n process and normally that band of flexibility is narrowe ittle. Then it goes to the Defense Acquisition Regulation d they narrow that down a little more.

Now, you started off with a pretty broad scope, but after a iterations, we have lost flexibility. By the time you get e guy that has to follow that regulation, he has no flexib

One of the things we should do is to look at the intent of ation, and then allow some of the people more flexibility e intent of the legislation rather than come back and say ange the laws.

DOD has put together a couple of committees with the deral Procurement Policy to look at laws, to see whethe ere are some legislative changes which might be of benef e also going to look at the internal regulations to see ho those should be changed or eliminated.

There is a major emphasis in the services on steamlining a lot of good effort being put forth. I have talked to mos ople involved in those activities. I think by the time t rough we may come back and say please change this, b l be with full knowledge of your intent and how it can ed in the field today.

Senator QUAYLE. So what you are saying is that perhaps s streamlining and getting more flexibility into the proc stem itself might be done internally.

think your description of it is quite accurate. We have hony in the past that someone will come before us and re is the way that it is being carried out. We say, well, t what the congressional intent is.

You are absolutely right that once it goes through about r processes that it gets narrowed down, and you have ilt into a law that we never really had anticipated. So at your focus is proper, that there are a lot of internal ances that have been placed upon the system that might be avoided administratively.

I think the Packard Commission report, at least as I read that direction and suggests that there are a lot of thing e Department of Defense itself that could be done to hel e this. I think it is a very important problem in getti nagement, and I think you will find that out if you hav ady.

model installation program is a poiu itiative which a

mployees in the field to operate more independently of ations. This program has been proven to enhance the a ments of DOD's employees.

Senator QUAYLE. Well, we certainly wish you luck.

One other final question, Mr. Chairman. One of you hat you have discussed deals with overcoming the adver ionship with industry. Do you want to define and perha on how you think that might be worked out, what you r by that?

Dr. COSTELLO. That is a fundamental cultural change t has to occur. It has many facets today. The more you nore you realize that there are changes that need to place.

The normal relationship is one of I win, you lose. It is sarial relationship. You are negotiating with a contrac you can beat him down in some area, why, then you s loses, you win. It turns out that we probably both lose u circumstances because no one is smart enough to know things that the other man has hidden. So if you approac est points you may gain.

I think as we look ahead understanding this relation portant. As Senator Nunn mentioned, we have an indu that is not fully utilized and which is very costly.

We are looking at some advanced composite structures ager was made of those new graphite composite struct are challenging. They are interesting, but normally th Department would announce their requirements and companies in that industry would put in place facilities t needs.

It turns out that in industry a single facility by its able to meet 50 to 75 percent of our needs. If all eight cilities are put in place, we automatically have four to our needs. We compound the problem of utilization, an pound the problem of our subsidization of industry at

Now, if we are going to work with industry, we have look and ask them, as an industry group, how are yo meet our needs, not exceed our needs; not incur the sign of subsidization of excess capacity?

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urcing?

Dr. COSTELLO. I have faced that issue before, obviously. W e resources? I had a philosophy that we should maxin alue added in the markets in which we sold our product ompany I worked for that was in North America, the tates and Canada. I may modify that concept a little, but b believe that we have to look at the resources that we need e United States.

We enjoyed a position over a period of years in which reeminent in technology. We now find ourselves in a hich there are technology capabilities that we need to nd have available to us here in the United States.

I think that we have to work out a long range progra me overseas suppliers to ensure we have complimentar cturing capabilities here in the United States. We need sh some surge capacity or ongoing capacity here.

I think we have to take a perspective that if an orga ants to sell defense products, we are the only game herefore, we have the leverage to focus the suppliers' atte ur needs.

Senator SHELBY. Doctor, competition regulations have op ontract bidding to include foreign suppliers. This would m the event of war, you have the offshore sourcing. Would ompound our ability to maintain the supply lines. How ing to have to maintain those lines if we do not have th ementary plants and sources of supply on shore?

Dr. COSTELLO. I think whether it is new technology or ve bidding, we have to find ways of insuring that that ca vailable to us.

Senator SHELBY. In your future capacity, which I pres ill be there, will you make a study of the offshore sour ne problems of supply in the event of war?

Dr. COSTELLO. I think it is extremely important to stu etail and to establish a viable concept to deal with the E s well as the Japanese. I do not think that we look at t ese in the same light today as we do the Europeans.

Senator SHELBY. But you still have the long supply line? Dr. COSTELLO. We still have a long supply line that mu ressed as far as mobilization potential. I think that mo nd sustainability are two major issues, Senator, and I a Our comments.

viivugii, við Hviz_apuut tie viguing controversy wi

the merger between Fujitsu and Fairchild in the area computer chips. This industry is a very key element i defense strategy planning, R&D and probably weapon

You are aware, I am sure, that the Defense Depart you are shortly going to be a very important part of o taken a stand against this and has recommended that Department move in under the antitrust laws at leas allow the advanced computer chips industry to slip av I have information that I believe is essentially correc cently as 10 years ago all of the high tech computer made in the United States by United States companies the last 10 years we have now slipped down to wh making less than 25 percent, more likely around 15 pe high tech computer chips. That has a direct bearing or security especially with regard to SDI.

I am wondering if you could elaborate on that an morning than what we already know and give us you on that danger of that important part of our technolo tinuing to slip away from us.

Dr. COSTELLO. I think Senator Bingaman mentioned ductor industry initiative and the Defense Science Boa The Defense Science Board's semiconductor industry s ed their concern that some of the advanced technolog have had seemed to be slipping away from us.

The statistics that you quoted demonstrate the specif the Japanese in particular, have taken with regard technology. The semiconductor industry looks at mem the driving force for advanced technology; advances i subject of high quality, high technology, low cost sem The specific instance of the Fujitsu/Fairchild buyout h described in the press.

I think that part of our initiative has to be one in w the role of the Defense Department; and what it m through direct purchases or direct funding of R&D. even more importantly today, not product R&D, but F ess and manufacturing technology; which has been o some degree, in favor of the product orientation that search and development has supported.

I think we have to take a look at what kinds of programs we need to fund to ensure that we have the resources here, as Senator Shelby mentioned. The ownership is important because that can influence the direction and flow of the technological resources.

We need to make sure that we have the proper long range support for our technology here. We would have to look, then, at the arrangements between Fujitsu and Fairchild, if that were to go through, to ensure the appropriate flow of technology to the United States.

Senator EXON. What I am searching from you is a firm position on whether or not we should continue to go all out to block, as is the general opinion in the Department of Defense at the present time, this sale to Fujitsu from Fairchild, if that should go through. Where do you stand?

Dr. COSTELLO. Fairchild has already been owned by a foreign country. It has been owned by the French. Schlumberger had ownership, and therefore it is not a case of foreign ownership at this point.

I will leave it to wiser people to say whether we should block it or not, but if it is blocked then we have to decide what we do with the Fairchild company to make it less attractive for other people to buy it and to make the owners of Fairchild to be less inclined to have it bought by somebody else. We have a job to do.

I think we have to look at the Japanese in a different perspective. Mr. Marvin Gottlieb happens to be in the audience, and he and I, for over 15 years have worked diligently with the Japanese, to create an environment of mutual trust and help. I think we need to establish a policy that looks to the Japanese and the technologies that they have as a resource, rather than as a threat.

If they did buy the Schlumberger portion of Fairchild, I think we can live with that. I think we would have to live with that. But if we do, I think we need to take a very aggressive role and to ensure the Japanese have a program to bring technology here to the United States.

Senator EXON. My time is up, Mr. Chairman, but I will pursue this a little further in the second round because I am getting less than a positive response from this witness that I have already said I intend to support. I will follow this further.

I think this is a fundamental issue. I am aware of that. This is owned by the French now so it is not a foreign. I am also aware, as I pointed out in my figures, that the Japanese are out to get this kind of a control of the super tech computer chip industry. I think that is not in the national security interest of the United States, regardless of what you think of the Japanese and regardless of the role that the Japanese are going to play in the immediate future as an ally of ours.

I am not Japanese bashing but I am not sure that this deal is in our interest. It seems ludicrous to me for the Department of Defense to be proposing a $2 billion program over the next 5 years to enhance the computer chip high tech industry in the United States of America at the same time another part of our government, and maybe you as a new procurement officer in the Department of Defense do not seem to be nearly as concerned about this matter as this Senator is.