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costs all the way down and we may only talk an hour on this one. We may talk a day on labor-hours, 2 days on that. You can't tell. It all depends on how complex it is. But we don't say "Well, look, we are going to buy $2,242 for overtime.” We never do that. We come through and listen to their story, see how they got it. We already have a figure, which is in our mind. We then decide what is—are we right, are they right, who is right? We come up—I first told them a figure, I believe 260,000, or 262,000, whatever it is. The first thing they said—I didn't tell them what we made it up in so many dollars of material and so much labor.

I said a price of $262,000. They said, “How did you get it? How do you get anything like that?” Then they start in explaining where we are wrong.

So actually you haven't agreed on any particular elements of cost.

Mr. COURTNEY. No, but you had no real dispute, as a matter of fact, Mr. Saxton, on the item of material ?

Mr. Saxton. Yes, we had quite a dispute.

Mr. COURTNEY. Wait a minute, now. Either in your notes, that are shown and finally developed on this board—both in your figures which you submitted as your final determination as the distribution of those figures, or as finally proved by the General Accounting Office, which of course is after the fact

Mr. SAXTON. Yes.

Mr. COURTNEY. So you would say you were pretty much on the nose, wouldn't you say, on material cost?

Mr. SAXTON. On materials, yes.

Mr. COURTNEY. And with respect to the other smaller items on that board-overtime and night shift-you were pretty much on the button with that, weren't you?

Mr. SAXTON. Yes.

Mr. COURTNEY. The only items about which you seem to have differed as it finally got down—now you are shaking your head, meaning “yes” ?

Mr. SAXTON. Yes, two items.
Mr. COURTNEY. Was with respect to burden?
Mr. SAXTON. Yes.

Mr. COURTNEY. And with respect to general and administrative overhead?

Mr. SAXTON. Yes.

Mr. COURTNEY. Well, what would control your determination on the burden factor?

Mr. SAXTON. Well, the burden factor, as General Motors figured it

Mr. COURTNEY. No; let's see how you figured it.
Mr. SAXTON. How did I figure?
Mr. COURTNEY. I want to know what you figured.
Mr. SAXTON. We calculated that-

Mr. COURTNEY. You better use "we,” too, because you have all this team of Air Force people.

Mr. SAXTON. I have had a lot of advice.
Mr. COURTNEY. That is right.

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Mr. SAXTON. I used it and I needed it here, too, believe me. We have

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paper here that shows my calculation. We came up first with this figure of $58,000-$58,411. We arrived at that figure, which was our tentative figure. We hadn't talked to General Motors.

It is our experience that you can't come up with a price before you have talked to the contractor. You can get a lot of inputs and a lot of good information. But you can come to no conclusions and you would never be able to negotiate price without getting the contractor's explanation. And a lot of times his explanation—not in this case where we had to go up, but a lot of times after we talk to him we will revise ours even below it, and at other times we will buy it.

In this case we calculated $58,411 from the last airplanes, I believe, which they produced in December 1954.

Now, that was—we didn't use a percentage. It was not a percent. The percentage is the result of the dollars.

. The dollars is General Motors' system of figuring overheads. They don't figure on a percentage basis. Of course

Mr. COURTNEY. Let me ask you this question : Mr. Saxton, at the time all of you gentlemen sat down at this negotiation table, did you know you were negotiating a final price!

Mr. SAXTON. Yes, sir; I surely did.

Mr. COURTNEY. In other words, you knew that the contract was to be completed according to the information you had within the 90 days extended from the period in March, roughly? Mr. SAXTON. Well, I figured June. Mr. COURTNEY. You figuredMr. SAXTON. The best information I could get was that they would probably ship the last plane or deliver it in June. Mr. COURTNEY. In June? Mr. SAXTON. That was my information. Mr. COURTNEY. And actually, I think the last plane was delivered inMr. SAXTON. I have been told May 29; is that right? Colonel MEDBERRY. Twenty-eight. Mr. SAXTON. Twenty-eight. Mr. COURTNEY. So far as delivery schedule was concerned, you were Mr. SAXTON. Yes. And that is an interesting thing, right there. Mr. COURTNEY. That, of course, is very interesting to us. Mr.

SAXTON. Yes. Mr. COURTNEY. We want to know what you had in mind. Mr Saxton. Their overheads, for 1 month, averaged around $2,400,200 a month, and the difference between mine and theirs is in this figure right there, when I run it out to June.

Mr. COURTNEY. Is in that figure. Now, what did the plant repreplant representatives tell you about the amount of material that was sentatives--you were the leadman in this negotiation. What did the

In this plant in March and was on order for delivery?
Mr. Saxton. Material going into the airplane ?
Mr. COURTNEY. Yes.
to that question ?

Colonel MEDBERRY. Mr. Courtney, possibly I could address myself

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on hand?

Mr. COURTNEY. If you can answer the question. We want to know what got to this table.

Colonel MEDBERRY. Yes.
Mr. COURTNEY. All right.

Colonel MEDBERRY. I will have to go on memory. We have nothing in the file that indicates this as an exact fact. But basically, I think probably at this point in time the majority of the material was on hand, that went into the airplane. I think a number of the components were rapidly coming to completion. In fact, the machining department, which is probably the first operation, had closed at that time.

However, I think that the General Motors people and the Air Force people certainly could not have anticipated a runout at as early a date as they did.

Can we look at the schedule that they actually made for just a moment?

During the year of 1954 these people progressed along-starting in January with 5 airplanes, and they progressed up until December, they had, for the first time on their schedule of 50 airplanes per month. Mind you, the tooling and the setup of this plant was geared to 50 airplanes a month, or two-something per day.

In January they exceeded that. They went up to 63 airplanes. In February they droped back to 62.

It was our best estimate, going into the negotiation, that they were leveling off at about sixty-some-odd, maybe 65 airplanes, which would take them out at the end of June or early in July.

Mr. COURTNEY. Now, the contract date, as I recall it, Colonel, for the completion was July of 19

Colonel MEDBERRY. The contract date was in August.
Mr. COURTNEY. Was in August?
Mr. SAXTON. August.

Colonel MEDBERRY. But it was obvious to us at the time we went to the negotiating table that they had caught up. They had been considerably behind schedule in 1954. They had caught up, and for the first time had delivered the schedule that they were required to, of 50 per month.

Now, we could see that the various components that were feeding into this assembly were getting on toward completion. However, the really controlling factor was the final assembly line and the flight time.

As I said before, this was geared to 2 airplanes a day, 2 plus per day. They actually went up to 3 per day, 4 per day, and I think on one occasion actually got 6 airplanes per day. This performance at this time was just, in my opinion, little short of miraculous.

We couldn't anticipate it, and I am sure General Motors couldn't.

Mr. COURTNEY. But you knew, didn't you, at the time these negotiations took place, that General Motors had already accelerated its schedule and was outperforming itself, didn't you?

Colonel MEDBERRY. We knew they had produced 63 in January, had dropped down to 62 in February, and at the time we went to the negotiating meeting for the month of March they had produced, or we had accepted some 49 airplanes. This was around the 20th, when we left the factory.

Mr. COURTNEY. I think the record shows that they delivered 85 in the month of March?

Colonel MEDBERRY. That is correct.
Mr. COURTNEY. The month of the negotiations.
Mr. SAXTON. Yes.
Mr. COURTNEY. That is right; isn't it?
Colonel MEDBERRY. That is correct.

Mr. COURTNEY. Now, on the 25th of March, where was the material that went into these 85 planes? Fifty had been produced and 35 yet to come, with 5 days in March. Where was the material for these planes ?

Colonel MEDBERRY. We can't answer exactly, but substantially the majority of it was

Mr. COURTNEY. It was all delivered, wasn't it?
Colonel MEDBERRY. Was on hand or available.

Mr. COURTNEY. It was either on hand or deliverable. It was on hand and you can see it?

Colonel MEDBERRY. As I said, the limiting factor was the ability of those materials to be assembled in an airplane that was geared to produce two plus per day.

Mr. COURTNEY. And wasn't there material on hand and in the factory for the segment to follow in the next quarter at the time you were conducting these negotiations!

Colonel MEDBERRY. Oh, Mr. Courtney, I am satisfied, without knowing exactly, that virtually all material to complete the contract. was there.

Mr. COURTNEY. To complete the whole contract?

Colonel MEDBERRY. Yes. As I said before, the machine shop had already completed all of its operations.

Mr. COURTNEY. Then am I to understand that the only thing about which you were in any doubt at the point of negotiation was the time within which the material on hand could be assembled into a plane?

Colonel MEDBERRY. This is not the only thing we were in doubt on. There were a number of unknown factors that we didn't have, as there are in every negotiation.

Mr. COURTNEY. What were they?

Colonel MEDBERRY. If you are discussing production, the primary limiting factor in production at this particular plant was how fast could they take those components, put them down on an assembly line that was geared to build 50 airplanes a month.

General Motors, when they revised their estimate, said they could do it by July 8.

In looking at their performance and figuring that they had leveled off at about 65 airplanes a month, this seemed like a pretty reasonable thing to us. We based it on that—we based our planning on that sort of a basis.

Mr. COURTNEY. Then you could forecast, could you not, that if General Motors were to make any profit over what you had forecast, it would come as a result of an accelerated performance schedule; wouldn't it?

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Colonel MEDBERRY. I suppose that is one way, with increased efficiency that they might utilize in making a profit over the factor that we had figured in estimating the price.

Mr. COURTNEY. What did you say to that, Mr. Saxton? What do you say to that?

Mr. Saxton. That is right. I agree with that.

Mr. Kuhn. Colonel Medberry, you said that in March, prior to going into negotiations, that the Air Force had accepted approximately 40 of the 85 planes ?

Colonel MEDBERRY. It was 49, I believe, Mr. Kuhn.
Mr. Kuhn. Forty-nine, that were accepted by the Air Force in
March; is that correct?

Colonel MEDBERRY. That is right.
Mr. Kuhn. How many of the 85 were produced at that point!

Colonel MEDBERRY. I can't answer that question, sir. Unfortunately, the production records are not something that we maintain for a number of years. I just can't, frankly, answer it. I am

Mr. Kuhn. Well, would it be a fair assumption to say that the majority of the 85 were produced ?

Colonel MEDBERRY. No question about it. They were produced; out of the factory and in the flight-test stage.

Mr. Kuhn. All right. Then there would be a balance, then, of 179, making a total of 599, that were still to be produced between that point and the end of the contract; is that correct?

Colonel MEDBERRY. I haven't checked your figures.
If you say so, that is fine.

Mr. Kuhn. Ninety-one in April and 88 in May is the record that we have before us for acceptance by the Air Force.

Colonel MEDBERRY. All right.

Mr. Kunn. Of that 179, how many would you say had been produced in total, counting all the partial completions of that 179? What percentage of that 179 had been completed ?

Colonel MEDBERRY. I can't answer that question, Mr. Kuhn. Very frankly, my memory isn't that good.

The final assembly line, I am sure, was filled with airplanes. The flight-test section, which generally had about I don't recall how many airplanes they had in there at that time. But the flight section, I am sure, was filled with airplanes.

Other than that, I can't honestly remember.

Mr. Kuhn. Then as I understand your testimony, you believe that most or all of the 85 that were finally accepted by the Air Force in March had been produced !

Colonel MEDBERRY. Generally completed.

Mr. KUHN. And that 49 had been delivered. That left 36 for acceptance by the Air Force in that month?

Colonel MEDBERRY. Yes.
Mr. Kuhn. And these 36 were accepted between sometime early,

Colonel MEDBERRY. Between, say, the 20th of March, when we left the plant, and the end of the month.

Mr. KUHN. And the 31st?
Colonel MEDBERRY. Yes.

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