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shall be provided.
Mr. GORDON. Yes.
Mr. Hardy. Your estimates are not supposed to be a trading proposition, are they?
Mr. GORDON. Not as estimates, no.
Mr. HARDY. An estimate is supposed to be the best figure you can give looking forward; is that right?
Mr. GORDON. Yes, sir.
Mr. HARDY. And your contract provides for an estimate on an itemization basis?
Mr. GORDON. Right.
Mr. Hardy. It provides for a breakdown ofestimates of the unit cost and the proposed prices of the items remaining under the contract after the effective date, itemized so far as is practicable in the manner prescribed by War Department standard Form No. 105.
Well, I don't know what that is. But it means to me that it is supposed to be itemized as completely as is reasonable.
Mr. GORDON. Yes.
Mr. HARDY. And that those items are supposed to be as nearly factual and accurate as they can?
Mr. GORDON. Right.
Mr. HARDY. Now, this provision of the contract further has this to :say, and I am quoting:
Such relevant shop and engineering data, cost records, overhead absorption reports, and accounting statements as may be of assistance in determining the accuracy and reliability of the new estimate
Now, the purpose of that is to assure as far as possible that these estimates will be accurate and reliable, isn't that correct?
Mr. GORDON. That is right. Mr. Hardy. Now, I want to refer to the item that was discussed this morning. I hadn't really intended to get into this question of redetermination at, what, 68?
Mr. COURTNEY. Seventy-one. Mr. HARDY. Seventy-one. But that came in for some discussion this morning because of the allegations of the General Accounting foffice with respect to the $1,700,000. And much of that I believe has to do with a fairing assembly.
Now, I have before me working papers-
it reads, the best I can figure out. This is on the 71. Mr. HÉBERT. That is the assembly from another outfit. Mr. HARDY. It is a subcontract.
I have before me the estimate sheets that were used and here is a pencil or pen notation besidepart of the General Motors' price proposal. Mr. KUHN. Excuse me, Mr. Hardy. You want to identify that as
Mr. HARDy. It is “General Motors Corp., Buick-Oldsmobile-Pontiac assembly material." Pages 9 to 12. It is "estimated material costs." This is an item which was under subcontract. It is listed here at a cost in your itemized-itemization breakdown, of $1,507.22. That is for the second segment of 228 units. Your third segment is also listed on this same sheet at a price of $399.50. Now, that is for the additional 300 units which extends beyond the first 299.
This negotiation, or this redetermination, took place at 71. So it had to do with the additional 228.
Now, there is a pencil notation on here, or a pen notation, which shows that the first 68 of these assemblies was priced at $1,507.22, which is the figure that you have listed, and it shows that the rest of them were priced at $399.50.
Now, to be very plain—this is the basis for my previous reaction when we had the General Accounting Office before us—it was our information that the General Motors Corp. had at the time of this negotiation a price from the subcontractor of $399.50, and that General Motors knew that that price would be applicable to the 228, which price was then being determined, and still the figure on your estimate showed $1,507.22.
Now, if those facts are correct, it is a misrepresentation of the cost. It is just as simple as that.
Mr. GORDON. May I answer that? You are referring to a Fairing assembly from the Vendo Co.
Mr. HARDY. That is right.
At the time of renegotiation, this purchase order was available to the Air Force. As a matter of fact, it had been signed by the Air Force personnel as having been examined and agreed to by him.
Mr. HARDY. I understand that that is the case.
Mr. GORDON. You yourself talked about the redetermination provision at any time within 90 days after a redetermination meeting by either contractor-either the contractor or the AMC personnel involved in contract negotiations.
The projected assembly of airplanes in the next 90 days after the meeting on redetermination-a very large proportion of the Fairing assemblies which would go into that very large group of airplanes would have been priced at this higher price, and if there had been a call for redetermination within 90 days of that time by the contractor, it was necessary from our standpoint that we include those assemblies at the higher unit price.
Mr. HARDY. Will you explain that, because I am having a little trouble understanding it. Now, my information is that this was done at the 71st plane, and the information that I have is that 68 of them cost you $1,507.22, and at the time of the negotiation you had a firm price of $399.50 for every single unit that went into the rest of this segment and all of your next segment.
Mr. GORDON. I have the purchase order in front of me and it calls for 139 assemblies, 25 of which are priced at $7,196.47 each, 114 at $1,504.22 each
Mr. POWER. Seven.
Mr. GORDON. Or $1,507.22.
It was only after 139 assemblies that the price dropped, to the figure you mentioned.
Mr. HARDY. Now, let's say that over again.
chase order here.
might say in the larger segments-
Mr. GORDON. In a larger sense, Mr. Hardy, there is still apparently a great deal of confusion in the minds of the subcommittee members about this $1,700,000, of which you are mentioning only one specific item.
Mr. HARDY. That is right. And I had cleared that up, because I had-I think if you will refer back to what I said, I said the major part of this.
Mr. GORDON. That is right.
Mr. GORDON. Well, may I take just a moment to further clarify that?
Mr. POWER. We hadn't finished. You go ahead with the purchase order. I think he might interrupt your train of thought.
Mr. HARDY. That is all right. Î am trying to understand the purWell
, I think I get just as confused by this as I do by some other Mr. GORDON. That demonstrates the fact that there are many firm prices on each purchase order, and each purchase order is different in that there is no relation between the firm prices of that purchase order and the segments of the airplane contract.
Mr. HARDY. What is the date of that one?
It is just a separate photostat of the same purchase order?
Imight say this, too, that an additional fact that colored our judgment in that particular case was that we were having a great deal of trouble with the Vendo Co. It was not one of our best suppliers. And under the conditions in which they were operating at that particular time, we had severe doubts of their ability to perform under the contract, regardless of the so-called firm prices that were on the
Mr. HARDY. What was the date of this negotiation? Mr. KUHN. September 1954. Mr. GORDON. September of 1954. Mr. HARDY. September of 1954. What date in September, does Mr. MARK. 8, 9, 10, and 11. Mr. HARDY. I notice that this order is dated September 4. Mr. POWER. That might be a price revision. Is it? that is the purchase order with the latest revision prior to the time
Mr. GORDON. The reason we brought that particular one is that of the redetermination meeting. That is the purchase order which was applicable at the time of the redetermination meeting.
Mr. HARDY. Well, now, is it your testimony—and this is the thing I think, as far as I am concerned, is the key to it: Is it your testimony that at the time of this negotiation, the best price that you
had on this assembly was $1,507.22?
Mr. GORDON. For a very large segment of those airplanes that we would produce within the next 90 days following the period of redetermination of prices.
Mr. HARDY. What is the General Accounting Office statement on that?
Mr. Mark. There were several revisions on that purchase order. I don't happen to have how many. But the one you have is, I believe, the one that was in effect immediately prior to the beginning of the negotiations in September of 1954.
Mr. COURTNEY. September of 1954. Let's get the production quantity.
In September 1954, presumably, at the last day of September, 96 units had been delivered.
Mr. HARDY. Now I want-just let me get back to where I am here, because I want to be sure that we get this thing straight.
Mr. COURTNEY. Mr. Chairman, the record shows I am reading from the principal delivery schedule changes and the actual delivery of aircraft submitted as exhibit A, as a part of Mr. Gordon's statement.
Mr. HARDY. Now, Mr. Gordon, you have shown me a purchase order which shows 114 of these assemblies at $1,507.22, and you have testified that that was the price that was applicable and was firm at the date of the redetermination that we have been discussing here with respect to the 228-unit second segment.
Mr. GORDON. That is right. There is one other factor I would like to add, however. That was the date of submission of the proposal-it was the 15th of July.
Mr. HARDY. I am talking now, though, about the time that you sat down and negotiated this thing out.
Mr. GORDON. Yes, sir.
Mr. Hardy. Did I understand the General Accounting Office submitted to you a copy of their report?
Mr. GORDON. Yes, sir.
Mr. Hardy. I want to ask you if you commented on this particular paragraph, on page 5.
Mr. GORDON. Yes; I think so.
An example of the known price reductions making up the overstatement of $1,700,000 is the reduction in the price of an assembly purchased from Vendo, Inc., which was shown in the contractor's proposal at a unit cost of $1,507 for 228 units. However, this price applied only to the first 68 assemblies, and the remaining 160 assemblies were priced at approximately $400 a unit, a reduction of $177,000. AlthoughI want you to listen to the last of this statement, because I wanted to find out whether you commented on it, if General Accounting Office submitted this to youAlthough the supplier and the contractor had redetermined the price of this assembly prior to the submission by the contractor of his proposal, the reduction in price was not recognized in the proposal.
Now, the General Accounting Office said you had redetermined this price before your proposal was submitted. Is that or is it not true?
Mr. GORDON. Do you have the answer here?
Mr. MARK. I think, Mr. Hardy, there were 25 of these items on that purchase order used in the original segment. There were 114 in the next quantity. There were 71 in the original retroactive segment, and 25 from 71 would leave 46, and 46 from the 114 would leave 68 more to go, if that is the one we had reference to in our letter.
Mr. POWER. No. [Confers.]
Mr. POWER. Well, that is the record we have, and that all of us here have looked at, that I know of. I know of no other purchase order having any different price than that with
Vendo. Mr. HARDY. Then let me go back to this, because this, as far as I am concerned, is the key to this
whole thing, and it looks like a deliberate mispresentation
by General Motors. Now, when General Accounting Office sent this copy of their report, did you comment on this or did you take issue with it?
Mr. POWER. I am trying to get someone that I think knows something about it, to reply.
Mr. HÉBERT. That will be reflected in your reply; wouldn't it? Mr. GORDON. That is right. Mr. HÉBERT. It is easy enough to look at the letter and find out whether you did or not.
Mr. COURTNEY. Here is the reply, Mr. Chairman. Mr. HARDY. If you pick out the pertinent part of it. Mr. Power. No; this letter does not comment on Vendo at all. It just is a general comment on the whole
thing. However, if there is any question, we will go on record with it with a sworn statement and file it with the General Accounting Office.
Mr.HARDY. Then it has to be a question.
The General Accounting Office makes it as a flat statement. It is either factual or it is not factual. If it is factual, General Motors went into the redetermination negotiations with a statement of estimate which was contrary to an actual cost which they knew. Mr.PoWER. Well, on the basisMr. HARDY. It either is or it isn't. Mr. PoWER. That is right. And I say, on the basis of the facts as I know them—and I have gotten into this matter more or less in the last reviewed, the one that has been delivered to you. That is the underother record in connection with it and I will have a sworn statement Accounting Office. Mr. PoWER. We will. Mr. HARDY. I think you should do it.