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Press in Cleveland, you might be surprised at how large it is in terms of comparing it with the other plant.

But I think what we have to keep in mind is that we do fulfill requirements such as OSHA and inspections and so on that are not necessarily part of the guidelines for foreign companies. They do not have the areas of work hazards. We are proud of the fact that we feel we have to have a safe environment, and so forth.

But there are more restrictions in this. And this committee is really, legitimately concerned about these issues, and I really personally hope that we can work out a structure with the Defense Department relative to passing the Defense Production Act. I hope it does not get to a sort of quasi-confrontational situation, because we thought we were getting somewhere with Mr. Costello, who apparently is no longer with the Defense Department. He was sort of overruled by OMB, which does not have any expertise in this area whatsoever, and only shovels papers and numbers around. So it is important, but somehow along the line defense experts are overruled when they have a view.

I want to thank you, Mr. Harrigan, and let me announce that tomorrow we are going to continue with this series of these hearings. We will have Admiral Thomas Moore, now retired, the former Chairman, Joint Chiefs of Staff, and is currently a senior advisor for the Center for Strategic and International Studies; Ken Bernhardt, the acting president of Hamilton Technology from Lancaster, PA; and Matthew Coffey, who is president and CEO of the National Tooling and Machinists Association.

I think it is difficult sometimes for individuals to come back and talk about these kinds of situations. Individual companies have a very difficult time because they don't want to be prejudiced against if they are bidding for certain contracts and so on as well. And we would hope that in the spirit of openness which our country has always stood for that they will not have an difficulties because of the testimony.

This concludes this hearing. Thank you very much, witnesses and Members.

[Whereupon, at 11:50 a.m., the hearing was adjourned subject to

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DEFENSE PRODUCTION ACT AMENDMENTS OF

1989

Thursday, May 18, 1989

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON ECONOMIC STABILIZATION,

COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS,

Washington, DC.

The subcommittee met, pursuant to recess, at 10:20 a.m., in room 2220, Rayburn House Office Building, Hon. Mary Rose Oakar [chair of the subcommittee] presiding.

Present: Chair Oakar, Representative Neal of Massachusetts.
Also present: Representatives Shumway and Paxon.

Chair OAKAR. The subcommittee will come to order.

Today the Subcommittee on Economic Stabilization continues its legislative hearings on H.R. 486, the Defense Production Act Amendments of 1989, and the entire issue of the Defense Production Act.

Because we are starting late and had hearings yesterday, let me abridge my remarks and say that we are very grateful to have the witnesses that we have today. We will be delighted to introduce them. I will just abridge my remarks so that we can get off to a fast start.

We are a little late because of a vote on the journal, but we are delighted to have everyone here.

At this time, I would like to yield to my distinguished minority leader who yesterday was not able to be here because he was meeting with President Bush. You had a good excuse. [Laughter.] We are delighted to have you here.

I will give you my time, as you would like.

Mr. SHUMWAY. I have always heard that socially an invitation from the President takes precedence over everything else. I do not know if that is true legislatively or not. [Laughter.]

I understand that my remarks were filed for the record yesterday, and that consequently I will abridge my remarks here to zero, other than to welcome the witnesses. I look forward to their testimony.

Chair OAKAR. Thank you.

[The prepared statement of Hon. Mary Rose Oakar can be found in the appendix.]

Chair OAKAR. Our first witness, Admiral Moore, is going to be here in a few minutes. But we are going to proceed with Mr. Kenneth R. Bernhardt, who is the former president of Hamilton Technology, Inc., of Lancaster, PA.

We are delighted to have you here, sir.

Following him will be Mr. Matthew Coffey, who is president and CEO of the National Tooling and Machine Association. We are very happy to have both of you gentlemen.

Please proceed in whatever way is most comfortable.

STATEMENT OF KENNETH R. BERNHARDT, FORMER PRESIDENT, HAMILTON TECHNOLOGY, INC., LANCASTER, PA

Mr. BERNHARDT. Well, good morning, Madam Chair, and Members of the committee.

I appear before you today as a citizen concerned about the defense and industrial preparedness of our country.

I fully retired last month as president of Hamilton Technology, a company which for the last 36 years has directed 100 percent of its efforts to that segment of ordnance products requiring the design, the development and production of mechanical, electro-mechanical, and electronic fusing for artillery, mortars and rockets, safe and arming devices for a variety of missiles, and precision timing devices for various applications, including several land mine programs.

Last year I had the opportunity to meet with this committee to express my concerns on the erosion that has been occurring to the industrial preparedness and the mobilization capabilities of our country. Today, I appear before you, and I am disturbed to report that events and actions have taken place this past year which continue this erosion.

Since I last met with you, two of the few remaining fuse-producing companies went out of business. They are Sooner Defense, in Lake Wales, FL, and Action Manufacturing Co. in Philadelphia, PA.

Other large corporations have divested portions of their defense businesses or sold their entire businesses to others.

In some cases, these companies now have foreign ownership. A few examples are International Signal and Control, which has been merged with Ferranti of England. Accudyne has been sold to Astra, an English holding company, and KDI's defense segment is up for sale.

We have all read that Honeywell has or is in the process of selling three divisions which are heavily involved in the manufacture of defense products.

Even as I speak, Hamilton Technology is in the process of being sold to a major competitor, and since both companies are in the same markets, making the same products, future consolidations could result in another diminution of the base.

Existing laws, regulations and policies have not demonstrated their adequacy to reverse, slow down or stop this continual weakening of our industrial base and our mobilization capability, even though such laws, regulations and policies have language designed to do so.

For instance, for at least 15 years, ordinance item contracts contained the precision parts and precision gear and pinion clauses. These clauses were designed and implemented as a result of a very large concern our Government officials had when they discovered

that such componentry was acquired from overseas sources for the manufacture of the ordinance items required for the Vietnam con

flict.

Costs were the driver for some domestic manufacturers to take this course of action. Today, however, neither requests for proposals nor the resultant contracts contain these clauses. The regulations are in place, but not being used.

Periodically, procurement officials will include language in some requests for proposals and contracts which restrict the procurement of certain electronic components to domestic sources. However, far too often under pressure from some contractors, such restrictions are removed, and not all of the electronic components required in the design package are restricted; only a few are. Again, cost is the driver.

There is another facet to industrial readiness and mobilization planning that is not often recognized or considered. However, H.R. 486 does address the need to consider subcontractors as a part of the base.

The efforts to establish an adequate mobilization base do not stop with the identification of a sufficient number of companies to manufacture the mobilization quantities of an ordinance product. All companies rely on a large number of subcontractors for a variety of products. However, again, in the interest of cost, and in recognition of the relatively low peacetime procurement quantities, all or several of the manufacturers of the same end product will rely on one subcontractor for their supplies of raw material, component parts or supplies.

Although one could believe that in a base of multiple companies, each would have their own network of suppliers, thereby creating a Christmas tree of mobilization capability, in fact, in the real world, we have inverted Christmas trees being created.

Why are existing regulations and policies being ignored or circumvented? The environment created by the Competition in Contracting Act, in my opinion, is the driver for the decisions to structure contracts so that the lowest possible prices can be obtained, even at the expense of industrial readiness and mobilization capabilities.

The procurement agencies function in this environment because they never again want to be chastised for buying a $100 hammer, or a $3,000 toilet seat, or a $7,000 coffee maker. Some companies try to have policies changed for improvement, and others, in order to survive, stop the fight and stop resisting the changes.

In the past, the Government would structure a mobilization base consisting of from two to six companies for a particular ordinance item. Peacetime procurements were competed within that base, and as many companies as practicable were awarded production contracts.

In most cases, each of the companies in the base used their own funds to facilitize for that production. Lately, however, single awards are being made, at the lowest offered prices, and the other companies in the base are forced to shut down their line.

Not only is the warm base concept destroyed, but each of the losing companies must reduce their work force, much of which the

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