more capable than those of ten years ago. This means that mathematical formulations of strategies, analytic models of weapons capabilities, and computerized cost estimates can be developed to meet any demand with incredible speed, even if they lack comparable accuracy or semblance of reality.

You may know that computerized war games are run by the military. A Government computer expert is reported to have said that the first battles of World War III probably have been fought already— but with computers rather than guns. Some of this information may be valuable. But there is a danger in according such analyses more than academic notice. I have found that too many systems analysts, in their search for analytical elegance, have constructed theories that have little relevance to the real world.

The basic difficulty with systems analysts is their overwhelming emphasis on aggregate numbers derived from theoretical, formulabound computer responses, rather than observation, analysis, and judgment. They have pruned away the real world in developing their elaborate theories of military weapons. The heavy dose of mathematics that systems analysts use impels many of them to construct models incorporating simplified assumptions-making the results good mathematically, but inadequate military tools.

Military problems are not at all like puzzles with an unambiguous scientific solution. But systems analysts, acting as puzzle solvers rather than as experience-interpreters, often try Descarte's method of splitting the problem into many small parts. They seem to tire easily, usually stopping at two or three parts and omitting the difficult onesthose that cannot be quantified by mathematical techniques. As a result, they show a marked tendency toward a single general solution to their problems.

As an engineer, I am particularly sensitive to the systems analysts' abuse of computers and statistics. To the scientist or engineer, the computer is a powerful tool enabling complex mathematical functions to be determined quickly and accurately. But governmental and military executives must deal with human individuals who, regardless of their numbers, think and feel as humans. Therein lies the great danger—a retreat to the security of statistical proof-that comes in exaggerating the computer's role in determining public or military policy. The problem with leadership by computer is that elaborate print-outs are substituted for qualitative experience and intuitive judgment.

Despite their demonstrated proclivity for all things precise and numerate, most systems analysts in the Defense Department produce studies of amazing imprecision. These reports are directed more to vague generalizations than to rigorous analysis. The analyses mistake abstraction for substance, and substitute symbol for reality. Often they appear to have been written with an ear finely tuned toward the ordered results. In case after case, it is obvious to me that the studies are far removed from the actuality of the situation. Undeterred by facts and unfettered by statistics, the systems analysts too often produce absolute bilge uncontaminated by the slightest perceptible filtrate of reality. It is a product that fails to provide policymakers

with anything approaching adequate analysis, critique, or workable solutions.

INFLUENCE OF SYSTEMS ANALYSTS

Mr. MAHON. Why is their influence, then, so great!

Admiral RICKOVER. In essence, the systems analyses have become something like the witch doctors are to the chiefs in certain tribal societies: purveyors of magic, whose special rituals and language hypnotize and intimidate. It is amazing to me how many in authority believe the systems analysts' premise that the computer can transmute their leaden data into golden truths, once they have shoveled their supposed facts into the mouth of this modern day minotaur. And yet, it is not surprising that professional success in this field appears to be directly proportional to a person's unintelligibility. An overuse of mathematics has eroded the systems analyst's ability to communicate in intelligible English. In fact, one of the main reasons systems analysis seems difficult is that it is meaningless jargon which has a variety of connotations and no precise meaning. By constant use of jargon divorced from reality, the systems analysts not only persuade other people that they are in touch with perfection, but they persuade themselves of this.

I think what needs explanation, Mr. Chairman, is how there can be such continued prestige and influence exerted by low-grade applied mathematics masquerading as science. At best, this science of methods is harmless, such as when it is put to work composing Sanskrit poetry or theorems in Babylonian astronomy. However, when it is used to pursue military planning without justifying its goals, its means of getting there, or its use of poor data camouflaged in von Neumann growth models, it harms the military and the country.

I find that leaders may be divided into two types: tough-minded and tender-minded. The tender-minded search for certainty and goals that are guaranteed to be always in sight. They turn for reassurance to the apparatus of method, and to special studies promising a consensus through numbers. They lean on forecasts that provide a feeling that the world has a direction, even if the forecasts clash with reality. Uneasy about man's basic irrationality, they lean on systems analysis to provide the statistics that prove anything and everything—even when the statistics prove the contrary.

The tough-minded, on the other hand, are the ones who do not shrink from uncertainty, and who therefore do not seek the guarantees of method and system. Lacking method, each finds truth by the unremitting exercise of his and his peer's judgment. Judgment is a comparative act that takes in the evidence and the report, and all evidences and reports together, and eliminates the untenable. The resulting truths are built, not reached. It is the tough-minded that this country desperately needs in its military.

Mr. MAHON. Off the record.
(Discussion off the record.)

TRIDENT SUBMARINES

Mr. ADDABBO. Admiral, a question on submarines, could we possibly revert to one Trident submarine a year and spend the money saved on building smaller but more quantitative numbers of submarines?

Admiral RICKOVER. The Navy estimates that decreasing the Trident submarine construction rate from one and a half per year to only one per year would cost about $2 billion more for the 10-ship program.

We need both the Trident strategic ballistic missile submarines and the smaller attack submarines. Asking me to make a choice between these different types of submarines is like the jailer asking the mother and father with three children which one he should kill.

In regard to the need for Trident, the Soviets are continuing to pursue a much greater effort than the United States to increase and upgrade their strategic submarine force. As I already mentioned, the Soviet Yankee class, which first put to sea in 1968, now consists of 34 units. A more powerful missile with multiple re-entry vehicle capability has been developed as a replacement missile for the Yankee class and is believed to be operational. The Yankee class are equivalent to our Polaris submarines except they are all newer than ours.

The Soviets have put to sea 8 new Delta class submarines with 12 launch tubes capable of firing an improved missile with a range of about 4,200 miles. This gives their submarines the capability to strike the United States from Soviet bases. The Soviets are proceeding with series production of the Delta class, with 16 more under construction, and they have lengthened later Delta class submarines to increase the number of missiles. In a sense, the Soviets are already operating their equivalent to our Trident submarines and missiles. The Soviets have more nuclear powered ballistic missile submarines than we do and they are building new ones at the rate of six to eight per year compared to our Trident rate of one and a half per year. These developments increase the threat to our land-based strategic forces and the reliance we must place on our sea-based strategic deterrent.

The Navy has made several reviews which confirm that there is adequate capacity to build all the proposed Trident and attack class submarines. I strongly recommend against cutting any of these submarines. The attack submarine program has been reduced to two per year from the five per year program planned a few years ago. As I have said I would build five per year but I know you are faced with a large number of requests not only for military items, but civilian items. You have talked eloquently and at length about the needs of your constituents and I well remember your words.

Mr. ADDABBO. Thank you.

Mr. MAHON. Mr. Flynt.

RISK AND PROFIT IN SHIPBUILDING

Mr. FLYNT. Admiral, the committee has been told that shipbuilders have been complaining that Navy shipbuilding contracts have not been very profitable in recent years. I quote from an article appearing in today's paper in which the president of Newport News Shipbuilding and Dry Dock Co., is quoted as saying, "The Navy got a lot fewer bids on the patrol frigate program than it wanted. None of us shipbuilders is making any money on Navy work. There is too much risk of not getting paid."

Would you comment on that?

Admiral RICKOVER. Yes, sir. You should first understand that by signing a contract, a shipbuilder accepts the risks involved in performing the contract for the agreed price. In a competitive procure

ment, the Navy accepts the lowest final bid and does not negotiate that price with the shipbuilder. If the shipbuilder bids low in order to win the contract, or experiences greater costs than he anticipated, it is not the Navy's fault that the shipbuilder's profits are lower than he desires. This is the case with Newport News. The major portion of the losses they are projecting on present shipbuilding contracts stem from two contracts which were awarded to Newport News on a competitive basis. What shipbuilders would like the public to believe is that the Navy bullies them into taking contracts with artificially low prices, thus causing a lack of profitability; this cannot be the case with competitive procurements where there is no negotiation of price. As regards negotiated procurements which are not awarded on a price competitive basis, each contract is negotiated to provide a reasonable profit to the shipbuilder, and to give him some protection from contract overruns and from inflation. If the shipbuilder does not believe the profit is commensurate with the risks involved, he should not sign the contract. To my knowledge, no one in the Navy has ever forced a shipbuilder to accept a contract against his will.

I have no doubt that some shipbuilders are experiencing losses or less profit than they originally anticipated on individual Navy contracts. But I object to those who are trying to blame the entire situation on the Navy. Often, reduced profitability on a contract stems from increased costs resulting from the shipbuilder's inefficiencies and mismanagement. I have testified before this committee at length in past years about such deficiencies as poor procurement practices, ineffective cost controls, poor productivity, inadequate material controls, and excessive overhead costs.

FINANCIAL ACCOUNTING METHODS

Some shipbuilders have been citing numerous figures lately to demonstrate the lack of profitability in Navy work. I urge you not to accept these kinds of profit figures at face value. Companies with long-term contracts have great flexibility in how they can account for costs and profits for financial reporting purposes. As a result, the figures are susceptible to manipulation and are dependent on management judgments which can dramatically change reported profits. Let me give you several examples.

One shipbuilder's profit figures were reduced by $4.2 million a year simply because the parent corporation decided to retroactively increase the shipyard's allocation of corporate home office expenses by a factor of 20. Another defense contractor has four different methods of recording profits and revenues. The actual and desired profitability of a particular contract determines which method is used.

These examples are in addition to the shipbuilding industry's use of the percentage of completion method of accounting. This method of accounting is based on the shipbuilder's estimate of total final revenues at contract completion and his estimate of the percentage of progress made in performing the contract. The shipbuilder's estimate of final revenue may include an amount for recovery on claims, whether submitted to the Navy or not, and regardless of their merit. Under this method of accounting, a shipbuilder may report almost any profit or loss he desires simply by changing estimates of final revenues or progress.

The abuses of financial reporting will not be cured by the Cost Accounting Standards Board as it only deals with the assignment of costs to individual contracts. The accuracy of financial reports is the domain of the public accounting firms which audit corporate financial reports, and the Securities and Exchange Commission whose role it is to protect the public from securities frauds. But the public accounting firm is susceptible to the financial pressures of the large corporations which can threaten to hire a new accounting firm if auditors do not go along with management's desires. Therefore, the Securities and Exchange Commission will have to take a more active role in insuring the accuracy of corporate financial reporting.

You can see the problem we are up against. We have a situation where some shipbuilders, quoting their own financial figures, are blaming the Navy for their low profitability. In the next breath, these shipbuilders then plead to have their contracts converted from fixedprice type contracts to cost-plus contracts.

Now the question I would ask you Mr. Flynt is this. If I were the agent of a company you owned, would you want me to enforce the provisions of a fixed-price contract for supplies your company needed or just go ahead and give the supplier all the money he asks for? What would you want me to do, sir?

Mr. FLYNT. I think you have answered that.

Admiral RICKOVER. Yes, sir. We often do not know whether a shipbuilder really is losing money, or whether the losses he shows are accounting sleights of hand. Therefore, we have to be especially careful in our treatment of contractor requests for relief.

SHIPBUILDING CLAIMS

Mr. FLYNT. The committee has been informed that the Navy's shipbuilding claims backlog has been rather drastically reduced from $1.3 billion to approximately $300 million. Does this mean that the claims problem has either been alleviated or resolved in the Navy shipbuilding contracts?

Admiral RICKOVER. No, sir. The Navy has only made the claims problem appear to go away through wordsmithing. Senior officials in the Navy are now calling claims "Requests for Equitable Adjustment." In this way, the claims backlog is reduced.

Several claims in excess of $100 million have been submitted to the Navy in the past year under the guise of request for equitable adjustment. If the dollar value of these requests for equitable adjustment are added to claims-in-house and appeals before the Armed Services Board of Contract Appeals, the Navy's total claim backlog is actually about $1.5 billion.

Mr. FLYNT. So it is a question of semantics.

Admiral RICKOVER. That is correct, sir. The words are changed but the basic problem has not gone away. It is like making something smell better by using a different perfume. I have taken exception to this whole approach, and have written to my superiors that simply calling a claim by the name "request for equitable adjustment" does not get rid of the claim. Moreover, trying to hide the basic problem could result in the Navy treating claims in a more casual manner than has been done in the past.