[Congressional Record Volume 145, Number 103 (Tuesday, July 20, 1999)]
[Senate]
[Pages S8876-S8877]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FITZGERALD:
  S. 1396. A bill to amend section 4532 of title 10, United States 
Code, to provide for the coverage and treatment of overhead costs of 
United States factories and arsenals when not making supplies for the 
Army, and for other purposes; to the Committee on Armed Services.


  legislation to provide coverage and treatment of overhead costs of 
 united states factories and arsenals when not making supplies for the 
                                  army

  Mr. FITZGERALD. Mr. President, I rise today, along with my 
colleagues, Senators Durbin, Grassley, and Harkin, to introduce a bill 
to preserve the integrity of our arsenals and the vital role they play 
in our national security and defense.
  There are three arsenals remaining in this country charged with the 
responsibility of maintaining a military production capability in case 
of war. The Rock Island Arsenal in my home State of Illinois is one of 
those three national arsenals.
  The U.S. Government acquired Rock Island, which lies in the 
Mississippi River between Illinois and Iowa, in 1804. The first U.S. 
Army establishment on the island was Fort Armstrong in 1816. Neither 
Illinois nor Iowa had established statehood at that time, but Fort 
Armstrong served as a refuge for pioneers living on the frontier. In 
1862, Congress passed a law that established Rock Island Arsenal. 
Construction of the first manufacturing buildings began in 1866 and 
finished with the last stone shop in 1893.
  Today, Rock Island Arsenal is a leader in high-technology weapons 
production, engineering, and logistics and plays an integral role in 
our national defense, providing manufacturing, supply, and support 
services for our Nation's Armed Forces.
  I recently visited Rock Island Arsenal and was truly impressed with 
its facility and manufacturing capabilities and with its hard-working 
personnel. Manufacturing production at Rock Island centers around 
recoil mechanisms, gun mounts, artillery carriages, and the final 
assembly of Howitzers. Rock Island also serves as a ``job shop'' for 
the U.S. military, producing small quantities of urgently needed 
specialty items and performing work that is not profitable enough to be 
done in the private sector.
  Rock Island is the largest Government-owned manufacturing arsenal in 
the Western World with state-of-the-art machining, welding, forging, 
plating, foundry, and assembly facilities.
  Rock Island's specialty is artillery production, which it has done 
since the late 19th century, resulting in a long and distinguished 
history of efficient production and effective products.
  Rock Island has been very successful at producing towed artillery and 
has also been responsible for the production work on all U.S. Howitzers 
for the last 50 years. However, even with the state-of-the-art 
facilities, expertise, and proven track record of the arsenals, there 
are those who would like to see them closed and transfer all military 
production to private firms.

  Through those efforts, the arsenals have slowly but surely been 
marginalized through the years. Currently, Rock Island Arsenal is 
operated only at about 20 percent of its capacity. This approach does 
not save the Government money. It wastes it by making the Government 
pay twice for any product an arsenal can manufacture.
  Let me explain this point, because it is important to understand that 
our current policy does not save the taxpayers any money. Arsenals are 
currently kept open and on standby to gear up for production in the 
event of a national military emergency. Therefore, the Army must pay 
the overhead to keep them open whether or not the Army uses the 
arsenals to procure equipment and supplies. When a contract is awarded 
to a private firm, the Army is still paying for unused capacity at the 
arsenals, while at the same time paying the private contractor the cost 
of the contract. In effect, the taxpayers are paying twice for every 
product procured from a private contractor that could have been 
procured from an arsenal.
  The Army's procurement system hides these true costs from the public. 
The Army's bidding procedures do not allow procurement officers to 
evaluate arsenal bids fairly. Current bidding procedures require 
arsenals to include all of their full overhead costs, including the 
cost of unused capacity in the bid price for their products. This 
approach skews the true cost of the products produced by the arsenals. 
By requiring that arsenal bids include the cost of unused plant 
capacity--that is, those costs associated with the level of readiness 
the arsenals are already required to maintain--the Army has rendered 
arsenal bids inherently uncompetitive because the price of the product 
is artificially inflated beyond its true cost through the inclusion of 
overhead costs unrelated to the specific bid.
  This bookkeeping fiction makes the bid price for arsenal products 
uncompetitive, even if the actual price of an arsenal product can be 
acquired at the

[[Page S8877]]

lowest cost to the Government. Thus, not only must the taxpayers pay 
twice for a product when it is not manufactured at an arsenal, but the 
taxpayer may not be buying the lowest priced product.
  The legislation I am interested in introducing today, Mr. President, 
with my colleagues from Illinois and Iowa, would require the Secretary 
of the Army to include in his annual budget request a line item to pay 
for the unutilized and underutilized plant capacity of the arsenals, 
thus recognizing the important role played by the arsenals in 
maintaining our defense preparedness. By requiring the Army to account 
for the overhead cost of unused arsenal capacity, the arsenals will no 
longer have to artificially inflate the cost of their bids to account 
for this overhead. Arsenals will be able to make competitive bids by 
virtue of not having to abide by the fiction of including as overhead 
for a bid the total cost of maintaining the arsenals. Instead, arsenals 
will be placed on a fairer footing with private firms by including in 
their bid price only the overhead cost associated with the particular 
product on which they are bidding.
  In the end, this approach will allow the Army to procure those 
products which arsenals are capable of manufacturing in the most cost-
effective way.
  Products manufactured by our national arsenals are among the best in 
the world, and the arsenals deserve fair treatment and consideration in 
the marketplace. In short, adoption of this legislation will enhance 
our national defense, save taxpayer dollars, and ensure the economic 
viability of the communities that surround our national arsenals, such 
as that in Rock Island, IL.
  Mr. President, I ask for favorable consideration of this bill.
  I ask unanimous consent that a copy of the text of our bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1396

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. OVERHEAD COSTS OF UNITED STATES FACTORIES AND 
                   ARSENALS WHEN NOT MAKING SUPPLIES FOR THE ARMY.

       (a) Finding.--Congress makes the following findings:
       (1) Factories and arsenals owned by the United States play 
     a vital role in the national defense by ensuring the making 
     of supplies for the Department of the Army.
       (2) The vital role of such factories and arsenals in the 
     national defense is not diminished by their unutilization or 
     underutilization in peacetime.
       (b) Overhead Costs of Factories and Arsenals When 
     Unutilized or Underutilized.--Section 4532 of title 10, 
     United States Code, is amended by adding at the end the 
     following:
       ``(c) Overhead Costs When Unutilized or Underutilized.--(1) 
     The Secretary shall submit to Congress each year, together 
     with the President's budget for the fiscal year beginning in 
     such year under section 1105(a) of title 31, an estimate of 
     the funds to be required in the fiscal year in order to cover 
     any overhead costs at factories and arsenals referred to in 
     subsection (a) that result from the unutilization or 
     underutilization of such factories and arsenals in the fiscal 
     year due to low production requirements of the Department of 
     the Army.
       ``(2) Funds appropriated to the Secretary for a fiscal year 
     for costs described in paragraph (1) shall be available to 
     the Secretary in such fiscal year to cover such costs.
       ``(3) In determining the cost of making a supply or other 
     good, other than a supply for the Department of the Army, at 
     a factory or arsenal referred to in subsection (a), the 
     Secretary shall not take into account any overhead cost 
     covered with funds available to the Secretary under paragraph 
     (2).''.
       (c) Stylistic Amendments.--That section is further 
     amended--
       (1) in subsection (a), by inserting ``Authority To Make 
     Supplies.--'' before ``The Secretary of the Army''; and
       (2) in subsection (b), by inserting ``Abolition.--'' before 
     ``The Secretary''.
                                 ______