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Mr. RIVERS. In order to explain to the public what your side of the question is. And as the distinguished former chairman of our committee, Dewey Short, used to say, “Every pancake has two sides, regardless of how thin it is." I want to see you get your day in court. I want to ask Mr. GORDOX. Yes, sir. Mr. RIVERS. Do you feel legally or morally bound to refund any or all of an alleged $17 million profit in excess of what is supposed to be reasonable on this contract to the Government?
Mr. GORDON. No, sir. We feel no-either I as an individual--and I think I can speak for the corporation on that basis—do not feel that there is any legal or moral responsibility based on the presentation that has been made here for refunding of the alleged $17 million excess profit in this case. I stated alleged!
Mr. RIVERS. Under the renegotiation law—what I understand about it-you take your whole business and renegotiate it and no one item.
Mr. GORDON. That is right. Mr. RIVERS. But I was intrigued by one thing you said, Mr. Gordon, and that was that the internal policy of your company wouldn't permit you to consider any one item. Did I understand that correctly? Mr. GORDON. We have an internal policy of that type; yes. I menMr. RIVERS. What does that mean? I don't quite understand it. Mr. GORDON. That policy was actually developed during the war
were on continuing contract basis on many items. Internally, we set it up on the basis that at any time—with a good many by more than 25 percent, we would take a look at all the factors and
a possible revision. I don't mean to say it was automatic. We would consider all the factors applicable to that contract and con
a revision in our profit rate. Mr. RIVERS. Is that contained in your contract with the Air Force? Mr: RIVERS. So if you made 25 or 30 percent on any segment of it,
Mr. GORDON. No. say this $1,700,000 Mr. GORDON. Yes.
by which would you be bound? Your own policy?
Mr. RIVERS. Under your policy or the policy of the Air Force
policy as covered
in the contract.
Mr. RIVERS. What is going on in my mind, that you would lump
Mr. RIVERS. That one item should not reflect the profit on the contract?
Mr. GORDON. That is right.
Mr. GORDON. No. As we said repeatedly, of course, we consider the contract in its entirety as being the one on which we were applicable, I mean from the policy standpoint and the contractual standpoint.
Mr. RIVERS. Is that the basis of your explanation on the one million seven?
Mr. GORDON. We believe a great deal of the misunderstanding that has been introduced in the particular case is due
Mr. RIVERS. Is that the basis of the misunderstanding? I want to get the basis of it. That the 1 million 7 is not a fair representation of a contract?
Mr. Gordon. That is quite right. That is only a part of the picture. The one million seven, of course
Mr. RIVERS. Is a factor in the contract?
Mr. GORDON. A factor in the contract, but it is also a factor in the renegotiation proceedings which I have mentioned repeatedly will consider that item.
Mr. RIVERS. Therefore, you are not legaly or morally bound to consider any one factor, under your policy? Mr. GORDON. That is right.
Mr. RIVERS. The renegotiation law and the contract with the Air
Mr. GORDON. Well-
Mr. Rivers. I am not trying to get you confused. Because you can confuse me by saying two words.
Mr. CUNNINGHAM. Quite a leading question.
Mr. GORDON. I will admit you have me a little confused the way you worded your statement.
Mr. RIVERS. Well, I live in confusion. I am the southern distributor for confusion.
I can't get it in my head that a company that does $10 billion worth of business in 1954 would get around here and steal $1,700,000 from the Government. That to me sounds kind of incredible.
Mr. GORDON. Mr. Rivers, I don't think that anybody in this room has ever felt-I will be quite frank to say so—that General Motors would submit to deception or that we do any business with any customer except on a fair and square basis. I think the operation and administration of this contract demonstrates the fact that General Motors operates on that basis, in this as well as all other things in which we are obligated.
Mr. Rivers. I have no further questions.
Mr. Gavin. I just want to say-call to attention. You say you received no progress payments whatsoever; is that correct?
Mr. GORDON. No progress payments as such. We received payment for billings to the Government upon delivery of airplanes and parts.
Mr. GAVIN. What?
Mr. GORDON. We receive payment from the Government upon billings for delivery of airplanes and parts, but no progress payments as normally referred to.
Mr. Gavin. How many employees does General Motors have!
Mr. Gavin. You had to revamp your whole BOP setup to take on this job; is that right?
Mr. GORDON. Yes.
Mr. Gavin. You had to discontinue your entire line of production and move in. The Air Force came to you with this request to build these planes; is that right?
Mr. GORDON. That is right. Not only request for us to build these planes, but at this specific plant.
Mr. HÉBERT. Mr. Cunningham.
Mr. Gordon, I am confused, and I don't mean by that to imply that you are a master at confusing anyone. I think the confusion is the result of my lack of knowledge of business or trade terms. Probably that applies to many members of the committee. Mr. Rivers. If the gentleman would yield, that is the position I took.
Mr. CUNNINGHAM. I knew you were in the same position as I was as far as confusion is concerned.
Mr. BATEs. Bipartisan confusion.
Mr. CUNNINGHAM. On page 32, Mr. Gordon, I read as follows: Accordingly, in negotiating a fixed price contract, the contractor contemplates “not a specific profit, but rather such profit as he is able to earn through efficient operation.”
Mr. GORDON. Yes, sir. Mr. CUNNINGHAM. Then you go on: At the same time, the Government contemplates receiving lower prices if the contractor is efficient.
Now, do I understand that there was any agreement originally that if as a result of efficient operations you could make a greater profit that was contemplated, then that belonged to General Motors ?
Mr. GORDON. Yes, sir; that is covered in the correspondence.
Mr. CUNNINGHAM. Then what do you mean by the second clause, “At the same time the Government contemplates receiving lower prices if the contractor is efficient”? That implies to me that there is some understanding that if you are greatly efficient, say, or beyond a certain point, that the Government will get the benefit of that efficiency, instead of General Motors. Would you clear that up?
Mr. GORDON. Yes. That contemplates the renegotiation meeting which will follow the segment in which that profit rate is achieved.
And in the redetermination meeting, redetermination of prices, recognition is given to all these changes. The result is—
Mr. CUNNINGHAM. Is that true in all negotiations you have with the Government?
Mr. GORDON. I think this particular contract demonstrates that fact. There was continuous reduction in prices by redetermination.
Mr. CUNNINGHAM. Now, then, my question goes back to this item of $1,700,000 that the gentleman from South Carolina was talking about. Up in Iowa we don't have figures like that, like we do in South Carolina.
What did you contemplate or what did the Air Force understand, if you can tell me, your right was in regard to making a profit out of efficiency? That was really taken into consideration; wasn't it?
Mr. GORDON. Yes, sir.
Mr. CUNNINGHAM. Now this $1,700,000: Was that extra because of efficient management and work on the part of the General Motors, rather than a reduction in price to you or cost to you of certain articles ?
Mr. GORDON. We don't agree with the analysis of that $1,700,000 that has been made at any time.
Mr. CUNNINGHAM. You don't agree there was such a profit?
Mr. GORDON. The statement has been made that that is alleged overstatement of the bill of materials.
Mr. CUNNINGHAM. Now, I beg your pardon. I realize that that is a question at issue. It has not yet been determined that you made any excess profit at all ?
Mr. GORDON. Yes, sir.
Mr. CUNNINGIIAM. But if there is any such item in there, if it should develop that there is $1,700,000 or any portion of it, would you say that that is a result of efficiency on your part and according to the original ground rules was legally and morally yours?
Mr. GORDON. I think you better refer that to your counsel.
Mr. Power. It is segregated on the basis of some calculations. They were referring at the time to estimated costs. That bill of material went in originally after prices had been proposed. And the initial submission--they had all material that they needed to check those. There was a difference between the parties, of course, as to what the proposed prices were. But then they were asked to submit another-some additional data and they submitted that data.
In the course of the letter of transmittal, the statement was made, “These are firm prices subject to purchase orders.”
Now that statement of firm prices
Mr. CUNNINGHAM. You are talking about as fixed prices and not actual prices?
Mr. POWER. That is right, in the letter of transmittal. That term, I think, was misinterpreted. I don't believe it was misinterpreted by the Air Force, but I think the General Accounting Office misinterpreted it. They paid no attention to the exhibits attached which set forth these particular items and said, “Estimated costs."
Now we see no basis for pulling that $1,700,000 out that way. We don't agree with it, as being a proper segregated item in here.
Mr. CUNNINGHAM. That answers my question, Mr. Chairman. I have just one short one here. In another place you say, Mr. Gordon:
The Air Force representatives presumably had the benefit of information with respect to the contract prices being paid by the Government to the primary source contractor for the F-84F airplane.
You have any knowledge of your own, actual knowledge, as to whether or not that is true? You base it on a presumption only?
Mr. GORDON. That is right. Mr. CUNNINGHAM. On what do you base that presumption? Mr. GORDON. The primary contractor, the design contractor, of course, was in a program involving the production of this same airplane simultaneously with BOP. We think it is only natural that the negotiators would have access and make some comparisons between, let's say, on the same airplane.
Competitive pricing position of Republic and General Motors Mr. CUNNINGHAM. Your statement, is your conclusion based upon what would normally happen in the course of trade, is that correct ? Mr. GORDON. Yes, entirely. Mr. CUNNINGHAM. That is all, Mr. Chairman. Mr. HÉBERT. The committee will stand in recess Mr. Bares. Mr. Chairman. I just want to get on the record in case I read the record later on and might have to prove I was here
I used to play end in college, but once in a while I used to get a ball I won't take much time, Mr. Chairman, just long enough to get on Mr. HÉBERT. Will you be back this afternoon? Mr. BATES. Yes, I will be back. That is the reason I will make it We have been talking quite a bit about percent of profit. I never with percentages. You pay bills with dollars.
I used to run some retail stores at one time where I had a branch manager who was always very happy when he had a high percent, but he was losing dollars, if you understand what I mean. Mr. GORDON. Yes, I do. Mr. BATES. Now relating that to this, if you had a manufacturer who produced, say, at $400,000 a unit, and he had a low percent of item for $350,000 at a higher percent of profit, and applying this to the Government, what would be better for the Government, to pay a
percentage and get the thing a lot cheaper or vice versa ? GORDON. Well, I think you have almost answered your own
thrown at me.
very short here.