August 31, 1970
Page 30452
AUTHORIZATION OF APPROPRIATIONS FOR MILITARY PROCUREMENT AND OTHER PURPOSES
The PRESIDING OFFICER (Mr. SPARKMAN). Under the previous order, the Chair now lays before the Senate the unfinished business which the clerk will state.
The assistant legislative clerk read the following:
H.R. 17123, to authorize appropriations during the fiscal year 1971 for procurement of aircraft, missiles, naval vessels, and tracked combat vehicles, and other weapons, and research, development, test, and evaluation for the Armed Forces, and to prescribe the authorized personnel strength of the Selected Reserve of each Reserve component of the Armed Forces, and for other purposes.
The Senate resumed the consideration of the bill.
The PRESIDING OFFICER. The Senator from Maine is recognized. How much time does he yield himself?
Mr. MUSKIE. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. MUSKIE. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. MUSKIE. Mr. President, I yield myself 15 minutes.
The PRESIDING OFFICER. The Senator from Maine is recognized for 15 minutes.
AMENDMENT No. 811– MODIFICATION
Mr. MUSKIE. Mr. President, I send to the desk a modification of the pending amendment, 811, and ask that it be stated.
The PRESIDING OFFICER. The modification will be stated.
The assistant legislative clerk read as follows
AMENDMENT No. 811
H.R. 17123, An Act to authorize, appropriations during the fiscal year 1971 for procurement of aircraft, missiles, naval vessels, and tracked combat vehicles, and other weapons; and research, development, test, and evaluation for the Armed Forces, and to prescribe the authorized personnel strength of the Selected Reserve of each Reserve component of the Armed Forces, and viz: On page 7, line 6, strike out the period and insert for other purposes, in lieu thereof a colon and the following:
"Provided, that none of the funds authorized by this Act may be expended for the procurement of DD-963 class destroyers unless (1) the prime contractor with whom the United States contracts for the construction of such destroyers is required under the terms of such contract to subcontract to another United States shipyard and (2) the total number of such destroyers set forth under the terms of the prime contract is divided substantially equally between the prime contractor and subcontractor."
Mr. MUSKIE. Mr. President, in the course of my remarks I shall undertake to explain the amendment and the difference between the substitute and the amendment which has just been stated.
Mr. President, during recent months a series of events have occurred which taken together prove conclusively that an award of the entire DD-963 destroyer procurement by the Department of Defense to one contractor was ill advised and certainly not in the national interest. And that decision must be modified by the Congress in a prompt and responsible manner.
I am proposing an amendment to the military procurement bill, which, in essence, would require the division of that contract by way of a subcontractor for substantially half of the ships to a second American shipbuilder, which won as a result of competitive bidding. Thus, Litton would remain as the prime contractor with 15 ships exceeding $1 billion in value and the second corporation would be responsible for the construction of the balance of the ships.
This position is supported by findings of Mr. Fitzhugh's blue ribbon defense panel in a report to the President and Secretary of Defense on July 1, 1970, only one week after the Navy awarded its entire nonnuclear destroyer program to Litton Industries. The report says in part:
The Navy, while procuring fewer ships in recent years, is the source of an increasingly higher percentage of the total funds spent for ship construction in this country.
As a consequence, the procurement process for Navy ships, even more than in other procurements, must reflect a concern for the existence of a sufficiently broad industrial base to provide competition for such procurements.
Moreover, a subcommittee of the blue ribbon defense panel, headed by Wilfred J. McNeil, first Comptroller of the Department of Defense, used even stronger language when they said:
If the Navy goes ahead with its announced intentions to seek series type production contracts for major ship programs in a single yard, there will be almost total concentration of major Navy work in three . . . yards . . . over a significant period of time. During this hiatus for the remainder of the yards, they may well lose their capability to respond to Navy shipbuilding requirements or go out of business altogether. Although the Navy cannot and should not attempt to keep all its former suppliers of ships in business, the maintaining of a responsive production base and a healthy, competitive environment . . . is certainly as important as experimentation with new procurement techniques.
If recent history on moderately large Navy ship orders is any indication, large package ship procurements constitute a serious risk to the contracting shipyard’s corporate survival. The DD-963 destroyer program currently planned for 30 ships represents about $3 billion. A ten percent loss in performing on this contract ($300 million) would exceed the net worth of either of the shipyards competing for that program by at least a factor of two.
As concentration of work in a few yards progresses with a high degree of specialization in each, there will be serious reduction in competition for Naval ships. In addition, there could also be a substantial reduction in the nation's total shipbuilding capability. This loss of a competitive environment in itself could offset the economic advantages of series production. The Navy, with respect to its combat vessels, must be concerned not only with the maintenance of an adequate production base but also with the continuation of a healthy competition within that base.
In order to (a) insure an adequate production for combat ships and (b) continue to generate competition between shipyards for most classes of ships, the Navy should take such action as is appropriate to distribute major multi-ship prime contract awards among two or more yards.
In order to (a) maintain a healthy competitive environment and (b) insure a viable production base for Navy combat ships and auxiliaries, prime contracts for series production of a single class of Navy ships should be awarded to more than one yard whenever the total order exceeds ten ships.
Mr. President, this recommendation is the latest recommendation of a panel specifically organized a year ago by President Nixon to review Defense Department organization and policies. In the light of the nature of that panel and its significance in this administration, its recommendation as based upon this procurement award is significant.
I agree with the McNeil report in the main; however, my amendment does not provide for separate prime contracts because I feel there are cost and standardization advantages in a single design produced at two locations.
The General Accounting Office has given us its views on this subject in its report of August 26, 1970. The report was issued in response to a request by my distinguished colleague, the senior Senator from Maine (Mrs. SMITH), earlier this year. The report was put in the RECORD in its entirety on August 28 of this year. I would like to read these excerpts from that report:
By contracting with one company the risk is present that the company may not be able to complete the contract at the agreed price It is possible that the company at some point could come to the Navy and say it is unable to build the ship for the contract price. Under these circumstances, the Navy would find itself with few options. The Navy says it does not expect that this is a real possibility, but it has occurred under other long-range production programs.
We believe also that there is some danger to future competition. Given the Navy's premise of a single ship design (presumably Litton's) at the lowest price, it is difficult to see how another company will be able to compete pricewise with Litton on future orders. Start-up and early learning costs in such a program are substantial and, assuming the same ground rules are applied in the future, it seems questionable as to whether anyone will be able to compete with the successful contractor in this award, no matter how many additional ships the Navy plans to buy.
We are told that the differences in commercial and military ships, even if the Maritime program should become a reality, would not make the winner of these awards competitive for military ships.
These are significant views, expressed by highly qualified sources. To date they have apparently been discounted by the Department of Defense in their rush to award a contract and get started. with the destroyer program, even though we are over 4 years from the first ship delivery in a program scheduled to run into 1979. Unless we act to correct the situation now, our destroyer program – the very heart of our Navy – could suffer over the next decade.
The DD-963 class destroyer program had its origin in late 1966 when officials of the Department of Defense, in recognition of the approaching obsolescence of segments of the Navy's surface fleet, initiated a new shipbuilding program. The primary missions of the DD-963 class destroyer are to: First, provide protection to attack carrier forces against the surface/submarine threat, second, escort amphibious assault/pre-assault forces, and third, conduct shore bombardment in support of amphibious assault or land warfare forces. The Navy inventory objective for destroyers of this type is 50 ships. A procurement program of 30 ships has been approved by the Secretary of Defense subject to congressional authorization.
The Navy's original intention was to procure from 30 to 50 destroyers, using the total package/ multiyear procurement technique with a plan to award a single fixed-price contract to the winning competitor. Early competition included six American shipyards: Avondale of Louisiana, Newport News of Virginia, Todd of California, General Dynamics of Massachusetts, Bath Iron Works of Maine, and Litton of Mississippi.
Prior to the award of a contract definition contract, the competition was reduced to half, with General Dynamics, Bath, and Litton remaining.
Proposals were submitted by the three in April of 1969 which included a recommended ship design, management plan, and price.
The Navy reviewed the three proposals extensively and in September of 1969 announced that General Dynamics shipyard would be eliminated from the competition.
Shortly thereafter the Navy requested the first supplementary proposals from Bath and Litton, which were submitted in November of 1969. This request included major changes of a technical nature to the ship designs which, in effect, altered the scope of the work to be performed under the contract. It is important to note that Bath and Litton were each developing their own destroyer design, similar only with respect to performance characteristics. These proposals submitted in response to this request included the second round of price quotations.
The Navy, apparently still dissatisfied with the second supplementary proposals offered in November, requested a third set in February 1970 from both competitors. Again, technical changes were requested and a third round of prices quoted. The Navy has verified that target costs per ship after the third round were virtually the same, with Bath $64.9 million and Litton $64.7 million. Since there were no technical changes after the third round of prices, it is critical to bear in mind that both finalists' costs were essentially the same before the fourth and final bids were submitted.
Then in March the Navy changed the type of contract from a fixed price incentive to a fixed price incentive successive targets contract and asked for "best and final" prices. The successive targets feature gave the winning contractor the right to renegotiate prices 39 months into the contract.
Bath's target cost in the final round came down to $61.3 million and Litton's dropped drastically to $54.9 million per ship. This change created a final difference in price of approximately $276 million on the total 30-ship program, with Litton the low bidder, and again, Mr. President, I want to emphasize that there were no changes in the technical requirements before the final bid.
On June 23, 1970, the Navy announced an award of the entire 30 ships to Litton Industries but conceded that each of the finalists had offered an excellent ship and a fully acceptable proposal.
The Navy awarded the contract to one shipyard in the very face of prior action taken in the House of Representatives, with the concurrence and full support of the chairman of the House Armed Services Committee, to force a division of the contract between at least two American shipbuilding companies.
It has been argued that a division of the contract now would be unfair because a contract has already been awarded, because it would allegedly increase the cost to the Government and because it would allegedly establish a bad precedent for the Congress. In my opinion, these arguments for awarding to a single builder all of our new destroyers are unsound and misleading.
On the first point, certainly the Navy and Litton were aware of the House action, to which I have referred, before the contract was awarded. Second, there has been wide speculation from the time that the third contract was eliminated that the contract might well be divided between the two remaining competitors. I doubt if either of the two contractors would have been surprised if the Navy decided to award the contract to two rather than one shipyard.
On the question of surprise, Mr. President, the Navy, prior to contract award, took appropriate steps to amend the contractual language in the Bath and Litton proposals to include the mechanics for dividing: the contract in the event the Senate supports the earlier House vote.
The PRESIDING OFFICER. The time of the Senator has expired.
Mr. MUSKIE. Mr. President, I yield myself another 10 minutes.
The PRESIDING OFFICER. The Senator from Maine is recognized for an additional 10 minutes.
Mr. MUSKIE. Mr. President, I ask unanimous consent to have printed in the RECORD at the conclusion of my remarks as an exhibit, article XXVI from the Litton contract on the subject I have just referred to.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See exhibit 1.)
Mr. MUSKIE. Mr. President, I would like to read this language from that article. I repeat, this is in the Litton contract:
(a) The Government shall have the right to require the Contractor to subcontract the construction of a quantity of complete vessels as may be necessary to comply with the legislation referred to in the premises hereof. The Contracting Officer may require the Contractor to solicit all shipbuilders on the Naval Ship Systems Command's bidders list for destroyers for one or more subcontracts.
How can it be argued, Mr. President, that with this provision in the contract, which Litton signed, that the amendment I propose would constitute a surprise to Litton industries?
My amendment proposes to do what the Litton contract permits the Navy to do.
Thus, the Navy very properly anticipated such action and is fully prepared to implement the desires of Congress without delay or disruption to the program.
Likewise, the entire argument is addressed only to costs directly connected with the procurement of the initial 30 ships in this program and completely fails to acknowledge the lasting cost advantages of maintaining competition in our shipbuilding industry.
Let me just cite for the RECORD the intent of my amendment:
First. Retention of one prime contract by Litton Industries.
Second. Require that approximately half the ships be subcontracted to a second American shipyard, after a round of competitive bids from any shipyards approved by the Department of Defense.
Third. Utilization of a single design, presumably Litton's.
Fourth. Utilization of centralized procurement of machinery and equipment for purchases of 30 shipsets of like components to assure standard ships at lowest possible price.
Fifth. Provide the economies of series ship production derived from construction of at least 15 ships of the same design within a single facility.
The principal reason for any increased cost to the Government would result from the need for two 15-ship learning curves in lieu of one 30-ship learning curve. And even this is mitigated by the fact that there will be a single design, and machinery and equipment will be purchased in lots of 30.
Any figures reflecting an estimate of the increased cost of dividing the contract are based on conjecture alone. Since it is my clear understanding that neither Bath nor Litton was ever requested to estimate the cost of building in quantities of fewer than 30 ships, I cannot understand the various additional cost estimates of the Navy, as brought forward by my esteemed colleague from Mississippi. My sources indicate that with a single prime contract the costs would not be increased more than 4 to 5 percent. The advantages to be gained from the competition on follow-on contracts and the retention of multiple-destroyer building capabilities far outweigh these increased costs. That conclusion is justified by the record.
It is worthy of note that ongoing and fierce competition between six shipyards in the procurement of 30 DDGs between 1957 and 1965 tended to drive the Government's cost down, even in a period of inflation. For example, three DDGs were purchased from one shipyard in 1957 for approximately $16.5 million per ship. And in 1965, the last three ships in this class were purchased from another shipbuilder for approximately $14.5 million per ship – a $2.5 million reduction over an 8-year period which was inflationary. Competition does have a favorable effect on cost to the Government, as this example proves.
It is appropriate to consider the spread in prices of the two final DD-963 competitors, Bath and Litton. As noted, each submitted virtually the same prices on the third round proposals; yet with no change in technical requirements, Litton's winning price on the fourth round was $276 million less than Bath's. This has created the false impression that the Government's cost of doing business with Litton would be hundreds of millions less than the next best offer. This conclusion is completely false and should be clarified, lest Members of Congress be misled into believing that Litton's costs are far lower than others’ in the industry.
Let me explain that in the final pricing proposals, each of the two competitors made assumptions concerning the effect on costs of projected economic changes over the 8-year contract. It must be understood that the type of contract used requires that the Government pay the contractor escalation payments for cost variances compared to a base month, in this case January 1969. The payments vary with the changes in a national labor index and a national material index. The amounts that the Government is contractually obligated to pay may have little relation to the actual cost experience of the contractor. And the payments are in addition to and separate from the contract price.
In competition for defense awards, bidders are permitted to estimate that their own actual cost changes will be greater or less than the fluctuations experienced in the national averages. Bidders include the difference between their own expected inflationary cost changes and the anticipated Government payments in their bids.
Under the reset terms of the fixed price incentive successive target contract, the contractor can recover his increased costs due to inflation and in essence "get well" for any errors in projecting the economic trends. In fact, Litton's costs under the contract can increase $387 million, while still providing a profit of $107 million. In the words of the GAO, "this seems rather substantial."
Bath and Litton made vastly different projections relative to the inflationary growth and the amount of payments by the Government under the escalation payments clause. The difference in the projections amounts to $290 million, an amount which is greater than the price spread of the competitors. In actuality, Bath's best and final proposal contained cost estimates which in current dollars were less than Litton's comparable cost estimates. Thus the entire $276 million difference in the final prices is a result of the assumptions made relative to the economic conditions over the next 8 years.
It is important to reemphasize that the increases in costs due to economic conditions and the payments under the escalation clause are virtually independent of the contractor and his present projections. The escalation payments to either Bath or Litton will be similar because they are based on national indices. The contractor's actual cost increases, whether Bath's or Litton's, would be similar because of the commonality of subcontractors and the pattern settlements of labor negotiations.
Regardless of which competitor projected the economy more accurately, when the two competitors use the same set of assumptions regarding the future course of the economy, the price differential of $276 million disappears. I, therefore, cannot concur with the Navy assessment that a $276 million difference existed between the two proposals, when looked at in terms of the final costs to the Government.
Given the fact that Bath was cost competitive with Litton and that there exists the potential for strong competition from shipyards in Maine, Massachusetts, Virginia, Louisiana, California, and Washington State for any subcontracted ships, we would estimate that the cost increase by dividing this initial 30-ship purchase will not exceed 4 to 5 percent. This is a small premium indeed for reducing the risks to the Government and retaining a competitive shipbuilding environment which will ultimately create far greater cost savings on future procurements. And I would repeat that absent strong follow-on competition for the other 20 destroyers, Litton will be in a good position to name its own price for future destroyer awards.
To lose our proven destroyer-building capability could prove disastrous for the country. Bath, from my State, alone has built nearly 160 destroyer-type ships – 19 within the 1960's – and their record for cost and delivery performance is enviable in this day of overruns and poor contractor performance. I am attaching a copy of Bath's destroyer-building history to this statement. There are other shipyards building destroyers with nearly comparable records. All of this stands to be lost by awarding the entire DD-963 contract, the major destroyer program for the 1970's, to a single, relatively inexperienced destroyer-building shipyard.
Furthermore, the country will lose this golden opportunity to encourage a second shipyard to modernize unless we act to insure that a 15-ship subcontract is awarded.
It is argued, third, that the proposed division of the contract would be establishing a dangerous precedent. This whole matter is a precedent of serious concern. The issue is really not whether or not we set a precedent, but what kind of precedent we set. I do not believe we should continue on one course simply because the Departments of Defense and the Navy believed it correct 3 years ago and apparently still feel committed to decisions made in 1967. In my opinion, the weight of evidence has swung to such a degree that a change must be made now before our Government is irrevocably committed for 8 years to a posture in this program that we will live to regret.
That, Mr. President, could be the "dangerous precedent."
The PRESIDING OFFICER. The time of the Senator has again expired.
Mr. MUSKIE. How much have I used, Mr. President?
The PRESIDING OFFICER. The Senator has used 25 of his 55 minutes.
Mr. MUSKIE. I yield myself another 10 minutes.
As early as 1964 many naval officers and shipbuilders, including the top management of Bath Iron Works Corp., were questioning the wisdom of awarding entire ship procurements to a single company. In that year Bath bid on eight of 17 LST's and its price for each of eight was more than $500,000 per ship under the next lowest offer. But the award was made for all 17 ships to one other shipbuilding company.
I then questioned Mr. McNamara, the Secretary of Defense, as to the prudence of this type of concentration of ship awards. He told me and Bath's management that this would be the policy for ship procurement and left no alternative – either compete for the large contracts or get out of the business of building ships for the Navy.
History has recorded the tremendous problems inherent in this procurement policy and we all now recognize the schedule slippages, quality problems and staggering overruns which have plagued the Navy in recent years. We are now hundreds of ship-years late and overruns exceed a billion dollars.
There may be benefits to be gained by ship purchases using multi-year funding but there is clear evidence that award of multiple numbers of ships to a company with a large and diverse backlog presents overwhelming managerial problems which come home to roost for the Navy and Congress.
The problem is not isolated but has hit every shipyard which has taken on more work than it could digest, including Avondale, Lockheed, General Dynamics, and even Litton.
Litton, for example, with its present backlog of over $1.5 billion, exclusive of this contract, is today experiencing severe delivery problems which have been well publicized. The Baltimore Sun of August 25 this year speaks of a known 8-month delay per ship in an eight-ship maritime contract and the owners of the steamship lines for whom the ships are intended speculate on probable delays of a year or more per ship. These ships will come ahead of the Navy's billion- dollar-plus LHA program already under contract for that same facility, let alone the DD-963 program.
Litton excuses the delays based on labor difficulties and an act of God, Hurricane Camille. But it is for these very reasons that we cannot permit our entire destroyer program to be tied up in one plant along with submarines, LHA's, and other types of naval ships.
Another hurricane hit Avondale's shipyard in the 1960's and reputedly damaged 18 ships under construction, sinking several and blowing others aground.
Acts of God, Mr. President, can disrupt any single operation as could a national emergency, but, at the risk of using a trite phrase, I feel compelled to ask why we knowingly place all of our eggs in one basket, when with advance planning these problems can be softened by geographical distribution.
We are also well aware of manpower difficulties tied to defense contracts in certain areas and the numerous problems inherent in dealing with an unskilled work force built up virtually overnight. Litton's labor and recruiting problems are well known in the south under their present backlog, let alone the added requirement for 4,000 new employees needed to take on the DD-963 contract.
Litton's backlog, in effect – worth over $1.5 billion, even without the inclusion of any destroyers, extends well into 1975. Beyond this, Litton, as one of three qualified submarine builders, is today competing for part of a 10-ship submarine program expected to be awarded within weeks.
The record shows that Litton's management and work force are now stretched beyond their. ability to perform, even without the addition of a prime contract for 15 destroyers, let alone 30.
For the above reasons, I have introduced an amendment to the military procurement bill which would provide: That none of the funds authorized by this Act may be expended for the procurement of DD-963 class destroyers unless (1) the prime contractor with whom the United States contracts for the construction of such destroyers is required under the terms of such contract to subcontract to another United States shipyard and (2) the total number of such destroyers set forth under the terms of the prime contract is divided substantially equally between the prime contractor and subcontractor.
My amendment would support:
The concept of a single design for all 30 ships;
The utilization of a central procurement group to purchase 30 ship sets of machinery and equipment;
The standardization of ships within a single class;
The economies of production which can be derived from construction of 15 ships of the same class in a single facility;
The modernization of more than one shipyard;
A broader and less risky distribution of this defense contract;
The maintenance of a competitive shipbuilding environment;
Lowest long range ship procurement costs to the Government.
Even on the 30-ship procurement at issue, I cannot accept the unsupported estimates that costs would increase by hundreds of millions if the contract is divided. Costs may increase modestly because of shorter learning curves, but this is a small price to pay for the many other benefits of a split buy – and even this increase will be minimized by a tough competition, including perhaps six or more potential destroyer builders, and there will be lasting long term advantages.
All qualified bidders would have a fair opportunity to compete for the subcontracted ships in open competitive bidding – supervised by the prime contractor and the Navy. Clearly, the long term interests of the Government, the economy, industrial growth, and national security, are best served by such a reasonable division.
And so I submit that the approach I have offered is reasonable. It is prudent. It is fair. And it should be enacted into law.
I reserve the remainder of my time.
EXHIBIT 1
ARTICLE XXVI. LEGISLATION REQUIRING SUBCONTRACTING COMPLETE VESSELS
(a) The Government shall have the right to require the Contractor to subcontract the construction of a quantity of complete vessels as may be necessary to comply with the legislation referred to in the premises hereof. The Contracting Officer may require the Contractor to solicit all shipbuilders on the Naval Ship Systems Command's bidders list for destroyers for one or more subcontracts. It is contemplated that such request will not be made until after enactment of the Department of Defense Appropriation Act, 1971. The Contracting Officer shall exercise the right to require subcontracting of complete vessels by notifying the Contractor in writing not later than 15 July 1971, unless said date is extended by mutual agreement. Such notification shall (i) designate the quantity of vessels and fiscal year increments to be subcontracted and (ii) specify the number of shipbuilders among whom the quantity is to be divided and the number of vessels to be subcontracted to each such shipbuilder.
(b) The subcontract(s) for construction of complete vessels shall be subject to Clause 59 of the General Provisions entitled "Subcontracts," and advance consent to the subcontract(s) by the Procuring Contracting officer must be obtained. Any such subcontract shall contain a provision for upward and downward escalation on account of labor and material which shall be similar to the Article of this contract entitled "Compensation Adjustments (Labor and Material)." Said provision must be specifically consented to by the Procuring Contracting Officer.
(c) Notwithstanding the exercise of the right to require subcontracting of complete vessels, all provisions of this contract shall remain in full force and effect, as between the Contractor and the Government, including, but not limited to, the Articles of this contract entitled “Performance, Maintainability, and Reliability Guarantee”, “Warranty Period,” “Total System Responsibility,” and “Contractor Personnel, (Warranty Engineers)”.
(d) If the right to require subcontracting of complete vessels is exercised, the delivery schedule set forth in paragraph (b) of the Article entitled “Delivery” shall remain unchanged unless the parties otherwise mutually agree, but the two lines in said paragraph reading:
“shall be delivered to the Government at the Contractor's shipyard in accordance with the following schedule.” shall be revised to read as follows:
“shall be delivered in accordance with the following schedule to the Government at the shipyard of the Contractor or, for subcontracted vessels, at the shipyard(s) of the vessel subcontractor(s) except that any vessel subcontracted to a shipbuilder located on the Great Lakes shall be delivered at the U.S. Naval Shipyard, Boston, Massachusetts.”
(e) If the right to require subcontracting of complete vessels is exercised, the parties hereby mutually agree that equitable adjustments for the contractor's increased costs shall be established in accordance with the procedures provided for in the clause of the General Provisions entitled “Changes.” Said adjustments shall include, but not be limited to, adjustments in initial target cost, target profit, target price and ceiling price and cancellation callings. Failure to agree on any such equitable adjustment shall be subject to the "dispute" clause of the General Provisions.
(f) If the right to require subcontracting of complete vessels is exercised, additional revisions, changes or modifications to said Articles or to other Articles and clauses of this contract may be made without further consideration, as the parties may mutually agree.
(g) The Contracting Officer may require the Contractor to submit proposed revisions to the DD Program Plans referenced in Article 1(b) of this contract which would be necessary or desirable in the event of the exercise of the right to require subcontracting of complete vessels. It is anticipated that the Contracting Officer will not so require until after enactment of the Department of Defense Appropriation Act, 1971.
(h) If the Contracting officer requires the Contractor to solicit shipbuilders as provided in paragraph (a) of this Article, or to revise the DD Program Plans, as provided for in paragraph
(g), or both, and if the Contracting Officer does not exercise the right to require the subcontracting of complete vessels or approve the proposed shipbuilding subcontract(s), then the Contractor shall be compensated for the work involved in complying with such requirements in the same manner and to the same extent as if such requirement(s) were Class I ECP(s) requested by the Contracting Officer but not incorporated into the contract (see paragraph (e) of article XXX entitled "Configuration Control").
In witness whereof, the parties have executed this amendment as of the date of this contract and the Contracting Officer has executed this amendment contemporaneously with his execution of the contract.
Mr. STENNIS. Mr. President, I yield 15 minutes to the Senator from Mississippi (Mr. EASTLAND).
Mr. EASTLAND. Mr. President, the announcement of the Navy's award of the 30-ship DD-963 destroyer contract to the Litton-Ingalls "Shipyard of the Future" at Pascagoula has precipitated a number of conditions.
It represents to the winners the fruition of a great endeavor launched in 1967 by a trail-blazing partnership between Mississippi and the Litton-Ingalls organization. This State-private enterprise venture was aimed at building the vessels of tomorrow and rebuilding the shining tradition of seafaring America.
It represents to the losers the disappointment that always accompanies the end of a long and arduous and unsuccessful effort.
I can understand the delight of the one and the dismay of the other – but – I must oppose any move to deny to the Pascagoula yard its earned and deserved victory.
Let us trace – very briefly – the course of this procurement and, hopefully, clear up some possible misunderstandings along the way.
Six qualified participants started out together more than 2 years ago in quest of this contract. The intense competition finally narrowed down to Litton and Bath of Maine. The long, established and recognized route toward evaluating and selecting an ultimate builder of the destroyers culminated in the submission by both parties of sealed bids which were styled "best and final offer."
What followed is a matter of fact and of record. Litton underbid its competitor by the amazing figure of $9 million per ship, thus affording a saving to this Government in these days of the defense cutback of $270 million.
Now how is it possible for one shipyard to beat another so badly on this destroyer construction venture?
It is possible and clearly understandable when the facility on our gulf coast is recognized for what it is.
The "Shipyard of the Future" is exactly what its name implies – the wave of the future in the field of ship construction – both military and commercial.
It is the most modern yard in the United States – in the Western. Hemisphere – and, possibly – in the world. A matter of vital importance to the timely launching of these versatile destroyers and a significant factor in the Navy's decision in favor of Litton is the fact that the Pascagoula plant is producing ships now.
Mr. President, competition for this assembly line shipyard can come only from a major rebuilding of any yard in being or from a new facility designed around the Litton-Ingalls concept.
A Russian admiral recently made the chilling announcement that the U.S.S.R. possesses "a four-ocean, blue-water navy." If we are to meet the Soviet challenge on the seas – in the military and commercial sectors – and if we propose to recapture our rightful position in the forefront of maritime nations – then we must adopt modern, low-cost methods. The technology of today – the advances in the art of shipbuilding in Europe and in the Far East – make it imperative for us to utilize entirely new ship construction techniques.
What of the quality of the work in Pascagoula? I have heard our nuclear submarines described as "the most intricate piece of machinery in the world." I am proud to report to the Senate that many nuclear subs have left the Litton yard and serve in our fleet at this hour. Those who launch these great undersea vessels are certainly capable of constructing the finest of destroyers.
Litton-Ingalls entered – with others – a fair and wide open competition for this contract. Their engineers produced a design which earned the Navy's approval. The company submitted the lowest bid and its employees have demonstrated over the years their capabilities as builders of the highest quality ocean vessels for the naval and merchant services.
The U.S. Navy – charged by this Congress with the responsibility for the defense at sea of this Nation and of the free world – selected from among the competitors the organization they believed to be best equipped to build the backbone of our destroyer forces at the lowest cost.
Finally, we answer the complaint that this award is too much business to go to one firm with the information that 60 percent of the cost of these destroyers will be spent for material from suppliers outside the shipbuilder's plant. The subcontracts flowing from this procurement will reach into 45 of our States.
Mr. President, here we are, after the fact, after 2 years of evaluation and selection and competition, being asked to take away from Litton-Ingalls that which they earned. The Senate is requested now to negate the competition, to disregard the "best and final offers," and to vacate a contract which was planned for – worked for – and won.
Americans are believers in clean and open competition. I am convinced that one of our principles would be violated if we said, "We want you to enter this long and tough competition, but keep in mind, even if you win on your merits, we may take your victory away from you through legislative action."
A contract, legally, and morally binding, has been awarded on the basis of sealed best and final offers. No sound or valid reason has been offered to cause the Senate to vacate the contract.
In our tradition of equity and in what I firmly believe to be the best interest of our Navy – as well as for the future of our country on the oceans – I urge the rejection of this amendment.
Mr. President, the Navy has furnished some information with respect to questions which were asked of it. One question is as follows:
Recent experience indicates that it is simply not prudent to follow a policy of single source procurement when it can be avoided.
These questions were asked by some of those who object to this procurement.
The Navy's answer is as follows: The fact that contracts have been issued to single sources for procurement of aircraft and weapon systems is not necessarily the reason for cost growth and performance problems. The problem has been the commitment to production while significant research and development remains unfinished. This is not the case in the destroyer contract which is more suitably termed "a detail design and production" contract. To avoid concurrency, where any technical or schedule risk is involved, preproduction shore site testing has been required or fallback positions have been predetermined. The DD 963 contract also contains milestones which must be met by the contractor before the government becomes committed to fund out-year increments of the contract. Incidentally, a distinction should be made between single source and sole source procurement. The DD 963 contract was the result of an intensive industry-wide competition held under pre-established and published rules. It was not a sole source procurement.
Another question:
By adopting (the) amendment . . the Navy . . (can) still realize the benefits sought in current policies, namely:
(4) The economies of production which can be derived from the construction of 15 ships of the same class within a single facility.
(6) The possibility that a second shipyard can proceed with a modernization program based on a 15 ship contract.
That is the big argument made here. Now here is what the Navy says about that:
NAVY COMMENTS
a. The economies of production in a 15 ship buy cannot equal that obtained in a 30 ship buy from one production source.
b. A 15 ship buy spread over five years, as the Navy now has planned the 30 ship buy, would at best provide one shipyard with three ships a year. This is exactly the case made against shipyard modernization cited in Senator Muskie's remarks on the DDG program. Economies of series production are sensitive to rate of production as well as number of units produced.
Here is another question and objection:
The risks are greater by proceeding with the present plan which calls for the construction of all thirty ships in a single shipyard.
NAVY COMMENT
The risk of placing a large program in a single building facility is no higher than the risk associated with procuring components, such as gears and turbines, from single sources in what is termed "the heavy equipment industries." Sixty percent of the cost of these destroyers will be spent for material from suppliers outside the shipbuilder's plant. We must accept "acts of God" and accommodate to them. That applies to all the industries that will support the destroyer program, including the assembly yard. A program split among several assembly yards will have little impact on minimizing the effects of catastrophes. The suppliers of large components for the destroyers will be the same whether the number of shipyards is one or two or more.
Here is another question:
It certainly appears imprudent to reduce our destroyer building capability to virtually a single source.
That argument is used. Here is the Navy's reply:
NAVY COMMENT
Awarding a single contract to Litton does not require that all future destroyer contracts must be awarded to Litton. While a destroyer is a complex ship, it does not represent a unique shipbuilding problem. Many yards have built destroyers in the past, and many could be available to do so in the future. It must be recognized that the DD 963 contract award is the culmination of an intense competition which started over two years ago with six qualified participants. The remaining five participants are still active today and bidding on other ship programs.
Here is another question:
My discussion with one of the competitors in the DD 963 program . . . indicate that a substantial modernization effort could be carried out based on the award of fifteen ships in this program.
This, incidentally, is consistent with the Maritime Administration's rationale that award of contracts for as many as ten to twenty ships at a time is sufficient to encourage the shipbuilding industry to proceed with major facility improvement programs.
Here is the Navy's reply:
NAVY COMMENT
The Maritime Administration Approach to contract awards which encourage facilities modernization is no different from that that has been used by the Navy for the past several years. The Maritime program envisions 300 ships in 10 years. An award of 10 to 20 ships a year then means funding 10 to 20 ships each year. The destroyer program funds ships in increments over a five year period. Splitting the program, therefore, only provides funds for two or three ships a year to any one facility. That is probably not sufficient to encourage significant facilities modernization.
Now, Mr. President, here are bids made by the two companies which they said was the best and final offer, that the Litton bid would save the Government $270 million, $9 million a destroyer.
Under the bid from Bath in Maine, the Navy estimates, if we adopt the amendment, that the costs to the Government would be $225 million to $685 million.
Mr. MUSKIE. Mr. President, will the Senator from Mississippi yield?
Mr. EASTLAND. I yield.
Mr. MUSKIE. I am not aware of any estimate submitted by any of the two final bidders upon which the Navy could base such an estimated increase in costs. I know that the Senator from Mississippi and his colleague (Mr. STENNIS) have used these figures. Would the Senator provide the basis for this estimate of the increased costs so that we may understand it? It seems to be speculation on the basis of anything that I can understand.
Mr. EASTLAND. It is not general speculation. It is based upon the judgment of the U.S. Navy who are in charge of the program and who are doing, in my judgment, a wonderful job and are better qualified than any of us to pass upon it.
Yes, I will attempt to get the basis of that. My colleague (Mr. STENNIS) is in a much better position than I am.
Mr. MUSKIE. May I put my question in a more precise form for the benefit of the Senator. Does the Navy say that it has–
The PRESIDING OFFICER (Mr. BAYH). The time of the Senator has expired. Does he wish to request additional time?
Mr. STENNIS. Mr. President, I yield 2 additional minutes for the Senator's question.
The PRESIDING OFFICER. The Senator from Maine is recognized for 2 minutes.
Mr. MUSKIE. Does the Navy say that it received the information from the other bidders upon which the Navy could make an evaluation as to what each might require in terms of cost per ship, if a lesser number than 30 ships were involved?
Mr. EASTLAND. They say that the bid from the shipyard in Bath, Maine, which was submitted as its best and final offer on the 30 ships, would be $9 million a destroyer, or $270 million.
Mr. MUSKIE. What I am asking is whether the Navy contends that it had a bid from Bath or Litton, or elsewhere, on 30 ships–
Mr. EASTLAND. No, no–
Mr. MUSKIE. Or in an even split, as my amendment proposes?
Mr. EASTLAND. They have said that an even split was unworkable. I have given the reasons the Navy said it was unworkable.
Mr. MUSKIE. Then why did Litton sign a contract to provide for a split if it contends that a split is unworkable?
Mr. EASTLAND. I cannot tell the Senator that. I am telling the Senator what the Navy thinks.
Mr. STENNIS. Mr. President, if I may answer that question right there, as I understand it, the House amendment put it at $10 million. The Navy put that clause in there. But whatever actually it will cost, that would be at the expense of the Federal Government. It would not be at the expense of the contractor, naturally. If the contract requires this additional clause, why Congress has to pay the bill.
Mr. MUSKIE. I understand that, of course.
The PRESIDING OFFICER. The time of the Senator has expired. Is additional time requested?
Mr. MUSKIE. Mr. President, I will take 2 minutes from my own time to answer that.
I understand, of course, that is the case. I discussed that in the prepared remarks I made this morning. But I made two points in response to what the Senator is making:
First, to the best of my knowledge neither of the bidders submitted information to the Navy upon which the Navy could estimate what either bidder would charge per ship for a lesser number of ships than the 30 involved in the contract. If that is the case, the estimate of the increased cost must be based upon speculation.
Second, in response to the Senator from Mississippi (Mr. STENNIS), I have argued in my original remarks this morning that the minimal increase of cost that this kind of bid would involve would be more than offset by the long-range savings through the competitive situation in the shipyards.
Mr. EASTLAND. We cannot do that by building 15 ships a year.
Mr. MUSKIE. I am talking about a 15-15 split. The Fitzhugh committee said that it would not award more than 10 ships in a multiple award to a single shipyard.
The PRESIDING OFFICER. The time of the Senator has expired.
Mr. EASTLAND. Mr. President, as I recall, some of the staff members said that. However, the panel did not pass upon it. The only thing involved here is 30 destroyers.
Mr. MUSKIE. Mr. President, the full report of the panel does not include the subcommittee report. But what is contained in the full report is fully consistent with and reflects the subcommittee report from which I have read. It does not deny or challenge it or raise a question about it. It reflects and reaches the same general conclusions.
Mr. EASTLAND. Mr. President, the Navy is the best judge of this whole matter. They know more about it than my friend, the Senator from Maine. They know more about it than I do.
Mr. MUSKIE. Does that mean that we should abdicate our duty here today?
Mr. EASTLAND. After bids are let and a company submits its best and final offer and loses, then I think that should be the end of it.
To conclude my prepared statement: QUESTION. The award of the thirty ship DD 963 contract to Litton will drive that company to recruit approximately 4,000 new employees in an area already stretched to supply the skilled personnel needed to accomplish their present backlog.
NAVY COMMENT
The availability of manpower was carefully considered in the source selection process. It is noted that peak personnel needs occur four years from now and a buildup of 4,000 people in that time is eminently practicable. The work of the State of Mississippi, and the contractor's planning approved by the U.S. Department of Commerce provide Congress with the assurance needed that the social and economic aspects of this contract award have been fully taken into account.
QUESTION
For these reasons, it makes real sense to divide the contract, and the national interest can be served by acting before the fact rather than waiting one or more years before inevitable problems to arise. Then we will all wonder why Congress lacked the initiative to act at a time when something meaningful could have been done to improve the prospects of success in this destroyer construction program.
NAVY COMMENT
It should be noted that in a peacetime environment it is most important that the necessary defense capability be developed at minimum cost. The series production approach of standardized ships is the most significant factor in achieving that objective. One of the critical paths in the shipbuilding process is the furnishing of material by subcontractors and vendors. In shipbuilding, the governing factor is the production rate of the heavy equipment industry, the manufacturers of special gears, turbines, etc. The suppliers’ rates of delivery actually govern the rate of ship deliveries. This is true for government furnished weapons as well as for contractor furnished equipment. Therefore, if the destroyer program were divided among a number of builders with the goal of standardized ships still a requirement, it would be necessary to restrict construction in any one facility to an inefficient, suboptimal rate because of the heavy equipment industry's inability to meet the production requirements. It has further been shown that in a wartime environment, under mobilization conditions, shipbuilding facilities can be activated faster than the pipeline of critical components can be filled. There are, therefore, no compelling defense reasons for using forced or uneconomical contract award practices in order to maintain warship construction facilities in a non-mobilization situation.
Finally, it must be pointed out that the proposed Muskie amendment would increase the cost of the 30 ship program by somewhat between $225M and $685M, depending on the number of ships involved in the split and other factors. The national interests, including that of the shipbuilding industry as a whole, would be better served by using the dollars which would be required to implement split construction of the DD 963 class for new ship programs, open to competition of all builders, rather than requiring our new destroyers to cost more than now contracted for.
Mr. MUSKIE. Mr. President, I yield myself an additional minute.
The PRESIDING OFFICER. The Senator from Maine is recognized for 1 additional minute.
Mr. MUSKIE. Mr. President, I do not accept the thesis of infallibility of the Navy in this area or the Defense Department, for that matter, may I say to the distinguished Senator from Mississippi, and I doubt that he does.
Mr. President, I ask unanimous consent that my amendment, as modified, be printed for the availability of Senators tomorrow.
The PRESIDING OFFICER (Mr. BAYH). Without objection, it is so ordered. Who yields time?
Mr. STENNIS. Mr. President, . I yield myself 15 minutes in apposition to the amendment.
The PRESIDING OFFICER. The Senator from Mississippi is recognized for 15 minutes.
Mr. STENNIS. Mr. President, I want to make it very clear indeed at the very beginning that anything I say or do or think is not in derogation of the fine shipyard in Bath, Maine. They have a fine record. They are key people in the industry. They are well represented on the floor. The Senator from Maine (Mrs. SMITH) is one of the most valuable members of the minority on our Armed Services Committee. We greatly appreciate her fine services.
The junior Senator from Maine and I work on various matters together. We disagree on this. However, anything that I say is not meant to cast any reflection upon him in any way. I am sure that each of the Senators from Maine understands that. And I want all other Senators to be sure to understand it also.
Mr. President, the Senator from Maine (Mr. MUSKIE) told me on Thursday when we agreed on a time limitation, that he expected to submit a modified amendment. That is exactly what he has done today. It is an amendment that he was courteous enough to give me a copy of before we agreed on the time limitation. We had to know what we were going to pass on. I want to personally thank him for that courtesy.
If the Senator will permit me, on my time, to ask him some questions about this modified amendment that he is standing on today, I would be glad to do so.
Mr. President, in the beginning of his remarks, the Senator from Maine (Mr. MUSKIE) referred to the prime contractor and indicated, as I understood, that Litton would be the prime contractor. Presently Litton is the one that has the contract.
Would the Senator explain a little further what he had in mind under the revised amendment?
Mr. MUSKIE. Mr. President, the Senator is correct that this was not left in doubt by the original amendment. The original amendment provided two prime subcontractors. However, I was persuaded as I studied the question further to modify the amendment in this way to provide for one prime contractor, one design, Litton being that prime contractor and Litton's design being that design. It offered a savings that we ought not to ignore.
Mr. STENNIS. Mr. President, does the Senator's amendment leave Litton-Ingalls with the contract they have now, but reducing the number of destroyers or ships to be built to 15?
Mr. MUSKIE. Mr. President, I am not too familiar with the Litton contract. It is conceivable, of course, that this amendment in its impact upon the contract would require some modifications. I would have no judgment on that. But essentially I would think that the contract would govern the modifications bearing upon the costs, and so on. I would expect that there would be modifications.
Mr. STENNIS. Mr. President, what guarantee or what assurance would this amendment give that Litton-Ingalls Industries would be left with a contract of any kind and would not have to start all over to compete again on the new terms?
Mr. MUSKIE. The Senator has asked my intention. I stated my intention and understanding. The language is as follows:
Provided, That none of the funds authorized by this Act may be expended for the procurement of DD 963 class destroyers unless (1) the prime contractor with whom the United States contracts for the construction of such destroyers is required under the terms of such contract to subcontract to another United States shipyard . . .
This amendment does not by its terms void the existing contract. I would think that the reference contained in the language that I have just read indicates quite clearly that the prime contractor intended is Litton Industries. At least, that is my intention. And I would be surprised if the Navy were to interpret it otherwise.
Mr. STENNIS. Mr. President, I think that is a vital point that we must know about for certain. I am certain about the Senator's intentions here. But the language says: "unless (1) the prime contractor with whom the United States contracts for the construction of such destroyers."
That certainly permits reasonable interpretation, it seems to me, that that refers to a future contract, a future prime contract, rather than the contract that is in being.
If the Senator means, though, that he is going to keep the Litton and Ingalls contract and they will be the prime contractors for at least half of the contracts, why we ought to know that, or will this totally set aside the contract, and everybody would start over again?
Mr. MUSKIE. My intention is it should not set aside the contract. It is not my purpose that the ambiguity to which the Senator refers would have that effect. I would be glad to consider any clarification of the language which would reassure the Senator on that point.
I do not personally conceive that the contract would be set aside and the process started over. That would not be in the national interest. That is not my intention and I do not think that should be done.
Since Litton is not specifically mentioned in the amendment, I can see the ambiguity to which the Senator refers.
Mr. STENNIS. The Senator made his position clear and I thank him for that. Second, if Litton is to continue as the prime contractor but required to subcontract out one-half of it, would the Senator expect Litton's price to be the same per ship under the new arrangement as it is under the contract as made?
Mr. MUSKIE. I would expect not.
Mr. STENNIS. The Senator would expect Litton to receive more money per ship than under the contract they have now?
Mr. MUSKIE. I would expect with the shorter learning curve that result would follow.
Mr. STENNIS. That would involve negotiating with Litton on a new price basis; the Navy and Litton would negotiate on a new price basis?
Mr. MUSKIE. Precisely, and I would say on that point there is already, as a result of four pricing rounds, sufficient information available to the Navy and the contractors so that it could not be said Litton would have a blank check in that respect. I think there is a basis for negotiations that would adequately protect Government interests.
Mr. STENNIS. Who would negotiate with this subcontractor? Would that be Litton or the Navy?
Mr. MUSKIE. As the amendment is worded, as I understand it, the other 15 ships would be subject to competitive bidding.
Mr. STENNIS. But who would conduct this competitive bidding and the negotiations and make the contract? Would that be Litton or the Navy?
Mr. MUSKIE. I would expect, as I fully understand the language in the Litton contract, to which I referred in my remarks, that the Navy would be in the driver's seat in working out the arrangements.
Mr. STENNIS. Who would pay the bill with respect to different costs or additional costs that might be incurred due to this subcontractor being brought in?
Mr. MUSKIE. If there were additional costs, of course, the Navy would.
Mr. STENNIS. Does the Senator estimate there would not be additional costs if the contractor was brought in, or how much does he estimate those costs to be?
Mr. MUSKIE. I do not think there is any basis for making those estimates, any more than the Senator or I could answer his earlier question with respect to the increase in price per ship Litton might get with a split in the contract. These learning curves produce different results and, as the distinguished Senator from Mississippi (Mr. EASTLAND) noted, I am not an expert in this field and I would not make that projection.
But in the price proposals of both contracts, in the event Bath should prove to be the contractor, there is sufficient information to protect the public interest in that respect.
As I said in my statement, splitting the contract with the two, with shorter learning periods, would indicate there would be some increase in cost per ship. In my judgment, that would be offset by the value of retaining a competitive situation in the industry; and second, the long
range procurement savings when there are follow-on contracts. This is the balance.
Mr. STENNIS. At the same time, as I understand the Senator, and he has been very frank about it, under his amendment the Navy would owe some additional money, the amount unknown, to Litton-Ingalls, the prime contractor, because of things which would cost more and also it probably would cost more for the subcontractor per ship than the present bid.
Mr. MUSKIE. We do not know the result of the competitive bidding for those 15 ships. It is conceivable, with the price picture that is now a public record, as it emerged from this competition, that bidding on the other 15 ships could produce a lower price. I am not in a position to project that.
The important point is to retain competitive bidding and that would occur in the competitive bidding for the other 15 ships.
Mr. STENNIS. What would be the responsibility of the prime contractor to the Navy, to the Government, for the production of the ships that are subcontracted out to the subcontractor?
Mr. MUSKIE. To the extent that subject is covered by the provision in the contract to which both of us have already referred, that contract would be the best guide. To the extent to which the details are not provided in the amendment, I would assume it would have to be worked out.
Mr. STENNIS. Under the Senator's amendment, the prime contractor would carry a responsibility for the production as produced by the subcontractor. Is that correct?
Mr. MUSKIE. I am not sure what the contract states on that point.
Mr. STENNIS. I am talking about the Senator's amendment.
Mr. MUSKIE. The amendment anticipates this possibility of legislation, and works out in some detail, which cover two very closely printed pages, the mechanics of adjusting to such legislation that the Navy and Litton envisaged when they entered into the contract. I am not sure of those details sufficiently to act as an expert in response to such detailed questioning. I have had the provision printed in the RECORD for the Senate to study.
The PRESIDING OFFICER. The time of the Senator has expired.
Mr. STENNIS. Mr. President, I. yield myself 10 additional minutes. .
The PRESIDING OFFICER. The Senator is recognized for 10 additional minutes.
Mr. STENNIS. I thank the Senator. My questions were directed as to the impact on the situation, the contracts, and so forth, under the Senator's amendment, and not under any existing contract that is now going to be abrogated this month. I will have some evidence on the cost matter that will be accurate.
Mr. MUSKIE. It might be helpful to Senators if I repeated this provision in the contract:
The government shall have the right to require the contractor to subcontract the construction of a quantity of complete vessels as may be necessary to comply with the legislation referred to in the premises hereof.
That is a direct reference to the kind of legislation we are discussing. It was in anticipation of this legislation that the two pages of details were included in the contract. If legislation of this kind is enacted by Congress, and Litton remains the prime contractor in accordance with the intention of both of us, this provision of the contract would come into play.
Mr. STENNIS. I thank the Senator. I wish to review briefly what has happened. There is nothing new about this matter. As early as 1966 the Navy made the decision that ships which are not unusually complicated but which are greatly needed in a modern version, would be let out under one contract. They announced that in their original statements. They wanted prospective bidders to come in and submit a design and compete; and it was in writing from the very beginning. All parties understood it because they all read those proposals that the whole matter would be based on the idea that if there was an award it would go to one shipyard. Everyone knew that.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. STENNIS. I yield briefly. My time is running away.
Mr. MUSKIE. It was my understanding over the 3 to 4 years that I have been close to this matter that there has been speculation in the industry almost constantly as to what might result in a split between two or three possible contractors?
Is the Senator saying Litton was unaware of that possibility?
Mr. STENNIS. I am just citing the facts from the record. The speculation was that Bath was going to get the contract. I noticed that in many newspapers. But it proved to be speculation, and the price difference was what caused the difference.
These six contractors came in, under that condition, from the very beginning; the competition was later reduced to three, as is customary, and later two, Bath and Litton, both capable designs were approved, everything about it was approved, and finally, as the Senator said, they called for the best and final bid. That was I believe, in March of this year.
There never was any change in the ground rules. There never was anything to the contrary. I have never heard it disputed that there was any kind of understanding but that that rule prevailed and the contract was awarded when those lower bids came in.
During the course of that, Congress passed on the question of whether it would be a sole contract three or four times, I know. In appropriating money these questions would come up. Last year, it came up in the conference between the House and the Senate on the authorization bill, and I have a copy here of what was before us in the form of a House amendment. That was considered by the Congress, and was dropped, and they stayed with the sole contractor concept as to those ships.
There is no doubt about that. It is reflected in the report of the House conferees. I think it is covered here in the statement in the conference report. Bath knew that. Everyone knew it who was familiar with the subject matter.
Now, after the contract is finally let, we have the situation as is presented here today.
I want to thank the Senator again for advising me, before we agreed on the time limitation, about his new amendment. I sent it over to the ones who are most familiar with the entire subject, the Navy. We were going to start debate this morning at 10 o'clock; I had to know what the facts are.
Let me point out that this matter has been handled from the very beginning in two different administrations. It has been handled by two Secretaries of Defense. It has been handled by two Secretaries of the Navy. It was handled under Admiral Moorer, who was Chief of Naval Operations, until just before this contract was actually made. He was selected by the President of the United States to be Chairman of the Joint Chiefs of Staff. His nomination was confirmed unanimously by the Armed Services Committee and here on the floor of the Senate, amidst many compliments. I know, too, that Mr. Packard, who has proven to be a man of exceptional ability in this field, concerned himself with the contract. So the judgment of all these people was involved.
It was reported to the General Accounting office on the idea that the low bid might be a "buy-in." That is a term that has been thrown around here. It means a deliberate buying in, bidding too low, in order to get the foot in the door and make up for it later in some way.
The General Accounting Office is made up of rather competent people, led by a fine and capable man. They went into it fully. They dug back into it. Their report says, in effect, that there is justification for this lower bid. They say, in effect, it was not a "buy-in." That is about as strong evidence as one could find quickly.
So this case comes before the Senate on what are proven, essential facts. It boils down to the fact that we would be setting a precedent here which would affect all contractors, whether the contracts are for airplanes, tanks, ships, missiles, or whatever they are; that if they compete and do not get the contract, they can, nevertheless, come to the floor of the Senate and get an amendment adopted that will set the contract aside and they will have another chance. Where is that going to leave the Members of this body? They will be approached all the time by disappointed contractors in their States saying, "You want to get this set aside." Where does that leave the contractors as a whole in the field of military construction? So a new precedent would be established here, a new rule of the game, under which Boeing, McDonnell, and the rest of them, trying to get contracts for missiles, submarines, and everything else, would think they were immune. They are all involved here. If this contract is set aside on these facts, they will not know where they are, and they will not know where the Navy or any other branch of the service is, when they bid. No Secretary of Defense will know where he is when he is trying to negotiate to get a good price for the Government. He would know that he would be subject to being overruled and having his decision set aside. That is what we are plowing into right now. I am not referring to Maine, Mississippi or any other State. We have to represent the Nation and decide what is best for the Government. There is nothing that would so blow up the whole concept than for us to come along now on these facts and set a precedent like this.
Mr. MUSKIE. Mr. President, will the Senator yield?
Mr. STENNIS. May I proceed? A good part of my time, has been used up.
The PRESIDING OFFICER. The time of the Senator has expired. Does the Senator yield himself additional time?
Mrs SMITH of Maine. Mr. President, will the Senator yield?
Mr. STENNIS. Mr. President, I will yield to either Senator from Maine for a brief question. I did not know my time was up. I will yield the floor, unless the Senator from Maine wants to ask a question.
Mrs. SMITH of Maine. Mr. President, I would like to ask the Senator from Mississippi if he will cite or read from the GAO report that part that he referred to which said this was not a buy-in.
Mr. STENNIS. Mr. President, I yield myself 5 minutes. I said the general substance of it, the general meaning of it, as I understood, was that it was not a "buy-in," because the facts justify it, as they found it. The part of the bid that was based on cost of materials – and they were figuring a lower interest for one thing – they could not attack. I refer to materials and supplies, and not firm contracts, but propositions they had with subcontractors. I have an itemized list of those amounts. I cannot put my hand on it right now, but I will come back to that and speak more in detail on that, as I did the other day.
Mrs. SMITH of Maine. Mr. President, will the Senator yield?
Mr. STENNIS. I yield to the Senator.
Mrs. SMITH of Maine. Then the distinguished Senator would say that that was his interpretation of the GAO report, that it states it was not a buy-in? That is rather a convenient interpretation; we will leave it at that.
Mr. STENNIS. Yes. I will put it this way: My interpretation, as well as that of my advisers and the others I have to help me pass on this issue, and also a conference I had with those men after that report was in as to what it meant, with particular reference to the buy-in.
As I understand them, they give this contract a clean bill of health on that score. Certainly there are no findings against it, and I do not believe that their report is unfair, although the Senator from Maine doubtless has another interpretation.
Mrs. SMITH of Maine. Mr. President, I would only say that I, too, had a conference with the same gentlemen, and my interpretation was entirely different from that of the distinguished Senator from Mississippi.
Mr. STENNIS. I thank the Senator very much.
Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator has a minute and a half.
Mr. STENNIS. How much?
The PRESIDING OFFICER. A minute and a half remain of the last 5 minutes the Senator yielded himself.
Mr. STENNIS. Excuse me; how much time in all do I have remaining?
The PRESIDING OFFICER. Three and one-half minutes.
Mr. STENNIS. Mr. President, I have a letter here, that I have referred to heretofore, from Mr. Warner, the Acting Secretary of the Navy, with reference to the amendment in its present form, that is, the revised form as put in by the Senator. I ask unanimous consent that the letter be printed in the RECORD at this point.
There being no objection, the letter was ordered to be printed in the RECORD, as follows:
DEPARTMENT OF THE NAVY,
Washington, D.C.,
August 29, 1970.
Hon. JOHN C. STENNIS,
Chairman,
Committee on Armed Services,
U.S. Senate,
Washington, D.C.
DEAR Mr. CHAIRMAN: The Secretary of the Navy, John H. Chafee, recently submitted the Department off Defense position on Amendment No. 811 to HR 17123. You have advised that there may be a change to Amendment No. 811 wherein the prime contractor would be directed to subcontract half of the procurement of the DD 963 ships to another builder. The DOD position on this proposed change is forwarded herewith as you requested.
There is general agreement in industry that a shipbuilder requires a sizable production commitment if he is to be able to produce ships in the most economical manner. This fact is borne out by studies by Webb Institute and the Maritime Administration, as well as by Navy and the shipbuilding industry itself. From the beginning of the DD 963 program in 1966, the Secretary of Defense stated repeatedly that the approach to this program acquisition would centralize the design and production of the total program in one prime contractor. The Navy advised Congress of this intent during hearings in 1967 and 1968, and Congress strongly supported the program. Also, in its consideration of the Military Authorization Bill, the first session of the 91st Congress in Joint Conference eliminated a provision from the House Bill which would have required the DD 963 ships to be built in three shipyards.
Thus, the Congress has been fully informed of the Navy's procurement plan since 1967. It supported the Navy's position of awarding the full contract to one builder when it authorized and appropriated long lead funds for the program in FY 69, and again when it authorized and appropriated full funding for the first three ships in FY 70, and at the same time eliminated the principle of split procurement referred to above.
A change to the present procurement plan, as proposed by the revised Amendment, would result in serious program disruption and essentially nullifying most of the benefits of competition and series production. Splitting the program between two yards would reduce learning benefits, including start-up and tooling in two yards vice one, and production efficiency. Also, reducing the production quantity and rate of the prime contractor to less than now planned would result in a less economical production. All of the above would significantly increase program costs.
Subcontracting half of the ships would involve a 9-10 year commitment of the prime contractor's ultimate responsibility for the performance, schedule and cost control of a large number of ships built by another shipbuilder. Realistically, to assume this responsibility would involve committing large numbers of top professional managers, supervisors and technicians with no productive return to the prime contractor. The result would be a. dilution of management effectiveness and an increase in program costs.
The actual cost impact of the proposed Amendment would not be known until the Government negotiates with the prime contractor – but it is clear that the costs could be substantially higher than even the $225 million increase which has been estimated for up to a 20/10 split of the program. Without a significant increase is program funding, the use of a second shipbuilder will substantially decrease the number of ships the Navy will be able to procure.
The Navy has been falling behind year after year in keeping up with its requirements for new construction to fulfill urgent Fleet needs. In the judgment of the Department of Defense the additional funds required to implement the split procurement would better be used to provide additional ships so badly needed by the Navy. Such procurement would, of course, be in competition open to all builders and would thus help the U.S. shipbuilding industry.
For these reasons, the Department of Defense is opposed to the proposed change requiring that the procurement of the DD 963 class ships be split between two shipyards.
Sincerely yours,
JOHN W. WARNER, Acting Secretary of the Navy.
Mr. STENNIS. Mr. President, reading some of the pertinent sentences here, the letter says:
There is general agreement in industry that a shipbuilder requires a sizable production commitment if he is to be able to produce ships in the most economical manner. This fact is borne out by studies by Webb Institute and the Maritime Administration, as well as by Navy and she shipbuilding industry itself. From the beginning of the DS (DD 963) program in1966, the Secretary of Defense stated repeatedly that the approach to this program acquisition would centralize the design and production of the total program in one prime contractor. The Navy advised Congress of this intent during hearings in 1967 and 1968, and Congress strongly supported the program. Also, in its consideration of the Military Authorization Bill, the first session of the 91st Congress in Joint Conference eliminated a provision from the House Bill which would have required the DD 963 ships to be built in three shipyards.
Thus, the Congress has been fully informed of the Navy's procurement plan since 1967.
The rest of these facts will speak for themselves, Mr. President.
The PRESIDING OFFICER. The Chair advises the Senator from Mississippi, relative to the time situation, since he requested that information a moment ago, that his 5 minutes have expired, and he now has 2 minutes remaining in his allotment of time between now and 4 o'clock.
Mr. STENNIS. I thank the Chair. I reserve those 2 minutes.
Mr. MUSKIE. Mr. President, I may have some time for the Senator from Mississippi before 12 o'clock.
Mr. STENNIS. I thank the Senator.
Mr. MUSKIE. First of all, I yield myself 5 minutes on the question of the rules of the game which the distinguished Senator from Mississippi has raised.
The facts that over the past 3 or 4 years, as competition has moved along from the time when there were six shipyards involved to the time when there were three; down to the time when there were only two, there was speculation all the time, well known to the industry and to all parties who were in competition, that this contract might eventually be divided. Because of its magnitude, because of the importance of spreading our destroyer-building capacity geographically, and for many other reasons I have stated here this morning, that speculation has been underway. It was very strong in the weeks just preceding the final award.
I think there was some element of surprise in the reaction to the decision finally to seize on one shipyard. The fact is, as reflected by the GAO report, that the Navy apparently never did consider splitting this contract among two or more yards.
That is all the more reason, Mr. President, why Congress should consider the implications of the failure to split.
In my judgment, for the reasons stated in the Fitzhugh report and the McNeil subcommittee report, the Navy should have considered, in a way that it apparently did not, the factors which I have undertaken to spell out here this morning, and which those two reports spell out in such detail.
It is important to preserve competition in this shipbuilding field in the United States. The McNeil report and the Fitzhugh report indicate that clearly.
The Senator speaks of surprise, and the fact that the award has been given, and poor losers should not now come forward with proposals of this kind.
Let me remind the Senator from Mississippi that the House of Representatives had acted on a similar proposal before the contract award. The Navy was on notice and Litton was on notice that at least one House of Congress was concerned about the policy implications of a single shipyard award. The award should not have been made at that time, if the Navy really wanted to focus on the considerations which were troubling Congress. To plead surprise now, at this point, when Litton and the Navy were already on notice that these questions were being raised, I do not think reflects any better faith or good will than the attitude of the Senators who are sponsoring this amendment.
This is an important policy change that is being made with respect to the construction of our destroyers, and it ought not to become frozen in concrete until all of the inputs possible have been made.
The Senator says that Congress has already approved this single ship procurement policy for destroyers; but not in any deliberate, considered way, insofar as the total membership of the House of Representatives and the Senate is concerned.
I do not know what discussion there was of these factors in the conference committee to which the Senator has referred, but the Senate has not deliberated in any such way on this question. The House of Representatives did, and the House as a whole adopted the amendment dictating the splitting of this contract between the two shipyards. So if there has been any deliberation, the deliberation is all on the other side of the position taken by the Senator from Mississippi.
The PRESIDING OFFICER. The Senator's 5 minutes have expired.
Mr. MUSKIE. I yield myself 3 more minutes.
Let me cover one or two points that have been raised by the distinguished Senators from Mississippi. First of all, Senator EASTLAND has said Litton's costs were lower because it has the best U.S. facilities for building these ships.
Let the RECORD show, Mr. President, that both proposals, Bath and Litton, included completely new facilities, designed specifically to build destroyers. Both shipyards would have had modern, up-to-date shipyards. There is nothing to choose between them.
Second, I point to Bath's record building destroyers. If there is a shipyard in this country identified as a destroyer building yard, it is the Bath Iron Works. Everyone who has ever served in the Navy on a destroyer knows that. Earlier today, I put into the RECORD the fact that Bath has built more than 160 destroyers during its existence. In 1 month during World War II it sent down its ways more destroyers than were built by the entire Japanese Empire in World War II. Bath is a destroyer building shipyard.
So if we talk about which yard can build a better destroyer, if we are to rely on the record, it leads to only one conclusion: Bath. Litton has never designed a destroyer before. Litton has built, at most, two small destroyers. Gibbs and Cox, which designed the Bath ship in this competition, has designed almost all if not all the destroyers that have been built for the U.S. Navy since the 1930's.
If we are talking about quality, record, and performance, Bath has that record of performance, far beyond that of any other shipyard in this country, let alone Litton, which is not a destroyer-building yard and has no record in this respect.
So what we are talking about, Mr. President, is this: The Navy has found that both yards proposed good, acceptable ships. What we are talking about now is not the competition between the two, but whether or not these 30 destroyers are to be built in one yard or in two yards, in the national interest. It is no longer a question of competition between Bath and Litton. There may be questions emerging out of that competition yet to be answered, as my distinguished colleague from Maine has suggested. But now what we are considering, and conceivably for the last time, with the last opportunity to act, is the question of whether or not the Nation's interests are best served by a split in this contract.
I submit that for the reasons I have given earlier, those interests are better served in that respect.
Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator's 3 minutes have expired. The Senator has 8 minutes remaining.
Mr. MUSKIE. May I ask the distinguished Senator from Mississippi whether he would like more time than remains to him?
Mr. STENNIS. Mr. President, how much time do I have?
Mr. MUSKIE. I have 8 minutes, and the Senator from Mississippi has 10. I would be glad to split the time.
The PRESIDING OFFICER. The Senator from Maine has 8 minutes, and the Senator from Mississippi has 2 minutes.
Mr. STENNIS. Does the Senator from Maine want to use more time?
Mr. MUSKIE. I reserve the remainder of my time. I have a few more remarks to make, but they will not consume 8 minutes.
Mr. STENNIS. Does the Senator wish to proceed now?
Mr. MUSKIE. No. I yield at this time.
Mr. STENNIS. Mr. President, I understand that this does not cut off debate on this subject, that tomorrow we will have controlled time.
Referring again to the letter I have just put in the RECORD, Mr. Warner, Acting Secretary of the Navy, says:
The actual cost impact of the proposed Amendment would not be known until the Government negotiates with the prime contractor but it is clear that the costs could be substantially higher than even the $225 million increase which has been estimated for up to a 20/10 split of the program. Without a significant increase in program funding the use of a second shipbuilder will substantially decrease the number of ships the Navy will be able to procure.
Now we are getting down to the hard part of this matter. He says a minimum, substantially higher than $225 million. That is a cost increase of a quarter of a billion dollars, we might say. We have been working 5 weeks here in an attempt to reduce this bill. The Senator from Maine voted just the other day for a $5.2 billion decrease, which was all right. But now let us not get the facts mixed up.
This amendment would add hard dollars, at least a quarter of a billion dollars, for this shipbuilding program alone; and I will refer to that again.
I do not think it would be fair to the Senator to ask him if he would have offered this amendment had Bath gotten the contract. I am not asking him that question. He speaks in behalf of a fine company. Nevertheless, they went to bat, they played the game according to the rules, and they lost; and now they want to turn around and say that not only do they want to change the rules but also the score and the result of the game. I do not believe we can do that. We should not set such a precedent, and I do not believe we will.
Mr. President, the distinguished Senator from Maine (Mr. MUSKIE) has now revised his amendment so as to require a subcontract procedure with respect to the DD-963 rather than two separate contracts. This revision has some very significant implications because, by calling for subcontracts, the Senator from Maine must be held to have admitted that the contract with Litton is valid and binding and that there were no irregularities in the industry competition source selection procedure and the award of the contract. This also admits, at least by implication, that there was no "buy-in" on the part of Litton and, additionally, that Ingalls Shipbuilding Division has the capabilities and facilities to carry out the contract and construct ships required by it. These things are implicit in the Senator's amendment because the proposal for a subcontract presumes the existence of a valid prime contract.
Nevertheless, Mr. President, I strongly believe that it would be a very serious mistake for the Senate to adopt the Muskie amendment. If it should become law it would set an extremely bad precedent and throw the entire military contracting procedure into chaos and make a mockery of the defense source selection machinery. I think we should all be aware of this situation.
If we establish the precedent that we can by legislation interfere with contract awards and require subcontracts by the prime contractor, then all defense industries and other Government contractors had better beware.
If we can do this to the DD-963 program, we can also do it to the Air Force's F-15 fighter aircraft program, the contract for which has been awarded to McDonnell Douglas Aircraft Co. of St. Louis, Mo. We can also do it to the Grumman Aircraft Co. at Bethpage, N.Y., which holds the contract for the Navy's F-14 aircraft. We can also do it with respect to the Poseidon missile, the contract for which has been awarded to Lockheed Aircraft at Sunnyvale, Calif. We can also do it to the B-1 aircraft, the follow-on strategic bomber – the contract for which has been awarded to North American Rockwell at Los Angeles, Calif.
We can also do it with respect to the Navy's S-3A aircraft, the contract for which has been awarded to Lockheed Aircraft Co. at Burbank, Calif. Similar action can be taken with respect to the Airborne Warning and Control System (AWACS), the contract for which has been awarded to the Boeing Co. at Seattle, Wash. It can also be done to the SAM-D ground-to-air missile, the contract for which has been awarded to the Raytheon Co. at Medford, Mass. We can also do it with respect to the Main Battle Tank MBT-70 – the contract for which has been awarded to General Motors Corp. at Cleveland, Ohio.
I think we would all be concerned by a precedent such as this. The point that I am making is that what we are asked to do to the award of the DD-963 destroyer contract today can be done to any other weapon system tomorrow if we establish this precedent. The precedent, in my opinion, would bear bitter fruit which we would live to regret. There is no reasonable rationale or logic whatsoever for the Senate to undertake to pass on contract awards and change the obligations of contracts already entered into by the Government.
Mr. President, although many issues have been raised with respect to the DD-963 contract to Ingalls Shipbuilding Division, the basic and central issue in question is very clear and simple.
That is, that after more than 2 years of intense industry competition, under ground rules established in advance and known to all competitors, Ingalls was awarded the contract. Bath Iron Works of Maine was the losing finalist. What we are really being asked to pass upon is the question of whether or not Bath, after having lost the competition because its bid was not lowest and best, should now by legislative action be awarded a part of the contract it was unable to win in regularly and legally conducted competition. This is what the whole thing boils down to, regardless of any other issues that might be raised.
I think it is far too late in the day for us to adopt an amendment of this nature. As you will recall, last year the House bill contained a provision requiring the construction of the DD-963 in at least three shipyards. This provision was removed in the conference and the House conference report; dated November 4, 1969, contains this statement:
Because of the advanced state of the contracting procedures for this class of destroyers, the conferees agreed to remove this requirement on this class of destroyers at this time.
If the contracting procedures were in an "advanced state" last year, they are certainly far more advanced at this time. As a matter of fact, they are certainly far more advanced at this time. As a matter of fact, the contract has been awarded and the competition has been concluded. While I can understand the desire of the Senator from Maine to obtain a portion of this business for the shipyard located in his State, I think that it would be disruptive in effect, would increase the cost of the program, and would delay ship delivery. Certainly, Litton could not be expected to build 15 ships at the same unit price as it offered to build 30. I am compelled to wonder whether Bath or any other shipbuilder would accept a subcontract for 15 ships at the same unit price bid by Litton for 30 ships.
The Acting Secretary of the Navy has advised me that the actual cost impact of the proposed amendment would not be known until the Government negotiated with the prime contractor.
However, he stated that it is clear that the costs could be substantially higher than even the $225 million increase which has been estimated for up to a 20/10 split of the program. Therefore, without a significant increase in program funding, the use of the second shipbuilder will substantially decrease the number of ships the Navy will be able to procure.
We have been hearing a lot of arguments for reducing military spending on the floor of the Senate during the last several weeks while this bill was being considered. Many Members of the Senate have consistently voted for amendments proposing reductions in spending. If these Members are really in favor of economy in defense procurement and reduced spending, then certainly if they are to be consistent, and if they are to vote in accordance to the principles which they have so repeatedly expressed, they cannot and will not support the Muskie amendment.
Within the past few days the Government Accounting Office has submitted a letter report on the investigation which it made of the DD-963 contract. One of the points which it inquired into was the question of the credibility of the "best and final" offer of Litton and the possibility that there was a "buy-in" action on the part of Litton. As a part of the General Accounting Office's investigation into this matter, the Defense Contract Audit Agency made an audit of the difference between the third and the "best and final" offers of Litton on this matter. In general, it found that the "best and final" offer was reasonable, justified, and supportable. The General Accounting Office took no exception to this and, therefore, it appears that the question of a "buy-in" has now been completely laid to rest.
The issue now being urged is with respect to the advisability of the Navy's procurement plan and its potential influence on future competition in the shipbuilding industry. Having been unable to get the contract award by the established and recognized competitive procurement practices, it would appear that Bath now wants the Senate to intervene, upset the award, and give it a share of it. However, I do want to discuss briefly the questions which this issue raises. Let me emphasize, I have only the highest regard for both.
The question of the effects which the procurement approach may have in future competition within the shipbuilding industry is much more a question of judgment and opinion than was the "buy-in" issue. This is reflected by the GAO letter report. Most of the concern voiced by the GAO have been considered by the Navy since the inception of the DD-963 program. The major difference in opinion lies in the evaluation of the extent of risk involved. As was properly stated in the report, the Navy's opinion is that this risk is low, and that the procedures involved in the contract will result in the surfacing of incipient problems in time to solve the problems before the contractor's ability to perform has been jeopardized. It would appear that the Navy was in the best position to make a judgment on this point.
There is general agreement in industry that a shipbuilder requires a sizable production commitment if he is to be able to produce ships in the most economical manner. This fact is borne out by studies by Webb Institute and the Maritime Administration, as well as by the Navy and the shipbuilding industry itself.
From the beginning of the DD-963 program in 1966, the Secretary of Defense stated repeatedly that the approach to this program acquisition would centralize the design and production of the total program in one prime contractor. The Navy advised Congress of this intent during hearings in 1967 and 1968, and Congress strongly supported the program. Congress has been fully informed of the Navy's procurement plans since 1967. In addition, this ground rule, that is, the "all to one builder," was published to industry when the Navy went out with the request for proposals for the DD-963 on February 15, 1968. This ground rule has never changed. It was known to all of the competitors. It was accepted by all of the competitors just as it has been accepted by the Navy, the two Secretaries of Defense, and by the Congress. The Senator from Maine raised no question to this ground rule until after his shipyard lost the award. To adopt his amendment would be a clear case of changing the ground rules after the game is over. I do not believe that the Senate wants to do this.
The fact is, Mr. President, that the procedure used on this program was deliberately intended by the Navy and the Defense Department to be a major departure from prior ship procurement programs. This procedure was followed in recognition of the rising costs of ships and as a result of a specific effort to minimize ship operating costs by having them as nearly identical as possible. The DD-963 program is distinguishable from many large programs – the C-5A, for example – which have been the subject of criticism because this program does not involve any large-scale research and development effort. It is a design and production program – not a research and development program. The production is based on engineering state-of-the-art and the risks associated with it are minimal.
Let me remind the Senate that we very recently had before us the amendment by the distinguished Senator from Delaware (Mr. WILLIAMS) who is justly noted for his rugged honesty and integrity. The purpose of that amendment was to preclude the making of announcements of defense contract awards by Members of Congress and the primary reason advanced in support of the amendment was that it raised the suggestion of political influence if members were permitted to make such announcements. We all agreed with this thought and the amendment was unanimously adopted.
Now we have before us an amendment which would compel a subcontracting of approximately half of the DD-963 destroyer program, despite the contract award which has been made on its merits by the Navy. I can certainly understand that the Senator from Maine wants some of this business to go to his State, but the procedure which he would have us follow does far more than "suggest" political influence. His amendment, if adopted, would be political influence of the most direct, flagrant, and blatant type, because the Senate, or a majority of it, will have passed final judgment on a military contract award.
Mr. President, if we adopt this amendment we may as well add another amendment to the bill, to the effect that no contract award by the Defense Department or any other Government agency shall be final or binding until it has been submitted to and approved by the Congress. If we interfere with one Government contract award by compelling the prime contractor to subcontract a portion of it, certainly we are taking upon ourselves the responsibility to look at others. There is certainly no reason to single out this contract which, so far as the debate here shows, is entirely free of any suspicion or any irregularity whatsoever.
I hope that we will all look to the future and realize that if we establish this precedent that we are going to intervene and require a subcontract in such cases, we are inviting more trouble than can possibly be imagined. The contractor will no longer be certain of his position. He will necessarily have to increase his bid against the contingency that he might be required to subcontract a substantial portion of the program. The question of whether or not there should be subcontracts will no longer be determined upon the merits. It will finally be determined by who has the most votes or the most political influence in Congress. True competitive procurement will go out the window.
Mr. MUSKIE. : Mr. President, may I say that on the record; I have been opposed to" the single ship procurement policy from the beginning.
I have already recited for the RECORD this morning the circumstances which led to Bath's, involvement in this procurement competition. Bath had bid on eight of 17 LST's about 4 years ago, and Bath's per unit cost was $500,000 lower than that of the next lowest bidder. But because the Department was committed to this total procurement concept, Bath did not get that bid. All 17 ships went to the next lowest bidder.
I got in touch with the Department of Defense to ask specifically whether there was a future for Bath in the shipbuilding industry for the Navy, and we were told, with no options, "Either you get into this our way or get out of the shipbuilding. business." This is why Bath was involved, not because I thought it was better to build all these ships in one yard, not because Bath thought it was better, but because there was no other choice.
That does not make it a sound policy, may I say to the distinguished Senator from Mississippi.
I say to the Senator that this policy was not adequately reviewed by Congress at that time. We went forward with such a policy as the result of a decision in the executive branch, a policy which I think we ought to review at this time, while we still have a chance.
Let me summarize recent events which have occurred and the reasons why I believe a change in policy is mandatory at this time.
Mr. President, how much time do I have remaining?
The PRESIDING OFFICER. The Senator has 4½ minutes.
Mr. MUSKIE. I yield myself 3 minutes.
During the past 3 years the fact that large and diversified shipbuilding backlogs are virtually unmanageable has become clearly evident. Schedule slippages and overruns at shipyards owned by Avondale, General Dynamics, Litton, and Lockheed are a matter of record.
Total package procurement has in large part been discredited, most recently by the Fitzhugh report just issued this past summer, and the DD-963 program was essentially a total package procurement.
Evidence that the largest American corporations, such as Lockheed, the Penn Central Railroad, General Dynamics, and LTV, are susceptible to failure under certain circumstances has surfaced recently. This fact, in my opinion, makes highly questionable the wisdom of placing too large a percentage of our defense dollars in the hands of a single corporate entity.
The country's economy has taken a serious downswing which makes it more important than before to balance our defense spending geographically.
The Nixon administration's Blue Ribbon Defense Panel, headed by Mr. Fitzhugh, has within weeks recommended that huge defense contracts be divided where possible to avoid over concentration and to maintain a reasonable mobilization base. If the report of this team of experts had been made 6 weeks earlier and if the Department of Defense had heeded the advice of this committee, it is probable that the Navy would have divided the DD-963 contract. And the contract should be divided now.
I yield to my distinguished colleague from Maine, Senator SMITH.
Mrs. SMITH of Maine. Mr. President, I listened with interest to the distinguished Senator from Mississippi when he stated that the Navy had told him that the increased cost would be $225 million. I think this is somewhat suspect, since Admiral Sonenshein increased that from $225 million to $600 million in about 6 weeks time.