Mr. HÉBERT. It amazes me the way General Motors underestimates and overestimates these things, with their experience. Mr. HARDY. Let's see if we could find out how you added this thing up and what the specific items were. Do you have a tabulation of them that came up to that figure, $271,165? Mr. MARK. We do. Mr. MIDDLESWORTH. We have one. Mr. HARDY. I wonder if we could have a copy of it? I wonder if you know whether that is identical with the Air Force tabulation? Mr. MIDDLESWORTH. No, we do not know that. Mr. HARDY. You do not know how they got it? Mr. MARK. These are just our calculations based on our own conclusions as to how we got the price. Mr. HARDY. Do I understand that your negotiators added up and the figure came up to $271,165, and the Air Force did the same thing, so you reached agreement? Mr. MARK. There are a lot of other figures on there. Mr. COURTNEY. I know. But what are the figures that relate to the question? Mr. MARK. Can I read them? Mr. COURTNEY. Just read them into the record. Mr. MARK. I will submit them later. I just happen to have a lot of other things on there. If Mr. Gordon wants to submit it. Mr. GORDON. Oh, no. Go ahead. Mr. MARK. I will read them, however. The Fisher Body material-and this is the final as we tabulated it was $40,274. Our other allied-I can't give you the detail on that at the moment-was $11,711. The outside material was $95,647. The inbound transportation was $766. For $148,398. The direct labor was $26,032. The burden was $67,068. Mr. COURTNEY. Wait a minute. Repeat that, will you, please, on the direct labor? Mr. MARK. The direct labor was $26,000 Mr. COURTNEY. $26,000 Mr. MARK. 032. Mr. COURTNEY. $26,032. Mr. MARK. The burden, $67,068. The overtime premium, $1,492. Flight, $793. Repair of Government-furnished-GFAE, I think they call it$793. I may have that confused. I think that is $200. I am sorry. The factory cost adjustments-a red figure of $459. Mr. HÉBERT. One second. May I go back there, please, sir, to theis it repair of Government? Mr. MARK. Government furnished. Mr. KUHN. GFAE. Mr. HÉBERT. GFAE. What did you finally conclude on that? Mr. COURTNEY. Two hundred. Mr. MARK. Two hundred. Mr. HÉBERT. All right. Mr. MARK. And next, what we call factory-cost adjustments, a red figure of $459. And the general and administrative expense, of $5,445. Adding up to a total of $271,165. Those were our own calculations. Mr. HÉBERT. And that was the final figure agreed upon? Mr. MARK. I think there was the final figure included some engineering change orders. But for the plane itself at that time, that was the final figure. Mr. HÉBERT. $271,000 agreed upon? Mr. MARK. Yes, sir. Mr. COURTNEY. The change orders were added on by special pricing? Mr. MARK. That is right. Mr. GORDON. That is right. Mr. COURTNEY. Separate pricing, I mean. Mr. MARK. That is correct. Mr. COURTNEY. So that wouldn't be an issue? Mr. MARK. No. Mr. HÉBERT. May I ask one question here? Turn back to the direct labor amount, and then to the burden. In other words, as I understand it, the direct labor amount-you start off with the 17,000 hours and then finally came into agreement with the 13,050 hours; is that correct? Mr. MARK. That is correct. Mr. HÉBERT. And then based-let me try to get it right, now. Based on the 16,000 hours, you had a burden of 207 percent? Mr. MARK. No, sir. Based on the 17,000 hours, we had a burden rate of 207 percent. Mr. HÉBERT. 207 percent. Now, this burden rate is what I am a little confused on, too. In other words, when you estimate your hours, the direct-labor hours, you then apply against that a certain percentage scale; is that correct? Mr. POWER. No. Mr. MARK. No, sir; it works the other way around. We take our direct-labor hours at the rate per hour. In this case, in the original estimate, that 17,000 gave us, at the going rate, some $34,845, which is the same up there. Mr. HÉBERT. Yes. Mr. MARK. And the burden was $72,176. By dividing one into the other, we get 207 percent. Every time one changes or the other changes, why, the result changes. Mr. HÉBERT. Yes. In other words, what I am trying to ascertain here: You agreed to the Air Force figures of 13,050 hours? Mr. MARK. That is correct. Mr. HÉBERT. And then that represented 207-that is correct, again? Mr. MARK. Well, the final price, Mr. Hébert? Mr. HÉBERT. Yes. Mr. MARK. The final was-I think I said the 13,000 hours resulted in about $26,032 of productive labor. That is in the neighborhood of 13. Mr. HÉBERT. What percentage did that represent according to your burden? Mr. MARK. Two hundred and fifty-eight percent. Mr. HÉBERT. Well, so all you did-you were generous and gracious and kind, and told the Air Force, "Why, sure, we will accept your 13,000 hours". Mr. MARK. I am sorry, I didn't Mr. HÉBERT. “Then all we will do is up the cost on the other." Mr. MARK. That isn't correct. Mr. HÉBERT. That is what I am trying to find out. The figures come out the same, though. Mr. POWER. Tell them what you did. Mr. MARK. The original labor was $34,845, and it reduced to $26,032. The original burden was $72,176 and it was reduced through negotiation to $67,068. Mr. POWER. There is your reduction. Mr. MARK. Both sides of the equation changed, in relation one to the other. Mr. HARDY. If I could get in this just for a little bit Mr. HÉBERT. I am just wondering—I am glad I am running for Congress, instead of trying to do this. I will know how to figure out the uncounted precincts in the ends and find out where I am. Mr. HARDY. What you did here: You reduced your burden by an amount of $5,000 per unit. Mr. MARK. That is correct. Mr. HARDY. While you were reducing your direct-labor hours from 17,000 down to 13,050. Mr. MARK. We took about $10,000 out of our labor. Mr. HARDY. All right. I know you did. Mr. MARK. And only about half of that- Either you were right or you were wrong on your estimate. It turned out you did a pretty good job on that estimate on direct labor. But the point I am trying to get at is this: If you reduce your direct labor by 25 percent, you ought to increase your delivery schedules by 25 percent. Mr. MARK. I don't feel I am qualified to answer that. Mr. GORDON. No, that is not quite true. Mr. HARDY. It couldn't be very far wrong. Mr. GORDON. Particularly this period we are speaking about, when there was a rapid acceleration of the rate of delivery of airplanes due to the elimination of many of the difficult problems that I had mentioned. previously. Mr. HARDY. Yes, but if it takes you 25 percent less time and you got the same labor force, it certainly is going to come off your line that much faster. Mr. GORDON. That is true. Mr. HARDY. So if they come off the line that much faster, then your delivery schedule is speeded up approximately the same percentage. Otherwise, you got somebody sitting on their hands. Mr. GORDON. But our record was not on the same percentage basis as you speak of. The acceleration in production over this period of time was much greater than that. As a matter of fact, there were 94763-57- -16 intervals in there in which we actually increased production of airplanes with a decrease in direct labor, in a fairly constant manufacturing burden. Mr. HARDY. Well, I was going to get to that in a minute. I hadn't talked about the manufacturing burden that was applicable. I was talking about the acceleration of your delivery rate, which it would seem to me to indicate that at the time your burden would be applicable would be reduced by about 25 percent. I was about to point out that you had I don't recall what your period is here. When did you finish the last delivery? In August? Mr. GORDON. No; in May. Mr. COURTNEY. May. Mr. GORDON. 1955. Mr. MIDDLESWORTH. The schedule was August. Mr. HARDY. May 1955. So as a matter of fact you completed these within 3 months-within 90 days after your price-redetermination conference? Mr. GORDON. That is true. Mr. HARDY. You don't know-your original schedule was August. Mr. GORDON. Our original schedule was August. Mr. HARDY. So that you cut your delivery time in half? Mr. GORDON. No. Before we went into the price redetermination meeting, the cost estimates had already been reduced on the basis that the delivery schedule would be accelerated by 1 month. Mr. HARDY. Well, I understood that that was in your reduction to $288,000. Mr. GORDON. That is right. Mr. HARDY. Apparently it didn't have too much to do—yes, you had right much in burden there, too, apparently. Mr. MARK. It was both, Mr. Hardy. Mr. HARDY. The point I was trying to bring out was that in reducing and in speeding up by 25 percent over your own estimate, you reduced your burden only $5,000, which is in terms of dollars-5,000 as against 72. Your percentages were pretty small. Mr. GORDON. That was due to the fact that a considerable portion of those people in those operations that are involved in burden are maintained almost regardless of the production rate, in order to have an efficient organization to produce airplanes. Mr. HARDY. Yes; during the period of production. Mr. GORDON. That is what we are speaking of. Mr. HARDY. I know, but I am talking about where you have shortened the period of production. You certainly eliminate those people. Mr. GORDON. At the end of the contract? Mr. HARDY. That is right. Mr. GORDON. That is right. Mr. HARDY. What I am trying to get at is this: I have a little trouble understanding the basis on which the burden rate-your burden would have been reduced-I am not talking about your rate, but the burden dollars would have been reduced by such a small amount when you have acknowledged the likelihood of a speedup in your production rate by 25 percent, approximately, because you cut from 17,000 to-I used the 17,000 figure because I am comparing to your $72,000 burden that showed originally. You cut down to 67,000. You only reduced it by $5,000. Mr. GORDON. Yes. Mr. HARDY. And you reduced your direct labor hours from 17,000 down to 13,050. Which means that your direct labor hour, per manyou are going to turn these things out at least 25 percent faster. Which should shorten your delivery time by 25 percent. Which ought to have a considerable impact on the burden. That is what I am trying to get at. But still you reflect only $5,000 in your estimate and according to GAO it actually turned out to be $48,000 as against $67,000. That is where you made a big hunk of additional profit. Mr. MARK. Mr. Hardy, we didn't know at the time of the price negotiations that we could do any better than 1 month earlier than the completion date in the contract, agreed upon. Mr. HARDY. Well, you obviously did speed up a lot faster than you had anticipated? Mr. MARK. That is right. Mr. HARDY. Because otherwise, you were anticipating it 1 month and actually you had 3 months. Which is a compliment. But it looks to me like the Air Force sure didn't argue with you too much on this burden proposition, if that is the way they figured it, too. Mr. HÉBERT. The line Mr. BATES. I wonder if you could indicate Mr. Hardy has been asking about it and Mr. Hébert checked into it earlier-concerning the degree of correlation between a reduction of cost of burden when you have a large reduction in direct labor. In other words, what are the factors that delay the burden figure in relationship to the direct labor? Mr. MARK. I can't give you a figure, Mr. Bates. Mr. BATES. Give the reasons. Mr. MARK. The reasons Mr. BATES. Give the reasons. Mr. MARK. I might say partially are stated on page 6 of the supplemental statement. We have a lot of indirect labor, like supervision, inspection, and you will have a man doing an inspection job and he will inspect 1 piece a day or 500 a day and he just gets so much money. You have taxes and insurance. We have as a large part fixed expense, which is fixed in amount, and doesn't vary in relation to volume or production. Mr. BATES. Because you have a lesser number of days involved. So in the aggregate it is considerably less. You think the answer is: it is spread over a wider base. Mr. MARK. That is correct. Mr. MARK. A wider or a narrower base, depending upon what happens to your production schedule. Mr. BATES. That is right. So that is the answer to the inquiry, isn't it, that Mr. Hardy was making? Mr. HARDY. I was cheating. I didn't hear it. Mr. BATES. You want to go ahead. We were asking, Porter, why there is not a greater correlation between the reduction in burden with the reduction in labor cost. That was the point I was on. I was ask |