Mr. SVERDRUP. Construction had been started. It had not been built.

Senator O'MAHONEY. What was there for you to manage?

TRAINING PROGRAM

Mr. SVERDRUP. Well, it was recognized, Senator, that you cannot wait until something like this is in being and then say, "Here is an organization to operate it." You do not get people of this caliber just overnight to do that. We transferred some people from Sverdrup & Parcel into ARO, we hired others. We set up a training program all over the United States, sent some of them to NACA, some to Navy, some to Air Force, some to private industry, some to universities, training them on the specific things we would be doing.

Senator O'MAHONEY. What you were doing under this contract was assembling the expert staff that would be capable of managing these new facilities which had never before existed or the like of which never before existed.

Mr. SVERDRUP. That is correct, and one more thing: the chief of each one of these three facilities became chairman of the board of review that reviewed these plans for functional adequacy and advised the commanding general as to whether they thought it would operate properly, whether changes should be made. Those panels were organized immediately and have been functioning ever since.

ADVISORY FUNCTION OF COMPANY

Senator THYE. In other words, they were supervising the construction as the construction proceeded?

Mr. SVERDRUP. I would not say they were supervising the construction at all. For instance, let us take the concrete example. In the engine test facility we had a very tough problem insofar as exploration was concerned because you are actually running the engines in the tunnels and you are getting a very explosive mixture when that goes out to the plenim chamber. We got into terrific discussions as to whether that was actually safe or not. The panel of ARO went into that very very thoroughly and decided that the Maxim silencer and other things we used were not safe, and we ought to make some changes in there in order not to have the thing blown up.

Senator THYE. That is what I have in mind when I said you were supervising construction, because as construction proceeded if there were errors made and it would not operate, once it was constructed, you would have to go in and do a tremendous amount of engineering to redesign to meet the requirement. I am just trying to follow you, if that is correct or not, because you were pioneering, you were entirely in a new field; as you pioneered you would have to supervise every step in order to make certain there were no errors in the first calculation that had been made in the design. I know as far as I am concerned, that is all that was in my mind, to make certain there was no feather nesting.

That is why I have had some questions here that might seem as if they did not relate to the question that we have before us.

Mr. SVERDRUP. I do not like the words "supervise construction," Senator, because that is done by the Corps of Engineers. Actually, what we do is give advice to the commanding general.

Senator THYE. I am not thinking about walls and foundations. I am thinking about very, very highly technical and scientific equipment that is going to rest within the construction of what the Engineers are putting up.

Mr. SVERDRUP. That is correct. ARO, as such, does not go into the matter of foundation walls, foundation pressures or anything like that.

Senator O'MAHONEY. Let us make it clear on the record that ARO is not constructing the plant at all.

Mr. SVERDRUP. They certainly are not.

Senator O'MAHONEY. You are only a management concern.
Mr. SVERDRUP. Correct.

Senator O'MAHONEY. And the first contract that ARO had was the contract under which you built your management organization, that is to say, recruiting the personnel which in your judgment would be capable of managing this facility after it had been completed. Mr. SVERDRUP. That is correct, sir.

Senator MCCLELLAN. On this word "supervising construction," what they are actually doing is supervising the design?

Mr. SVERDRUP. No, they are not supervising the design. They are giving advice to the commanding general or the commanding officer saying, "Now, we don't think this will function correctly."

Senator MCCLELLAN. That is supervising designing. Maybe I am using the wrong word. It is certainly a supervisory function of some kind. Now what do they supervise?

Mr. SVERDRUP. On functional adequacy. They are there to review and to tell the commanding general whether in their opinion this will reach, say, 10 times the speed of sound or 9 times the speed of sound.

Senator O'MA HONEY. I want to make it perfectly clear that when we talk about any activity with respect to the Corps of Engineers we are talking about the contract of S. and P. with the Army engineers and not about the management contract with ARO.

Mr. SVERDRUP. That is correct.

FIXED FEE UNDER ARO, INC. CONTRACT

Senator O'MAHONEY. I had gotten beyond, I thought, this contract with the engineers and was trying to pursue the relationship between the Air Force and ARO and the responsibilities which ARO has undertaken under these management contracts of which I understand there were two, the original and an extension of it.

Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. Now, is there a fixed fee there?
Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. What is that fixed fee?

Mr. SVERDRUP. On the first contract the fixed fee was $23,000. It is all in my statement here.

Senator O'MAHONEY. Well, we will pursue it this way, if you do not mind, so we will get it behind us.

Mr. SVERDRUP. $23,474.50.

Senator O'MAHONEY. Now, that was the total compensation above cost that ARO received?

Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. That was the only source of profit for the stockholders of ARO?

Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. Now, what was the fixed fee in the new contract?

Mr. SVERDRUP. The fixed fee in the new contract is $95,000.
Senator O'MAHONEY. Has that been paid yet?

Mr. SVERDRUP. Part of it as we go along.

Senator O'MAHONEY. Is that also the sole profit to be obtained by ARO?

Mr. SVERDRUP. That is, sir.

Senator O'MAHONEY. No other profit, no other source for the stockholders of ARO to derive any profit from the Government? Mr. SVERDRUP. None whatsoever.

Senator O'MAHONEY. All right. Now, then, S. and P. being stockholders of ARO, the controlling stockholders, therefore must obtain whatever they do obtain from this fixed fee, is that right?

Mr. SVERDRUP. That is correct.

Senator O'MAHONEY. Unless by the transfer of personnel from S. and P. to ARO some gain is made that way. Now what do you have to say about that?

Mr. SVERDRUP. I would say that is far from a gain. I cannot think of any engineer corporation today in any engineering business that is anxious to transfer employees. S. &. P. today, Senator, are having ads put in papers all over the country advertising for engineers and still we are transferring them to ARO because that is a contract we have agreed to.

Senator O'MAHONEY. You have other jobs to do?

Mr. SVERDRUP. We certainly do.

Senator O'MAHONEY. And other places where you could put these engineers to work which you transferred to ARO?

Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. Do you regard this as a profitable contract for ARO and its stockholders?

NO PROFIT OR SALARY RECEIVED

Mr. SVERDRUP. I would put it that way, Senator, I do not look upon it as a profitable contract or what I could make the most of if we used the engineers in our own business.

Senator O'MAHONEY. Now, may I ask you whether you receive any personal salary from ARO?

Mr. SVERDRUP. I do not.

Senator O'MAHONEY. Have you received any profit from ARO? Mr. SVERDRUP. No, sir.

Senator O'MAHONEY. You have received some expenses from ARO?

EXPENSE ACCOUNT

Mr. SVERDRUP. Yes, sir. I have put in one or two expense accounts.

Senator O'MAHONEY. You testified with respect to that this morning.

Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. What was the amount? Mr. SVERDRUP. $89.72 is the total amount I have charged the Government for any expense I have had in ARO.

Senator O'MAHONEY. From the beginning to the end, this moment? Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. Under the first contract and the second contract?

Mr. SVERDRUP. Yes, sir.

Senator O'MAHONEY. Has your partner received any?

SALARY OF ARO VICE PRESIDENT

Mr. SVERDRUP. No, sir.

Parcel has none whatsoever. Mr. Grant, who is one of the officers, what he has received I do not know, but it certainly is not very much. He is the executive vice president of the company, for which he gets $5,000 a year from ARO, also the treasurer of the company.

Senator O'MAHONEY. Then so far as ARO is concerned, we are to understand from your testimony that the only obligation of the Federal Government under this appropriation is to pay this fixed fee, the $23,000 plus, which has already been paid for the first contract and the $95,000 which has not yet been paid under the second contract. Mr. SVERDRUP. That is correct.

AUDIT OF ACCOUNTS

Senator O'MAHONEY. Now, let me ask you directly and specifically, is there any cover-up or evasion anywhere along the line whereby, to use Senator Thye's words "any feather nesting" could take place? Mr. SVERDRUP. There certainly is not. There never has been and there never will be. Furthermore, all the way through accounts have been audited not only by the Air Force auditors but by the General Accounting Office auditors. If, as has been stated, we have a pipeline into the Treasury, we are the last ones to know about it, and it certainly has not been used.

Senator O'MAHONEY. Has General Accounting Office examined the ARO Co.'s contracts?

Mr. SVERDRUP. Yes, sir. They have as far as I know not made any report on it.

Senator THYE. Mr. Chairman, are there any of the General Accounting Office staff here?

Senator O'MAHONEY. NO. I did not call any.

Senator MCCLELLAN. Let me ask one question. You have not concluded your testimony, but up to now you say this is not a profitable Do you mean by that that there is some other incentive for you to undertake this project?

contract.

Mr. SVERDRUP. Yes, sir, there is.

Senator MCCLELLAN. Other than profit?

Mr. SVERDRUP. Yes, sir, there is.

Senator MCCLELLAN. What is that incentive?

Mr. SVERDRUP. I think that it is essential that this job be done. If we do not have this center, I think we are going to fall far behind in the race.

Senator MCCLELLAN. Let me ask you then: Is it your position that instead of seeking and exacting the maximum amount of profit from this enterprise, that you feel that you and your associates in the enterprise are actually making a sacrificial contribution to this great scientific effort, if that is the correct term for it?

PROFIT RETURN FROM PRIVATE AND GOVERNMENT BUSINESS COMPARED

Mr. SVERDRUP. Senator, for the first 18 months, while the fee of Aro was $23,000-there are as you all know, nonreimbursables in Government, interest and advertising, and so forth, is not allowedAro showed a net of $16,036.91. That was actually the net fee received before taxes. Now, if that is very profitable after 18 months, then I do not know

Senator MCCLELLAN. What I am trying to determine-just say so if it is true is that you have additional incentive to serve your country and your company is trying to do that and that is the primary reason and not just to get profit. If that is true, say so.

Mr. SVERDRUP. If we did not feel that way, we would not have the contract now, Senator. If it is just merely a question of making money, we could do far better.

Senator MCCLELLAN. Could you take the same personnel that you have assigned to this contract and put forth the same energy in other fields of private enterprise of similar character and actually make more profit for the company than you are making out of it?

Mr. SVERDRUP. We certainly can and I think the best illustration I can give, Senator, is this: Last year this AEDC work we did, so far as Sverdrup & Parcel are concerned, constituted 40 percent of our work and 15 percent of our profit. We made far more money on our other work than we did on this. We think it is a job we have undertaken and we must complete it because we believe equally with the Air Force that this is essential.

Senator MCCLELLAN. There is another element of profit aside from dollars and cents involved in it. We profit by experience. Mr. SVERDRUP. Yes, sir; that is true.

Senator MCCLELLAN. Your organization profits by the experience. Mr. SVERDRUP. That is true.

Senator THYE. You also recognize that unless this scientific research equipment is installed and you do this research or permit the Air Force to do this research scientifically, you are going to have to use the actual equipment which involves not only millions but billions as well as the life of the man that has to do the work in actual operation of the plane, without having the test with this so-called laboratory equipment that you are making possible.

Mr. SVERDRUP. That is possible.

Senator THYE. Those who pioneered that way in the air service had to hunt their way through, and General Doolittle is one of them, and this makes it possible for them to do it scientifically without endangering the life of man to do the test work with the physical equipment in the air.

Mr. SVERDRUP. That is correct.

Senator THYE. That is what you are endeavoring, and the quicker we get this through and can completely construct it, the less we are going to endanger our pilots to do the test work with the actual ma