creased to less than 40,000 firms, and then you offered some reasons as to why that happened.

Is there a magic number as to how many firms there should be producing defense goods, and if there is such a number, how can we say what it is? Is it 118,000? Is it 40,000? Is it something in between? How can we determine that number?

Admiral MOORER. There is no magic number, but what this indicates is the deterioration of the defense base, and when you reduce the whole base down to the point where there is; A, no competition; and B, the research and development base has also deteriorated, it just results in weakening the Nation.

If I could go back to your other questions, about

Mr. SHUMWAY. Let me just follow up, because my time is limited, and I want to give the time back to the Chair.

Is it really correct to make that point by just citing the number of industries that are now supplying DOD? I think the more important criterion is to look at their production capacity. The number of firms does not really determine that. I think the amount of goods they are producing, the amount of goods that are being bought by U.S. firms is much more relevant.

Admiral MOORER. Well, the way I feel about it is that there are many things that we can trade back and forth, and it would not particularly endanger our combat capabilities.

However, there are special things that certainly should be confined to the United States. What I do not want to see happen is that we have to depend on overseas to get a critical part of a very, very important weapon system.

If you are talking about pistol ammunition, machine gun ammunition, perhaps you can make some trades. But I do not think we should ever get in a position where we have no capability to build a specific, critical part, and we are totally dependent upon some foreign country to give it to us.

Mr. SHUMWAY. I think we are all in agreement.

Admiral MOORER. That is what I have tried to say.

I tried to make a very short statement. I do not know whether you have seen our report, but I could sit there and talk all day about this subject.

I was just trying to indicate how the system has deteriorated. Mr. SHUMWAY. Certainly on the counterpoint, basically I agree with you about the number of firms, because obviously we have seen a dramatic increase in productivity in American companies, particularly within the last 10 years, so that fewer companies can produce more goods and produce them more cheaply.

The great advantage that foreign competitors have had until the introduction of technology into American industry has been their labor cost. But technology tends to force labor costs to equalize between countries, because by using technology, you reduce the labor content of the product.

So, in the best of all worlds, we would have an open trading system with no duties and no restrictions between any countries. But for too long, America has been the only country that way.

Now at least we have linked up with Canada in an open trading system. That is the first country that we actually have a clear, open trading system with in the world, and what we are dealing

with today are all those other anomalies that are imposed by various countries in the pursuit of their private interests, and the effect that it has been having on the industrial base and the defense component of the industrial base.

Are these offsets not another name for "Buy Germany"?

"Yes, I will take your order for $100 million, but you have got to buy $150 million of my stuff." Is that not "Buy American", or "Buy Some Country" in a different name, called offset?

I was concerned that, in having this dialogue as to "Buy American", it was OK to buy from Canada, and maybe OK from Mexico, but we had to pick and select whom we do not want to buy from. Chair OAKAR. The spirit of this legislation-if there is a way to amend it to make it clearer, I would be more than welcome to have any amendments you gentlemen might want to offer-is not frankly Buy American. What it really is trying to say is that in a time of crisis, are we militarily prepared to produce our own equipment, for those kinds of avenues that the President deems are necessary? Really, it is no more and no less. I do not think that we want to say that you must buy. I am going to Turkey, to a NATO meeting, as a parliamentarian from our country, representing our country among other Members. So I strongly believe in our alliances, and I would be the first one to say that we cannot chop off those alliances globally with Europe or other countries. Our allies are very important to us.

But we really are trying to narrow the legislation to specifically address military preparedness in a time of crisis, and we could debate about the trade issues and so on, and I would be prepared to do that.

But that really is not what we are talking about, in terms of the focus of what it is I am trying to do. I would say to my friend, and any other Member, and for the record: if there is a way to amend that legislation to pinpoint that specific area, which is the theme of the Defense Production Act-that is really what we are dealing with here I certainly would be prepared to accept that kind of compromise.

That is what we are trying to do, so we are not just saying we want you to buy our products. We are saying that in time of crisis, there ought to be some concern about whether we are militarily prepared with our base.

But in any event, thank you for your important questions.

I think that we are going to have some witnesses who do not agree with this legislation wholesale. So some of them we will hear from perhaps next week, and some in future weeks.

We are very, very pleased to have questions that challenge what we are trying to do.

Mr. Neal.

Mr. NEAL OF MASSACHUSETTS. Just a couple of quick questions. What is the net effect of the current bidding procedures at the Department of Defense, as it relates to the shrinking of the pool for those who might be interested in bidding?

Mr. BERNHARDT. I will see if I can give you a specific example. The Fascam family, a family of scatterable mine programs-3 years ago, the Army's forecast was that they were going to buy

over the 5 years in excess of 8 million units, spread across three distinct programs-all land mine programs.

They constructed a base of six companies in order to address, in peacetime, that level of procurement, so that in the event of hostilities, there would be enough companies to really gear up and supply enough under a hostile situation.

Today, only 35 percent of that quantity is still being scheduled for acquisition. Two of those six companies have just walked away from the base; two big ones-RCA and Burroughs, people who you would think would have all the expertise you ever needed to make an electronic device such as that land mine is.

The awards now are so low that they are making 100 percent awards to one company. So, even though there were four remaining in the base, only one company is receiving the awards, and the other three's lines are going down.

So there are other-I have gotten phone calls from regional offices begging me to sign an agreement for mobilization on a product we have never made, because there are holes in their files. They have no company listed to make that product which is still on the list as being required in the event of mobilization, and we have refused to do it.

It would be an out and out lie for me to say that I can step up and make you this many a month, because we have never made it, nor do we have any tools to do it. But that is how bad it is. That is just one example. I am sure that there are others.

Mr. COFFEY. If I could give you another perspective on it-of the 3,000 members in our organization, about 35 percent of them participate in the bidding process.

The rest of them do not want anything to do with it, and it involves the fact that it is the person who made the mistake that gets the job and the bid.

Mr. BERNHARDT. On the low side.

Mr. COFFEY. Well, absolutely on the low side. [Laughter.]

It is the guy that really punted the quote that winds up getting the job, whether he has the capability or not, and then somebody else gets involved in rescuing that job, and you know, the profit margins are not there.

The other thing is that the mess in data rights in the Defense Department is just that-a quagmire.

They put out a request for proposal in the Commerce Business Daily. They give you 30 days or 60 day to respond. It can take a year to get the data rights, to get the data on what it is you are supposed to be building under this quotation. And all the services are in trouble, and the Air Force has tried the hardest.

In the Air Force now, it will take you anywhere from 7 to 9 months to get the data so that you know what it is that you are supposed to be building. So you miss the bidding cycle because the data is not even available from the Defense Department, so the system is not working.

Mr. NEAL OF MASSACHUSETTS. How do you react to the idea of a multiyear contract? More than just an annual review?

Mr. BERNHARDT. I believe the industry in general is in favor of multi-year contracts. Our company was involved strictly in the am

Except for the galley 30 mm ammunition, I have never seen one multi-year procurement in ammunition-never. But I think that industry, that that part of the defense industry as a whole would relish being given the opportunity to go multi-year.

Mr. NEAL OF MASSACHUSETTS. What is the private sector's reaction to the idea that they are expected to go through research, only to have to go through the base procedure again, perhaps years from now?

Mr. COFFEY. Well, that basically goes to the data rights problem, which has been a source of considerable debate for a long time.

Right now, if I am an inventor, and I invent something, I have some options. One option is to go file for a patent.

If I file for a patent, that patent will immediately show up in Japan, and copies of anything under that patent will be made, attributed or not, royalties paid or not.

So, people have lost confidence, inventors-and an awful lot of the members of my industry are inventors-have lost confidence in the patent system. They see it as a license to steal.

So, the basic approach that they take now is you have got to be the first with the idea. You have got to milk it for as long as you possibly can, until they can reverse engineer and copy it. And that is the situation in the competitive market right now.

So you have got a very, very great lack of confidence in the intellectual property laws, and people are not using them. They are not registering patents anymore.

I have members who have written me letters saying I would not dare register a patent on this new invention, because if I do, it is going to show up in some other country real quick.

I think that is where there is a real lack of integrity. Then, in data rights, you have got the situation that if I sell it to the Government, I have got to give 100 percent public access to that information. So again, the inventor says, why do I want to do business with the U.S. Government? I have to give my data rights away.

So you are caught in a terrible dilemma here, in trying to get R&D done for the military, but all the people who are the inventors out there are saying, "Why should I give away all this, for the price of a low-bid contract?" And that is why you are having trouble.

Mr. BERNHARDT. Industry does not quarrel.

The two extremes of development is where the Government totally funds a development activity under a fixed-fee contract-I do not believe industry has ever quarreled with the Government not having 100 percent of the right to that, and they do with it what they will.

But when industry under independent research and development comes up with an item, it used to be, once accepted, for at least 2 years, the first production contract would be awarded to the developer. During that time, recognizing the development of an item is not really putting it into position for a full-scale volume production.

But for 2 years, they had the opportunity to get everything ironed out, and then it would go out for competition. But now, IR&D, if you ever give it to the Government, you have no guaran

tee that you will ever win even the first production contract-none at all. It is not restricted.

They just put it out, and compete it, and like you said, the guy who needs it the worst, or by mistake ends up with the low price, gets the award.

Chair OAKAR. Can I ask, for the record, any of you gentlemenyou mentioned the Admiral, and I assume that perhaps some of you feel the same way-you may or may not-you mentioned the Saudi situation, where we did not agree to sell our equipment to the Saudis for their defense in the defense of that region.

Let me ask you what you think about the FSX fighter. Do you think we should be engaging in that agreement, that memorandum of understanding? Do you think that should be fulfilled?

Admiral, do you want to begin, and if anybody else wants to jump in, feel free.

Admiral MOORER. Well, I think the Japanese should have taken the F-16, and I think that will fulfill their requirements.

They are going, of course, to try to get into the aerospace business. I was talking to some Japanese only yesterday. They have the money, they have got the industry, and they have got the technology. They can do it.

But I was not too keen on selling-I mean, going with the FSX program. But I know that it is a 50-50 proposition. You can find just as many people who are supporting it as are opposed to it, the idea being that a, it would give us many jobs, and give us certainly an impact on the balance of payments, and that really we were not giving anything away.

But of course, I think that everyone should realize that the Japanese are going to go full speed now into the aerospace industry, and not only just to combat aircraft.

They are going to build 747 types, too.

Mr. BERNHARDT. I know there are arguments pro and con, some on the merit that, well, they are going to put so much money in, and we are going to give so much technology, and even if we did not, over time they could do it themselves, and they are going to give us 50 percent of the value of product or material contained within the aircraft, the manufacture in the United States-I have a deathly fear. I do not know how long it will take, but I just have a fear that we will be buying-I do not know if they will call the airplane Toyota, or Mitsubishi, but whatever they call it, we are going to be buying those, and they are going to be selling them around the world, and then even our F-16s, other countries will not buy.

I am not in favor of it.

Chair OAKAR. Mr. Coffey.

Mr. COFFEY. I think it is again a representation of an American company being put in the position of having to respond to a governmental mandate in Japan.

You have got a situation where in order to make the sale at all, this was a condition of the sale, and you can say, well, the F-16 is an old fighter plane, really, because of all the new technology and the ATF coming along, and things of that sort.

But I think again, you are giving away know-how, and you are giving away things that would create jobs in the United States, and