Mr. HARDY. Well, we are talking about the one relating to Bomarc here. I am talking about the one against which this advertising would apply, if it does apply.

Colonel BLATTEAU. Sir, it is my understanding that it is a cost-plusincentive-fee contract.

Mr. HARDY. Well, I had not understood previously that under that type of contract the overhead figure that was negotiated was reduced down below the amount which was negotiated if it was subsequently audited.

Now, I would like to make certain that that is an actual situation. Colonel BLATTEAU. Sir, that is the actual situation. When that contract is completed and finally repriced, it is on the basis of the cost incurred by the contractor, that is, costs that are allowable in accordance with the ASPR rules about allowability of costs.

Mr. HARDY. So that if a manufacturer, then, gets under his overhead cost, his incentive-he earns a little bit because of his incentive?

Colonel BLATTEAU. His fee on that type of contract would be increased if he is under his allowable cost.

Mr. HARDY. So, then, to the extent that he originally overestimated his advertising because he included a few little items like this accidentally he would profit even if they are disallowed?

Colonel BLATTEAU. Sir, the advertising would not be included in the estimate originally.

Mr. HARDY. Well, it wouldn't-I am not suggesting that it would show.

Mr. COURTNEY. Well, may I suggest, too, that the key word in your answer is "originally."

Now, it depends on whether or not this incentive target price was established at the time the advertising expenses were incurred.

Colonel BLATTEAU. Sir, at the time we negotiate a contract of a magnitude of this type we don't sit down and negotiate individual elements such as advertising.

Mr. COURTNEY. You allow a percentage rate.

Mr. HARDY. That is just exactly the point.

Mr. COURTNEY. Isn't that right?

Colonel BLATTEAU. There is an estimated percentage of overhead. Mr. COURTNEY. Percentage rate.

Mr. HARDY. That is right.

Mr. COURTNEY. Which includes all overhead.

Mr. HARDY. That is exactly the point. This advertising figure does not enter into the original negotiation, so it is a figure that has been assembled and somebody uses some sort of a yardstick and says: "All right, we will include a certain percentage here for overhead." Then if he is able to reduce that, then to that extent his incentive fee goes up.

Colonel BLATTEAU. But in estimating that overhead we take into consideration the previous experience of disallowances which would include advertising.

Mr. HARDY. Well, I don't know what that means, Colonel. We get all kinds of considerations that we give to all kinds of things. But sometimes they don't amount to much. And if in the ultimate it should develop that no part of the cost of this ad is paid by the U.S. Government, I shall be very much surprised.

Colonel BLATTEAU. Mr. Hardy, if you would, please. I have here the cost and pricing data that we got from Boeing on a recent B-52 negotiation. If you would like, I would like to put it on the table here to show you how much data we actually get.

Mr. HARDY. Well, I don't think-probably the chairman may not want to do it at this time.

I do not care to pursue it further at this time. I would be happy to see it at some other time. But actually the amount of data does not necessarily mean a great deal, Colonel.

Mr. HÉBERT. I think it should properly go in the record, Colonel, when you present the presentation of the general method conducted, the manner in which these conclusions are arrived at. I think we have devoted quite a bit of time to this now.

Mr. HARDY. Yes. I think it ought to be at some time.

Mr. HÉBERT. At some time, most definitely. The Secretary I think has aptly described it: By putting this ad in the paper, the stockholders got less. He could have added at some future date as a result of the ad they will get more. [Laughter.]

Mr. GAVIN. And also that it was ill timed, Mr. Chairman.

Mr. HÉBERT. Yes.

Mr. GAVIN. Mr. Chairman, the important thing is it was ill timed.
Mr. HÉBERT. Well, that is not the Secretary's responsibility.
Mr. PRICE. It was well timed.

Mr. GAVIN. Here is another page ad. It is by a regular advertiser. I don't mind that. "Fly American's jets. American Airlines." But there is nothing in there about missiles. They paid. That is real advertising.

Mr. HARDY. We might be subsidizing that, though.

Mr. GAVIN. I don't know. Let's take one at a time.

Mr. HÉBERT. Members of the committee, let us get along. I think everybody has made up their mind. We won't change any votes at this time on it.

Now, General Davis, will you continue at this time.

General DAVIS. Thank you, Mr. Chairman.

The committee will recall at adjournment I had just completed my prepared statement for the record, and had advised the chairman that I had some charts here and would be prepared to elaborate on that summary report to whatever degree the committee desired.

Before starting that, I would like to reiterate and emphasize one thing, that was contained in General Anderson's statement and was also discussed briefly yesterday, and that is the question of what is the meaning of the term "weapon system concept" and/or "weapon system management."

You will recall his statement that this terminology did not refer to a method of procurement.

Mr. HÉBERT. That is correct.

General DAVIS. I wanted to start out on that note, so that when I talk about weapon system concept and weapon system management I am talking about an Air Force system of management and not a method of procurement.

Mr. HÉBERT. You are talking about a method of production of the end item and use of the end item?

General DAVIS. Our programing, controlling of a weapon system throughout the Air Force and industry, wherever it may be.

Don't be alarmed at the number of the charts. I won't show all of them.

Mr. GAVIN. Not unless you have music. [Laughter.]

General DAVIS. Here is a very brief and official definition of the weapon system concept.

It is a management concept which provides for planning, scheduling, and controlling, from design through its life, is an operating entity, the complete weapon system-the air vehicle, its components, supporting equipment and preparation for its use in management concept.

WEAPON

SYSTEM CONCEPT

A Management concept
which provides for planning,
scheduling and controlling from
design through its life, as an
operating entity, the complete
weapon system; the air vehicle,
its components, supporting
equipment, and the preparation
for its use

Now, I would like to explain why we have to use this system of management in the Air Force. This chart is an attempt to depict the major functional elements that get involved in the live cycle of a weapon system.

The first bar or barrier that has to be broken through, so to speak, is in the research and development area. That responsibility, of course, is charged to the Air Research and Development Command. The next three phases are procurement and production, supply, and maintenance. All three of those functional responsibilities are those of the Air Materiel Command.

The next one, training, as you can recognize, is a very important part of a weapon system life cycle, is the responsibility of the Air Training Command. And, of course, there is always an operational command, such as SAC, Air Defense Command, MATS, or whatever.

Now, since all these people have a contribution to make or are affected by this weapon system program, somebody has to tie their activities together. Somebody has to head up the team. We have this weapon system project office, that General Anderson has already mentioned, out at Wright-Patterson, jointly staffed by AMC and ARDC personnel.

Now, their job as depicted by this chart is to properly time phase and coordinate the activities of these major commands. A lot of people involved and a lot of activity going on.

I have shown around this circle some of the major elements of a weapon system, that one or more of these functional agencies gets involved with. They are the airframe, the propulsion, fire control, armament, airborne electronics, ground support equipment, test equipment, facilities, skills and techniques, and many more things that I couldn't show on the chart, that have to be taken care of by this team captain at the weapon system project office.

Now, here are some more of the functional activities that take place in brief form, to give a little further amplification of this weapon system project officer responsibility.