Exhibit A-4. A draft of remarks concerning procurement presented to the Society of Experimental Test Pilots at their Annual Convention in Los Angles, 1974. The panel was supposed to consist of Spangenberg, Senator Cannon, Mr. Packard, and Dr. Currie. All but Mr. Spangenberg cancelled out. The final presentation was taped and printed in SETP report of the convention proceedings.

REMARKS

I'll start by thanking the SETP for giving me the privilege of participating in this program with such a distinguished group of panelists. I particularly want to thank the program committee for their assurances that I need not agree with any of them. As some of this audience knows, I am already on record as disagreeing on the merits of nearly all OSD initiated defense management procedures, and on the merit of all OSD directed multi-service aircraft development programs.

Needless to say, I am talking to you today as a private individual and not as a representative of the Navy.

My biggest hang up is that both OSD and the Congress seem to consider the services to be grossly incompetent, and only interested in spending more and more of someone else's funds. We have been getting lectures on our wasteful procurement methods, our overruns, and on our unwillingness to use products developed by others. From where I have been sitting, I believe most of the criticism is unfounded, and usually misdirected. Our tasks at the working level in naval aviation have been made much more difficult over the last 15 years by the rash of innovative management techniques directed from above which either offer solutions to problems which don't exist, or are not applicable to those which do. As I have indicated, my experience is all in naval aviation. We have made mistakes in the past and undoubtedly will in the future, but we have tried to heed history and in so doing, to avoid repetition of our errors. Overall, I think our record is pretty good, and would have been better if we had the intestinal fortitude to resist more strongly the pressures for innovation in some programs and compromise in others. Some of those pressures have come from within the Navy, as well as outside of it. All of us would like to be judged on our record of accomplishment, and we tend to resent criticism on those items over which we have no control. For example, the sins which may exist in ship building, tank, torpedo, or ABM programs, should not be used to smear those involved in completely separate activities. The Navy may be the Navy, but ship building and aircraft procurement have little in common, utilizing as they do, completely different segments of industry with widely divergent material, design, and production practices. The lack of specificity by those who criticize defense procurement has long been evident.

Since I imagine we would all agree with the proverb that reasonable men will reach the same conclusion if given the same facts, I must assume that those at the top of the OSD hierarchy have been operating on a different set of data than are available at my level. Let me try in the next few minutes to show you some of our history, review our mistakes, and explore some of the reasons for the differences of opinion between us on the issues of prototyping, fly-before-buy, concurrency, design-to-cost, joint service development, high/low mix, independent T and E, fixed price development contracting with a production commitment, innovative alternative approaches, etc.

Let us look first at the Navy's aircraft acquisition record the last 40 years. The first chart shows the airplanes we have started each year since 1935 - Note we averaged six new starts per year during the 40s, four during the 50s, and only about one since the 60s. Our production delivery record is shown on the next chart -- we reached a high of 22,000 airplanes in 1944, and have now reached new lows. In each of the last two years, we have actually had fewer aircraft deliveries than in 1935. Our total deliveries of all types last year was about half a single month's production of the Hellcat at Grumman during World War II. In this sample, we have examples of prototypes, fly-before-buy, and concurrent production programs, together with nearly every conceivable contract type from firm fixed price to cost plus fixed fee. We are also familiar with the results, predictable and otherwise, of the procurements of the Air Force and Army.

Until the time of the build up for World War II, the normal aircraft acquisition method used by the Navy was a true fly-before-buy, competitive prototype method. The last Navy fighter to reach the fleet using this procedure was the Vought F4U Corsair started in 1938. As time became more important, and greater fleet capability was needed to meet the predicted threat, production release became mandatory prior to flight test. The technical community actually opposed the change in procedure at the time, fearing a degradation in quality, but timing and cost advantages prevailed. During World War II, the important programs, with an average degree of risk, were all conducted using major overlaps between development and production. Highly experimental and low pay off programs continued to be conducted on a prototype basis. Contracting changed from almost wholly fixed price to almost wholly cost plus during the early 40s. A comparison of the timing difference between the fly-before-buy F4U and the Navy's most ambitious concurrent program, the F8F, is shown on the next chart (editor's note: the chart was not in the papers found). This highly successful design deployed and was enroute to Japan when the war ended.

The very rapid rate of production build up, which was used in those days led to the potential for large retrofit costs which could not be tolerated in the reduced budgets after the war. Hence, the acquisition process was changed to hold the rate of production low for about a year, with each program tailored to the particular circumstances surrounding it. Contracts for experimental aircraft preceded the production contracts, but the designs were engineered for production from the beginning. Occasionally, fly-before-buy policies surfaced in this era, but were dealt with without disrupting the planned program generally by ordering more experimental, or service test, models. The original Vought F8U Crusader program, started in 1953, became a model for most subsequent Navy procurements, and is shown on this next chart.

Another perturbation in the development of the acquisition process occurred at about the same time in the funding area, when authority was granted to use the scarce R&D funds only for a very small portion of engineering development, e.g., from go-ahead to mock-up, on those designs programmed for production. Predictably, more starts were permitted under this procedure, but shortages in later production funding caused problems. Overruns on the cost plus A3J, W2F, and A-6 programs also contributed to a major budget squeeze, and finally forced cancellation of several projects.

The final major change in our general acquisition strategy then addressed this problem. We found industry was willing to undertake development of our relatively low risk programs on fixed price type contracts with ceiling price options for follow on production quantities. With the maturity of our industry and operating within reasonably well known variables, this was feasible. This method was used on most of the new developments from 1961 on, including the CH-46, A-7, OV-10, F-14 and S-3, solving most of our overrun problems within the government and transferring the problem to the contractor in some cases.

So much for our acquisition process development.

We can now look at our history of new designs since 1950 to see if a pattern of success or failure can be detected. First, let's examine the prototype record. The nine models shown in red are those which we prototyped and for which a production commitment was either deferred or not really contemplated. They included: HCH, HRH, FY, FV, ROE, RON, TT, VF/VTOL, and X-22. None of these designs was continued beyond the prototype stage.

Of the remaining models two were terminated almost immediately after starting; the F6D by OSD in favor of the joint TFX program, and the P6Y by the Navy because of budgetary inadequacies to continue seaplane development. Three more were terminated after some flight testing: the P6M, because of two crashes, some technical problems and very high support cost; the very successful F8U-3 because of Congress's determination to eliminate duplication, and finally the F-111B by Congress eliminating production funding after a long fight.

The remaining models all saw, or will see, service use, one criterion of success. It can be concluded that prototyping is certainly not necessary for those designs for which a technically competent design organization contemplates production. Prototyping saves money over a well planned concurrent program only when the program fails and is terminated. A case for prototyping over a well planned concurrent program can be made only when the program fails technically, and unpredictably. If it fails as predicted, or because of budget inadequacies, even more money is saved by not starting the project at all.

A strong statistical case for concurrency can also be drawn from observing the experience of the major transport producers in developing their wide bodied models without government support. Time is so expensive in terms of interest on borrowed development capital that prototyping is quite impracticable. The 747 was produced and reached service in about half the time needed for the Army to prototype, test, select, develop and produce their light observation helicopter.

The next item on OSD's list of buzz words that I'd like to address is the so-called high low mix concept. My thoughts on this subject are detailed in an article in the September issue of "Astronautics and Aeronautics", the AIAA publication, so let me just show you what the financial implications seem to be. As a solution to our inadequate budget, OSD is pushing an idea to buy some airplanes capable of meeting the best of the enemy, and to buy some cheaper models which would be programmed to fight only the low end of the threat. Although such a naive assumption is difficult to imagine coming from the department charged with the security of the country, even the claimed cost savings appear highly suspect. As a first order approach, one can assume that development and production cost both vary directly with weight, that the reduced capability design weighs about .7 that of the full capability design (at equal range), and that cutting production rates in half decrease the benefit of learning curves from 80% to 85%. As I run out the numbers, a mix of 400 each of high and low capability designs costs about 40% more than buying all of the better design. The result is shown on the chart.

The next of my selected OSD management targets is the so-called design-to-cost program. As initially conceived, the idea was to fit defense programs of the future into estimated defense budgets of the future. One can hardly disagree with that, but one might wonder what the proponents of the idea thought had been going on during each year's budget preparation. Another logical step, of course, is to ensure that the cost of any new program can be justified using cost/capability/schedule tradeoffs. Beyond these points the program goes divergent with ill stated goals which seem to imply that the design be continuously changed as necessary to remain within a cost budget. There has been talk of making cost a design variable during the entire development cycle, a concept which immediately reaches a new level of speculative theory. In the real world, we must consider cost during the conceptual and definition phases of any new program, but once embarked on the development, changes must be minimized if cost is to be minimized. All of our past experience shows this to be true. One should also realize that any acceptable cost/performance tradeoff change introduced during a program to reduce cost should have been made at the beginning in order to save even more.

My final subject is that of OSD's apparent obsession with joint development programs designed to make one product work for more than one service. In concept, it has merit, using my high/low concept arguments on the desirability of greater numbers, and a single development. However joint programs directed by OSD over objections by the concerned services have failed to produce savings in any case to date, and in most cases, have failed to work at all. The problem is usually one of technical infeasibility of meeting differing requirements with a single design. Both Congress and OSD have apparently directed the Navy to use a version of the YF-16 or YF-17 as a carrier based strike fighter. One would think that the unsatisfactory experience with the TFX and the Tri-Service Transport, coupled with the satisfactory F-4 and A-7 program would prove conclusively that the land based/carrier based interchange is completely a one way street. In the case now being addressed, the Air Force could operate a Navy carrier designed airplane without requiring significant changes. That airplane, however, should be heavier, less capable, and more expensive than a pure land based airplane and hence less attractive to the Air Force. The transition from an Air Force to a Navy carrier based airplane involves major redesign, and would probably involve a greater, rather than lesser, total expenditure.

The heavy lift helicopter experience in which OSD claimed cost savings by combining Army and Marine requirements into a single development is also related to this subject. Mr. Packard eventually separated the two programs when the true facts were finally established.

Independent T and E is another grossly overdone discipline directed by those at the top. The independence part is presumably due to a belief that test activities under control of a development activity will be biased, leading to a decision to produce unsatisfactory articles for the fleet. Anyone who has ever read a Navy flight test report from NATC, Patuxent River, could certainly testify to the absurdity of that belief. The developing agency usually has to be restrained from terminating the project until the test pilots report informally that the particular design while not acceptable for service use is still an order of magnitude better than anything else now flying.

UNFINISHED

Note by GAS: Actual presentation was oral , using viewgraphs, not read. This written version undoubtedly is much more succinct. SETP's idea of the panel setup was to try to get word to the decision makers of what working level really thought. It didn't work as all the invited (and accepted) panelists dropped out before the meeting.