DEAR MR. CHAIRMAN:

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP67B00446R000600060019-0
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 7
• Document Creation Date: December 20, 2016
• Document Release Date: September 13, 2006
• Sequence Number: 19
• Publication Date: March 18, 1965
• Content Type: LETTER

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TUE OE DEFENSE
WIMNINGTON
Honorable William L. Dawson
.ChnIrman, Committeo on
GOvernment Operations
.House Bepresentatives
.-Washington, D. C. 20515
Dear Mr. Chairman:
Heference is made to your request for the views of the Department of
Defense on HR $1t5) 89th Congress, a bill "To provide for the econom-
ic' and eMcient.purchuse,.lease, maintenance, eperation,:and.utilization
of automatic data processing equipment by Federal departments and
Il
March 18, 1965
The Department of Et.ffense concurs in the desirability of setting forth in
legislatLen an expression of policy by the Congress on the acquisition and.
use of automatic data processing equipment by liederal ogencies. Such
an expression of policy by the Congress would be of assistance to the
Bureau of the Budget and the General Services Administration in coor-
dinating the management of AIVE throughout the Government.
As you know, the Bureau of the Budget and the General Services Admin.-.
istration have mire;Ady initiated actions which should materially improve
the management of AWE. A Government-wide reutilization program..
had beon initiated within the last year which has been impleinclIted.
throughout. the Dqpartment of Defense. Under guidance provided by the
Bureau of the Budget, ATM sharing exchanges are being established by
the General Services Administration and these actions are 1)e1pg fully
Supported by the Department of Defense. Recently, the Bureau of the
Budget issued Circular A-71 which is designed to further iMprove, the
management of AWE within the Government and which specifically
iden-
tifies the iesPonsibilities of all agencies in this regard. ,;, This,di.icU14%
..intended to implement recommendations contained in the. Bureau'ofHth,
-Budget Report to the Bresident on the Management .of AutoMettia*.t4:
.I'rbeessing in the Federal Government which the President:apprOved:and
',,trapbmitted to the Congress on March 2, 1965..
jto Bureau of the BUdget Report expressed certain eonc1000nEr.on
mattes,' proeareMent and. two of automatic data proccns#13.,61,UIPOen
. - , -
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,
It recotmended that Government:, agencies retain their present respOna.,
bilities for making decisions in this area, rather than, have a separate -
central office empowered with authority to make these: decisions.. The
latter course, Lhe report concluded, would dilute the responsibility
agency heads for the management of their organizations and automated
systems; and would serve to divorce AIT management from the arrange-
ments established by Bureau of the Budget Circular A-11 with respect to:
Presidential surveillance over the overall management of the Executive .
Branch. Tt would also interfere with direct Government agency-contractor
?relationships.
With respect to the establishment of a centralized revolving fund for the
acquisition and utilization of ALPE, the Bureau of the Budget ji'eport? as ?
approved by the. President, limited its recommendations on, the use of
such a fund to those situations involving the establishment of service
centers, equipment pools and time-sharing arrangements or 'where it
would be advantage6us for appropriate Federal agencies on 4 permissive::
basis to finance the acquisition and utilization of ALPE.
There is contained in U.R. 48115 certain language which might be con-
strued to requir,!, on a mandatory basic, Federal agencies and their..
contractors to obtain their individual ABIPE requirements through tht,-:
Administrator of General Services. The Administrator would purchase,
lease, or transfer from other Federal agencies the equipment to meet
these requirements. Exceptions would be permitted only at the discretion
of the Administrator. Regardless of which agency procured the equipment,
the bill could be interpreted to require the use of the centralized revolving
fund provided for in subsection 111(c) in all cases.
. ,
USo of such a funci on a mandatory basis would resat in imposing another.
?.
step in the procurement of AIM Moreover, there mould be' extra?cOStn':
? to Federal agencies resulting from surcharges necessary to .reimburse,
the General SCrViCQ3 Administration for costs of operating the fund._ .1n'
addition, it could discourage second and third users of the equipment .since:
they would be paying rentals to General Service Administration-for older
' and perhaps less efficient equipment that might be as high or higher than
.what they would pay for the most modern equipment. .Under.existingjro:%.
edures for the utilization of equipment excess. to one agency by another?'
. . . . , ,
agencyl,there is a clear financial inceptive to utillze-auch equipmentif
it is government-owned, it can generally be acquired at no 'cost except' ?%'
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for transportation, packing, and dismantling charges. If the equipment
? will do the job, the economic advantage over new equipment is obvious.
Even with leased equipment, the agency can usually obtain it ata sub-
stantial discount from the new price. Since the General Services Admin.L..:
istration could charge rentals as long as the equipment is in use (and
would have to until it is amortized), the incentive to UDO older, perhaps
? outmoded, equipment is lost. The General Services Administration may
then find itself eventually in the position of having a large inventory of
unused equipments in warehouses or directing agencies to use this equip-
ment even though newer, more efficient equipment is available at equal
or lower cost. For the above reasons, the Department of Defense does
not consider the establishment of a revolving fund for acquisition of all
ADPE as desirable.
The views of this Department with respect to ADPE in the hands of
Government contractors have been made known to the Bureau of the
Budget, the Gencral Accounting Office and to various Committees Of
Congress. The General Accounting Office has issued a series of re-,
ports ou this matter, favoring Government ownership for UN!: in
GoVernment contrqA.:1,0r plants. Detailed comment to the COmptreller
General, on his recommendations in this area wore supplied to him on
May 21, l964, a copy of which is attached.
Department of Defense procurement policy is to place maximum respon-
sibility on contractors for contract performance, including the responsi.-=
bility for facilities acquisition to perform those contracts. 'This would .
include ADPE. The Department's policies of contractor reSponsibility
ge.hand-in-hand with increased emphasis on the use of fixed-price con-
tracte. and contracts with wide-ranging incentives -which are designed t
? insure the utMost in sound contract management by Government eontrao-:
- tors.* Acceptance of a principle which woad provide all ADM tocon-.
? tractors as Government-furnished equipment carries with it,substantial
Penalty because: (I) it represents increased Government Mitred and
intervention in private enterprise and management initiative, (2) it pobes
:.the'extreme likelihood of the creation of a substantinl'inVenterTof idle -
AJTE;.(j), the administration and caretaking of such an equipment inventory
will be extremely costly; and (4), it overlooks the aternative that the n.on-
ttotox-cap purchase ALIT! in many eases with better advantages to the
?
Government,
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It has:been stated that a prAncipal advantage of centralized procurement
,of AIM is that lcase/purchase decisions could be'made,on the basis of
th6 total Government requirement for the equipment over its useful life-
ePan rather than on the basis of estimated use by the acquiring organiza-.
tion.. The Department of Defense position, based upon extensive experience
?With this type of equipment, is that it is practically impossible for a single
agency to determine potential secondary users within the agency at the
time of initial acquisition and that it is completely unrealistic to assume
? that any agency can make such determinations for the Government as a
? whole. We are in full supnort of the objectives of.' purchasing computerS
on the basis of proven economic advantage over' leasing for the known ap-
plication of theoluipmeat. Lease/purchase analysis iG made when the
? equipment in acquired und continually thecearter if the equipment is
? leased to assure that, changed situations have not altered the erielnal
decision. The Department now purchases in all cases where the economic
advantage is proven, based upon the known use of the equipment and if the
funds are available. The equipment is then assured of full amortization
by the initial requiring agency and, as previously mentioned, reutilization
of the equipment by a secondary user is helped by an ability to transfer
the equipment at no cost. This procedure allows selective purchase of
equipment where economy is assured and facilitates its reutilization?
but at the same time prevents a costly build-up of owned equipment
which may or may not have further use to the Government.
In view of the foregoing, it is recommended that' in line 8, page 1 of the
bill; the words "and provide for" be deleted; in line 4, page 2, the Word
"shall!' be changed to "may"; in line 7, page 2,the,words "and.directed"
be deleted; in line 121 page 2, the word "require" be changed to "provide'
for""; and. in lines 13, 14 and 15, page 3, the words "for the efficient.co
-ordination, operation, utilization of such equipment' by and for Federal
agencies" be deleted and substitute in lieu thereoff. 'the 'words "to estab-
_ lish.and operate equipment pools and data processing centers by or for
the 'pae of two or more Federal agencies or to finance at the request of
a Federal agency the acquisition and utilization of, such eqUipment."
The Chairman of the Subcommittee on Government? activities in his state-
ment' on the'iloor.of the House of RopresentativeS:on February 11, 1965
(Pag' 2586, Congressional Record) at the time H.R. 4845 was introduced?
stated.that-the bill contained exceptions neceesarY for reasons of security.
and defense and that it was not intended that the -legislation cover any ,
;ecialiPed.scientific or specially designed military ADP system.'
-
-components.
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Virtually. all speCially designed APPE developed for military Purposes such?
*woupOns.fire?centrell tactical Milltury field operations, scientifie-and'_
L ngineering; missile and satellite tracking, weapons development, com- ?
mnnd?Und control,- and .Communications opexations are procured as- integralparta of weapons and support systems. It should be further noted. that-. -
commercial general purpose equipment is selected. for these -.-systems when
it can perform satisfactorily. Selection of specific.equipment?? however, ...
must always be. related to the total system.and.its interface. requirement*.
The. Department of Defense also makes extensive use of Al.P11:for ?intel-
ligence and otherhighly- classified purposes. Information ..essential lo the
selection and acquisition of this equipment is highly Clasaified.:and
its
dissemination restricted accordingly. Certain agencies of the .Dopartment..
of Defense smite extensive use of ALPE in accomplishing urgent .crypto- .
logic missions. A-...sign or twlectlon, production, testing,. and.updating
of
ADP- equipment .and tlie. urgency- and'sensitive classified nature Of the data
to which the AM application are ma',de require that the most rigid. .seCurity .-
menures and Uime schedules be applied. It is considered es.sential.-that '-
deterMinations ii to respect to ALPE of the types described above .involving
the'national defense and national security be made by the Secretary of -
Defense.. Accordingly, the following additionai. amendment is r6commended
for incorporation in the bill commencing on page 2, line 16.
"This section. shall not be construed to apply-to specially
-.designed automatic data processing equipment .for Scientific,
.Military or. cryptologic uses and. the Ilead_of_afederalag,(41cy
10 authorized-to determine when any automatic data proC(x3sibg-
. . .
equipment .should be .excluded from the provisio*of-thio_sec7
tiOn:fOr reason-a:of national:defense or national SCOUT y,
In feonc341.slonly the...Department of Defense. supporis.- the enatMentof.-ft.1.Pif +.5
lt.....i*-aMended- to include the sUggestions?set forth above....ItHconciirs..41.1.those
.p?rOViSiOnS. ..01.H.P,:.:4845.pertaihing. to responsibilitiee to h!.08ted-...n the--
Seoi-otatT.of.,Coit10.10i-ce,-- .The Department Of.Defense...10-engagen.etensive.
Scientific researchand_develOpment)activities in the Att744j441jrim.41..4y 7
? with-resi)ect-to?our?mi4tary. requirements., However, it7h040ye?hat;-..t14017eis definite ;.:
requ.i.rerAent for th typc of serv-
ices
.1,1i14176,t00a-,th4t...the.Authority'vested. in. the. f3ecretaryol!Complex'00,:lv.:015.::,
. , . . ? ?
OctiOriXII(f)4,p-.4ot..ihtenapd to curtail or restr44?4artMent.-644.4.---
:. ;.? ? ... -. ?
i.s0sOrch:anddeltPlOpment..activities..in this field,?
, . . _
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We will be happy to provide any further information that Ypi,TCommittee
may request. Further, the Department weleomoP the oppOrtunity to
testify at hearinds to be held on H.R. 4845.
The. Bureau of the Budget advisee that from the standpoint. 0':the AdminH.
istration's program, there ip no objection to the submitw,ion Of::thiS:-ToP6rt
to the Committee.
Sincerely,
Slued
CYRUS R. VANCE
Deputy Secretary of Defense
inclosure
btr to CompCen dtd 21 May 1964
_?
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UNCLASSIFIED
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CENTRAL INTELLIGENCE AGENCY
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