Mr. POWER. Yes; that is right.

Mr. HARDY. So, actually, it didn't come out too far wrong.
Mr. POWER. No; 207 was what was used.

Mr. MARK. 207 is what we put in our original price proposal, but the reductions in the labor that was negotiated out to the 13,050 and the reductions in the burden itself finally wound up with a burden rate of about 258 percent in the negotiated price.

Mr. HARDY. Well, now, I am having a little trouble understanding that. Maybe we will have to try to get Air Force testimony on that, because you run your burden rate up when you reduce your delivery schedule. Now, that seems a little bit unusual, doesn't it?

Mr. MARK. Mr. Hardy, if we had reduced our labor hours in half, why, the burden rate might have been 500 or 600 percent. If you had reduced the productive labor hours in half or eliminated them altogether, why, the rate would go on into infinity.

The rate itself-we held the dollars of burden to do the job to produce the production schedule that was in the price proposal.

Mr. HARDY. I am having a little trouble understanding where we come out if we agree to a reduction in the number of hours that we are going to apply per unit and increase the burden rate by more than enough to offset it.

Mr. MARK. As a matter of fact, we reduced-I could give you some figures here that may help to clear it up.

In our original proposal we had productive labor of about 34,000 on a burden of 72,000. That shows up here. That develops a rate of 207.

We finally wound up with, instead of 34,000 productive labor, with 26,000 of productive labor, and a burden of $72,000 reduced itself to $67,000.

So the labor went down much faster than the burden. The result was that the 207-percent rate picked up to 258.

Mr. KUHN. In the negotiated price?

Mr. MARK. That is all on the negotiated price.

Mr. KUHN. Yes.

Mr. HARDY. Of course, we all realize that this matter of burden is a variable proposition, and you can't tie it too closely to direct labor, but that is the best gage we have.

Mr. MARK. Yes.

Mr. HARDY. I had thought that if you were able to reduce your total manufacturing period, at least you would reduce some of your total burden. Wouldn't you?

Mr. BATES. Sure, by dollars.

Mr. HARDY. That is right, dollarwise.

Mr. BATES. But not necessarily with percentage.

Mr. HARDY. Not necessarily the percentage, but dollarwise.

Mr. POWER. Not the percentage.

Mr. HARDY. Not the percentage, but dollarwise you would.

Mr. POWER. Yes. That is what he said.

Mr. HARDY. So that is where I get lost in this thing. Your percentage might go up.

Mr. BATES. That is right.

Mr. HARDY. But your dollars would come down.

Mr. BATES. Because you spread it over a smaller number of hours.

Mr. HARDY. You spread it over a smaller number of hours, but on top of that, you have a reduced number of dollars to spread. Mr. BATES. That is right.

Mr. POWER. That is right.

Mr. GORDON. We have to remember the fact that there was considerable variation in the number of units produced per month on this contract. It was quite unusual in that the acceleration in production at the end of this period was quite unusual due to a very rapid elimination of the problems which had bothered the entire contract through its history.

Mr. HARDY. Well, that just shows that General Motors were finally getting into stride.

Mr. GORDON. No, not 100 percent, although we are perfectly willing to take credit for it.

Mr. BATES. You might as well take it, when you can get it.

Mr. HARDY. Well, actually on this labor question, I had not realized until we just got into this colloquy that you had accepted that and just increased your burden factor there. But I was going to ask you which one of your reasons for keeping your labor high proved to be wrong. Actually you came out with a much better labor figure than that, even.

Mr. POWER. I might just comment on it. I am not too familiar with this kind of a drop in labor hours or the study of it. But I have been reviewing it and trying to understand it myself.

I find here that in December of 1954 our actual direct labor hours were 17,420. Then the Air Force made an audit of our experience in January. When they did, you came up with a figure of 15,700. So you got a drop at that point.

Our people didn't agree with that figure, and at the time of the audit mentioned, they thought it was more properly 16,000 hours according to their studies.

Then when they went into the negotiations, the Buick-Olds-Pontiac representatives presented a proposal which had a direct labor content of 14,500 hours. That was based directly on the latest experience they had.

Now there was a trend there. And I think that is what the Air
Force argued for. That 14,500 was our actual figure at that time.
Mr. HARDY. Then you knew you could do better than you did?
Mr. POWER. What?

Mr. HARDY. They knew you could do better than you did?
Mr. POWER. That is about the way that happens, as I see it.

Mr. HARDY. There is one other thing in this other price redetermination that I want to talk about a little and that has to do with that material business.

Now there is a difference in the figures that you have presented and the figures that are contained in the Air Force redetermination notes with respect to the Fisher price on this forward fuselage.

I wonder if we can clear that up as to what did transpire. According to the Air Force notes on the redetermination conference-well, let's read it. The Air Force had apparently put a considerably lower estimate on the cost of this forward fuselage. Evidently projected from figures that they had back several months earlier.

Mr. POWER. Yes.

Mr. HARDY. And apparently they projected the price down a little faster than Fisher was able to reach?

Mr. POWER. Yes.

Mr. HARDY. Which maybe their experience in estimating this labor just didn't hold up with Fisher quite as well as it did with BOP.

But anyway, according to the minutes, in trying to resolve this difference as between their price, that is, their estimate and the $45,274 which was on the General Motors estimate, the notes say this:

To support his position, contractor then produced a priced bill of material and other Fisher costs which upon further examination supported only $40,274. Now, in your statement this morning, Mr. Gordon, you referred to that, and you said:

An evaluation of this proposed price as a submission should be made on the basis of cost experiences December 1954, not the cost experience end of March 1955.

Well, there again we run right head on to a question which looks like it might be a conflict of fact.

I believe that we have the impression that as of the date of this negotiation all of these fuselages had been delivered by Fisher. If that is the case, there should have been a firm figure which would-I am not talking about the "firm" as used here.

Mr. HÉBERT. You don't mean actual figure, now.

Mr. HARDY. It should have been an actual figure, that would have eliminated any possible guesswork insofar as the estimate is concerned. Mr. GORDON. That is right.

Mr. HARDY. Now, according to the negotiators, the bill produced supported a price of $40,274 per unit. And that, incidentally, is exactly $5,000 per unit less than the price that was listed in your itemizations.

Mr. GORDON. That is right..

Mr. HARDY. Now, I tried to follow your breakdown of it this morning, but it didn't agree with these figures, and so I couldn't understand

it.

I wonder if you could shed any light on it.

Mr. MARK. Mr. Hardy, I might try to confuse you further, if I can. The $45,274, that was the fuselage, I believe, plus some small parts that BOP furnished

Mr. GORDON. Longerons and similar items.

Mr. MARK. Yes. That was put into our price proposal which was dated early February, February 3, I believe. That was based on fall of 1954 experience.

Mr. BATES. October 31.

Mr. MARK. October experience.

Mr. BATES. October 31.

Mr. MARK. 1954. And again during the negotiations the subject was revealed thoroughly. Of course, the negotiations took place the latter part of March. At that time we had much later experience. During the negotiations the $5,000 in question was negotiated out. So we finally wound up

Mr. HARDY. I am not talking about negotiating it out. I am talking about what the actual was here now.

Mr. MARK. The actual is about the same.

Mr. POWER. All right. How many units were delivered-
Mr. MARK. There were 200-

Mr. POWER. Just a moment. At the time of negotiations? Mr. MARK. About 270, I think it was. I understand 270 were delivered at the time of the negotiations out of a total of 300.

Mr. POWER. That is right.

Mr. BATES. When was this negotiation?

Mr. POWER. March.

Mr. MARK. In the latter part of March.
Mr. TYLER. The 23d, 24th, and 25th.

Mr. MARK. 22d of March.

Mr.BATES. February 3d was what date?

Mr. POWER. That was the submission.

Mr. BATES. Submission.

Mr. MARK. We made up figures at that time.

Mr. BATES. That is when you submitted.

Mr. POWER. Yes.

Mr. GORDON. It was a submission of the proposed prices

Mr. BATES. Based on October 31.

Mr. GORDON. Based on October 31, 1954.

Mr. HARDY. I can understand why that submission might have been used, if you didn't have a more recent figure. But if you had a firm, actual, more recent figure, then again I get to the same problem that we were discussing a while ago.

It becomes fictitious if it added $5,000 per unit.

Mr. POWER. Well, at that particular time BOP had its own costs through December 31, when it was preparing this submission that it made on February 3.

It had, of course, the prices from its various subcontractors. Fisher Body division is, of course, a part of the same corporation, but for all practical purposes in the business, in practical operation, Fisher Body is a contractor, and they had given them a buildup of their price through October 31.

That price went into the bill of materials, or the submission. But I don't believe there was any misunderstanding as to the data as of which that price was.

Mr. HARDY. That may be correct.

Mr. POWER. Let me continue. The Air Force then asked for more up-to-date figures.

Fisher was asked to present their best estimate based on actual costs, I think, through January 31, at least the latest information available. And they prepared that for them. But they included in there an estimate with respect to the remaining units that Fisher was to deliver, which was how many?

Mr. MARK. Thirty.

Mr. POWER. No, that 30 is at the time of the negotiations, wasn't it? Mr. MARK. No, 270 had been delivered up to February.

Mr. POWER. Through February.

Mr. MARK. Yes.

Mr. POWER. This submission, as I recall it

Mr. MARK. Was in February, February 3.

Mr. POWER. Yes. You had at least 30 units. I thought that the figures were made up as of January 31. Is that clear? Which way is it?

Mr. MARK. As of February 28.

Mr. POWER. They were made up as of February 28. They were actual costs through that date and an estimate with respect to the next 30 units. And that comprised this price. And that became eventually the cost upon which the final price was negotiated out.

Mr. HARDY. Now, let's look at these notes a minute. I think you will understand why I have some more misgivings about this whole thing.

Now, I don't question the manner in which your cost estimate was drawn up initially. It was drawn up, I believe you said, in February. Mr. POWER. Yes.

Mr. MARK. February 3.

Mr. HARDY. You used whatever figures you had prior to that time. I believe you indicated you used the figures

Mr. MARK. October 31.

Mr. HARDY. October 31. All right.

Now that might have been the best figures that you had at that time. But according to the negotiation minutes, the last one of these things was shipped before this negotiation took place.

Mr. POWER. Not according to our information.

Mr. HARDY. There is this statement in the minutes:

Fisher shipped the 300th forward fuselage to BOP in the first week of March 1955.

Now, this was prior to the time of your negotiations. So the last one-according to this and that is all I am going by. It may not be accurate. If it isn't, let's clear it up.

Mr. POWER. I think at that point-I think I know what the confusion is right now.

All but 30 units had been delivered through February 28.

Mr. MARK. Right.

Mr. POWER. In March, they were negotiating these prices. They had shipped the balance of the 30 sometime during the month. Mr. HARDY. Yes.

Mr. POWER. And through that month. They had not been billed or priced-you understand what I mean.

Mr. HARDY. Yes.

Mr. POWER. That is the reason

Mr. HARDY. I think I can follow that.

Mr. POWER. The question is shipment as against

Mr. HARDY. Against billing.

Mr. POWER. Finally, that is right.

Mr. HARDY. That is right. I can understand that. All right.
Now, here is further reading from the minutes:

However, the Air Force auditors were able to observe certain trends in November and December while checking the books. Fisher shipped the 300th fuselage forward in the first week of March 1955. It was pointed out to contractor's representatives that as of this time most of Fisher's costs were known and it appeared reasonable to compare the $45,274 per unit quotation against the actuals recorded in November, December, and the first 2 months of 1955. The Air Force asked for that.

Mr. POWER. That is right.