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STUDY OF AIR FORCE CONTRACT AF33(038)-18503, GENERAL MOTORS CORP., BUICK-OLDSMOBILE-PONTIAC ASSEMBLY DIVISION

FRIDAY, JULY 26, 1957

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS,
HOUSE ARMED SERVICES COMMITTEE,

Washington, D. C.
EXECUTIVE SESSION

The subcommittee met at 10 a. m. in executive session, Hon. F. Edward Hébert presiding with the following members of the subcommittee present: William E. Hess, Leon H. Gavin, L. Mendel Rivers, Paul Cunningham, William H. Bates, Porter Hardy, Jr., Frank C. Osmer, Jr., George P. Miller.

By unanimous consent the subcommittee authorized the chairman to communicate with the president of General Motors Corp. concerning the refusal of that corporation to allow representatives of the Comptroller General of the United States to have access to and examine books of the corporation relating to Government contracts and in particular contracts relating to the Cadillac division.

In pursuance of that authority and direction the following telegram was sent:

JULY 26, 1957. HARLOW H. CURTICE, President, General Motors Corp.,

Detroit, Mich.: Subcommittee for Special Investigations, House Armed Services Committee, authorized by House Resolution 67, 85th Congress, has been advised by Comptroller General of United States that your company has refused access and examination of your corporation's books and records relating to Government contracts currently being performed by divisions of General Motors Corp. Particular instance relates to Cadillac division. Subcommittee requests your appearance to hear your company's position and policy on this subject and matters related thereto. Advise by return wire your availability.

F. EDWARD HÉBERT, Chairman, Subcommittee for Special Investigations. The following answer was thereupon made by the president of General Motors Corp.:

JULY 26, 1957. Hon. F. EDWARD HÉBERT, Chairman, Subcommittee for Special Investigations, House Armed Services

Committee, Old House Office Building, Washington, D. 0.: My secretary has communicated to me the contents of your telegram of this date. I have also been advised of the fact with respect to the issue between the Comptroller General and our Cadillac division involving the availability of books and records relating to a Government contract currently being performed by that division. However, I had no knowledge of these facts prior to today, except possibly the receipt of the letter dated April 26, 1957, addressed to me by the Comptroller General. I have no present recollection of the receipt of that letter. In the normal course it would have been referred initially by a member of my office staff or myself to Cadillac division or the general counsel for reply or for further consideration by me or for subsequent consideration by me if that were deemed necessary.

I am told that this is a four-page letter dealing with a legal issue and interpretations of the statutes relating to the availability of records of Government contractors for this reason apparently the letter was referred to our general counsel. I did not see the followup letter of June 3, but I was told it was sent directly to the general counsel by a member of my office staff. I am now advised that yesterday the general counsel, who left on a business trip to the West Coast this morning prepared a reply to the April 26 letter which was mailed to the Comptroller General this morning. This letter I am informed after stating certain facts concludes with a statement “if, despite the foregoing you still feel that the performance of your duties requires you to conduct at this time an audit of partially completed contract DA-33-019-Ord-2017, we are agreeable that you come to the Cadillac Cleveland ordnance plant and conduct such audit of this contract as you may deem necessary.”

I have given instruction to have copy of that letter delivered to you by our Washington office tomorrow morning.

I know of no request made by or on behalf of the Comptroller General upon any other division of the corporation for access to and examination of their books and records relating to Government contracts currently being performed. If the Comptroller General desires such access or examination of any such records and so advises us the records will be made available.

The foregoing represents the only information that I can present on the matter and accordingly I feel I could not make any further contribution by appearing before your committee. However if you feel otherwise, I shall be returning from my vacation in New England to Detroit on August 5, after which a mutually acceptable date for my appearance can be arranged. My secretary is being authorized to sign this telegram to you over my signature.

HARLOW H. CURTICE,

President, General Motors Corp. The chairman of the subcommittee thereupon sent the following telegram:

JULY 29, 1957. Mr. HARLOW H. CURTICE, President, General Motors Corp.,

Detroit, Mich. Your telegram in response to mine is acknowledged with your decision to make available to Comptroller General, Government contract records of Cadillac division and agreeing that all books and records relating to Government contracts in any other divisions will be available on request. Comptroller General is being so advised today.

F. EDW. HÉBERT, Chairman. The telegram of the General Motors Corp. has been communicated to the Comptroller General of the United States. (The following letter was received from the Comptroller General :)

COMPTROLLER GENERAL OF THE UNITED STATES,

Washington, August 21, 1957. Hon. F. EDWARD HÉBERT,

Chairman, Subcommittee for Special Investigations, Committee on Armed

Services, House of Representatives. DEAR MR. CHAIRMAN : Thank you for your letter dated August 20, 1957, advising of the exchange of telegrams between the president of General Motors Corp. and yourself concerning the failure of one of the divisions of the General Motors to permit access to its books and records by the General Accounting Office.

I want you to know that we greatly appreciate the assistance rendered by your subcommittee in bringing this matter to a satisfactory conclusion. Sincerely yours,

JOSEPH CAMPBELL, Comptroller General of the United States.

STUDY OF AIR FORCE CONTRACT AF33 (038)–18503, GENERAL MOTORS CORP., BUICK-OLDSMOBILE-PONTIAC ASSEMBLY DIVISION

THURSDAY, AUGUST 15, 1957

HOUSE OF REPRESENTATIVES,

COMMITTEE ON ARMED SERVICES
SUBCOMMITTEE FOR SPECIAL INVESTIGATIONS,

Washington, D. C. The subcommittee met at 10 a. m., the Hon. F. Edward Hébert, chairman of the subcommittee, presiding, with the following members present: Mr. Gavin, Mr. Rivers, Mr. Cunningham, Mr. Bates, Mr. Hardy, Mr. Osmers, Mr. Miller, and Mr. Arends.

Mr. HÉBERT. The committee will be in order. Mr. Courtney, we have invited representatives of General Motors to be here today. Do you know if they are here?

Mr. COURTNEY. We have a response from General Motors. Are you

Mr. POWER. This is Mr. Gordon. My name is Power. Mr. COURTNEY. You are Mr. John F. Gordon, vice president of General Motors ?

Mr. GORDON. That is right.
Mr. POWER. Yes, sir.
Mr. COURTNEY. Buick-Oldsmobile division?

Mr. Power. That is right; my name is A. F. Power, assistant general counsel.

Mr. COURTNEY. Of General Motors Corp. !
Mr. POWER. General Motors Corp.

Mr. HÉBERT. Gentlemen of General Motors, I address myself to you now. I just want the record to show this. I am addressing this to you. The purpose of inviting you here today is for you to listen firsthand to the testimony which will be offered by the staff of this committee, and the deductions and conclusions reached by the staff. After the presentation by the staff, I want you to feel free to come forward and make any comment that you desire to make on the testimony which is brought before the committee in the public hearing.

Mr. POWER. Thank you very much.

Mr. HÉBERT. I want to assure you that you will be given every opportunity to make any comment you desire to anything that is said by the staff or by members of the committee. There will be no attempt on the part of the chairman or the committee, in any manner, shape, or form, to cut you off in rebuttal or disagreement as to what is presented here, at any time during the discussion of this particular contract. Is that understood?

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Mr. POWER. We appreciate that very much, Mr. Chairman.

Mr. HÉBERT. Because we don't want the record to show that General Motors was not aware of what was going on.

Now, members of the committee, the hearing this morning is in furtherance of the examination of the General Motors contract, which is not a new subject before this committee. The contract originally came to our attention during the investigation of the airframe industry last year.

Since that time, for reasons which will be brought forth by Mr. Courtney, counsel for the committee, the General Accounting Office has made a special audit and has reported back to us, which you know.

The General Accounting Office reported back that on this particular contract General Motors had made an excessive profit of some $17 million-plus, on the manufacture of approximately 600 airplanes. This profit of $17 million is reflected in three segments of the contract.

Today we are concerning ourselves not with the three segments, but with the final segment or the final production of the 300 planes, of the entire contract order.

The purpose of the presentation today by the staff will be an explanation and a discussion of exactly what goes on over the table in a negotiated contract.

Members of this committee well know the concern which the committee has had for years on negotiated contracts. The membership is also well aware of the concern which the committee has had in the area of excess profits.

This contract having been audited out by the General Accounting Office and presented to us furnishes the basis for a public discussion of how negotiation is conducted between the Government and the contractor.

It further furnishes the basis for a demonstration on the part of the staff as to the inadequacy and inefficiency on the part of negotiators for the Government.

This is a single part of a contract, and I am persuaded that if this is an indication of the manner in which all or a majority or a great number of contracts are negotiated, then there should be great concern, not only on the part of the committee, but on the part of the American people.

In the particular instance of General Motors, I am informed that they do a billion dollars worth of business with the Governmentbillion dollars worth of business with the Government, a year. That is an average, give or take a couple of dollars. And if this is an indication, this particular contract, of the way all other contracts are negotiated, then I think we should show grave concern about the final deposit of the American tax dollar.

Now, specifically, this morning—and I want to bring this into focus so we will all know what we are talking about

the committee staff will present its discussion, on this basis.

After the General Accounting Office gave the committee the benefit of its final audit, the committee then called for the minutes of the negotiators' meetings with General Motors, which must be kept under law. The staff, in this particular instance, headed by Mr. Lloyd Kuhn and assisted by Mr. Robert Tyler, placed themselves in the position of Government negotiators, and took from the actual minutes of the negotiation between General Motors and the Government negotiators,

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as represented by the Air Force negotiators, and came to a conclusion as to what they, as negotiators, would have done had they been at the negotiating table.

Bear in mind at all times the only figures available to the staff of the committee were the figures available to the Air Force negotiators at the time of negotiation.

Only after they had come to a conclusion and only after that conclusion did they check their figures with the General Accounting Office on their post audit.

Now, these figures are very interesting. And these are the figures furnished to our staff. When General Motors first proposed a redetermination of the contract, the first figure was $293,000 per unit. Now keep in mind this—and this is most important—that under the contract and under the law, regardless of the good faith or intention of the contractor, under the law and under the terms of the contract he was required to supply to the Government representatives accurate figures of cost production on the prior 299 planes in order to determine a figure on the projected 300 planes to complete the contract.

I repeat and reemphasize, that the contractor was required to supply accurate figures according to the best of his knowledge, based on actual experience. Keep that in mind all through these hearings. Certainly no one can deny that General Motors is not an efficient operation. It has some of the best talent in the country, if not the very

best. Certainly it was in a position, based on its experience, to supply accurate figures.

At the beginning of the so-called redetermination, General Motors proposed a price of $293,000 per unit. By the time General Motors came to the negotiating table, that negotiating price had been reduced to $288,000, a reduction voluntarily on the part of General Motors of some $5,000.

The $288,000 brought to the negotiating table was to be accepted as the accurate figures of the cost of production per unit, per plane, based on actual experience of the first 2 segments of the contract, or 299 planes.

The Air Force, in going to the negotiating table, based its figure of a fair cost at $262,090 per unit, or approximately $26,000 under what the General Motors, as a contractor, proposed.

These figures of the Air Force were based on knowledge which the Air Force had and had accumulated on previous contracts, previous experience, and based on the same experience attributed to General Motors.

There we find the General Motors negotiators and the Air Force negotiators at the negotiating table with this difference of $26,000, to proceed for the negotiation.

The contract was finally completed at a price actually paid to General Motors per unit of $275,000

Mr. KUHN. That is right. Mr. HÉBERT. $275,298. Then came the GAO postaudit. Now, after the postaudit was obtained, General Motors was supplied with a report of the General Ac

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