Mr. MUNVES. 1958 and 1959. Mr. RACUSIN. 36319, negotiations were completed on April 10, 1958. 38098, negotiations were completed March 27, 1959. Mr. HOLIFIELD. And payment had been made on the contract, and this is for a claim for a refund. Mr. RACUSIN. Well, in part there have been payments, Mr. Chairman, as performance went along, but there has not been that final settlement under the incentive arrangement that must be reached, of course, upon completion of performance. Mr. HOLIFIELD. And how long has that final payment been held up? Mr. RACUSIN. Well, we have ben stymied, of course, since June 1, 1964, when it was referred to the Department of Justice. So we have not reached a final settlement. It may very well be that Mr. HOLIFIELD. And we are approaching June of 1965. In other words, now for 1 year this has been held up. What was the sum of money involved in that? Mr. RACUSIN. You mean the face value? Mr. HOLIFIELD. That is being held up, final payment. Mr. RACUSIN. The amount that is involved here is—we agree that there was a target adjustment of about $11,284,000 of overstatement. GAO had contended that there was an overstatement of $23,034,500— in the target price now. Mr. HOLIFIELD. And the contractor had not agreed to either of those. figures. Mr. RACUSIN. Not to those figures. Certainly not, Mr. Chairman. Mr. HOLIFIELD. No. Mr. RACUSIN. We were in the process of negotiating a total downward adjustment of, at least at the time when negotiations stopped, $3,927,204 in the target costs. We are going to have to resume Mr. HOLIFIELD. How much of that 11 or the 25 million has been paid to the contractor? Mr. RACUSIN. I do not know, sir. I cannot tell at this point in time how much the contractor has been paid up to this point under either of those contracts, but we can furnish it for the record. (The following information was furnished for the record :) The contractor has been paid approximately $19,001,652 of the $23,034,500 overstatement alleged by the GAO. Final target cost negotiations were underway and the target costs had been reduced by $3,927,204 when the matter was referred to the Justice Department. Completion of negotiations has been deferred pending the outcome of the Justice Department review. REPORT ON BOEING CONTRACT Mr. ROBACK. In another Boeing case, B-146916, dated August 18, 1964, the GAO got into the miscellaneous and minor outside production items and they found that there were overstatements amounting to unnecessary costs of $542,000, approximately. Now, the Air Force in this case disagreed completely, but anyway you forwarded the case to Justice because the GAO recommended it. This is another one of those cases of automatic referral. In your report you tell us that the GAO found that Boeing did not give adequate consideration to all available pricing data. What does that mean to you? I should read the whole sentence here. This is your summary of the problems that GAO found: However, it is evident that in estimating target costs for miscellaneous and minor outside production items Boeing did not give adequate consideration to all available pricing data since it did not make appropriate adjustments to the historical data used as the basis for its estimates. What is adequate consideration in this case? This, by the way, is the statement of the Comptroller General in his letter to the Speaker of the House dated August 16, 1964. In transmitting the report he makes that statement, substantially, that Boeing did not give adequate consideration. Does that mean that they were misrepresenting, or they were careless or negligent? Mr. RACUSIN. It could, of course, be any one of the three, Mr. Roback. I am not in a position to say which one it was. Mr. MUNVES. We would have to look at our records to find that out. Mr. ROBACK. Well, when is adequate consideration given? Mr. RACUSIN. Well, for one important thing, they might ignore recent cost information that they might have been obtaining in the form of proposals from subcontractors. That is one situation that might describe it. Mr. ROBACK. Anyway you did not believe that, did you, the Air Force did not? You thought it was adequate; is that right, referring to your summary of that case? Mr. RACUSIN. That is right. Mr. ROBACK. You believe that the consideration was adequate. Mr. RACUSIN. The answer, Mr. Roback, in part, is that we concurred in it as pertains to certain costs which were duplicated in Boeing's proposal. REPORT ON KLYSTRON TUBE CONTRACTS Mr. ROBACK. In the case of Radio Engineering Laboratories, B146919, dated September 24, 1964, where the GAO found unnecessary costs of $65,000 for certain tubes, the Air Force tried to get an adjustment. The contractor was tough about it. He would not go along with it. So the case went to Justice because GAO recommended it. In the last statement in the summary you say: Basically the Air Force will pursue its administrative inquiry into the charges contained in the GAO report in order to verify their accuracy and completeness. The Air Force, however, is not to solicit, negotiate, or to settle any proposal but should merely report them to Justice. Is that an exhortation to yourselves, or what? Mr. MUNVES. An exhortation to ourselves. Mr. RACUSIN. It is a statement of what the policy is once we go to Justice, that is right, sir. REPORT ON H.R.B.-SINGER AMPLIFIER SUBCONTRACT Mr. ROBACK. In the Singer case-we discussed that somewhat with the Assistant Secretary of Defense. That is B-146954, dated December 28, 1964. Now, this was one where you had adamancy on the part of the contractor. Mr. RACUSIN. Yes, sir. Mr. ROBACK. And he is a real tough fellow. And the GAO recommended, among other things, that anybody in the Government, or at least in the Department, who deals with this contractor should know all about this and what his position has been on furnishing price data. And you say in your summary: Further, our personnel will be advised that should H.R.B.-Singer, Inc., decline to comply with appropriate directives*** the matter will be brought to the attention of the Air Staff prior to the entering into, or the approval of, any contract with H.R.B.-Singer, Inc." What is the is the significance, what is your understanding of these recommendations? Is it with regard to the possibilities of future procurement or is it with regard to care in examining the contractor's price data or estimates? Mr. RACUSIN. It is one really of the latter, Mr. Roback. It is primarily to make sure that our people are alerted to it. And citing this as an example of an adamant contractor who will not comply, we want to know about it and we are alerting ourselves to it. One of the purposes developed by GAO cases where there is an obvious deficiency in our procurement practices is to alert our people to these things so that they can learn by it. And we will take the report itself-after all, this is public information-and circularize it among our procurement people to learn from it. We have no intention to blacklist anybody or to debar anybody, by any means. RECOMMENDATIONS FOR DISCIPLINARY ACTION Mr. ROBACK. We are going to have to suspend. I would just like to ask you to comment on one more case. This is a draft report of the GAŎ and it has to do with the Mr. RACUSIN. Which one is that, Mr. Roback? Mr. ROBACK. The maintenance engineering on the C-130. That is Lockheed. In this case and I am not going to discuss the merits, I just want to get your observations on one point-they had some Air Force price analyst who looked over the data. To some extent there is a question of whether the company was providing sufficient data, and in part it may have been a question of the attitude or efficiency of the analyst. But the GAO had made a recommendation here—let's see GAO is recommending to the Secretary of the Air Force that their actions be considered in future personnel evaluations and management assignments. Now, do you have a policy and a practice with regard to either reprimands or otherwise identifying GAO recommended censures? Mr. CHARLES. Let me try to answer that. Mr. ROBACK. The Secretary ought to respond to that. Mr. CHARLES. I want to read, first, a quotation by the Secretary of Defense because it is pertinent to this particular problem. He said: We We In an enterprise as large and as complex as the Defense Department some of the actions taken will not turn out as planned and some outright mistakes will be made, no matter how the Department is organized and managed and no matter how careful the planning happens to be. What is involved here is an enterprise employing almost 4 million full-time military and civilian personnel. spend almost $3 million a year*** purchased from private economy. execute some 10 million contract actions. Ample opportunity for human error or poor judgment exists. And I might add that these deficiencies are much more easily recognized after the fact than before. This real limit on human infallibility can be frequently applied to the results. I can testify from my own experience that exists in industry as well as Government. Now, judgment is, of necessity, a major factor in the actions of people who are trying to project into the future. We have to look at each individual case, of course. If there is an individual who consistently makes poor judgments, we will put him in a different spot, or in an extreme case get rid of him. But another person who makes one single bad judgment after a whole series of good judgments, this is not the person we want to reprimand. We can tell him he made a poor judgment in a case. He probably knows it himself. Mr. HOLIFIELD. It certainly should not be held open to public cen sure. Mr. CHARLES. That is correct, absolutely. You destroy initiative, imagination, and you will not get the good judgment in the future that you are precisely trying to get. So we do not have a policy of public censure. Mr. HOLIFIELD. Well, I certainly agree with that. As an employee of labor and private industry, I never reprimanded an employee in public. I would call him into my office and explain to him where I thought he had erred, and if I felt that he needed to be admonished I would admonish him privately. Now, if he persisted in his mistakes, why that would be a different thing and it would be, as you say, grounds for relieving him of his duties. But certainly this type of thing is a poor way to maintain the morale of an organization were you depend on initiative and you depend upon freedom to exercise judgment and such expertise that an individual has accumulated over the years. Mr. CHARLES. I agree. Mr. HOLIFIELD. Mr. Secretary, and your associates, we appreciate your appearance here this morning. You have been very responsive and I think we have covered quite a few contracts. It gives us an overall understanding of some of these matters and we hope that it will be profitable to the Congress and to the agencies involved. Mr. CHARLES. Thank you, sir. We appreciate your courtesy. (Whereupon, at 12:30 p.m., the hearing in the above-entitled matter was adjourned, to reconvene at 10 a.m., Tuesday, June 1, 1965.) 48-132-65- -27 |