General THURMAN. As a basic principle; yes, sir.

Mr. HÉBERT. "The negotiation of a contract type prior to accomplishment of the overall pricing negoitation is not a sound pricing procedure."

General THURMAN. In the abstract, yes, sir; I would agree with it. Mr. HÉBERT. Well, wasn't it this kind of a contract?

General THURMAN. Yes, sir; but the type of contract depends on the procurement situation that is involved. As a matter of general policy, certainly as of now, knowing what I do now, I think that a different type of contract would have been better here. As a general principle, it certainly is not a good idea to agree in advance of negotiations either on a fixed rate of profit for bid purposes or on the type of contract, because those are things that should be negotiated in the course of the contract.

Now, different circumstances may produce different results and justify exceptions.

Mr. HÉBERT. Well, that being true, then this type of contract, even in hindsight I will say in hindsight, was not the proper contract? General THURMAN. Õh, I think you are bound to reach that con

clusion.

Mr. HÉBERT. All right. Now, let's reverse the order and say: Based on the premise of what I have just stated, which existed at the time, then it still wouldn't have been a sound contract if you used those policies of pricing, would it?

General THURMAN. I am afraid you got me confused, Mr. Chair

man.

Mr. HÉBERT. Well, I am trying to establish just a conclusion, that is all.

Now, let us take our premise. I will make this statement on the premise of a contract. "The use of predetermined profit rates is not consistent with good pricing policy. The negotiation of a contract type prior to accomplishment of the overall pricing negotiation is not a sound procedure."

Now, that is a statement of policy, isn't it?

General THURMAN. Yes, sir; and in the abstract I agree with it. Mr. HÉBERT. That is just as true today, in 1957, as it was the day that this contract was entered into; is that not correct?

General THURMAN. Yes, sir. But I hasten to add that today, or then, or 10 years in the future, conditions exist which would justify an exception to that, or any other policy, almost.

Mr. HÉBERT. You think a condition existed then justifying this policy with General Motors?

General THURMAN. Well, I would say it this way: That under the circumstances which then existed, this type of contract and the agreement reached with respect to profit rate was not wholly unreasonable. Mr. HÉBERT. Would you agree with this statement: "This contract got off on the wrong foot by an agreement with the Chief of the Procurement Division, AMC, with the General Motors Corp. to (1) use a profit rate of 8 percent and (2) to use a form II-B-type contract." General THURMAN. In the light of the way that things turned out, yes. As of then, that is not necessarily so. Now, you apparently are reading from an internal memorandum that was given to me at my request, and I inadvertently left it in this room the other day. It has not been asked for by the committee or given to it.

Mr. HÉBERT. Well, I would say this, General: The committee can't ask for things that it doesn't know exist. Now, I have given you every opportunity today to present that memorandum. I think the committee should have the benefit of the memorandum to which you refer. I think it should be put on the record.

General THURMAN. Well, you apparently have it, Mr. Chairman. I left it here inadvertently. I certainly have no objection to it being entered in the record.

not.

Mr. HÉBERT. I don't know whether you left it here inadvertently or I have a copy of it. At least I didn't find it inadvertently. What I am trying to develop is the fact why wasn't the committee given the benefit of this memorandum?

General THURMAN. Well, I think I can answer that.

Mr. HÉBERT. Because it is very enlightening in trying—we are trying to find out exactly what is in this memorandum, which we were not given the benefit of and to which I gave you every opportunity to add and advance on Colonel Thompson's statement.

General THURMAN. I am sorry, I did not know what you were driving at.

Mr. HÉBERT. I couldn't have been more clear. I asked you if that was the statement and asked you if you had anything to add to it, and you said "No."

General THURMAN. Well, let's find out what you are driving at. There undoubtedly are other pieces of paper that are pertinent to this, Mr. Chairman, that have not been given to the committee, because either they weren't requested or it never occurred to anyone to do it.

Mr. HÉBERT. I didn't ask whether you were Santa Claus, either. So you don't have to deny that. All I am trying to find out-you know, General, as well as we, what we are trying to arrive at. The document prepared by Colonel Thompson was a document which only showed the bright side. It showed none of the criticism of the contract. Now, if we are going to discuss these contracts and find out where negotiation falls down, if there is negotiation at all, the committe should be allowed to have all the facts. Let me ask you if you agree with this statement.

General THURMAN. Yes, sir, all right.

Mr. HÉBERT. "The contractor's experience in the initial period indicated that unrealistic estimates were utilized in negotiating billing prices. This was, no doubt, due to placing an undeveloped airplane in production in a new plant and was fairly common during Korea." Do you agree with that?

General THURMAN. I think so, yes, sir, to the best of my knowledge. Mr. HÉBERT. Of course, that has been one of the big discussions in the committee, about the contractor's experience indicated that unrealistic estimates were used in negotiating.

General THURMAN. I think that refers, Mr. Chairman, to the initial estimates at the outset of the contract. That is the way I interpret it, at any rate.

Mr. HÉBERT. You said they were unrealistic. All right, you agree

with that.

"C. The validity of the bill of materials used for projection of the 228 airplane segment is questionable.”

General THURMAN. Certainly, it has been questioned by the General Accounting Office.

Mr. HÉBERT. Well, not "has been questioned." This is the discussion you had. Do you agree it is questionable?

General THURMAN. In the sense that I said, yes, sir.

Mr. HÉBERT. And the sense you tried to get the $1,700,000?
General THURMAN. Surely.

Mr. HÉBERT. That is correct. We developed that, anyway. "There is an indication that the placing of an emergency airframe program in a non-airframe-producer's plant results in high man-hours per pound in the initial period. This was true at BOP and also at Ford. Since learning curves tend to meet the same point far out in the production run, the curves of these producers should be expected to decrease at a steeper percentage than the curves of regular airplane producers. It may be impossible to sell the steep curves that actually occur to the automobile people, but I believe that it is a sound and reasonable theory and it should be developed further."

Do you agree with that?

General THURMAN. Yes, sir. But I think that it has reference to the pitch of a learn curve near the beginning of a contract delivery. Mr. HÉBERT. But yet there was an ascending curve, wasn't there, on the man-hours, when the negotiators sat down?

General THURMAN. Ascending

Mr. HÉBERT. An ascending curve?

General THURMAN. Well, there was perhaps an ascending curve at the very end, as there always is on a runout period, but certainly there was not an ascending curve during the major portion of production.

Mr. HÉBERT. This is very important now. [Reading:]

It is indicated that local Air Force personnel discovered in spare-parts analysis that prices of materials had been adjusted downward, but the results had not been posted to inventory pricing cards. These cards were the source of bill-of-material data. There is no indication that local personnel were aware of the significance of this fact or that any report was ever made to pricing personnel even though it might have been utilized as late as the price redetermination of the third segment.

General THURMAN. As I recall, this memorandum was written before Colonel Thompson had talked to some of our local personnel who are here. I think that that isn't accurate. You may wish to address some questions to

Mr. HÉBERT. When did Colonel Thompson talk-I thought Colonel Thompson made an exhaustive study of this whole matter?

General THURMAN. That exhaustive study, Mr. Chairman, has gone on up to the time he left here the other day.

Mr. HÉBERT. Well, I know that. The memorandum was written on the 13th of August of this year.

General THURMAN. That is correct, sir.

Mr. HÉBERT. And if it is an exhaustive study-and the statement prepared here was written on August 15. Did he make the exhaustive study that he said he made and really look into this contract? General THURMAN. Oh, I think so; yes. Mr. HÉBERT. All right, then. Now that statement there is a very significant statement. It means a great deal, that the Air Force did

not avail itself or did not have in its possession or did not attempt to find out what these actual prices were. That is an indictment from Colonel Thompson against the negotiators.

General THURMAN. Well, sir, I am not sure that that would follow. But insofar as anything being exhaustive-when you are attempting to delve into something that happened 2 years ago

Mr. HÉBERT. All right.

General THURMAN. As you go along, you discover new implications that you haven't covered, even though it may have been an exhaustive study.

Mr. HÉBERT. Well, that was indicated in the General Accounting Office report, General.

General THURMAN. What was, sir?

Mr. HÉBERT. That the Air Force was inadequate.

General THURMAN. In what regard?

Mr. HÉBERT. And it had failed to explore these actual costs.
General THURMAN. Well-

Mr. HÉBERT. That would be one of the very first things, it seems to me, that a man making an exhaustive study would direct his attention to.

General THURMAN. I think we are talking about two different things, Mr. Chairman.

Mr. HÉBERT. The General Motors charged they had access, but the conclusion of the General Accounting Office was that the Air Force had contributed to this overcharge.

General THURMAN. I think we are talking about two different things here. Can you shed some light, Mr. Loofbourrow?

Mr. LOOFBOURROW. We are talking about two different segments, if I heard that correctly. Will you please reread that, in the latter part where they made the reference.

Mr. HÉBERT. Read it.

Mr. COURTNEY (reading):

It is indicated that Air Force personnel discovered in spare-parts analysis that prices of materials had been adjusted downward.

Mr. LOOFBOURROW. That is right.

Mr. COURTNEY (reading):

But the results had not been posted to inventory pricing cards. These cards were the source of bill-of-material data. There is no indication that local personnel were aware of the significance of this factor that any report was ever made to pricing personnel, even though it might have been utilized as late as the price redetermination of the third segment.

Mr. LOOFBOURROW. That is the third segment. That is what I wanted to get at.

Our people did discover this after the negotiation for the 228. And I believe that in adjusting, in working with General Motors on this bill of material on the third segment, that they made doubly sure that all of these things were taken into account. Mr. COURTNEY. How do you make that

Mr. LOOFBOURROW. I don't like to reverse Colonel Thompson in what he said. But let's verify it with the men who were there, I meanMr. COURTNEY. No; excuse me, let's finish with the witness.

Mr. HÉBERT. We will go back.

Mr. COURTNEY. In the light of your statement, how then do you interpret these words: "as late as the price redetermination of the third segment," indicating very plainly that the information which was available was not posted on the inventory pricing cards earlier than the third segment?

Mr. LOOFBOURROW. Well, the question on the thing is whether or not our people truly got the benefit of that in the pricing of the material on the third segment, and based on my understanding of what they did, they did get the benefit of that on the third segment. And they didn't discover it until after the second segment had been priced.

Mr. COURTNEY. Well, there is nobody debating that. This charge is that the pricing information was discovered on the spare parts price analysis, that the prices had been adjusted downward, but the results had not been posted to inventory pricing cards. These cards were the source of the bill-of-material data.

There is no indication that local personnel were aware of the sig nificance of this effect, or that any report was ever made to pricing personnel, even though it might have been utilized as late as the third segment.

Mr. LOOFBOURROW. I think I have given you an answer to that, sir. Mr. COURTNEY. All right, Mr. Chairman.

Mr. HÉBERT. Now, the other paragraph-we will develop these more as we go along.

Mr. LOOFBOURROW. All right.

Mr. HÉBERT (reading):

General Motors was permitted to complete deliveries in May of 1955. There is no evidence that Air Force personnel considered any price change when permitting the contractor to accelerate from July to May.

Is that correct?

General THURMAN. Yes, sir. I understand it to be correct.

But

it also should be recognized which-I don't know whether Colonel Thompson knew at that time or not that the agreement to accelerate was a part of the redetermination agreement.

Mr. HÉBERT. That is right.

General THURMAN. And I do not believe I will have to be corrected if I am wrong on this, but I do not believe that any particular acceleration was specified then. It simply permitted to accelerate. Am I wrong on that?

Mr. COURTNEY. May I ask a question of you? Isn't it a fact that the adjustment that was considered in the price redetermination was an adjustment from the scheduled deliveries of August 1955 up to July 6, 1955? And what Colonel Thompson is speaking here is the further adjustment of the schedule and the further acceleration of the schedule, after the initial acceleration which was considered at the time of the third segment.

General THURMAN. No, sir; that is not my understanding. understanding is that at the time

Mr. COURTNEY. Let me ask you

My

General THURMAN. Let me finish, please, as to what my understanding is..