The CHAIRMAN. Than, we will do that. You can just skip reading it, and if you have any other statements to add to it, you may put those in.

Mr. PIKE. Thank you, sir.

(The statement referred to is as follows:)

STATEMENT OF THOMAS P. PIKE, ASSISTANT SECRETARY OF DEFENSE FOR SUPPLY AND LOGISTICS

I appreciate this opportunity to appear before your committee to set forth the Department of Defense position on the bills under consideration and especially to inform the committee of the Department of Defense policy with respect to commercial and industrial-type facilities. The policy stated in the proposed bills to the effect that the Government refrain from industrial and commercial competition with its people wherever consistent with national health and security is in strict accord with present policies and procedures of the Department of Defense. Basic policy of the Department of Defense is that privately operated commercial and industrial facilities shall be used to the greatest extent practicable, recognizing the basic military necessity for integrated, self-sustaining units responsive to command and the necessity for operating anywhere in the world.

The question raised at this time appears to be whether the proposed legislation would accomplish the mutually desired objectives more expeditiously and efficiently than is presently being accomplished administratively. The Department of Defense is of the firm opinion that it would not.

To implement the policy that free competitive enterprise should be fostered by the Government, this Department under Secretary Wilson's leadership has aggressively pursued a twofold program. On the one hand, an exhaustive survey is being conducted on an incremental basis of existing facilities to determine in each case the justification for their continued existence and to provide for the termination of any unwarranted facility. On the other hand, establishment of new facilities is precluded unless the national interest clearly requires Government operation.

By a series of directives and instructions issued by him or under his authority between August 24, 1953 and June 28, 1954, Secretary Wilson has, in effect, developed a program with respect to commercial and industrial facilities which I would like to furnish for the record. These directives set forth in unequivocal terms, basic policy, criteria and implementing guidelines which are used to determine whether the continued existence of a given facility or the establishment of a new facility is justified.

Some of these criteria are:

(a) The reasonable availability of private facilities;

(b) The need for training military personnel for advance base or overseas operations where private sources will not be available for the particular work or service; (c) The avoidance of compromise of classified security information in highly sensitive areas;

(d) The necessity for the protection of property and personnel in areas of unusually hazardous operations;

(e) The necessity for demilitarization of military equipment prior to disposal into civilian channels; and

(f) Any other factor clearly demonstrating a particular Government operation to be in the public interest.

Naturally, it takes time to implement a program such as that prescribed in these directives and to obtain completely effective results in all of the farflung activities of the Department of Defense. In this connection I would like to report to the committee a few examples of how the military departments are endeavoring to utilize privately operated facilities in connection with commercial and industrialtype activities. In the Air Force a major portion of the Air Force aircraft modification and maintenance requirements is provided under contract with private enterprise. In 1952, 21 percent of our maintenance dollars were expended through contract with private enterprise. In 1953 it was 33 percent, in 1954 it was 41 percent, and in 1955 approximately one-half or $625 million will be spent through contracts with industry for this type of maintenance and modification.

With respect to the Navy shipbuilding program the Navy has followed the consistent policy of awarding work to private shipyards. For example, in the 1952-53 programs, about 450 vessels are now under construction in private yards as compared to 4 in naval shipyards. From a monetary point of view, the private yards have awards for ships estimated in the fiscal year 1955 budget at $1,105 million as

compared to $277 million in the naval shipyard for these programs. There are 169 vessels in the fiscal year 1954 program. The fiscal year 1955 budget estimate is $494 million. With the exception of two ships, as yet unassigned, all of the 1954 program has been awarded to private shipyards. In like manner, the amount of repair and overhaul work awarded to private shipyards has been on the increase. To illustrate, in fiscal year 1953 awards amounting to $34 million were made to private yards. In 1954, $61 million in awards were made and in fiscal year 1955 it is estimated that $82 million in awards will be made.

In depot repair and maintenance of vehicles and other military equipment within the Department of the Army, the dollar value and percentage volume performed under contract rose from 22 to 28 percent, while the total volume declined from $560 million per year in 1952 to $370 million for fiscal year 1955. It should be noted that of the total dollars expended through the years 1952-55, a sharp decrease occurred yearly, while the percentage of dollars expended through commercial contract increased.

Thus in accordance with sound administrative practice, a clear policy and definite criteria have been delineated by the Secretary of Defense, sound guidelines have been laid down for its implementation, and an orderly execution is being accomplished by the military departments concerned with the entire system remaining at all times responsible to flexible military control.

The foregoing represents the considered view of the Department of Defense on legislation of this type. I understand that there are a number of particular bills before this committee which differ in their approach to the problem. One of these is H. R. 8832 upon which the Department has filed with the committee an unfavorable report.

H. R. 8832 would establish a commission to be composed of the Secretary of Commerce; Secretary of the Treasury; Director, Bureau of the Budget; and Comptroller General. This anti-Government competition board would have the authority to create the customary administrative structure in order to carry out its functions. Thereafter, it could analyze existing facilities and entertain descriptive and detailed requests for the undertaking of new competitive-type activities. Within a 30-day reviewing period, the matter would be referred to the President for decision along with the recommendation of the board.

Such a proposal is not only contrary to sound management and business practice, but could be incompatible with military interests and national security. The proposal evidently contemplates decisions by the President which in practical effect would almost certainly be delegated within the executive branch. This additional policy surveillance is clearly contrary to that proper management practice which requires that the duly appointed heads of executive agencies should be held responsible within their agencies for the implementation of Presidential and congressional policies. The practical effect of this measure is to give one agency control over the operation of other agencies without giving it any responsibility for the results of this control. To superimpose such an administrative structure over this Department could have extremely serious implications.

As the committee is aware, Public Law 108 of the 83d Congress established a Commission on Organization of the Executive Branch of the Government with the function, among others, of investigating the present organization and methods of operation of agencies of the Government with a view towards eliminating service functions and activities which are competitive with private enterprise. It is beleved that the functions of the proposed board under H. R. 8832 would to this extent duplicate the assigned mission of the Hoover Commission provided for under Public Law 108.

Other more recently introduced bills before this committee have been given less exhaustive study by the Department of Defense than H. R. 8832. For example, H. R. 9834 would require the Bureau of the Budget to submit annually to the Congress a list of those activities of the Government which compete with private enterprise and which could be terminated without seriously impairing Government operations; H. R. 9835 would place upon the President responsibility from time to time for reexamining commercial and industrial activities of the Government in competition with private enterprise and would authorize him to terminate such activity in those cases in which he would find that such activities could be carried on by private enterprise without substantially impairing essential Government operations. Additionally, there has been introduced a new bill, H. R. 9890, which would authorize the issuance by the President of rules and regulations for termination, limitation or establishment of business-type operations in the Government, placing upon the Secretary of Commerce basic responsibility with respect to the administration of those promulgations.

From the foregoing, it will be noted that the legislation before this committee affects not only the operations of the Department of Defense but would place administrative duties and responsibilities upon the President, the Bureau of the Budget or the Departments of Commerce and Treasury. In general, it is my understanding that H. R. 9834 does not have the approval of the executive branch of the Government but that H. R. 9835 and 9890 are not objectionable. I do know, however, that these bills have been carefully studied by the executive branch and the committee may prefer to secure additional views thereon from the Departments of Commerce and Treasury and the Bureau of the Budget.

The Department of Defense wholeheartedly agrees and supports the basic philosophy expressed in these bills. However, it is strongly recommended that we be permitted to proceed with what we firmly believe to be a sound program presently in operation and now gaining momentum which will accomplish the common objectives quickly and effectively.

If the committee, in its discretion, feels that legislation on this subject should be reported favorably, it is strongly recommended that any such legislation recognize the peculiar problems of the Department of Defense outlined herein and that every effort be made in drafting such legislation to permit the Department to continue with its present program in this area.

With me here today are representatives from the three military departments to answer any questions the committee may have regarding specific facilities.

The CHAIRMAN. You may proceed.

Mr. PIKE. Mr. Chairman, I have in mind making some additions to my prepared statement. If it is agreeable with you, I would like to stay substantially with it, but I think there is much of it which I can delete.

I find that the Department of Defense is in substantial agreement in regard to H. R. 8832, and H. R. 9834.

The CHAIRMAN. Kindly skip H. R. 8832, and H. R. 9834, because the committee is not going to do anything with those, anyway. Mr. PIKE. Thank you, sir.

I would like to proceed with part of my statement.

I will delete some of it, and I will make some additions, as I go along. The CHAIRMAN. Yes, and we will put in all you say.

Mr. PIKE. The policies stated in the proposed bills to the effect that the Government refrain from industrial and commercial competition with its people wherever consistent with national health and security is in strict accord with present policies and procedures of the Department of Defense.

I want to say this most emphatically: That the present policies and procedures of the Department of Defense are in strict accord with the policies stated in the proposed bills, to the effect that the Government refrain from industrial and commercial competition with its people.

I would like to say in addition, for emphasis, that this is not only the official position of the Department of Defense, but it is the official and personal position of the Secretary of Defense, Mr. Wilson; the Deputy Secretary, Mr. Anderson, and the position of myself personally; it is the position of the Secretaries of the Military Departments and most particularly with regard to the three men whom I deal with very closely in carrying out my duties, namely, the Assistant Secretaries of each one of the services for materiel, and I refer to Assistant Secretary Ray Fogler of the Navy, Assistant Secretary Roger Lewis of the Air Force, and the Under Secretary of the Army, John Slezak.

The basic policy of the Department of Defense is that privately operated commercial and industrial facilities shall be used to the greatest extent practicable, recognizing the basic military necessity for integrated, self-sustained units responsive to command and the necessity for operating anywhere in the world.

The question raised at this time appears to be whether the proposed legislation would accomplish the mutually desired corrective more expeditiously than is presently being accomplished by the Department of Defense, and this Department, under Secretary Wilson's leadership, is aggressively pursuing a twofold program.

On the one hand, an exhaustive survey is being conducted on an incremental basis of existing facilities to determine in each case the justification for their continued existence, and to provide for termination of any unwarranted facility.

On the other hand, the establishment of new facilities is precluded unless the national interest clearly requires Government operation. Now, by a series of directives and instructions issued by him or under his authority between August 24, 1953, and June 28, 1954, Secretary Wilson has, in effect, developed a program with respect to commercial and industrial facilities which I would like to furnish for the record. These directives set forth in unequivocal terms, basic policy, criteria and implementing guidelines which are used to determine whether the continued existence of a given facility or the establishment of a new facility is justified.

I would like to make a couple of comments on these directives: First, the basic directive is dated November 24, 1953, and is No. 4100.15. It is this brief page and a half directive in which Secretary Wilson states the policy I have just described.

He also sets forth the criteria by which all exceptions to this policy will be judged.

In the interest of time-I had intended to read those criteria, since they have been extremely carefully thought out. They are available, however, to members of this committee, and I shall not read them at this time.

Mr. JUDD. Mr. Chairman, is there objection to those being placed in our record when the hearings are printed?

Mr. PIKE. I intend to place all the directives in the record, Mr. Judd, but I would like to next, briefly, call attention to Department of Defense instruction No. 4100.16. This instruction is the first detailed implementing instrument of the major policy set down in the prior one.

Very briefly, this instruction describes the types of activities under consideration. It sets forth cost principles which are to be used by the military services in reporting on this survey, and most importantly, it starts out on a concrete basis by listing a specific group of commercial and industrial activities in which the Departments have been engaged and on which they are called on to submit justification as to whether they should not get out of these activities.

These first directives call for these activities to be reported on in a detailed manner, as is also indicated in the further enclosure to 4100.16, and I will make it brief.

We call these the first increment:

Aluminum smelting or sweating facilities, scrap metal baling, clothing factories and cloth sponging plants, coffee roasting plants, motion picture studios, paint factories, rope walks, sawmills, bakeries, clothing reclamation shops, furniture repair shops, ice cream manufacturing plants, and laundries, or dry-cleaning plants.

I call the committee's attention, next, to the Department of Defense instruction No. 4100.17, and this is a continuation of this same policy with implementing details.

This is the second increment on specific commercial and industrial activities which the services are called upon to report back, and I will name them:

Chain manufacturing, acetylene manufacturing, automotive repair shops, cafes and restaurants, caustic soda manufacturing, cementmixing plants, chlorine manufacturing, cobbler shops, ice plants, office equipment repair shops, oxygen and nitrogen manufacturing, power line construction, powerplants, tire retreading activities, tree and garden nurseries, wood preservation, argon manufacturing, and freon manufacturing.

I would like to submit these directives and instructions for the record. (The directives and instructions were received and filed with the Committee.)

Additionally, before I leave these instructions, and I go into this detail so that you will see that this is a serious business with us, I would like to mention the targets which we have given the departments for completion of these schedules.

In regard to the first eight items in the first increment, the target date is August 8, 1954, with the exception of coffee roasting for which the target date has been advanced to October 15, 1954. In other words, on the items I mentioned from aluminum smelting through the item of sawmills, the departments are scheduled to have in the Office of the Secretary of Defense complete information, with all of the materials called for in the directive, by that date.

The balance of those activities have a target date of March 8, 1955. I would like further to point out that in the activities included in the second increment under DOD instruction 4100.17, that those target dates range from December 28, 1954, to June 28, 1955.

I might add, before leaving this, that the third increment is about to be promulgated by my office, and sent out to the services.

I have gone into some detail on this to show you that this is a policy to which the Department of Defense is giving leg service, if you please, instead of merely lip service.

Naturally, it takes time to sufficiently implement a program such as that prescribed in these directives, and to obtain completely

effective results.

In this connection, I would like to report to the committee a few examples as to how the military departments are increasingly utilizing privately operated commercial and industrial type facilities.

For example, in the Air Force, a major portion of the Air Force aircraft modification and maintenance requirements is provided under contract with private enterprise.

In 1952, 21 percent of our maintenance dollars were expended through contract with private enterprise.

In 1953 it was 33 percent; in 1954 it was 41 percent, and in 1955 approximately one-half, or $625 million, will be spent through contracts with industry for this type of maintenance and modification by the Air Force.

You have copies of my testimony, and I have similar examples for the Navy and for the Army and, in addition, I have further examples,