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.

Mr. HARDY. (reading):

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. Although

I 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 you

Although 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. HARDY. 68 at $1,507 is the figure that he shows here, and 160 at $399.50.

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.

Mr. POWER. No; I will see that that is done. I will submit that. Mr. HARDY. You must understand that there has to be a question about it. 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 basis

Mr. 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 few weeks and studied it-this happens to be a purchase order that I reviewed, the one that has been delivered to you. That is the understanding that I have today, that that is the record. I will check every other record in connection with it and I will have a sworn statement that we will send to this committee and we will send to the General Accounting Office.

Mr. HARDY. I think you should do it.

Mr. POWER. We will.

94763-57--15

Mr. HARDY. As the fact of the matter is, you are remiss from not having picked it up from their report. They sent it to you before they submitted it to us.

Mr. POWER. That may very well be. I myself, personally, did not review the report at the time.

Mr. HARDY. Now since it had been testified that it had been sent to General Motors, and we had no record of any comment on this provision, the committee has assumed that it was factual.

up,

Mr. POWER. Well, I am sorry, we will clear that misunderstanding I am sure.

Mr. HARDY. Well, we talked about one item.

Mr. POWER. Yes.

Mr. HARDY. And that is a substantial part, I believe, of the $1,700,000. It is my understanding that the rest of the $1,700,000 the General Accounting Office contends is in exactly the same category, as to other items.

Now, I maintain this, Mr. Gordon, so that we don't misunderstand each other: I think certainly where you have to make an estimate, you are entitled to the consideration that you develop for efficiencies that occur during the interim period. Of course you are. But any

time that any negotiator sits down and presents as an estimate figure and says it is his best estimate and is a firm figure, and he knows that he has a better price, then it is a false negotiation, in my book. If your people did it, I think they are guilty.

Mr. POWER. Yes.

May I have it clear? Is there anything further on that that you want? I intend to do just what I said.

Mr. HARDY. On that particular one that is all I wanted. I hadn't really intended to get into that one, but we got into a discussion of it this morning and I do think it is important we clear it up.

Mr. POWER. I am very glad you raised it, because frankly, I didn't know that that was the position in the report.

Mr. HARDY. Well, it is spelled right out.

Mr. POWER. I know.

Mr. HARDY. It stares you right in the face.

Mr. POWER. That is correct.

Mr. HARDY. And in the light of General Accounting Office's communications to General Motors asking for a refund based on that finding in their report and General Motors turns it down, it just looks like either somebody did an awful poor job of reading your mail and analyzing it or that there was a determination to stick by something that was either fraudulently or erroneously done.

So I am glad to get this aired out.

Mr. POWER. I think the problem is that the reply was being directed to the aggregate figure of $1,700,000 and at the general statements that were made and somebody missed the specific thing that was used as the illustration. We will take care of it.

Mr. HARDY. That one is certainly clear, in that report.

Mr. POWER. It is.

Mr. HARDY. Now, Mr. Chairman, I would like to go on with another point here now.

Mr. HÉBERT. All right.

Mr. HARDY. I would like to get to the most recent redetermination. There were two items that we discussed in that redetermination that seemed to be the key to the difference between the Air Force and General Motors when they were negotiating and as between the General Accounting Office on the one hand and the Air Force—maybe I shouldn't say General Accounting Office.

Yes, General Accounting Office made the postaudit.

Mr. HÉBERT. That is right.

Mr. HARDY. But between our computations on the one hand, the staff's computations, and the General Motors and the Air Force on the other hand.

Those two items primarily are a question of direct labor and the forward fuselage.

Now, I would like to talk a little bit about this labor estimate first.

Now as I recall it, there were six reasons given by General Motors according to the redetermination notes for estimating the labor cost high.

Mr. Gordon, you touched on that some this morning. I am not too sure my memory is too good on that at the moment.

But in any event, you figure, I believe, for January, according to your statement this morning, which was around 16,000 hours; is that right?

Mr. MARK. We went in with 17,250, Mr. Hardy.

Mr. HARDY. You started in with 17,250?

Mr. MARK. It was later

Mr. COURTNEY. Page 5 of the supplemental statement?

Mr. HARDY. Yes. You started in using your December figures which were 17,420 and you scaled that to 17,250 as the basis for your estimate, I believe?

Mr. MARK. That was in our original price proposal.

Mr. HARDY. That was your original.

Mr. MARK. That is correct.

Mr. HARDY. Then in January your production rate stepped up pretty fast. And that was the month that you got your commendation from the Air Force for having really turned out some planes. And that was when your labor rate began to go down. Your statement is that you had about 16,000 hours per unit during the month of January.

Mr. GORDON. 15,700.

Mr. MARK. January and February.

Mr. HARDY. Slightly higher than 15,700 for January, which your statement carries.

Mr. GORDON. Yes.

Mr. HARDY. So your reduced price of $288,000, then, was based on a reduced estimate for direct labor, based partly, I believe, now to 16,000 hours, is that right?

Mr. GORDON. That is right.

Mr. MARK. That is correct.

Mr. HARDY. Now, in February did you have a further reduction? Because we are in March here now when we were doing this redetermination.

Mr. MARK. We had a gradual reduction, that led to agreement, I think, during the price negotiations, renegotiations, of accepting the Air Force's own estimate of what the hours could be produced at. That was 13,050.

Mr. HARDY. Did you accept that figure?

Mr. MARK. As I recall, Mr. Hardy, I think-well, you will notice right on that page 5 there we quoted from the testimony, in which it shows

Mr. HARDY. You quote from that, but I didn't know you ever accepted that as being the proper figure.

Mr. MARK. Yes.

Mr. GORDON. We made that statement this morning. I repeat, "In the price finally negotiated, there are 13,050 hours per unit."

Mr. HARDY. Well, of course, we don't have before us the final itemization which produced the final price agreed on.

Mr. GORDON. Neither have we.

Mr. HARDY. But if you took the 13,050 hours per unit, it comes out a lot different from the $271,000. Now unless you all change your itemization, you arrive at that.

Mr. MARK. I might add, Mr. Hardy, that there were several reductions. The $293,160 that was in our original price proposal was reduced by us to $288,160. I believe Mr. Hèbert mentioned that yesterday.

Mr. HARDY. Yes.

Mr. MARK. At the start of the negotiations.

Mr. HARDY. Yes, your major factor in that was a reduction by 1,000 hours of labor, wasn't it?

Mr. MARK. Around that, yes, a little less.

Then we reduced that several times in negotiations until we got down to 16,000, I think which was mentioned at one time, 14,500, at another, and until we finally accepted the 13,050, which was the Air Force's proposal. I don't know what the source of that was. That was the one that was included in our final price at $271,165.

Mr. HARDY. That gets me bothered now. If that is the basis of course, we will have to try to work it out with the Air Force when we get them up here, to see if we find just what factors they had in their figures, in arriving at the figure of $271,165.

Because in using 13,050 hours and using the 209-percent burden

rate

Mr. KUHN. Well, that is where the change comes in, Mr. Hardy. They didn't use the 209 burden.

Mr. HARDY. We did, but they didn't; is that right?

Mr. KUHN. We did, taken from General Motors' own percentage of burden rate in their proposal.

Mr. POWER. Well, do you feel that a burden rate remains constant? Mr. KUHN. No; it doesn't.

Mr. HARDY. As a matter of fact, we thought that that was probably high, since you all had used it in the beginning, and you cut down on your delivery time, so we thought maybe that was going to be a little higher, rather than being low.

Mr. POWER. Well, actually, we have a statement of what the experience was, I think, on our

Mr. HARDY. Yes; you show your experience of 207, as I remember it.