Letter to the Director, Bureau of the Budget, Concerning Contracts With Private Enterprises for the Government's Scientific and Technical Work

[Released August 6, 1961 Dated July 31, 1961]

Dear Mr. Bell:

Since the end of World War II, the Federal Government has been making extensive use of contracts with private institutions and enterprises to provide for the operation and management of research and development facilities and programs, for analytical studies and advisory services, and for technical supervision of weapons systems and other programs administered on a systems basis. Through such contracts the Government has been able to accomplish scientific and technical work essential to urgent public purposes.

In part, the use of such contracts has been made necessary by the Government's entry into new fields, such as atomic energy, missile development and space exploration, and the need for talents and services not previously employed. In part, the use of contracts has also been induced by the recommendations of the second Hoover Commission and other groups that the Government terminate activities which could better be performed for it by private enterprise. Present Federal policies with respect to contracting-out Government activities are outlined generally in Bureau of the Budget Circular No. A-49, "Use of management and operating contracts," and Bureau of the Budget Bulletin No. 60-2, "Commercial-industrial activities of the Government providing products or services for governmental use."

After a decade or more of experience with such contracts, I think it would be desirable to review the effectiveness of this means of accomplishing the Government's purposes. Some of the questions that require review have been posed recently in studies and reports by several committees of Congress. I would like to have you undertake, with the assistance and cooperation of the other Federal officials most concerned, a review of the experience with respect to the types of contracts mentioned above. I am requesting the following officials to participate in the study: the Secretary of Defense, the Chairman of the Atomic Energy Commission, the Chairman of the United States Civil Service Commission, the Administrator of the National Aeronautics and Space Administration, and the Special Assistant to the President for Science and Technology.

The product of the review should be recommendations to guide future executive branch action. While there is a consensus that the use of contracts is essential and appropriate to carry on certain types of Federal operations, it also appears that use of the contract device has been made necessary in part by the limitations which exist with respect to direct Federal operations.

I would like to have you explore the circumstances and conditions under which contractor operations provide the most effective means for accomplishing the Government's objectives in the areas under review. I would also like to have full consideration given to the limitations which make direct Federal operations difficult, and to the development of proposals for adjustments and new concepts in direct Federal operations which would provide the Government with greater flexibility in determining whether the public interest would best be served by the use of contractor or direct Government operations.

The review should focus on the following matters: (1) the effect of the use of contractors on direct Federal operations, the Federal personnel system, and the Government's own capabilities, including the capability to review contractor operations and carry on scientific and technical work in areas where the contract device has not been used, and policies and actions needed to increase the Government's capabilities in these respects; (2) the policies, if any, that the Government should follow in controlling the salaries and fringe benefits of personnel working under a contract, and the appointment, management and dismissal of such personnel; (3) the criteria to be used in determining whether to perform a service or function through a contractor or through direct Federal operations, including any special considerations to be given to the nature of the contractor and his relationship to production contractors; (4) the policies which should apply in selecting contractors, including the organization of institutions for the sole purpose of entering into contracts with the Government; (5) the means for reviewing and supervising contractor operations, and for achieving maximum efficiency in such operations; and (6) the policies which should apply with respect to contractor fees and cost reimbursement practices on items such as overhead, facilities and equipment, and advertising.

The results of the review should be available not later than December 1.

Sincerely,

JOHN F. KENNEDY

[Honorable David E. Bell, Director, Bureau of the Budget, Washington 25, D.C.]