A bureaucrat to be crushed: the story of Gordon Rule

The [Litton] company, the letter said, was “neither willing nor able” to put up more money toward delivery of the destroyers. Therefore, it was “incumbent on the Department of the Navy” to come up with the needed cash or the shipyard would simply “stop work.” When the company officials had been asked to leave the room, the admiral in charge of shipbuilding told Warner the contractor’s demand for an extra $10‐million on the spot and $4‐million soon afterward was reasonable and ought to be paid. There seemed to be general agreement. But then a ruddy, expensively but conservatively dressed civilian interrupted. “Admiral,” he said, “over my dead body will you reform that contract and give them $10‐million. This is the goddamnedest thing I ever heard of, a contractor coming in and throwing a piece of paper on the table and saying that to the Navy.”

That bureaucrat was Gordon W. Rule, profiled in the NY Times in 1973 (more here). It highlights how two things have dramatically changed. First, we don’t seem to have hard-headed bureaucrats these days willing to risk their careers to do acquisition according to their conscience, such as Gordon Rule, Ernest Fitzgerald, or Admiral Rickover. Unfortunately, each of these men also had severe flaws. And second, that journalism actually got into the nitty-gritty in those days. You do not see publishers willing to deep dive into critical issues driving policy because of their low regard for their readership.

Gordon Rule really was a remarkable guy. A couple years ago, I found some of his insightful Congressional testimony related to should cost studies, which he in fact pioneered on the F-14’s engine program at Pratt & Whitney, resulting in a $100 million decrease on contract price. But it wasn’t until I saw this NY Times article that I discovered the controversy that he got wrapped up into. 

In a bureaucracy not noted for outspoken civil servants, he has not only survived but thrived for 10 years. During that time he has rejected contract claims worth tens of millions of dollars to huge corporations with enormous political influence. And he has spoken up, at times with astonishing irreverence, to a brigade of admirals and to civilian big shots ranging from the Secretary of Defense to the chairman of the House Armed Services Committee. His office has been the source of a stream of caustic memoranda, letters and telegrams, many of them both unsolicited and unappreciated.

How has he gotten away with it? “You’ve got to be right,” he explains. “If you’re wrong and you try something like that, goddamn, they’ll clobber you. But if you’re right and so right that it’s a little obvious, I find that people respect the hell out of you although they may hate your guts. And believe me, I’ve got respect in the Department of Defense.”

… today [Jan 1973] Gordon Rule is in deep trouble with the Navy. He was ordered off his regular job and sent to a training school miles from the Pentagon to update the curriculum. It has taken several months, and now that it is done, more such assignments may be in store. His sudden demise was the result of his testimony before a Congressional subcommittee headed by Senator William Proxmire, the Wisconsin Democrat, last Dec. 19. Proxmire was inquiring into waste in military spending and was especially interested in the Navy’s difficulties with two of its biggest contractors, Litton Industries Inc. and Grumman Aerospace Corp. Litton, the Navy’s largest contractor, was seeking an extra $390‐million in connection with a contract to build five helicopter assault vessels. Grumman, which had won the contract to build the Navy’s F‐14 fighter jet with a bid widely considered unrealistically low, was balking at fulfilling it because it wanted more money. Both Secretary of the Navy John Warner and Adm. Isaac Kidd Jr., the new Chief of the Naval Matériel Command, had refused to testify, citing the “delicacy” of ongoing negotiations with both contractors as their reason. As he had often done in the past, Rule accepted. In answer to pointed questions from Proxmire, Rule was sharply critical of both Grumman and Litton. But his most biting comment came when Proxmire sought his opinion of President Nixon’s appointment of Litton’s president, Roy L. Ash, to head the increasingly powerful Office of Management and budget.

“Well,” said Rule, “I think first, that old General Eisenhower must be twitching in his grave. He was the one who first called attention to the so‐called military‐industrial complex, and I frankly think we have added a new dimension…. I think it is almost a military‐industrial‐executive department complex. I think it is a mistake for the President to nominate Mr. Ash, whom I have never met. I think it is a worse mistake for him to accept the job.”

By the next morning, Admiral Kidd was at the door of Rule’s suburban Washington apartment near the Pentagon, where Rule was sick in bed with laryngitis. Shown to his bedside, the hefty, gruff Admiral handed Rule a letter of retirement that needed only his signature. Kidd said he wanted it signed by the end of the day. He gave no reason except “the good of the Navy.” Feeling under‐the weather and overwhelmed, Rule at first agreed. But gradually his defiance began to return. The visit ended with Rule refusing to retire. Having failed to force him out of the Navy altogether, Kidd two days later simply dispatched him to the training school…

The result was a spectacular confrontation on Jan. 10 with Rule and Kidd seated side‐by‐side at the witness table before the irate Proxmire. The Senator began by denouncing the Navy’s action against Rule as “the harassment of an able, dedicated and courageous public servant….” 

How, demanded Proxmire, had Rule’s remarks hurt the negotiations? “That would be a bit difficult to measure and quantify,” replied Kidd. “In other words,” said the Senator, “the Navy considered any discussion of Litton or Grumman taboo.” “That is what I told him, Mr. Proxmire, yes sir,” answered Kidd…

At another point, Rule said of Kidd, “This man has been in procurement 12 months, 13 months. All of a sudden he is an instant expert.” What, Proxmire asked, was Kidd’s response to that? “He is right,” said Kidd, “he is right. I have no corner on the market on brains.”

Gordon Rule was a highly competent man, and the Navy was only able to have him on staff because of the scale and importance of the work, which gave Rule satisfaction. This is an incredible advantage the DOD has — it is meaningful and at the cutting edge of technology — but the advantage is squandered because of an overflow of rules and regulations.

There seem to be two reasons for Rule’s continuing the fight. One is that he enjoys the controversy with its attendant publicity and excitement. The other is that he likes his work. “You can practice law,” he says. “You can have clients. You can make money. But you never get a feeling in your heart of having contributed a goddamned thing. In this job, boy, you really get that feeling. And what’s so damned interesting is that there are new questions every day in making these contracts and administering them and spending the taxpayer’s money. These are fascinating questions. I love it.” If he loved it, he was asked by a reporter, why did he risk his job with such bold comments about sensitive matters? “I got a kick out of talking about Grumman and Litton,” he said, “because I really felt that those things had to be said. Those two companies had the Navy over such a barrel, sitting there negotiating with that guy who’s so inexperienced.”

A good view on cost growth and the “buy-in” problem:

But even in so‐called sole‐source procurement, where the Pentagon simply chooses the contractor it deems best suited to the job, Rule says there is also pressure for artificially depressed bids. It is caused by the desire of the military itself to keep the estimate low so that the program will be more palatable to Congress. Once the project is under way and millions have been spent, it is easier to get additional funds to keep it going.

So that implies a bunch of competition to get favored programs funded, otherwise why the buy-in from the government side?

Gordon Rule on the contracting process, which I might be conflicted with:

One of his tasks was to reform the use of so‐called letter contracts, whereby the Navy simply gave a contractor a set of specifications and written orders to start work, with the full terms to be worked out later. Rule had soon annoyed one admiral with a blunt letter directing him to come to terms on a particular letter contract or see the contract disapproved. The admiral complained to the Chief of Naval Matériel and Rule received the first in a series of warning letters he got during his first year on the job…

It took several years, but Rule succeeded in devising a new way of handling letter contracts that greatly improved the Government’s bargaining position. In the past, when the Government could not reach agreement with a company on the terms of a letter contract, it had no option except terminating it and starting over again with another company, a process that was both costly and timeconsuming. Under Rule’s new procurement regulation, the Government could extend the deadline for coming to terms, and, if there was still no agreement, a Government contracting officer could fix the price. The contracting officer’s decision could be appealed to higher authority, but the burden of proof was on the company.

The new system grew out of an effort in 1967 to hold down the burgeoning costs of the celebrated F‐111 fighter jet, an ill‐fated Navy‐Air Force project. At the direction of Secretary of Defense Robert McNamara, Rule led a year‐long, on‐site investigation of the efficiency of the Pratt & Whitney aircraft plant, where the engines for the plane were being built on a letter contract. Rule’s team concluded that the plant was operating well below its potential efficiency and used the data to project what the engines should cost.

This “should‐cost” approach to pricing quickly became highly controversial. There were many, both inside and outside the Pentagon, who objected to it as a meddlesome attempt to tell a contractor how to run his business. Rule responded to such criticism in a tart letter to the head of Pratt & Whitney. “If,” he wrote, “a contractor wishes to conduct a patently inefficient operation with excess indirect employees, poor estimating, labor that consistently fails to meet standards, lack of proper competitive subcontracting, abnormal spoilage and rework, etc., that is his business. It is the Government’s responsibility, however, not to pay taxpayer’s money for demonstrable inefficiencies …”

The letter outraged the contractor, but Secretary McNamara passed word to Rule that it was the best letter on procurement he had ever read. The controversy produced a deadlock over the price of the engines, but Rule had earlier persuaded the company to allow him to make a contracting‐officer’s decision setting a price if such an impasse were reached. Pratt & Whitney objected to Rule’s price as too low, so Rule got together with Joel Barlow, a Covington & Burling partner and the company’s lawyer, and settled the dispute in a matter of days. The engines ended up costing about $100‐million less than the contractor had predicted.

The demise of Gordon Rule may have only been due in part to his willingness to “stand up” to contractors and admirals. The other reason might be an overestimation of his ability to understand production (he’s a lawyer by trade) or simply bad administration of contracts.

Rule’s exacting approach to contractor claims had helped create a backlog of unresolved disputes which were causing friction between the Navy and its major suppliers, especially Litton and Grumman. When Adm. Isaac C. Kidd left his command of the Sixth Fleet in the Mediterranean to become Chief of the Naval Matériel Command in 1971, the pending claims totaled about $1‐billion. 

Rule was reinstated shortly thereafter, and worked in that role until his retirement in 1977. We need more men like Gordon Rule, competent and senior leaders willing to upset the status quo.