General THURMAN. Mr. Chairman, do you wish these people back? Mr. COURTNEY. I don't think so. Mr. HÉBERT. I don't think so. I think this gentleman here I want to talk to the man who knows about the $1,700,000. Mr. LOOFBOURROW. All right, sir. Mr. COURTNEY. Mr. Loofbourrow. General THURMAN. The Congress has cut our money and we are trying to save costs. Mr. HÉBERT. We recognize that. We are in the same boat, too, General. We are trying to save costs, too. I don't want to cut you off. At the proper time I want to give you a clear field to run. You have the ball. Do you want to make a further presentation on Wednesday? General THURMAN. As of now, no, sir. Mr. HÉBERT. As of now, no. Then Mr. COURTNEY. We are going to only talk about the $1,700,000. Mr. HÉBERT. We are only going to talk about the $1,700,000. Mr. COURTNEY. The first two segments. Mr. HÉBERT. You will be back Wednesday, General Thurman? General THURMAN. Yes, sir. Mr. HÉBERT. Then I will talk to you about your statement. Thank you very much. General THURMAN. May we bring in Mr. Loofbourrow and Colonel Thompson and let the rest of them go back? Mr. HÉBERT. Certainly. They have seen enough of Washington. (Whereupon, at 12: 35 p. m., Monday, August 19, 1957, the subcommittee adjourned to Wednesday, August 21, 1957.) STUDY OF AIR FORCE CONTRACT AF33 (038)-18503, GENERAL MOTORS CORP.-BUICK-OLDSMOBILEPONTIAC ASSEMBLY DIVISION WEDNESDAY, AUGUST 21, 1957 HOUSE OF REPRESENTATIVES, Washington, D. C. The subcommittee met at 10 a. m., the Honorable F. Edward Hébert, chairman of the subcommittee, presiding, with the following members present: Mr. Hess, Mr. Brooks, Mr. Gavin, Mr. Cunningham, Mr. Bates, Mr. Hardy, and Mr. Osmers. Mr. HÉBERT. The committee will be in order. Mr. COURTNEY. Mr. Chairman, I would like to introduce for the record a transmittal officially received by the committee from the Comptroller General, transmitting letter No. B-131543, to which is attached a letter received from the Assistant Secretary of the Air Force dated August 2, 1957, and a memorandum referred to in the Secretary's letter, without reading them at this time. There will be references made to them during the course of the inquiry, Mr. Chairman. But they will be read in the course of the proceedings. Mr. HÉBERT. Without objection. Re B-131543. Hon. F. EDWARD HÉBERT, COMPTROLLER GENERAL OF THE UNITED STATES, Chairman, Subcommittee for Special Investigations, Committee on Armed Services, House of Representatives. DEAR MR. CHAIRMAN: Attached is a copy of a letter dated August 2, 1957, from Mr. Dudley C. Sharp, Assistant Secretary of the Air Force. This is in reply to our letter of July 8, 1957, to the Secretary of the Air Force, which was attached as appendix D to our report on review of contract AF 33(038)-18503 with General Motors Corp., Buick-Oldsmobile-Pontiac assembly division, Kansas City, Kans., transmitted to you on July 19, 1957. The Air Force is obtaining additional information on this matter and when it is received we will advise you promptly as to our decision on the further action to be taken in this case. Sincerely yours, JOSEPH CAMPBELL, Comptroller General of the United States. DEPARTMENT OF THE AIR FORCE, The honorable the COMPTROLLER GENERAL OF THE UNITED STATES. DEAR MR. COMPTROLLER GENERAL: I refer to your letter of July 8, 1957, B-131543, in respect to contract AF 33 (038)-18503 with General Motors Corp., Buick-Oldsmobile-Pontiac assembly division, Kansas City, Kans., in regard to your finding of the known reductions in the subcontract prices which were not recognized by the contractor in its price proposal for the second segment of airplanes to be produced under the contract. The following is submitted in regard to each of the six numbered paragraphs respectively of your letter. 1. Although no formal minutes were recorded for the meeting on September 26, 1956, between Brig. Gen. W. T. Thurman and Mr. R. C. Mark, a résumé of such meeting was prepared as a memorandum for the file, copy of which is attached hereto. The explanation of the footnote to such memorandum is as follows: Subsequent to the aforementioned meeting, it was disclosed that an Air Force analyst had included in a detailed record of the negotiation meeting, information indicating that the negotiators had specifically questioned General Motors Corp. representatives concerning the possibility of price changes on outside material. At that time, the General Motors representatives advised the Air Force negotiators that there was no possibility of revision for the 228 airplanes that were being firmly priced. 2. The first attempt to have General Motors Corp. consider a refund was based on the internal policy of General Motors Corp. with respect to the refund of profits greater than anticipated, as reported to the Air Force by the General Accounting Office. The application for the refund was made by the Aircraft Division, Headquarters, Air Materiel Command, by letter dated June 14, 1956, to General Motors Corp. In reply thereto, General Motors Corp. refused to make any refund. The second attempt to obtain a refund was made by Brig. Gen. W. T. Thurman in the September 26, 1956, meeting on the basis that the draft General Accounting Office report implied bad faith. This was followed up by telephone as indicated in the memorandum for the file. General Motors Corp. in letter dated October 25, 1956, refused to make any refund to the Air Force under this contract. Air Materiel Command had considered the possibility of demanding a revision in price on a contractual basis, and had concluded that there is presently no possibility of recovery from General Motors Corp. under the contract. In view of its knowledge that your office was considering the possibility of recovery on some other legal theory, AMC did not further pursue the matter after that date with the contractor. 3. No action was taken by the Air Force subsequent to the receipt of General Motors Corp. letter of October 25, 1956. 4. A diligent inquiry has been accomplished but no evidence has been disclosed that any Air Force personnel had knowledge at the time you inquire about that General Motors had commitments from suppliers for parts to be used for planes in the second segment at prices lower than those listed as estimated material cost in its proposal. In this connection, Air Materiel Command has requested General Motors Corp., to furnish the dates when changes to purchase orders, involved in the $1,700,000 price decrease, were approved by the Air Force, or were furnished to Air Force personnel. 5. We have not been able to ascertain the precise dates when the Air Force first learned that General Motors had commitments from its suppliers at prices lower than those listed for the various items. In accordance with a quite common practice, the purchase orders, which would indicate any revision of prices, after approval by the Air Force were returned to the contractor and copies were not retained. We have, as stated above, requested the contractor to search its files of the orders for the approval dates, and it has indicated that the information will be available shortly. 6. The Air Force did, in fact, construe the contractor's listing of costs for outside procured materials as being applicable to all planes of the second segment, and to a considerable degree, there was reliance upon the contractor's statement that the listed prices were firm and supported by purchase orders. In this connection, the contractor was questioned specifically during the negotiations, and the contractor indicated at that time that there would be no redeterminations of price on items going into the next 228 planes. We will be glad to furnish you with any additional information you may desire. Sincerely yours, DUDLEY C. SHARP, Assistant Secretary of the Air Force. MEMORANDUM FOR THE FILE JANUARY 3, 1957. Subject: Meeting between Mr. R. C. Mark, General Motors Corp., and Gen. W. T. Thurman on September 26, 1956. 1. General Thurman and Mr. Mark, General Motors Corp., had a discussion on the above date, subject of which was the GAO report on General Motors Kansas City F-84F production. Mr. Oldani, of General Motors' legal department, and Mr. Loofbourrow, MCPPB, were present at the meeting. 2. General Thurman reviewed the criticism that had been leveled at GMC in the GAO report and the allegations from that report that General Motors had withheld certain information regarding material costs from Air Force negotiators at the time of redetermination. He further questioned GMC on the statement in their price proposal, "The unit prices shown for material purchased from outside suppliers are firm and are supported by purchase orders." 3. Mr. Mark recognized that this statement could be misleading but that there had been no such intent on the part of GMC. He further stated that their many references to "estimated material cost" in the same document indicated that all figures were GMC estimates of probable cost. In view of the fact that Government personnel made a detailed review and audit of material estimates as well as all other elements of cost, there should be no supposition that Goverment personnel considered GMC estimates to be firm prices. He further pointed out that a total price and not elements of price was negotiated and that there is no likelihood that General Motors would have negotiated a lower price than that settled upon. He added that General Motors' profits for the year in question had been reviewed by the Renegotiation Board and any excess profits had been eliminated by that Board. 4. Upon insistence of General Thurman that the situation be reviewed by General Motors in view of Air Force belief that a voluntary refund of $1,700,000 might be in order, Mr. Mark agreed that that would be done. B. D. LOOFBOURROW, Deputy Chief, Pricing Staff Division, and Deputy Director/Procurement. NOTE.-Approximately 10 days subsequent to the above meeting, General Thurman again discussed with Mr. Mark, by telephone, certain details from the analyst's notes on the questioned negotiation conference. Mr. HÉBERT. Mr. Courtney, call the witness. Mr. COURTNEY. Mr. Loofbourrow, I believe, and anybody that you have with you, Mr. Loofbourrow, on the first and second segment. General THURMAN. Do you want me? Mr. COURTNEY. Yes, General, you can sit up here; yes. Mr. Richmond at the end, Mr. Goebel, and Mr. General THURMAN. W. H. Cleland. Mr. COURTNEY. W. H. Cleland. And your official capacity? Mr. CLELAND. I was the resident auditor during the issuance of this report on General Motors. Mr. COURTNEY. Resident auditor during the issuance of this report? Mr. CLELAND. Yes, sir. Mr. COURTNEY. For whom-whom were you representing? Mr. COURTNEY. Of the Air Force? Mr. CLELAND. Of the Air Force; yes, sir. Mr. COURTNEY. Were you a resident at the Kansas City plant? Mr. COURTNEY. During all the time that we have discussed in relation to this contract? Mr. CLELAND. On the first segment. Mr. COURTNEY. On the first segment only. |