PART I. PROCUREMENT PLANNING

SECTION A. THE WAR DEPARTMENT

1. Principles.

Plans for Army procurement are based upon the following general principles:

a. Provisions for procuring equipment must be detailed and exact and essential production must begin immediately upon the outbreak

of war.

b. Army procurement must be coordinated with that of the Navy. c. The least possible disturbance must be caused in the normal economic life of the country. The production load must be intelligently distributed to all parts of the country.

d. There must be no competitive bidding by Government agents for the products of industry.

e. Personnel must be secured and trained to build up the highly specialized contracting, inspecting, and fiscal services that will be necessary to the Army in war.

f. To the greatest extent possible in time of peace, industry should receive actual experience in unusual production tasks.

It is obvious that if these things can be accomplished, opportunity for profiteering will be minimized and the distribution of economic burdens will be facilitated.

2. Development of Army procurement plans.

From the standpoint of the combat arms, military supplies classify themselves into several rather well defined groups. Each of the Army supply arms and services is held responsible for the procurement of one of these groups.

The necessity for this specialization and decentralization in Army supply is clearly evident to a student of military matters. A large proportion of the thousands of items needed by troops consists of highly technical, noncommercial articles. A single item may involve the products of many industries, and supplies must be delivered to troops in balanced lots at exactly the time and place needed. In the aggregate, Army supply involves the whole ramification of industry. These supplies are needed in such volume that the actual work of procuring, transporting, and delivering each important class to the combat troops must be performed by a group of specialists. Firm centralized control is exercised; decentralized operation is essential to success in war.

As the initial step in the development of the plan each procurement service computes the schedule of procurement it must attain in each of the items for which it is held responsible. While statistics have been compiled to show that in the World War our shopping list contained 700,000 different items, this figure included many component parts and relatively nonessential articles. The vitally essential list now includes about 4,000 articles complete for issue.

A so-called industrial survey is conducted to learn what items each plant is best suited to produce. Capacity of each plant is carefully estimated in order to determine possibilities of procurement. Assistance in this work is obtained from existing governmental agencies, from trade associations, and, in the individual plants, from the actual plant executives.

To each selected plant there is assigned in the plans a definite task to be undertaken in emergency. Ordinarily the task so assigned does not involve more than 50 percent of the normal capacity. This provision will effect a wider distribution of the production load and will permit each plant to maintain on a reduced basis normal commercial contacts, thus minimizing disturbance both at the beginning and at the end of a war. It provides a widely diversified and distributed reserve of production.

Necessary plans with respect to raw materials, labor, power, manufacturing facilities, and transportation are developed to insure the delivery of needed finished items.

Plans are also made to build up promptly the Army's procurement organization to the required strength.

3. Important features of the procurement plan.

Some of the most critical features in the Army procurement plan are those of allocation, preparation of description of manufacture, preparation of plans and studies affecting raw materials, devising of adequate contract forms, and the selection and training of personnel.

a. Allocations.-It is planned to base war-time procurement upon allocation rather than upon the competitive bidding standard properly prescribed in peace. By allocation is meant the assignment of a definite list of facilities to each procurement agency to supply its needs. The Navy Department has given its approval to this plan, and by agreement between both Departments those plants set aside to produce for one are not approached by the other. Under joint agreement certain plants will serve both. The advantages offered by this system

are many:

(1) It is the only method that permits exact prearrangement for production of munitions. The aggregate of the production tasks assigned in peace make up the complete initial requirements of the War Department.

(2) Orderly distribution of initial war production can be effected in times of peace. Any other system would throw this load haphazardly upon the country in an intensive purchasing campaign when time is at a premium.

(3) Each plant is forewarned of the task it will be expected to perform, and can make some preparation to meet it. Essential production can be initiated with the least practicable delay.

(4) Competitive bidding among various agencies for the output of a single plant is prevented.

(5) Prices will be determined by negotiation, controlled by the knowledge, obtained in peace time planning, of the items that make up costs and by all information that can be collected by the Government. A contractor refusing

to take a contract at a fair price would be in a most unenviable position in war. The type of contracts designed to assure fair treatment to all are described later.

b Description of manufacture.-Many articles required by the Army in war are not ordinarily produced in this country, and manufacturers have no prior knowledge of the applicable production methods. Complete drawings and specifications are necessary to define any given article to a producer. Experimentation and actual production at Government arsenals and laboratories are conducted to develop this information, which, when properly assembled, is called a description of manufacture. The results are preserved in the form of models, drawings, and specifications, lists of operations and factory layouts, summary of machines and personnel required, and drawings of necessary jigs, dies, and fixtures. This type of preparation produces, as a valuable byproduct, a force of trained mechanics that may be used as Government inspectors or as instructors for others in time of war.

Another method through which these same results could be obtained would be through the placing of educational orders. These have not been authorized by Congress, but are most essential for certain technical items.

An educational order is a contract placed, without advertising, for a limited quantity of a desired noncommercial article, with any selected facility. Their use in peace would be of real advantage in hastening production in an emergency. The selected facility would gain actual experience in producing the article that it would be called upon to produce in war. A complete description of manufacture would be prepared for the use of the United States, and there would be maintained by the plant a complete set of dies, jigs, and fixtures pertaining thereto.

c. Contract forms.-During the World War the cost plus and costplus percentage contracts for major construction projects and for the manufacture of large quantities of noncommercial supplies were widely used. The use of such contracts was accompanied by evils which seem difficult, if not impossible, of limitation in war-time activity.

For simple projects and for contracts for commercial articles the ordinary peace-time fixed price contracts were used. These were found generally inapplicable to war conditions.

Confusion, opportunity for profiteering by the unscrupulous contractor, and frequent injustice to the patriotic contractor followed. In 1921, the War Department began the preparation of contract forms which would be adaptable to use in the unsettled economic and industrial conditions of war; which would, so far as possible, relieve the contractors of the perplexing hazards of war-time production; which would facilitate prompt payment and early final settlements; which would avoid the evils accompanying the cost-plus contracts; which would be self-settling in the event that the necessities of the Government required termination before completion; and which would protect adequately the Government and contractor, and contribute to speedy and early production. In this work advantage has been taken of the experience of contracting officers of the World War. Thousands of business leaders acquainted with war-time problems, and

their present successors, have been consulted and have approved the work done. Assistance has been given by officers in other Government departments.

The board responsible for this work has recommended:

That for commercial supplies and for relatively simple construction the ordinary peace-time contract forms be used, and that these be modified to meet war conditions. The most important changes relate to clauses providing for settlement in event of termination before completion, and to provisions respecting increased costs of labor and material, when such increases are authorized by Federal authority.

That for the procurement of noncommercial items, the adjusted compensation contract be used. In this form the contracting parties agree in advance upon tentative cost schedules which are revised from time to time as more accurate information becomes available. The Government audits all accounts as they arise and pays all approved costs of performance. In the end it also pays the contractor an amount as nearly as practicable equal to a fair rental for that part of his plant involved in the contract. Under present conditions the Department believes a fair rental should approximate a rate of 6 percent per annum on the estimated value of the part of the plant involved. If the contractor has performed the job at a cost less than the revised estimate of costs, the government pays him a small added compensation. If actual cost exceeds the estimate, his profit is reduced. Temptation to pad costs is removed.

The profit possible in this contract is small, but on the other hand the contractor is not involved in hazards of great loss. The release from these hazards justifies the limitation to a normal peace-time profit. Profiteering based on Army contracts is thus eliminated and profits are kept within reasonable limits.

In the event of war, boards on contracts and boards on claims and adjustments will be organized in the War Department. These will facilitate uniform procedure and prompt settlement. This will be of advantage both to the Government and to contractors. After the war there will be little occasion for judicial determination.

The procedure described above assures fair treatment to the patriotic contractor, but it also deals effectively with the overacquisitive contractor. It holds out to him no hope of extravagant profit. It provides terms which permit Government intervention at any stage of performance when it appears that he is taking advantage of the Nation's necessities. It contemplates inspection and auditing, detailed and complete, but not pernicious, throughout performance. Finally, it depends upon existing statutes which fully protect the Government's interests and provide adequate punishment for fraud. 4. Successive steps in procurement planning.

a. Determination of type of equipment.

(1) Design.-Procuring supplies must wait upon the determination of the type of equipment or its design by the technical service charged with its procurement. The ideal that is now being sought is to prepare carefully worked out designs of all equipment in time of peace.