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If you have a statement presented to your negotiators on “X” number of dollars on a firm price which you legitimately and validly incur in the opening of the contract

Mr. GORDON. That is right.
Mr. HÉBERT. That was a firm price?
Mr. Gordon nods.

Mr. HÉBERT. However, subsequent to that firm price the figures were changed and you had an actual price, what would you present to the negotiator, the so-called firm price or the actual price?

Mr. GORDON. That comes in the conference in redetermination, in which the prices and the data supplied there is still subject to redetermination by the negotiators.

Mr. HÉBERT. I haven't asked you that, Mr. Gordon. I have ask you this

Mr. GORDON. But

Mr. HÉBERT. I think it is a very simple question. If you order a glass, a dozen of these glasses [indicating], to deliver to me at a firm price

Mr. GORDON. Yes, sir. Mr. HÉBERT. Which you originally engaged in the contract. Mr. GORDON. Yes, sir. Mr. HÉBERT. However, when you come to me to redetermine the cost of that glass, you have actual figures ?

Mr. GORDON. Yes, sir.

Mr. HÉBERT. In your possession which are lower than the original firm figures ?

Mr. GORDON. Yes. Mr. HÉBERT. Which figure would you present to me as the basis of negotiation, or on the basis of negotiation?

Mr. GORDON. It doesn't operate on that basis. Mr. HÉBERT. Well, that is what I am trying to find out, what you mean by that sentence.

Mr. ČUNNINGHAM. That is the purpose of my question, Mr. Chairman.

Mr. HÉBERT. What does he mean by the sentence?

Mr. CUNNINGHAM. I think, Mr. Chairman, there is no ambiguity in the gentleman's definition of the word “firm” in here. I can understand this very clearly, I think. There is nothing wrong about it.

Mr. HÉBERT. Yes, but he says "actual.” I want to find out what he brings to the table.

Mr. CUNNINGHAM. He is defining the manner in which the "firm” is determined by the trade. He is dealing here with the representatives of the Air Force.

As I understand his testimony, it means that they both understood that firm did not mean actual.

Mr. HÉBERT. Actual.

Mr. CUNNINGHAM. But rather fixed and they understood it. Am I right or wrong, Mr. Gordon, on that?

Mr. Gordon. You are right. There is also an understanding that there are many different prices on that one purchase order.

Mr. HÉBERT. What do you bring into the table, is what I want to know, for the negotiation, the firm or actual figure?

Mr. GORDON. We bring the whole thing; the entire thing to them.

Mr. HÉBERT. Do you call that to the attention of the negotiator, that the price is changed, upward or downward?

Mr. Gordon. The price isn't changing at that time. The price is recorded right on the purchase orders and also on the estimated material list.

Mr. HÉBERT. That is correct.
Mr. GORDON. That is furnished.

Mr. HÉBERT. When you go to that table, that negotiating table, and price has changed, either upward or down, what figure do you present to the negotiator, which of the two, the firm or the actual cost?

Mr. GORDON. They are the same under those conditions.

Mr. HÉBERT. Supposing they were different, then? Why go into an explanation if there is not difference in them!

Mr. GORDON. I think-counsel indicates here he thinks there is confusion on the estimated material-cost factors.

Mr. HÉBERT. No; there is no confusion. I am asking you a simple question. Which price do you bring to the negotiating table?

Mr. GORDON. We bring to the negotiating table the prices which are applicable to the products at that time, and an estimate as to future costs.

Mr. HÉBERT. All right. But if you have actual figures, up or down, which do you bring to the negotiating table and direct the attention of the negotiator to?

Mr. GORDON. We don't direct the attention of the negotiators to the items. The negotiators direct their own attention to the items.

Mr. HÉBERT. You are supposed to bring accurate figures to the negotiating table.

Mr. GORDON. We bring accurate costs to the negotiation.
Mr. HÉBERT. You bring actual costs to the table?
Mr. GORDON. Yes, sir.

Mr. HÉBERT. In the $1,700,000, what did you do? You brought one cost and had another cost under it, and the defense was they didn't find it.

Mr. GORDON. No, no.
Mr. HÉBERT. What actually happened in that instance?
Mr. RIVERS. Let's let the counsel testify.
Mr. GORDON. All right.

Mr. POWER. Mr. Chairman, I think the point here is that they estimated the bill of material and the prices with respect to certain of these items at varying prices that were in the purchase orders. One purchase order might have four prices. Maybe the maximum went into these estimated costs as being applicable to the whole segment. Another purchase-order price which was lower might have gone into that same estimate. We didn't always use the maximum. That depended on the factors that existed.

Mr. HÉBERT. Well, it is a good time now, Mr. Counsel, to clear this matter up once and for all. It has been represented to the committee that in this particular item, which was injected today, I mean discussed today, that actually when the General Motors people went to the negotiating table they presented a figure of $1,700,000 in excess of the actual cost of the assembly.

However, when they presented this figure, which was $1,700,000, there were also attached to these documents and I use "documents" loosely—the actual cost. The Air Force accepted the overpriced figure of $1,700,000, and did not catch the actual cost. Mr. POWER. I don't understand that they submitted actual costs.

Mr. HÉBERT. My recollection of it is of course, the record will reflect this. My understanding of it is that they did have the actual costs attached to the same documents, and the Air Force did not discover those documents.

Mr. POWER. Well, my understanding is, that applies to the proposed price which was submitted originally. That proposed price was backed up by a breakdown and in that breakdown they set forth the aggregate of various items, including material cost. That was based on actual costs through a prior month, when the segment, the first segment, was completed.

That actual cost was available to the Air Force. They had that. Mr. HÉBERT. That is right.

Mr. POWER. Now, in estimating the material cost, the contractor took the actual cost and then projected out what it thought the costs would be in the future and they made a total figure, and that total figure was in excess of certain of the items if you took an average. But

you have to go and analyze those things. I haven't heard any testimony in this hearing or in the prior hearings to the effect that the Air Force admits that they were misled in any way on that material or that they did not check the purchase orders. I haven't heard any testimony that the Air Force has made any such admission.

Mr. HÉBERT. Well, that was the contention, I think, of the General Accounting Office.

Mr. POWER. That is right. It is their contention, but-
Mr. HÉBERT. We will develop it.
Mr. POWER. All right.

Mr. HÉBERT. The Air Force will be here. We are going to ask them questions.

Mr. POWER. That is the thing.

Mr. HÉBERT. I think the records or the letters—we will have to review those, Mr. Counsel, and bring them into focus.

Mr. Rivers

Mr. RIVERS. Mr. Chairman, I have a few questions but I yield to the distinguished gentleman from Pennsylvania.

Mr. GAVIN. Thank you.

It is considerate that we transfer from one side to the other in view of the fact that you monopolized the last 40 minutes.

Mr. RIVERS. I happen to be the ranking Democrat, but I yield to you.

Mr. GAVIN. Thank you very much.
Mr. RIVERS. It is a pleasure to yield to you.

Mr. Gavin. I want to compliment the gentleman on a very informative statement you made here today.

One question I want to ask you is in your letter of June 18, in which it stated

In addition either party has the right to make a further demand at intervals of not less than 90 days after the effective date of any prior demand, the absence of a demand by either party under this restricting option is indicative of the competitive reasonableness of the prices negotiated.

At the termination of this contract, did the Department of the Air Force make any demands upon you, the General Motors Corp., relative to the contract, as to being unreasonable?

Mr. GORDON. At the termination of the contract?
Mr. GAVIN. Right, or at any time.
Mr. POWER. No.
Mr. GORDON. No.
Mr. Gavin. No, they did not.

Now, the facts are that they assumed, then, that the prices negotiated were reasonable. At least I would conclude that. What is your opinion?

In view of the fact that you didn't hear from the Department of the Air Force. We are bringing in here General Motors who complied with what they thought were the statutes and the laws of contracts and are questioning them when evidently if there would have been any unreasonable pricing or at least if the Department of the Air Force thought there were, they had the right to come in and demand of you an accounting as to what they thought was unreasonable, is that right?

Mr. GORDON. That is correct.

Mr. Gavin. And you did not receive any protest from the Department of the Air Force relative to this contract, is that correct?

Mr. GORDON. Not unreasonable, no.

Mr. Gavin. Well, did you receive any, that any particular segment of the contract was unreasonable ?

Mr. GORDON. The only price redetermination meetings we had were those that were mandatory under the contract.

Mr. GAVIN. I have no further questions.

I just want to say this, too. When you came here this morning to present your case-I listened with interest to what the chairman had to say-you came here at our invitation. You didn't come here to be lauded for the outstanding and fine performance you took in. I realize that, at least.

Mr. GORDON. Thank you, sir.
Mr. HÉBERT. Mr. Rivers, you have the time back.

Mr. Rivers. I just wanted to ask Mr. Gordon-I certainly am impressed with your ability, Mr. Gordon.

Mr. GORDON. Thank you, sir.
Mr. RIVERS. I say that in a complimentary manner.

Is it your understanding that this 8 percent was a figure that was agreed on and is agreed on in the industry from which to figure the overall costs of an item and not a guaranty?

Mr. GORDON. Yes; that is right.
Mr. RIVERS. That is my understanding.
Do I understand the thing right?

Mr. GORDON. That is right.

Mr. RIVERS. Because there is some confusion. And I have been confused that you were guaranteed 8 percent.

Mr. GORDON. No, sir.
Mr. RIVERS. But I am in error on that?
Mr. GORDON. That is right. We were guaranteed no profit.
Mr. RIVERS. No profit?
Mr. GORDON. Nor were we guaranteed against loss.
Mr. RIVERS. So you could

have lost. Now, when you say lostthere are two things that I want to find out. Do I understand you to say that BOP had $135 million tied up before they ever asked the Air Force to give them 5 cents, is that right!

Mr. GORDON. No, sir. We had an item of some $90 million before we requested any payment. It got to $135 million total investment before—it was what you might call current. But we actually had an investment of over $90 million before we received anything, that is before we billed the Government for anything on the contract.

Mr. RIVERS. Did you stand a chance of losing any of that $96 million under the contract?

Mr. GORDON. No; I don't believe so.
Mr. RIVERS. You would not have lost it?
Mr. GORDON. No.
Mr. RIVERS. But did you get any pluses!
Mr. GORDON. None.
Mr. RIVERS. For that?
Mr. GORDON. None.
Mr. RIVERS. That is a good question, isn't it?
Mr. GORDON. Yes.
Mr. RIVERS. I see these other things on the board here.

I don't want to hang you. I want to give you credit for something before I hang you.

Which I think is a fair proposition, don't you?

Mr. GORDON. Well, Mr. Rivers, I think the statement was made this morning and the performance under this contract is worthy of consideration other than hanging. We consider that we did an outstanding job, in General Motors, on this contract under the conditions. We are proud of it, frankly.

Mr. GAVIN. At a time when we needed planes.

Mr. RIVERS. I yielded to you and you yielded back. I urge you to keep quiet.

You know, you better not lock horns with me.

I just want to inquire a few things of this distinguished gentleman. Now, I said yesterday, and I think you heard it—I know I saw this young fellow.

Mr. POWER. Yes, sir.
Mr. RIVERs. I think you are very youthful looking, Counselor.

I said in view of what I had seen from these reports that I thought you would welcome the opportunity to occupy the seat which he was occupying.

Mr. Power. We do, sir.

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