explored as to some manner of return. And that connection also, the General Motors Corp. was asked to return that $1,7000,000, which represented an overpricing on an item in assembly, from an outside source, 3 times, and 3 times General Motors refused to give that money back, as a matter of policy.

Mr. RIVERS. Mr. Chairman, I would like to say this. I hope that the General Motors-and I imagine they are looking at me. I hope I am looking at you. I hope some of you will avail of this stand to clear up this situation. Because I don't want to prejudge a corporation as colossal and as stupendous as General Motors, without first giving them an opportunity to explain. I hope you are talking about comment-that when you get out of that chair, they will jump in it so fast it will make your head swim.

Mr. HÉBERT. All right.

Mr. Bates.

Mr. BATES. Mr. Chairman, I would like to ask Mr. Kuhn some questions on this, on the total materiel-on the total figures. Now, everything on the left cards are estimates; is that correct?

Mr. COURTNEY. That is correct.

Mr. BATES. And then the one on the righthand side is actual?
Mr. COURTNEY. Postaudit.

Mr. BATES. All right. Everything on the left is estimates, their best judgment of what might take place. Now, looking at those figures up there, who would you say made the best judgment, General Motors, the Air Force, No. 1 or No. 2, as to what the actual cost would be?

Mr. COURTNEY. You are talking about total material?
Mr. BATES. Total material cost.

Mr. COURTNEY. Well, the figure is where in the middle, perhaps a little closer to General Motors' estimate, because of outside material. Mr. BATES. Let's talk about total figures. We will get to allied after a while. Who would you say made the best judgment, the best estimate, as to what these costs would be?

Mr. COURTNEY. Well, as I said, the figure is very close to being between the

Mr. BATES. You wouldn't say it was very close to the Air Force figures, would you? $7,000, $8,000: That is not very close?

I am talking about the total material cost now.

Mr. COURTNEY. You are talking about total material?

Mr. BATES. Yes. Who made the best estimate there?

Mr. COURTNEY. You have to realize that Air Force figure there is not the figure that they finally negotiated for that particular cost as reflected by the minutes.

Their's, as reflected by the minutes, is the same as No. 1 and No. 2.
Mr. BATES. Yes. But their judgment was 143,000; is that correct?
Mr. COURTNEY. At what time? No.

Mr. BATES. Right there on the board.

Mr. HÉBERT. Yes.

Mr. COURTNEY. No, no, no. Mr. Bates, please let me clear that up. Nobody has any responsibility in this presentation for these figures in the second column. They are merely reproduced as being the penciled notes, identified as Air Force negotiators' notes. They have not otherwise been spoken of in the course of this presentation.

Mr. BATES. Why are they offered to us? What are we to presume as we look at those figures?

Mr. KUHN. As a prenegotiation concept, a starting place.

Mr. BATES. So that there was their judgment relative to the $153,000 on part of General Motors. That is the only other purpose for which it could be used.

Mr. COURTNEY. It has not been stated, Mr. Bates.

Mr. KUHN. All we can do, Mr. Bates, is refer to the minutes of the Air Force, made for a period when the negotiations occurred. They indicate in those minutes that they were going to use 40,274 allied, 95,199 outside, and 593 inbound transportation, giving a total of $147,777.

Mr. BATES. What do you want the committee to conclude? What is your impression? What does that figure mean? Why is it on the board? Does it represent the Air Force's estimate?

Mr. KUHN. As I said before, that was a prenegotiation concept of that particular cost.

Mr. BATES. All right. So at the time that General Motors put in the $153,000, that was the estimate of the Air Force, 143,000?

Mr. KUHN. Correct.

Mr. BATES. Now, that is correct?

Mr. KUHN. Right.

Mr. BATES. That is the reason it is up there?

Mr. KUHN. Right.

Mr. BATES. So you wouldn't say that that figure was very close to the actual of $151,000, would you?

Mr. KUHN. Obviously not.

Mr. BATES. All right. Now we are talking about estimates and we are talking about judgment. Now let's take

Mr. KUHN. But I would like to explain further there, Mr. Bates, that when the Air Force came into the meeting they had this concept, or at least one representative of the Air Force had this concept, and General Motors had this concept. Then they sat down at the table. They broke this down into three parts. There was very little dispute about outside.

Mr. BATES. Let's talk just about total. We will get into the outside afterward.

Mr. COURTNEY. Mr. Bates, may we break in there, please, because I can see we are getting into confusion.

Mr. BATES. Well, I am not getting into confusion.

Mr. COURTNEY. Wait a minute.

Mr. BATES. You might be, but I am not.

Mr. COURTNEY. It is very easy for me to get into confusion. Will you let me unravel myself for the moment? One hundred fifty-three thousand dollars actual cost represents the addition of change orders which were not known at the time of the negotiation.

Mr. BATES. That is the $1 million?

Mr. COURTNEY. That is a final price.

Mr. BATES. That is the $1 million been added in. Now, how much does that represent of the $151,000 per unit? How much does that change order represent?

Mr. KUHN. That hasn't been segregated out.

Mr. HARDY. It is segregated out, between your 271,000 and your 275,000.

Mr. KUHN. Well, in totals, yes. But a breakdown of that: We don't know.

Mr. BATES. You got $1 million divided by so many units, haven't you?

Mr. KUHN. Sure. That is the difference between 271,165 and 275,298 in totals. But I thought you were talking about materials. Mr. BATES. I am talking about material. You brought up the $1 million, I didn't.

Mr. KUHN. You proceed, Mr. Bates.

Mr. COURTNEY. Go ahead and answer the question.

Mr. BATES. I am just trying to get an idea here. We have compared a lot of figures. We have total material costs at the top. You tell me these are estimates. And they are estimates of what the costs might be. Now, from looking at those figures, it appears to me that General Motors comes a lot closer to the actual cost figure than anyone else. I don't care whether it is change orders or what it might be. The fact of the matter is that their figure, to me, appears to be a lot closer to the actual cost than what the other estimates are; is that correct?

Mr. KUHN. No, not quite. I say that the figure, the actual, is somewhere between that which was used by the Air Force as a cost concept in developing their price 147,777

Mr. BATES. Now, you construct it. That is a reconstruction of figures that were offered, that you assembled. The Air Force never assembled those figures themselves to come out with a total of 147,000; you did that.

Mr. KUHN. Mr. Bates, no. It is right in here.

Mr. BATES. All right.

Mr. KUHN. I said this was a prenegotiation concept.

Mr. BATES. And at the same time that they had that concept, General Motors had the other concept, of 153,000. Now, that is correct, isn't it?

Mr. KUHN. That is correct.

Mr. BATES. So starting at that particular point, General Motors was about $2,000 off and the Air Force estimate was approximately $7,500 off; isn't that correct?

Mr. KUHN. Yes.

Mr. BATES. So as far as estimates are concerned, General Motors was a lot closer to it than was the Air Force.

Now, get up to No. 1. That is the reconstructed figures. Even there, that is about 4,000 off

Mr. KUHN. It is exactly $3,251.

Mr. BATES. All right, $3,200, compared with $1,300, or so, being off on the part of the General Motors. So it doesn't seem to meMr. KUHN. Well, obviously it is over-it is about $2,500, Mr. Bates. Mr. BATES. It is not $2,500. It is $2,300.

Mr. KUHN. $153,398 and $151,028.

Mr. BATES. That is right, about $2,300. So it seems to me that they are even closer than you are on your reconstructed figures. So I don't see where they should be particularly criticized in that respect, when they are closer to the figures than even you are on a reconstructed

basis.

I mean, what is the point you are trying to establish, as far as total materiel is concerned?

Mr. KUHN. That they had actual costs at the time of negotiation on allied materials, which was overstated by $5,000.

Mr. BATES. Now, was there any shift between allied and outside in reference to assignment of work? Was any work previously assigned to one and transferred to the other?

Mr. KUHN. I think that is a proper question for the General Motors. Mr. BATES. As far as you know.

Mr. KUHN. As far as we know, we have not investigated that completely and it would just be conjecture on our part.

Mr. BATES. Well, we can look into that when we come to it.

Mr. GAVIN. Would you permit an observation?

Mr. BATES. Yes.

Mr. GAVIN. Whoever prepared the estimated figures there for the Air Force I think was on the right track. He was off, but he was leaving himself a basis there on which he could trade with the General Motors. And if that same individual, whoever prepared those figures, was the one that would have negotiated with General Motors, I think that we all would have been, as far as the Government is concerned, better off. He starts off low, very low, and General Motors starts very high. He has a big situation there that he can trade. If he would have been permitted, whoever he was, to negotiate with General Motors, I think we might have done a whole lot better.

Mr. BATES. I want him on my side.

Mr. GAVIN. Yes.

Mr. HÉBERT. All right, Bill.

Mr. BATES. How much more are we going to go?
Mr. HÉBERT. We will go until the second bell.

Mr. BATES. Well, that is the point I wanted to make on the materiel. It would just seem to me, when you come into a question of estimates, that General Motors made a lot better estimate, a lot closer to the actual figure, than did the other outfit.

Now, what is the significance of this 8 percent profit figure that is referred to in the report?

Mr. COURTNEY. Well, the significance I will answer that question, Mr. Bates. All these figures, all these calculations are based upon a projection toward an 8 percent return.

Now, the Air Force-we premised our whole presentation on this. And I read it again—

A profit rate of 8 percent was agreed upon at the time this contract was placed. This is a normal profit for a procurement of this type. The negotiated price of $271,165 per unit includes a profit factor of not more than 8 percent, based on the Government's concept of a realistic cost.

Mr. BATES. Upon the Government's concept.

Mr. GAVIN. But the Government evidently didn't hold out, I might call to the attention of the member.

Mr. BATES. I understand that.

I wish Mr. Kuhn would explain the difference between the assignment of burden of 209 percent and the 185 percent.

Mr. KUHN. Well, you can see that General Motors applied a 209 percent burden there [indicating]. You are talking about explaining the difference between these two figures?

Mr. BATES. Yes, the 185. How did the General Accounting Office -I believe they were the ones that assigned that burden?

Mr. KUHN. Yes; you remember they testified here

Mr. BATES. How did they come to the conclusion?

Mr. KUHN. Actual costs on the 228 segment. With particular reference to the 223d plane through the 299th plane, General Motors had experienced a 185 percent factor to direct labor for burden in that segment, which gave no consideration to further efficiences, up until the phase-out lot of these planes.

Mr. BATES. They eliminated some of the factors which General Motors took into consideration in establishing the burden rate, then? Mr. KUHN. No; that isn't so.

Mr. BATES. You talked about inefficiencies; is that what they predicuted it on?

Mr. KUHN. No, not the 185. That was on actual, on plane No. 223 through 299 plane.

Mr. BATES. That was an actual burden figure?

Mr. KUHN. Burden rate per plane on that particular part of the second segment.

Mr. BATES. That was the actual figure?

Mr. KUHN. Right.

Mr. BATES. What does the Air Force do with these cost figures which are submitted to them, the actual cost figures which are submitted to them?

Mr. KUHN. I would like to refer that question to the Air Force, Mr. Bates.

Mr. BATES. You didn't check into that?

Mr.KUHN. No.

Mr. BATES. I don't have any other questions, Mr. Chairman. Mr. HÉBERT. Now, pursuing your question, Mr. Bates, as to the proximity and closeness, picking out the one item of total materials, in the ultimate their total estimate was $293,000 by General Motors, the Air Force estimate was $262,000, and the staff, at worst, was $257,000, and at best, $254,000, which is under the Air Force estimate. And the actual costs, according to the actual audit-I can't see the figure, the GAO figure.

Mr. COURTNEY. With 8 percent.

Mr. KUHN. $250,042.

Mr. HÉBERT. That was the original estimate.

Mr. BATES. Well, that is right.

Mr. HÉBERT. So, in effect, the General Motors overestimated by— what is the figure?

Mr. BATES. I was just talking about material, Mr. Chairman. I certainly want to get into the question of direct labor.

Mr. HÉBERT. I know.

Now, the materiel was involved, Mr. Bates, in that 1 segment of $5,000. I think that is where your big difference occurs.

Mr. BATES. Well, I didn't go into that because that is a question of fact, and I think we will have to get into that from General Motors. Mr. HÉBERT. That is correct.

Mr. BATES. I just addressed myself to the total figures. The reason I asked Mr. Kuhn whether there was a reassignment of work between Allied and outside was it might have made up that difference. I was just addressing myself to the total figure.