TRW has told the American Red Cross that its employees will not be allowed to participate in blood donation drives at work because the company does not want to bill the labor charges for the time involved to the Pentagon, it was learned Friday.
The move is the most extreme case of the nit-picking that is occurring throughout the defense industry as it attempts to respond to increasing Pentagon pressure to cut costs and respond to critical federal audit reports, defense experts said.
Meanwhile, American Red Cross officials in Los Angeles said they are extremely worried about TRW's decision because of the potential for other aerospace companies to follow the company's example. At least one-sixth of the county's supply of donated blood is collected at drives held at aerospace facilities.
"It is a great concern," said Janeen Biehl, the head of donor services at the American Red Cross in Los Angeles. "TRW employees (in Redondo Beach) donate 640 units of blood four times each year. At this moment in time, we don't have any place else to get that much blood."
A TRW spokeswoman at the company's Space Park facility in Redondo Beach acknowledged Friday that recent blood drives have been canceled but she said TRW hopes to resume them. Nonetheless, some employees are up in arms over the abandonment of the drives.
"This is absurd and unconscionable," said one TRW employee who said she regularly gives blood. "If TRW cuts this off, they will be costing people's lives in Los Angeles.
"I give blood in memory of a friend who died of cancer," she added.
The pressures that have led to the current cost cutting environment in the defense industry have been building for years. A number of aerospace contractors have been caught bilking the government. TRW pleaded guilty only last month to felony charges of overcharging the Pentagon by $17 million. Some other firms have improperly charged the Pentagon for such items as kennel fees for a dog and executives' country club dues.
The cumulative effect of such defense horror stories seems to have resulted in a massive overreaction, with thousands of auditors swarming like ants over the industry, experts say.
"This is mind-boggling nit-picking," said Michael Beltramo, a defense procurement expert and former researcher for the Rand Corp. "This would be funny--but the underlying message isn't funny at all. It is about how to take a system and screw it up."
An Air Force spokeswoman acknowledged that defense industry overhead costs have become a sensitive issue.
"It might not be so much nit-picking as nervousness," she said. "They (defense contractors) may be concerned how the public will perceive any kind of overhead costs, even electricity and retirement costs."
Account for Each Minute
The TRW spokeswoman said overhead costs were one factor that led to the cancellation of the blood drive. She also cited a shortage of facilities. "Our commitment to do blood drives has not been lessened," she said.
At many defense firms, employees must keep track of each minute of their work day, filling out elaborate time cards that are used to bill certain portions of their time to certain contracts or accounts. The time taken by such activities as donating blood is put into various overhead accounts, which ultimately are paid by the government.
TRW's action is unusual because Pentagon regulations explicitly permit defense contractors to bill the government for the cost of blood donation drives, according to James F. Southerland, who runs the Torrance consulting firm of Contracts Advisory Services.
Southerland quoted Federal Acquisition Regulation 31.205-1(e)(3) as saying, "Allowable public relations costs include the following: Costs of participating in community service activities, e.g. blood bank drives, charity drives, savings bond drives, disaster assistance, etc."
Hurts in Competitive Bids
Nonetheless, TRW is known to be pushing hard to reduce its overhead costs. In August, 1986, the company signed an agreement with Maj. Gen. Bernard L. Weiss, commander of the Air Force contract management division, to voluntarily reduce overhead costs by $100 million over the following three years.
A high overhead rate raises a company's overall costs and makes it relatively less competitive in bidding for new contracts. In the past, that was not so important because fewer contracts were awarded competitively than is now the case.
TRW is not alone in its efforts to cut overhead costs. Southerland said nit-picking by auditors has become a way of life in the defense industry.
"An auditor at General Dynamics called American Graduate University, where I teach a class on contract proposals," Southerland recalled. "General Dynamics had 50 students taking the class. We had a brochure that listed a registration fee of $459, which included tuition, course materials and refreshments. The auditor wanted to know how much of the $459 was for the refreshments, because that wasn't an allowable expense.
"How much could a cup of coffee and doughnut cost?" Southerland asked. "He was picking on something that is not a driver of costs in this industry."