At the time the Buick-Oldsmobile-Pontiac assembly division hereafter referred to as BOP received the assignment to produce this aircraft, the F-84F was a newly designed, high-performance jet airplane-a single-seat fighter-bomber. This aircraft could also be used as a fighter-escort and fighter-interceptor. Its speed was given as more than 600 miles per hour, combat radius as more than 850 miles, and ceiling more than 45,000 feet.

Powered by a Sapphire J-65 turbojet engine, the F-84F carried six .50-caliber machineguns, four mounted in the nose and one in each wing root. The Thunderstreak version of this arcraft carried heavier loads of external armaments and fuel than its Thunderjet pred

ecessor.

As already noted, when BOP assumed its production assignment, the F-84F was an aircraft of new design, not previously produced. The aircraft had not as yet been completely engineered by the design contractor-Republic Aviation Corp. Throughout the life of the F-84F contract, the rate of deliveries was subject to frequent change. Manpower, particularly trained personnel, was critically short. Machine tools were in restricted supply. Because the national defense production effort had been gaining rapidly, it was difficult to develop a satisfactory subcontracting structure.

These adverse conditions had a definite influence on BOP's ability to perform under the contract. Serious quality problems and high costs were generated which importantly influenced our thinking as to forward costs. Hence, I think it is appropriate to review these problems in somewhat more detail.

The F-84F letter contract dated December 22, 1950, as amended February 19, 1951, specified tooling for 125 planes a month by April 1953. Accordingly it was planned to attain 100 percent conversion to aircraft production at the Kansas City, Kans., plant by the end of 1951 with an accompanying decrease and final cessation of automotive production.

In May 1951 the Air Force announced its policy for broadening the industrial base to permit rapid acceleration of defense output in the event of war. This was to be accomplished through the production acceleration insurance program—or PÃIP.

The effect on BOP was that, regardless of the production rate for planes, it would have to provide plant layout, machine tools, subcontract structure, production methods, engineering designs, tool designs, and special tools of a type and quality required in order to serve efficiently under the PAIP program for a period of 2 years. The Air Force recognized that this plan would be a less efficient and more costly operation at the lower contract-production rate. Subsequently BOP was informed that for the purposes of the PAIP production program, its rate was 236 planes a month.

Toward the end of 1951 it became apparent that F-84F program delays due to machine tool shortages, subcontracting difficulties, engineering data delays, and inadequate press capacity for large forgings called for a change in planning. In January 1952 the Air Force reduced the maximum planned production rate to 50 airplanes per month. Consequently BOP proposed, and the Air Force immediately approved, continuance of commercial production to the extent consistent with the obligation to furnish 50 planes a month.

The plan would not prejudice the PAIP program providing for a mobilization rate of 236 planes a month.

By continuing commercial production, it is estimated that the aircraft program was relieved of charges totaling $2,741,000. This amount, absorbed by automotive operations, was comprised of costs such as rentals, utilities, building maintenance, salaries, taxes, and insurance.

A tabulation showing Air Force notifications as to total deliveries, monthly rate of delivery, and initial delivery rate is attached as exhibit A. It illustrates both the frequency and magnitude of schedule changes during the life of the contract.

As appears in exhibit A, BOP originally obtained an order for 237 airplanes which was later increased by contract supplement to 1,149 airplanes. On February 5, 1954, the Air Force canceled a total of 550 planes. This reduced the total orders to 599 airplanes, the number ultimately delivered.

From an engineering viewpoint, it should be recognized that the F-84F fighter-bomber at first was regarded as an improved version of the F-84G, an efficient model with service in Korea. But as engineering developed the "F" became recognized as a new model, still on the drawing boards when BOP was awarded the contract.

In February 1951, when BOP representatives first visited Republic, there were available fewer than 100 drawings out of a total of 6,100 drawings, 3,000 revisions, and 19,950 attachments to drawings ultimately released up to June 1953, when BOP completed the first airframe. A complete set of production drawings for the first airplanes was not received until mid-1952. Mandatory changes affecting the first airplanes were released by Republic as late as December 1953.

During the early stages of the program the release of complete engineering data in the form of drawings, supplementary engineering change papers, and loft plates frequently was many weeks later than required to meet BOP's production schedule. Furthermore, because the date when received had not been proven in manufacture, hundreds of mandatory corrections in engineering data followed.

An interval of approximately 8 months was considered necessary between initial deliveries of F-84F airplanes by the design contractor and BOP in order to permit completion of final drawings and proof of engineering and production tooling prior to production of BOP's first airplane. Republic's delivery schedule was set back from December 1951 to June 1952, and eventually to December 1952. As a result of these setbacks in Republic's schedule BOP lost for some time the benefit of Republic's efforts to eliminate design troubles in production.

Other delays arose out of procurement problems. To cite several examples:

Acting upon the Air Force's direction, BOP planned to obtain the first 46 empennage assemblies from Republic's source. It was planned that BOP's regular subcontractor would begin delivery of a completely new empennage for the 47th and subsequent airplanes. This plan would save considerable tooling in the initial production of 46 planes. It developed, however, that Republic's source was unable

to deliver, and BOP was obliged on short notice to tool and produce the assemblies in its own plant in order to protect its schedule.

The lack of capacity in this country for the making of large forgings presented a major problem. This shortage of press capacity in industry was materially alleviated by the making of dies at the Buick motor and Fisher body divisions so that an inactive press of large capacity at a subcontractor's plant at Adrian, Mich., could be put into operation. Many engineering improvements were incorporated in large forging designs so as to permit forging and machining of these vital parts without the use of expensive toolroom methods. After the procurement of forgings, a shortage of large machine tools, such as spar milling machines, presented a serious difficulty. BOP alleviated this situation by arranging for the building of these machine tools from drawings furnished by the machine tool builders.

In a case of wing hinge forgings, no satisfactory vendor could be found to handle these complicated, vital parts. The General Motors process development section took on the manufacture of this item and satisfactorily solved this problem.

About 31 percent of the work involved in producing the F-84F was placed with outside subcontractors. It became quickly apparent, however, that the expanding defense program had absorbed a large part of available capacity. Many potential suppliers would not commit themselves to BOP in view of the relatively small initial program (237 planes) and the engineering and production problems which they could foresee.

Accordingly much time was consumed not only in recruiting suitable subcontractors but also in the intensive training of personnel of the 355 supplier firms. Through the life of the program BOP found it necessary to maintain a field force of product engineers and inspection personnel to help subcontractors in the interpretation of specifications and the solution of quality control problems. In addition, BOP purchasing personnel aided subcontractors with procurement and special tooling.

Mr. Lee White, an Assistant Secretary of the Air Force, was quoted in Aviation Week as having testified before a Senate subcommittee concerning the F-84F program, stating in part:

The experience with this airplane is a prime example of what happens when a new model is rushed into quantity production. Our new production policy of not committing large quantities of airplanes to high rates of production until adequate testing and production experience are accumulated should minimize the occurrence of this type of situation in the future.

Mr. Roger Lewis, Secretary of the Air Force, in a conference including Gen. Orville Cooke, Gen. C. S. Irvine, and other officers from headquarters USAF and AMC and representatives of Republic and General Motors, stated that early in 1954 it was recognized that the F-84F program had been an "impossible" program when established, since the airplane lacked development and proof.

Constant changes in all phases of the program-schedules, delivery dates, design, contract quantities, peak production rates, sources, etc.were far from minor in character. The resultant delays had their inception at the beginning of the program and there was no relief until late 1954.

These delays resulted in production which was constantly behind contract schedules. Inasmuch as our organizational and other expenditures were geared to the contract rate of production, these delays generated high costs.

There was every reason for us to expect that the conditions causing these serious delays would continue throughout the life of the contract. At December 1954, we were still 25 planes behind the accumulated contract schedule. However, early in 1955, these difficulties began to ease and in January and February 1955 we overbuilt the monthly schedule by 25 planes to put us even with the accumulated contract schedule. We considered this a signal achievement and the accomplishment was recognized by the following letter received from Maj. Gen. Fred R. Dent, Jr.:

I have just been advised that for the month of January your organization produced and had accepted by the Air Force 63 aircraft. This is a singular achievement, particularly in view of the fact that your production problem was complicated by difficulties encountered in the engines which the Air Force furnished you. The fact that you were able to produce in such quantities indicates excellent planning and the utmost cooperation with the engine manufacturers' technical representatives in the interest of the end product for the Air Force. My sincere congratulations to you and your organization for a job well done. Sincerely, FRED R. DENT, Jr.,

Major General, United States Air Force, Commander.

An improved flow of production continued during the next month to the extent that it was recognized in the March 1955 redetermination meeting that we might complete the schedule of deliveries a month ahead of time. This was given weight in pricing the last segment.

Finally, due to the ironing out of production difficulties and the almost complete cessation of other delaying factors, we were able to complete deliveries 3 months ahead of contract schedules. While it was impossible to forecast these conditions, nevertheless it did result in our being able to make important cost savings through an earlier than planned reduction of the aircraft organization and costs.

DETERMINATION OF PRICES

I have stated previously that it has been General Motors' policy since early in World War II to take defense production contracts on a fixedprice basis wherever possible. Experience has demonstrated again and again that the fixed-price contract provides the greatest incentive for cost savings.

Where a fixed-price contract is not practical because of inexperience with the product to be produced, we believe the fixed-price contract, subject to price redetermination, is the most desirable. This latter type of contract protects the Government in that the services have the opportunity to demand a reconsideration of a price previously established, if it is believed that this price is out of line or not competitive. This pricing method affords the contractor the same opportunity to protect himself against unforeseen cost increases that are beyond his control, such as those occasioned by the difficulties and delays encountered by BOP in the F-86F program. However, it does not guarantee any profit, nor protect against losses.

Because BOP had no experience as a manufacturer of F-84F aircraft, it was recognized that the fixed price subject to price-redetermition type of contract (for IIB) was equitable for both the Government and the contractor. Under this type of contract pricing, the original pricess incorporated in the F-84F contract were tentative prices. At the 71st plane, the contractor was required to submit experienced cost data and prices were negotiated retroactively for the first 71 planes and prospectively for the planes to be delieverd during the remainder of the contract. The forward prices negotiated were fixed prices except that either party had the right to request further price redetermination not earlier than 90 days after the effective date of the previous price redetermination. Prices to be redetermined would be applicable to the planes delivered after the effective date of the request. The price-redetermination clause in the F-84F contract also provided that upon the acceptance of the 299th plane, the parties would negotiate redetermined prices for the balance of the planes to be delivered under the contract.

When it appeared that the first segment of 71 planes would be completed in August 1954, BOP in July 1954 submitted its proposal for the first price redetermination on the 599 planes on order. A copy of this proposal is attached as exhibit I. Three copies of this proposal were submitted to Headquarters, Air Materiel Command, at WrightPatterson Air Force Base and three copies were delivered to the Air Force representatives at the Kansas City plant.

This proposal contained (1) the proposed prices; (2) brief explanations of some of the factors affecting the proposed prices; (3) a review of the principal factors resulting in the proposed price increase over the contract price of the first 71 F-84F airplanes; (4) a certification that the information for the period ending May 31, 1954, had been compiled from the books and records of BOP in accordance with its regular accounting practices consistently applied; (5) a schedule showing the breakdown of the items of cost and estimated profit for the first segment, based on BOP's cost as recorded on the books for the period ending May 31, 1954, plus an estimate of the cost to complete the remainder of 25 planes remaining in the first segment of 71; and (6) a schedule showing a similar breakdown of the items making up the proposed unit prices for the second and third segments.

For a review and study of this proposal the Air Force had information and data on the operating results of BOP through May 31, 1954. The data were contained in monthly reports furnished by BOP to the Air Force each month commencing with February 1954, and included a profit and loss statement, detail on inventories at cost, and data with respect to preproduction, rearrangement, tooling, manufacturing, and commercial expense. At the time of submission of the proposal in July, the Air Force had received monthly reports through May 31, 1954.

In addition, when the Air Force reviewed the proposal for the first price redetermination it had in its possession copies of all purchase orders amounting to $25,000 or more. The practice was to get verbal approval by the Air Force of all agreements negotiated with suppliers before purchase orders were issued by BOP. When such purchase orders were prepared and prior to issuance to suppliers, they were submitted to and approved in writing by the Air Force. At the