examples serve to illustrate problems of the general system and are not
intended to apply to the particular component beyond the conclusions as
stated.
1. 1 Identification of Procurement Systems
The R&D procurement system is comprised of five sub-systems
which have evolved in the course of time. The basis for identification
of the sub-systems was primarily one of determining the essentially
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R&D PROCUREMENT CHANNELS
1 _ All components have some procurement through O/L-PD-R&DS
2~ O/SA single-management procurement for aircraft
3~ Q'SP single-management procurement for satellites
4~,, R & D equipment and service in support of NRP
Direct procurement in special cases with peripheral association
with procurement offices. [The Work Order Routine (O/L) and
the Procurement Authorization Request (O/SA)]
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or completely independent channels through which procurement occurs.
On that basis, the five sub-systems illustrated in Figure 111-3* have
been identified and examined.
The sub-systems are as follows:
1. Procurement is through the Office of Logistics, Pro-
curement Division, R&D Section (OL/PD/R&DS)
2. Procurement is carried out through a Contract Section
which is physically located within the OSA organization and which
has complete and special Contracting Officer authority for pro-
curement of major aircraft systems, representing a single-
management orientation.
3. The OSP sub-system is identical to OSA (2, above), but
applies to satellite procurement rather than aircraft.
4. Various components carry out R&D in support of aircraft
or satellite programs associated with the National Reconnaissance
Program (NRP). Procurement so associated is carried out through
the corresponding OSA or OSP Contracting Officer.
5. The fifth sub-system is barely worthy of such identification
but is sufficiently important in a practical sense to be included.
The channel is characterized by a basic contract (negotiated by OL
or OSA or OSP) under which procurement takes place directly by
the technical component. The procedure is identified as the "Work
Order Routine" if it applies to OL, and as the "Procurement
Request Authorization" (routine) if it applies to OSA or OSP.
* The illustration depicts the different channels in existence but because
the situation is somewhat complicated, the illustration is not complete
in every detail. For example, channel 4 identifies the procurement by
three components: NPIC, OEL, and ORD through OSA and/or OSP.
Other components might also use this channel from time to time. Simi-
larly, the contacts with contractors as illustrated is not precise, because
of the complexity in defining the exact commonality of contractors.
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RESEARCH AND DEVELOPMENT-PROCUREMENT CHARACTERISTICS
OSA SUPPORT PROCUREMENT
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Contractors
REQUIREMENTS ARE ESTABLISHED
PROPOSALS ARE EVALUATED
SOURCES ARE SELECTED
CLOSE TECHNICAL COMPONENT
TO CONTRACTOR CONTACT
ASSOCIATION AND JOINT PARTICIPATION
OF CONTRACTING AND TECHNICAL
IS INFORMAL. THE MAJOR PROGRAM
TECHNICAL OFFICER SERVES TO MAKE THE
ASSOCIATION BETWEEN CONTRACTING
AND THE COMPONENT TECHNICAL
OFFICER CLOSER
OSA
Contracting
OSA
contracting
is by memo.
INFORMAL PRENEGOTIATION
DISCUSSIONS WITH TECHNICAL
COMPONENTS TAKE PLACE
NEGOTIATIONS FREQUENTLY
INVOLVE TECHNICAL COMPONENT
REPRESENTATION
FEED BACK TO TECHNICAL
COMPONENTS IS INFORMAL
AND DIRECT
WITH CONTRACT ESTABLISHED
COMMUNICATIONS WITH CONTRACTORS
OCCUR BOTH THROUGH AND AROUND
OSA CONTRACTING
FINANCIAL AND TECHNICAL REPORTS ARE
NOT IN GENERAL REVIEWED IN ONE
FUNCTION
TOTAL SINGLE MANAGEMENT IS MISSING,
BUT MAJOR ISSUES RECEIVE COMMON
CONTRACTING/TECHNICAL CONSIDERATION
BECAUSE OF TECHNICAL ASSOCIATION
TO MAJOR AIRCRAFT PROGRAMS
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RESEARCH AND DEVELOPMENT
PROCUREMENT CHARACTERISTICS
O SA MAJOR SYSTEMS
PRECONTRACT
ACTIVITIES
Contracts
Technical
PRECONTRACT ACTIVITIES
INVOLVE CLOSE
CONTRACTING/ TECHNICAL
COOPERATION
Technical
Contracts
Auditor
NEGOTIATIONS INVOLVE
MULTIDISCIPLINE
PARTICIPATION
CONTRACT NEGOTIATOR
AUDITOR, TECHNICAL
PARTICIPATE
SECRET
CONTRACT
ADMINISTRATION
Technical
FORMAL REPORTING BY
CONTRACTOR RECEIVES JOINT
CONTRACTING/TECHNICAL
EVALUATION AND DECISION
MAKING
TECHNICAL/CONTRACTING
ASSOCIATION IS CLOSE
AND INFORMAL
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Technical
Offices
i
Contractors
REQUIREMENTS ARE ESTABLISHED
Request is sent to OL
Feed back to
to establish contract
technical office on
negotiation activit
PROPOSALS AND QUOTATIONS ARE EVALUATED
Communication link
LITTLE IS LEFT TO NEGOTIATE
y
is weak
is not strong
WITH PRICE, SCHEDULE, AND
SOURCES ARE PRE-SELECTED
SCOPE FREQUENTLY
DETERMINED
SOURCE IS SELECTED
CONTRACTOR FREQUENTLY
AWARE OF AVAILABLE
CLOSE TECHNICAL TO TECHNICAL CONTACT WITH
DOLLARS
CONTRACTORS MANY OF WHICH ARE COMMON
NEGOTIATION MOSTLY
CARRIED OUT WITHOUT
TECHNICAL PARTICIPATION
SECRET
Technical
Offices
WITH CONTRACT ESTABLISHED
COMMUNICATIONS WITH CONTRACTOR
OCCURS BOTH THROUGH AND AROUND OL
FINANCIAL AND TECHNICAL REPORTS ARE
NOT EVALUATED BY ONE FUNCTION
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PROCUREMENT CHARACTERISTICS (OL)
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The text which follows in succeeding sections treats each of these
sub-systems in detail. It is useful to an understanding of that material,
however, to first examine in summary the distinguishing functional
characteristics of:
Procurement of R&D by OL
Procurement of R&D by OSA
Major Systems
Support Systems
1. 2 Characteristics of Procurement Systems
As an extension of Chapter II-1. 0, where characteristics of Agency
procurement as a whole was treated, the more detailed characteristics of
procurement in R&D are discussed in the following paragraphs. Figures
111-4, -5, and -6 provide a graphic reference for comparison of major
differences and similarities of the various systems.
1. 2. 1 Characteristics of Procurement by OL
Division of Responsibility
The most consistently evidenced and most frequently referenced
subject during the course of discussions was division of responsibility.
The main point is that technical activities and procurement activities are
rather completely in series. The division of responsibilities between
Technical Representatives and procurement personnel are in evidence in
many ways, such as those discussed below.
Identification and Qualification of Sources
The technical components have responsibility for establishing
the list of qualified bidders from a technical standpoint. The Procurement
Division of OL passes judgment on the qualification of bidders in all other
respects. The opinion of the Industrial Contract Audit Division on qualifi-
cation of bidders is at times apparently ignored.
The evaluation of contractors on the basis of past performance
has been attempted by OL but the evaluation program information has
little influence on technical decision making.
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mises on the subject of responsibility for solicitation of proposals by
arranging to divide it on the basis of the dollar value of the contract.
The responsibility assignment is at best vague. In practice things are
clear. Proposals are solicited by the technical components almost
exclusively.
Evaluation of Proposals and Source Selection
Technical and cost proposals are evaluated independently
by the technical components. The package is then forwarded to OL/PD.
A second evaluation with different emphasis and uncoordinated with the
first then takes place. A Procurement Evaluation Committee (PEC) in
OL/PD makes final decisions on source selection. Technical. people
attend only occasionally and have no vote.
Negotiation and Execution of Contracts
Negotiation is largely an independent activity of the Procure-
ment Division. Participation by Technical Representatives and audit
personnel is infrequent.
Contract Administration
Responsibility is severely separated. Technical progress is
evaluated in the technical component. Financial status is assessed on a
spotty basis in the Procurement Division/Contract Administration Section.
Seldom does anyone examine the two pieces of information together. In
some technical components, responsibility for any aspect of "finances"
is denied. Quite clearly, under these circumstances, there is no one
in charge from a total management point of view.
Contract Settlement
Responsibility for preparing the various pieces of information
necessary to close a contract is, as a matter of course, in many different
people. The functional. responsibility for contract settlement is in Pro-
curement Division/Contract Settlement Section (PD/CSS). Analogous to
contract administration, however, there appears to be no one person /
responsible for settlement of contracts.
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The Consequences of Division of Responsibility
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The solicitation, and evaluation of proposals, and source
selection by technical components is often a close, personal activity
between the Technical Representative and the contractor. The contractor
is frequently aware of the amount of money available. There is very little
left to negotiate with the source pre-selected, the price established and
rates previously established by basic agreements. The best terms often
cannot be acquired with such a routine. The routine is frequently referred
to as "pre-cooking." But in the process of attempting to get the price
down, without a simultaneous assessment of the effect on the work to be
accomplished, a "pre-cooked deal" may be distorted from the original
objective.
Poor Performers Awarded Contracts Unconsciously
Historical information on a contractor's performance is not
thoroughly known by the technical component from its own information.
The Contractor Evaluation Program information compiled by OL, when
ignored, may well permit the selection of a contractor with a previously
poor A enc record of performance.
1.2.2 Characteristics of R&D Procurement by OSA
The characteristics of procurement by OSA may be presented
most clearly by treating separately, procurement of major systems
and procurement of supporting sub-systems. The characteristics of each
are significantly different. By major system is meant those such as the
IDEALIST, KEDLOCK, and EARNINGS programs. By supporting sub-
systems is meant the sensor projects carried out by OEL, ORD, and
NPIC in support of NRO efforts.
1.2.3 Characteristics of Procurement by OSA for Major Systems
Centralization of Procurement Responsibility
Responsibility for procurement is centralized in the OSA
Deputy for Contracts (DC). A close personal association exists between
the DC and the technical counterparts. In the matters of identification of
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PROCUREMENT SYSTEM TIME RESPONSE IN DAYS
RANGE Shortest and longest time
MEDIAN 50% of the number took less and 50% took more than 28 days
utnitr c Favera e time - 3
AY iGE
DD/S&T
VIA
OSA
DD/S&T
VIA
OL
NPIC
VIA
OL
TSD
VIA
OL
OC
VIA
OL
RANGE 10-120 - - -- - -
DAYS IN PROCESS
REQUISITION
PREPARATION
MANAGEMENT
APPROVAL
28
30-360
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OL negotiations
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DELIVERY
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sources, solicitation of proposals, evaluation of proposals, and source
selection, the responsibility is discharged in the DC but in conjunction
with the contributions of other functional elements.
Centralization of Responsibility for Price/Cost Analysis
and Negotiation
The responsibility for price/cost analysis is clearly in DC
where a capable audit function exists and the analysis is carried out in
detail. In the matter of negotiation, a team approach is used. Repre-
sentatives of DC, technical and audit functions negotiate according to a
pre-planned negotiation strategy.
Centralization of Responsibility for Contract Administration
The responsibility for administration of contracts is cen-
tralized in the DC. Financial and technical reporting by the contractor
as well as the results of technical inspections of progress are the basis
for centralized management considerations.
1.2.4 Characteristics of Procurement of Support Systems by OSA
In procurement of support project R&D efforts through OSA,
the activities are more like OL procurement in that considerable technical-
contractor interaction precedes negotiation with but one significant
difference. The association of OSA systems technical. people with
individual component technical personnel acts as a cohesive force. In
effect, the relationship between OSA contracting and technical components
is stronger than it is in OL procurement. There are, of course, varying
degrees of close relationship, depending on the component involved.
The assessment of contract financial and technical status
information, however, is a divided responsibility, and is not routinely
carried out.
1.3 Responsiveness of Procurement System
Examination of elapsed time in four main phases of R&D
procurement activities is shown in Figure 111-7. Elapsed time was mea-
sured for each of the components listed for the preparation of requisitions,
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management approval, negotiation and contract delivery. In each case
three measures are shown: range, median, and average times.
These conclusions may be drawn from these data:
. In the preparation of requisitions, the amount of
time is very much the same in all technical components,
averaging between 31 and 42 days. NPIC is an exception. Here
time in preparation appears excessive. TSD data is indicated
as being unavailable only because records are not maintained
which would yield such data without research which was con-
sidered uneconomical for the purposes of this study. The number
of requisitions processed per year indicates that the time is
probably less.
. Management approval time (including the highest
level required), contrary to original impressions gained by the
study team, appears relatively short, averaging two weeks.
NPIC is an exception. Management approval time is symptomatic
of a major problem. Section 4.4 deals with this question in detail.
. Negotiation times reveal that procurement through
OSA is approximately twice as rapid as negotiation through OL.
Further, the time to negotiate in OL is not significantly different
for different technical components.
Contract delivery is best when procurement is by.
OSA. Contract delivery data, however, indicates a general
Agency posture of late contract delivery. The degree of lateness
is approximately the same in all cases except NPIC, where
delivery is significantly later.
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OFFICE OF LOGISTICS
PROCUREMENT DIVISION
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GENERAL
PROCUREMENT
SECTION (GPS)
NEGOTIATOR
LOCATED IN
TSD 2
Delegated
authority to sign
contracts up to
$50,000
PROCUREMENT
AND CONTRACT
BRANCH
(P &CB)
R&D
SECTION
(R & DS)
NEGOTIATOR
LOCATED IN
NPIC
Delegate
authority to sign
contracts up to
$50,000
COVERT
PROCUREMENT
BRANCH (CPB)
INDUSTRIAL
CONTRACTS
SECTION (ICS)
NEGOTIATOR
LOCATED IN
OL 2
SECRET
CONTRACT
ADMINISTRATION
AND SETTLEMENT
BRANCH
(CA & S B)
CONTRACT
ADMINISTRATION
SECTION (CAS)
CONTRACT
SETTLEMENT
SECTION (CSS)
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Further, establishment of final rates is a necessary ingredient
to the calculation of the precise amount of over-run dollars.
Unsettled contracts in DDS&T total 352. These are contracts
on which work is complete but for a variety of reasons (final rates, final
delivery certification, etc.), are not closed.
The facts that CPFF contracts account for 53% of the total
active contracts in R&D, that innumerable extensions in time are granted
on contracts, and financial status not closely administered, make it
probable that cost over-runs are on the increase and will be higher for
FY 1966.
2.0 ASSESSMENT OF PROCUREMENT BY OFFICE OF LOGISTICS
2. 1 Organization
In the organization structure illustrated in Figure III-7a, of parti-
Now interest from an R&D procurement view are the Procurement and
Contracts Branch (P&CB), Research and Development Section (R&DS), and
from an administrative view the Contract Administration and-Settlement
now Branch (CA&SB) and the corresponding sections, Contract Administration
(CAS) and Contract Settlement (CSS).
It is noted that the responsibility for various phases of a contract's
which performs much of the R&D procurement, is, in effect, in series
with P&CB since all incoming requisitions are directed to P&CB first.
..M life are handled by several different organizations and individuals; i.e.
negotiation by R&DS, administration by CAS and settlement by CSS. This
choice of structure emphasized the specialties involved at the expense of
continuity from the standpoint of one individual maintaining responsibility
throughout the life cycle of the contract. It should be noted that, correspond-
ingly, the technical side generally maintains continuity by assigning one
WOO man for the life of the contract. The choice of organizational structure is
understood to have been a trade-off considering the number of qualified
people available and the workload. The resultant Agency procurement
~?.+ and administration approach, however, does not enhance a team approach
to deal with the contractor on a consistent basis.
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DELEGATED CONTRACT OFFICER REQUISITION ROUTINE (OL)
TSD
Technical
OL
Contracting
Officer
Requisition
Negotiates
Can give
contractor verbal
go 0 -
ahead
0*
Signs (to $50K)
0--
O L LOCATION
Contract
CCDB
Procurement
Settlement
Legal
Security
Branch
Assigns voucher
number
Distributes
NO
0
Branch Chief
reviews
Approves
rates
Receives
Distributes
Approves
Approves
Approves
Receives
Distributes
Mails
Post review
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The total number of negotiators who process all of the R&D pro-
curement is five. In the case of TSD, two of these negotiators have been
assigned full time and are physically located at TSD. Contracting Officer
(CO) approval to execute contracts up to $50 thousand has been delegated
to one of these men. One negotiator with similar CO approval authority
is assigned to NPIC.
The effectiveness of this arrangement is hampered by the com-
plexity of the procedures. The routine procedure involved in R&D pro-
curement through this mechanism is described with the aid of Figure 111-8.
In fact, the arrangement seems to lengthen processing time. The
delegation provides signature authority without conveying any major
decision authority. The routine maintains the same steps as the routine
in"which the CO resides in OL. At the same time, physical separation
and distance precipitates time-consuming personal trips.
The assignment of negotiators is very much a product of the work-
load. That is, a particular negotiator is not oriented to a product line
nor a particular group of contractors. A given negotiator may well be
faced today with the negotiation of a contract for a piece of electronic
equipment and tomorrow with the negotiation of a contract for an optical
device. Likewise, the contractors involved may both be ones with whom
he has had no previous experience. Admittedly, the wide diversity of
products involved and the few negotiators available makes assignment
by product difficult. However, no military or industrial procurement
organization with a comparable task is known to the study team which
a.s not oriented to product lines. Each product line is characterized by
its own peculiar group of leading suppliers, practices, language and
customs, all of which become the stock-in-trade knowledge for effective
procurement.
One example is the matter of source identification. One procure-
ment man, for example, cannot be expected to develop a sound background
in contractor sources for recording devices if his work assignment is
constantly changing in product content and he never has time to develop
the specific knowledge required. It should be, however, a responsibility
of the procurement function to be knowledgeable of and to recommend
alternate sources of supply.
With the small, number of experienced negotiators assigned and
the varying workload, product orientation is not entirely practical..
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2.2 Characteristics of Procurement Policy
The basic principles and procedures for OL procurement are
..r set forth in a Procurement Handbook, dated 6 April 1966.
The document has just recently been distribute . Specific knowledge of
its content was found to be spotty in contacts made throughout the tech-
nical components below top management. The document is not claimed
to be all-encompassing, but rather is intended to set forth the general
principles. No radically new principles are suggested over and above
what have been the principles of the past.
In practice things work quite differently from the suggested
policy in important respects. For a variety of reasons these deviations
are likely to continue. The functions which represent particular diffi-
culties are the principal ones: (1) solicitation of proposals; (2) source
selection and evaluation; and (3) contract administration.
2. 2. 1 Solicitation of Proposals
The question addressed in on source
selection is: "Who solicits proposals?" Significantly, this section was
described as the main point of contention in arriving at a description
mutually acceptable to all concerned. The answer as expressed in
Section 13 is a compromise on the basis of the dollar value, which leaves
the situation vague.
Reduced to its simplest terms, Section 13 states that technical
components will normally solicit technical proposals and informally
solicit cost or price proposals if the value is under $50 thousand. For
those over $50 thousand, either joint or separate discussions with the
contractor by the Technical Representative and the Contracting Officer
must take place. The technical component may solicit technical pro-
posals but the Contracting Officer must solicit cost or price proposals.
The issue is kept vague by use of such terms as "normally
will", "may", and "informally". The policy seems destined to pre-
cipitate continued independent action by the two functions.
For all projects over $50 thousand, the procedure demands
that technical and cost proposals be independently solicited and, as stated,
implies that technical and cost proposals will always be received at
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different times. This is highly
impractical in many cases i. only because it is time-consuming.
The technical office has responsibility for establishing the
list of contractors who are technically qualified to bid. This res on-
sibility is modified by the responsibility held
by Logistics to approve the financial stability, performance reputation,
integrity, and security requirements. With the two functions' activities
independently in series, this leaves the final decision as to the accept-
ability of a contractor until after he has submitted a quotation and pre-
cipitates time-consuming discussion.
In practice the Technical Representatives solicit technical
proposals and cost proposals without regard to dollar value. The con-
tractors from whom proposals are to be solicited are determined by the
technical office. There are cases in which this is not true. However,
they are the exception rather than the rule. For example, during
FY 1965 only 30_cases occurred in which OL issued "Requests for Pro-
posals. " In FY 1966, fewer than 25 cases had occurred to the time of
this study. This is a very small portion of the several hundred contracts
over $50 thousand. (See Appendix, Exhibit A - Figure A.-1).
2. 2. 2 Proposal Evaluation and Source Selection
Price/Cost Analysis
The procedure establishes that some form of price or
cost analysis is mandatory. The responsibility for price/cost analysis
is not spelled out. The procedure says simply that it should be carried out.
In practice, no regular procedures for cost analysis in
either, technical offices or in OL was discovered. Price analyses are made
by technical offices in varying degrees, but in many cases the practice
is not a thorough one.
The Industrial Contract Audit Division (ICAD) does participate
in a pre-award price analysis when requested. Cost analysis is often
difficult because ICAD is not equipped to judge labor hour content and can
only check labor rates. Price analysis findings (discrepancies) do not
require "sign off" by negotiators similar to that required in the DOD.
(See also Chapter VI, Section 6.0)
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Contract Type Selection
Only the choice among incentive contracts is treated, and
not the selection of contract type in general. The incentive criteria
selection is the Technical Representative's responsibility for performance
and delivery incentives. The amount of money to be involved is the
responsibility of the negotiator. For cost incentives, the responsibility
is solely that of the negotiator except that "the effect of the incentive on
working relationships and ... advice on the reasonableness of cost esti-
mates" are the responsibility of the Technical Representative.
In practice, the technical participation and interest in initiating
and arriving at incentive contracts did not appear strong. One technical
office indicated, "We never know what kind of contract it will, be until .it's r
negotiated." Another stated, "We don't have anything to say about incen-
tives. " In the many requisitions examined in the course of the study,
none requested_An incentive contragt and,.. i y ignored the question of con-
tract type. It appears that OL is the prime mover to the extent that
incentive contracting is carried out. The incentive features, however,
are or should be of initial interest to the Technical Representative.
2. 2.3 Contract Negotiation
I tates simply that the Contracting
Officer is the sole authority legally au orized to negotiate contracts.
(The exception of his written delegations is noted). The desirability of the
Technical Representative in negotiations is recommended.
In general practice, technical participation in negotiations f
is not present. An imbalance of contractor contact occurs. The pre-nego-
tiation contact is frequently close and personal. Both technical and cost
aspects have been agreed upon in many cases. The actual negotiation is
then enga ed in solo by negotiators who do not know the product^ or the
contractors as well as the Technical Representativae,.
2.2.4 Award of Contracts
The final determination of the method of procurement* is made
by the Procurement Evaluation Committee (PEG) in OL/PD. The Director
* Applies to only certain contracts depending on a prescribed list of criteria.
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of Logistics is the arbitrating authority for disputes between technical
offices and the PEC. Participation of Technical Representatives on a
non-voting basis is welcomed but infrequently exercised. An opinion
frequently expressed by them was, "Why go, when you're outnumbered
and can't vote."
Since the PEC action represents the final activity in contract
award decision, it is appropriate to discuss here the subject of mutual
participation of the Technical Representatives and the Contracting Officers
in the entire procurement procedure through contract award.
The consensus of those questioned in both OL and technical
components was that more mutual participation was needed throughout
the process. Both equally, strongly denied their individual capability
t
i
i
o engage
n
t as a matter of practice. For example, when asked if
they could participate in a major number of pre-negotiation activities,
including the solicitation of proposals, the OL answer was "no. " When
asked if a Technical Representative could participate in most negotiations,
the technical answer was "no."
The current workload in both technical and OL offices as
presently structured with separated functions appears to preclude the
mutual considerations that both types deem necessary to an efficient
ope ration.
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2.2.5 Contract Administration
The policy clearly establishes that the Contracting Officer
is responsible for security compliance with the contract 25X1
b. 1) and, equally, clearly establishes that the Procurement Division
(synonymous with CO) is .responsible for monitoring all contracts (p. 23,
19. b).
The responsibility of the technical component (Technical
Representative) is to provide technical guidance (p. 23, 19. a) and to
perform technical supervision (p. 23, 20. a), in the capacity of the Tech-
nical Representative of the CO (p. 24, 20.b).
The policy sets forth the CO as the manager responsible for
execution of the contract in accordance with its terms and conditions.
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SIMPLIFIED FLOW DIAGRAM O L - P/CB - R&DS
Reviewed by O L specialist
DD/S&T if origin is DD/S&T
L
REQUISITION
PACKAGE
Requisition
iC/PD - R&D REVIEWS
[ASS, NEGOTIATOR
rMemo request
1 Form 88-voucher
CCDB ADDS
VOUCHER NUMBER
NEGOTIATOR
PREPARES 667
667
Read copy
to C/PD
\DC/ PD/
Tub
file
FILE REVIEWED BY
SPECIAL NEGOTIATOR
FOR TECHNICAL
CONTENT AND
SOURCE SELECTION
NEGOTIATION
NEGOTIATOR
PREPARES FILE
L FOR APPROVAL
Approval signatures
Negotiator
Section Chief
OL/SS
General Council
Chief CAS Branch
Contracting officer-signs contract
I
Technical Office
Finance Office
Signed contract
Form 1897a
Contract
\file-
Form transmittal
letter Advanced copy
y
Form contract to ttechnical monitor
not confirmed.
Approval form
121B
Vendor
signs
contract
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One point of possible confusion was investigated. Under
"Scope of Inspection" (p. 24, b), it is stated that the Technical Represen-
tative is "responsible for conducting inspection to determine compliance
with all contract and secification requirements." Interpretation of
"contract" in this context was learned to apply to technical aspects and
not to "all" requirements. For example, assurance of compliance with
the terms and conditions for requesting progress payments or of the
"Buy American Act" are not technical responsibilities.
The policy on contract administration is a normal. one. How-
ever, it does not work well as presently implemented. The CO is not
completely supplied with the kind of information needed, nor is his orienta-
tion and amount of workload proper to expect good administration. The
association of CO and Technical Representative is in most cases a distant
one and in many cases an impersonal one.
The general impression gained was that, in the matter of
contract administration, no one really exercises the role of manager of
the situation. The CO and the Technical Representative each have
access to technical and financial status information. However, mutual
consideration of adequate financial and technical information is required
to properly administer contracts. Such mutual consideration does not
take place. (Certain very special cases do exist in which it occurs.
Attention is addressed to these few instances later in the report.)
The atmosphere in which the administration proceeds is that
the Technical Representative, by and large, considers the financial con-
siderations the responsibility of the CO and, correspondingly, the CO
views the technical considerations as an independent responsibility of
the Technical Representative.
2.3 Assessment of Procedures and Practices
The formal detailed procedures employed in OL/PD/R&D were
reviewed through discussions with OL Procurement personnel and
examination of system flow diagrams prepared by the Special Assistant
to the DDS as part of a data processing study. Figure 111-9 has been
prepared to illustrate in a simplified form the step-by-step activity of
processing an R&D requisition. Variations occur depending on the type
contract involved, if the contractor is a new one, and if substantial future
business is contemplated. Those variations were examined but are not
commented upon further since their effect on the general pattern of
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