them, but whatever is considered in the national interest should be provided, adhering to the business practices I have enumerated.

The CHAIRMAN. Does the U.S. Government currently recover all costs related to foreign military sales?

Mr. JONES. That is quite a question to ask. It would take a detailed investigation of all programs.

The CHAIRMAN. What is your impression?

Mr. JONES. In our case, because we have had fixed-price-type contracts on every one of our sales overseas, there has been no adverse feedback; it has always been positive. I think sometimes when you have a mixture, an undefined mixture, of obligations to deliver to the United States and to the foreign government, and they are not separated and defined distinctly, there is a possibility of concern that promises made to the foreign government could have a negative repercussion.

I am saying only, as a business person, it is especially important in foreign military sales that the responsibilities of the contractor to honor those foreign commitments without negative effect should be pinned down.

The CHAIRMAN. You cannot tell us whether currently the U.S. Government recovers all costs on foreign military sales or not? Mr. JONES. I cannot.

The CHAIRMAN. Can you suggest how we could develop that information accurately and fairly?

Mr. JONES. That, of course, would be in the area of the Comptroller of the Defense Department, where costs are accumulated. I say the mixing of obligations to the U.S. Government and to foreign governments within programs should be clarified. That is my main point. The contractor should be responsible for fulfilling his obligations to both parties: let him accept that. Let him also certify that he will not allow any effect of the foreign sales to have negative repercussions on the United States. This is how we had to certify when we had the F-5 plane in the same plant as the Boeing 747. If Boeing happens to be short, the costs don't go in that direction: the company has to make sure the costs of Boeing don't have negative repercussions on the United States.

The CHAIRMAN. What additional Government controls would you suggest over military sales?

Mr. JONES. I think one of the missing ingredients in a long list of new items outlining the safeguards that the President has come up with, correctly so, requiring that, before an offering is made, the contractor certify that he stands fully behind the contractual commitment made to that foreign country, and he aso certifies, with the approval of the Defense Department, that there will be no negative effect on schedule or costs or performance of items that might be ordered by our own Government. I think that should be a useful statement.

The CHAIRMAN. Do you think that some contractors may have expanded to the point where they might face serious problems if there were a sudden drop-off in foreign military sales?

Mr. JONES. NO; I could not comment on that, Mr. Chairman. I think when we know what the Government wants and we know it far enough in advance, we have an industry that can accommodate itself to the intent of the Congress and the people and the President. I don't know of

a contractor that is dangerously dependent on foreign military sales. The CHAIRMAN. You said something about your feeling that the Government should dispose of its defense plants. For instance, do you think the Government should put up the Marietta Lockheed plant for sale, sell it or tear it down and sell parts of it if it can't sell it all and that would be the test of its efficiency and whether or not it is worth maintaining?

Mr. JONES. I don't want to comment on any particular contractor. The CHAIRMAN. I don't want to get you into a discussion about Lockheed, of course. I am trying to think of an example. That is the first one that popped into my head. Maybe you can give me another one. Mr. JONES. The principle I tried to establish is that the investment— and wise investment-in plant and equipment is tremendously powerful in reducing cost. Only the manufacturer who is responsible for using the tools can really make that judgment. The workman has to be responsible for his tools. If he does not own it, there is no way he can keep it modern and keep it in tune with his particular workload. The CHAIRMAN. You say "keep it modern and keep it in tune with his particular work requirement"?

Mr. JONES. Right.

The CHAIRMAN. At the same time, his particular work requirement might be quite different from what is the national need for defending the country. At any rate, suppose the Government were to decide not to dispose of Government-owned plants. Would you favor periodic competition for the right to operate those facilities?

Mr. JONES. I think that would be a grave mistake.

The CHAIRMAN. Grave mistake to have competition as to who would operate the facilities?

Mr. JONES. I think that tooling and modern equipment, is so much a part of productivity which everyone is trying to get. Only by ownership can a producer really assure that he is buying the plant and equipment that will best do the job.

Now, if a contractor is currently occupying a plant and using it, clearly he should not have to bid on the open market; he should negotiate, like we did.

The CHAIRMAN. I say: Periodically you negotiate. You lease it for 5, 10, 15 years, whatever is appropriate, as limited a period as possible and practical, and then have an opportunity for others to bid for it.

I am looking for some pragmatic way we can solve the problem because I don't think the Government is likely to put all of these plants up for sale soon. Maybe it should. You make a strong case for it. That appeals to me very much. People always operate more efficiently when they use their own equipment.

You and I and everybody else who has a house know that if you own a house, you are a lot more concerned with how it operates, how to keep that house up and maintain it than you are if you are renting somebody else's house.

Mr. JONES. That is right. The Government did have practices-or I guess you could call it directives-that asked for divestiture of Government-owned equipment. This happened in plants when there was a lot of purchasing done. Our company now owns 97 percent of the plant and equipment we use. Other companies do own a large share.

We did buy from the Government after negotiating 10 or 15 years ago. I think it should be negotiated and maybe even at a discount. I am not proposing that you put an unfair burden on the contractor. But the fact that he owns it, I think, will insure that improvement of productive capacity takes place. It can take place only in the hands of the one who does the work.

The CHAIRMAN. You might be right. Even though it might represent a substantial book loss to the Government, the fact that it was being operated more efficiently might be in the national interest.

Mr. JONES. Precisely; that is what I am saying.

The CHAIRMAN. Would the industry have the financial capacity in most cases to absorb these plants?

Mr. JONES. If that plant can contribute to a better product at lower price, its financial posture will be improved by the ownership, not reduced. Capital managers tend to look at the effectiveness of management and their ability to get a return on investment. I think that money would be available because management would then make a decision as to how important a plant is. If it is not important to them, they will say, "All right, Government; we are not interested."

The CHAIRMAN. If you are going to do this you would have to do it over a period of years because there would obviously be many firms that just don't have the financial capability of being able to do this and others that do. Certainly it is a move in the right direction at least.

Now, you say that contractors should have the financial strength to meet firm commitments. You also say, though, that contractors have grown used to not meeting these commitments. Does the industry have the financial strength and management ability to meet the promises, in your view, generally?

Mr. JONES. Absolutely.

The CHAIRMAN. Why haven't they done it in some cases?

Mr. JONES. I don't think it has been demanded of them by the Government. The tendency is to procure small things very well but great things tend to get mixed up in other considerations. This is what I am really addressing.

The CHAIRMAN. I am not sure I understand this. We have had so many disappointments in failure to meet commitments in terms of time. Would you, then, say the Government ought to act like most private contractors act-"Now, look, buddy; we have you on the dotted line; you meet that commitment or we will go to court"?

Mr. JONES. That is right. The contractor won't sign until he has pinned the Government down-"Wait a minute you have not said what you want." When one side savs, "I mean business," the other side will then protect its interests and insure that the Government pins down what it wants.

Right now you have a situation where, in many cases, the bureaucracy or any institution does not like to commit because if you commit you lose control. On the other hand, the contractor says, "Well, I go along with that because an undefined commitment is usually one that cannot be enforced."

The CHAIRMAN. You want a firm, positive, clear, explicit commitment in advance and then you want the Government to get tough and show it means it and does not make exceptions so that the contractor

will feel: "Well, if worse comes to worse, I can always get off the hook; this guy will be a patsy when the chips are down"?

Mr. JONES. Right. Also it means that when the Government budgets for something, you stick to that budget. You can't constantly be juggling.

The CHAIRMAN. That requires a long-term appropriation by the Congress. Otherwise you are going to have your appropriations reduced.

Mr. JONES. It means tending in that direction. There can be options. In the case of the F-5E, we gave the Government options to buy for 5 years in the future. We were pinned down. The Government then stated, "If we buy more of your airplanes, this is what it will cost.” In that way, if there were a budgetary reduction, you had already accounted for that in the contractual arrangement.

The CHAIRMAN. What stops the Government from getting tough with the contractors? Is it the fact that they have their old friends from the Pentagon on their payrolls and they have that kind of easy relationship, they know each other, they like each other, and maybe the Government people who are negotiating look forward to going to work with the company? What makes for this permissive and soft attitude? Or is it the fact that Congress changes its mind all the time? What are the elements?

Mr. JONES. I don't think it is the former you stated. I think the real problem comes from-if you want to call it that-the boom-or-bust environment of defense through this Nation's history where they say, "Look, fellows; we don't need you any more. Close your doors." Then they say, "We need everything you have; forget the cost."

There is a recognition that you can't ask the contractors to really be financially responsible and take these big risks in that kind of environment. That is the reason why these habits developed.

Now that we are asking for longer-term commitments from the Defense Department in their plans and the whole budget cycle in the Congress is asking for forward planning in more detail, you now have a basis for asking and demanding the same of the contractor.

What I am really saying is: You now have a basis for pinning the contractor down where you didn't have a basis previously.

The CHAIRMAN. So this is something that becomes practical to the extent that we have a long-term commitment to a stable demand for military production?

Mr. JONES. By "stable" I mean relatively stable.

The CHAIRMAN. Compared to what we have had in the past, it won't go up and down and fluctuate all over the place?

Mr. JONES. That is right.

The CHAIRMAN. We expect, because of the nature of the operation, technology will lead us in different directions, will stop some programs cold, and move into other programs. You want a long-term commitment so that when you do stop program, you don't have a contractor that, in effect, goes bankrupt because there is no way that it can operate if its suppliers are going to disappear all of a sudden?

If you had people all buying Chevrolets and suddenly for some weird reason they decided all they wanted were Chryslers, then General Motors would be in dire trouble.

What you are saying is that you want a long-term commitment with the understanding, however, that there will be shifts but the shifts should be gradual enough so that the contractor can accommodate, is that right?

Mr. JONES. They should be controlled by specific contract terms. For instance, if the Government wants to change a contract, it should sit down and negotiate that change before it implements it. When changes are made now by both parties and followed up later with negotiated cost effects, that is wrong.

I am saying: A firm contractual basis does not mean the United States loses control. It means it has more positive control.

The CHAIRMAN. One of the reasons why we have an efficient economic system is because, by and large, when individual private contractors deal with each other they deal on the basis of fixed price. Do you advocate fixed-price contracts for all major procurement?

Mr. JONES. For force structure procurement, Mr. Chairman. That means: When the Nation is counting on that number of units to defend this country, at that point information should be available, knowledge put in the hands of the user who knows what he wants and the contractor who knows what it takes to build it.

Up until force structure, you have a different environment. You are trying to gain knowledge. There you should permit creativity. Those should be level of effort contracts, but that is another form of control. Force structure commitments that should be binding-that is what I am saying.

The CHAIRMAN. How do you break a pattern of buying fewer planes at a higher price?:

Mr. JONES. I am sorry.

The CHAIRMAN. How do you break the pattern in which we have fewer and fewer planes bought at a much higher price? We have to buy fewer planes because the price of each plane is so high. When my brother was in the Army Air Corps, before the Air Force was created, back in the late thirties, they had planes that we thought were pretty dandy. They would go 300 miles an hour and were terrific. They cost only between $50,000 and $100,000. Today a fighter plane costs $15 million. The price seems to be going way out of line.

I understand that if we were to spend the same for the Air Force now that we spent in World War II we would literally buy less than 1 percent of the planes we bought then because the costs have just exploded. How do we cope with that?

Mr. JONES. That is exactly why you need budgetary integrity, so when those decisions are made you know precisely how many units you will buy of the stated required device. If the units are too few the Government will go back to the contractor and say: "Wait a minute. What we have asked for is too complex. It is too expensive.”

The CHAIRMAN. Too sophisticated?

Mr. JONES. Too sophisticated. The only way there can be a meaningful interchange of knowledge is when they know they are going to firmly commit. When that happens they will say: "Well, at $20 million each I can buy only 200. I would rather reduce my demand and buy 600 for the same amount of money." Without budgetary integrity you can't make those calculations until too late.