COST REDUCTION PROGRAM NASA's internal cost reduction program yielded savings of $45,160,000, and its contractor cost reduction program reduced costs by approximately $120,000,000 during the second half of 1968. NASA established an internal cost reduction goal of $125 million for Fiscal Year 1969. The Agency's cost reduction program includes two major efforts to improve internal and contractor efficiency. The internal cost reduction program encompasses ten field installations and all of the principal Headquarters program and staff offices. The NASA contractor cost reduction program includes 36 of the Agency's major contractors who voluntarily participate in the formal reporting program. There is no overlapping or duplication between the two programs, although the concepts, standards, and criteria are quite similar. In addition to the formal contractor reporting system, the NASA Procurement Regulation requires that in responding to requests for proposals for procurements in excess of $1 million, offerors must provide information on their cost reduction programs. Similarly, the cost reduction activity is one of the factors used in periodically setting fees under cost-plus-award fee contracts. The NASA Cost Reduction Board is responsible for the overall administration of the program and for evaluating its effectiveness. It establishes necessary policies, regulations, and procedures. It also establishes, reviews, and evaluates Agency cost reduction goals in coordination with the program offices. The Board is comprised of the Associate Deputy Administrator, the Associate Administrator for Organization and Management, the Assistant Administrator for Industry Affairs, and the Deputy Associate Administrator (Management) for the Office of Manned Space Flight. The staff of the Cost Reduction Office continued to evaluate the management and operation of both field installation and contractor cost reduction programs. The staff also conducted intensive reviews of quarterly cost reduction reports from more than twenty internal reporting activities and of semiannual reports from the 36 NASA major contractors. The Agency then used feedback reports and staff meetings to critique management at the reporting levels on the results of these reviews. During the latter part of this period, the Bureau of the Budget disseminated the NASA Cost Reduction Program plans, procedures, and criteria to other government agencies for comments as to their acceptability for general use as a standard system. CONTRACT ADJUSTMENT BOARD The NASA Contract Adjustment Board considers requests by NASA contractors for equitable contractual relief under Public Law 85-804, when no administrative legal remedy is available to such contractors. The Board's procedures are published in Title 41, Code of Federal Regulations, Part 18-17. (Members of the Board are listed in app. F.) During this reporting period, the Board acted on two requests by contractors. In one case, the relief requested was granted in part. In the other case, the Board denied a request by the contractor for reconsideration of an earlier decision. The case in which relief was partially granted involved a mutual mistake by the Government and the contractor in failing to foresee certain state-of-the-art engineering problems which became apparent only after the contract was executed. After studying the case, the Board authorized an increase in the contract price. The Board also had four other requests under consideration, but had not completed action on them. The Board submits an annual report to Congress of all actions taken under the authority of P.L. 85-804 during the preceding calendar year. BOARD OF CONTRACT APPEALS The NASA Board of Contract Appeals adjudicates the appeals of the Agency's contractors that arise under the "Disputes" clause of NASA contracts. The Board's seven members are appointed by the Administrator. (Members of the Board are listed in app. G.) Eleven new appeals were filed with the Board during this period, and the Board disposed of 21 appeals (most of which were filed before July 1, 1968). On December 31, 1968, the Board had 38 appeals pending on its docket. PROCUREMENT AND SUPPLY MANAGEMENT NASA took a number of actions to improve its procurement practices and supply management. As one example, it revised its procedure for negotiating final overhead rates, thus reducing the backlog of completed contracts held open for administrative purposes. Cost reimbursement type contracts on which performance has been completed cannot be closed out until the final overhead rates have been established. In some cases, this may take two or more years after final performance and may result in a large number of contracts being held open for fiscal and administrative purposes. In July, NASA developed a new procedure which will replace the six-month limitation with a restriction on the total number of overhead dollars involved per twelve-month period. When this change becomes effective, installations will be able to accelerate the close-out of a large number of contracts that could not have been processed under the previous system. For example, one NASA Center reported that it has scheduled 200 contracts for close-out under the new procedure. It is too early to estimate the savings that will result, but they should be significant. In another area of effort, NASA revised its contract clause for service contracts exceeding $2,500. The new clause incorporates procedures for contractor compliance with the new safety and health standards to protect service employees. In another action, NASA and DOD continued a joint effort to revise and expand existing contract administration agreements and to consolidate them into a single new agreement. This effort should promote maximum NASA use of DOD contract management resources. It is consistent with the policy of promoting uniform policies and procedures in the field administration of NASA and DOD contracts. Also, NASA participation in DOD reviews of major DOD contract administration activities having substantial NASA workload continued. This participation assured NASA that the contract administration services performed by DOD for NASA (at an estimated FY 1969 cost to NASA of $27 million) are satisfactory. In a fifth area of effort, NASA increased the number of screening requests being processed through the Defense Industrial Plant Equipment Center. Acquisitions of idle DOD industrial plant equipment for NASA use exceeded $1 million in the last six months. Finally, to improve financial management of Government property, NASA contractors are now required to include in their semiannual financial reports the value of Government-owned space hardware which may be used on more than one program. Incentive Contracting NASA started the period with 115 industrial contractors engaged in incentive contracting under 285 active contracts valued at approximately $6.7 billion. Because of the research and development nature of the programs, and because of the degree of technical and cost uncertainties, most of the contracts were cost-reim bursement types. The predominant type was Cost-Plus-IncentiveFee (CPIF). The second largest grouping was the Cost-Plus Award-Fee (CPAF) type. NASA continued to play a leading role in the development of advanced procedures for Government-wide use of CPAF contracts (using subjective evaluations of performance for fee determination purposes). As of December 31, 76 NASA contractors were working under 132 active CPAF contracts valued at $2.1 billion, and the total number of incentive contracts was 258; these were valued at $7.1 billion. NASA continued its study of extracontractual influences in Government contracting. An interdisciplinary team of university research specialists was in the second year of its study of motivational influences which should be considered in developing incentive profit structures. Preliminary findings of the study were being incorporated in drafts of a new NASA/DOD Incentive Contracting Guide being developed for release during 1969. Summary of Contract Awards NASA's procurement for this report period totalled $1,979 million. This is $224 million less than was awarded during the corre sponding period of 1967. Approximately 85 percent of the net dollar value was placed directly with business firms, 4 percent with educational and other nonprofit institutions, 4 percent with the California Institute of Technology for operation of the Jet Propulsion Laboratory, 6 percent with or through other Government agencies, and 1 percent outside the United States. Contracts Awarded to Private Industry Ninety percent of the dollar value of procurement requests placed by NASA with other Government agencies resulted in contracts with industry awarded by those agencies in behalf of NASA. In addition, about 58 percent of the funds placed by NASA under the Jet Propulsion Laboratory contract resulted in subcontracts or purchases with business firms. In short, about 93 percent of NASA's procurement dollars was contracted to private industry. Sixty-nine percent of the total direct awards to business represented competive procurements, either through formal advertising or competitive negotiation. An additional 8 percent represented actions on follow-on contracts placed with companies that had previously been selected on a competitive basis to perform the re search and development on the applicable project. In these instances, selection of another source would have resulted in additional cost to the Government by reason of duplicate preparation and investment. The remaining 23 percent included contracts for facilities required at contractors' plants for performance of their NASA research and development effort, contracts arising from unsolicited proposals offering new ideas and concepts, contracts employing unique capabilities, and procurements of sole-source items. Small business firms received $70 million, or 4 percent of NASA's direct awards to business. Most of the awards to business however, were for large continuing research and development contracts for major systems and major items of hardware which are generally beyond the capability of small business firms on a prime contract basis. Of the $236 million of new contracts of $25,000 and over awarded to business during the six months, small business received $21 million, or 9 percent. In addition to the direct awards, small business received substantial subcontract awards from 85 of NASA's prime contractors participating in its Small Business Subcontracting Program. Total direct awards plus known subcontract awards aggegated $160 million, or 9 percent of NASA's total awards to business during the period. Geographical Distribution of Prime Contracts Within the United States, NASA's prime contract awards were distributed among 43 States and the District of Columbia. Business firms in 40 States and the District of Columbia, and educational institutions and other nonprofit institutions in 40 States and the District of Columbia, participated in the awards. One percent of the awards went to labor surplus areas located in 12 States. Subcontracting Subcontracting effected a further distribution of the prime contract awards. NASA's major prime contractors located in 23 States and the District of Columbia reported that their larger subcontract awards on NASA effort had gone to 844 subcontractors in 41 States and the District of Columbia, and that 77 percent of these subcontract dollars had crossed state lines. Major Contract Awards Among the major research and development aggregate con |