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General THURMAN. If you can assume that there would have been more padding and that it would not have been discovered, perhaps so, yes, sir; perhaps so.

Mr. HÉBERT. So I don't see I am just wondering if the figuresand it developed that the padding was to the extent on the 3 segments of over $17 million.

General THURMAN. Maybe I didn't make myself clear Mr. Chair

man.

Mr. HÉBERT. Over the contemplated rate of profit.

General THURMAN. Maybe I didn't make myself clear. What I intended to try to get across is this: That on these redeterminationtype things-and the same thing is true on incentive because it is a variation of pattern, is all-you set up a target price in the incentive and you set up a fixed price in the redeterminable of this type.

Now, the extent to which that price gets divided between profit and cost depends on the efficiency of the contractor.

Now, all I am saying is this: That in a given case, whether it be this case or any, where you have a second redetermination to come up, if the contractor has been a low-cost producer during that interim section, you will get the benefit of it on the last segment.

If he has been a high-cost producer during that period, you will find your costs going up, instead of down.

Now, to the extent that the prices go down, you have got a direct savings.

Now, I will be the first to concede, Mr. Chairman, that you can never demonstrate that any difference between what occurred at the beginning and the end is due solely to efficiency and is not contributed to in any part by an error in estimating.

I would be the last person to claim that it is entirely due to that, because you can't demonstrate it. You can have an opinion on the subject, but you can't demonstrate it mathematically.

Mr. HARDY. On that point, if the gentleman will permit.

Mr. HÉBERT. Yes.

Mr. HARDY. In the beginning you can't possibly estimate what your labor is going to run in the last segments of production. You can't even estimate what your components are going to be, because you have certain tooling-up costs, and all that kind of thing, that go into your initial production.

General THURMAN. You can estimate it in this way, Mr. Hardy. At the very beginning, yes, sir. And that is why it was done on what is effectively a cost-plus-a-fixed-fee type of operation.

Mr. HARDY. For your first segment?

General THURMAN. For the beginning of the contract.

Mr. HARDY. Right.

General THURMAN. But when we go to the end of the first segment, when tooling costs had been incurred, when engineering costs had been incurred, and we had 71, I think it was the number of aircraft manufactured, then we were in a position to make an estimate all the way through the contract.

Now that estimate has to be based on a lot of uncertainties, among which are the efficiencies of the contractor in going down a learning

curve.

Mr. HARDY. Of course, you can make projections, but if your period of production isn't very long and the experience in output, volume

output hasn't developed to the point where your contractor is really in stride, the only thing you can do is take a curve. And you are not at all sure how that is going to turn out.

General THURMAN. Well, most of the time-I am not qualified, really, to talk about learning curves. Mr. Hardy, you know I am a lawyer and I am not an accountant.

Mr. HARDY. My point is simply this: A learning curve value is dependent in large measure over the length of time it has run, so you can get a true cost?

General THURMAN. Yes, sir. But it is surprising, it is very surprising, how well learning curves reflect what actually does turn out to be the case in most instances.

Mr. HARDY. Then you would certainly have to agree. Either somebody misread the learning curve or the thing was entirely cockeyed; one?

General THURMAN. I would be forced to agree with that as a result of what appears after the fact.

Mr. HARDY. I am not at all sure whether the thing just wasn't based on a long enough period in the beginning to compute what you could anticipate. I can't argue that point, because I don't know, either.

General THURMAN. I don't think either one of us can. I do think we must remember that this contract was nearly 4 years old when this first one was negotiated.

Mr. HARDY. If you started your projections on somebody else's theory and you were bucking up against the fellow that has the actuals, you are working against a stacked deck?

General THURMAN. The answer to that is obvious.

Mr. HARDY. I had some more questions, Mr. Chairman, I wanted to ask him but I have lost my other copy that I had my notes in. General THURMAN. I assure you I am duly appreciative. Mr. HÉBERT. General, I was trying to find in the regulations—I am sure you will recognize the importance. I can't find it at the moment. I mentioned it at the time Mr. Gordon was on the stand. And that is in the regulations. The Air Force instructions to the negotiator are that the primary concern is price and the secondary concern is cost and profit.

Now, I can't reconcile that type of statement. Because the way things turn, when you arrive at a price, you must know costs and profits to get the price.

(General Thurman nods.)

Mr. HÉBERT. So wouldn't it be the primary concern to know the costs and the contemplated profit in order to arrive at a reasonable price?

General THURMAN. Mr. Chairman, by virtue of the fact that you don't have the piece of paper before you, you have omitted one, I think, very important word.

Mr. HÉBERT. What is that?

General THURMAN. I think the word is "realized"; cost and profit. Now, I think that regulation doesn't say anything more than what I said in that statement, that you are more concerned with paying $10 for an item than you are with paying $11 for an item, and if the guy who makes it for $10 is good enough to have $2 worth of profit, you don't worry about it, so long as you have the cheapest price.

Mr. HÉBERT. Yes; but keep in mind, General, what we are dealing with. This is not a commercial venture. This is a defense weapon, a defense product. I don't think any individual would accept that a higher price should be paid for defense to one man than another, even though he be more efficient.

General THURMAN. No, sir. We are interested in lower prices. Mr. HÉBERT. You are interested in lower prices. Here, with all its grandiose statements-as somebody has said, the statement of General Motors was fine. It was set to music. But, take the music away and you don't have very much to go by.

Now, General Motors, in accepting these contracts, at the request of the Government or otherwise, was doing no more or no less than any individual did. I don't only mean General Motors. I mean any industrial outfit. They were producing weapons of defense to protect their own interests.

Mr. HARDY. All of us.

Mr. HÉBERT. That is what I say, all of us. They were producing to protect their business that they were in, and a business that would allow them to make a profit on a weapon of defense. Certainly the individual who flew that plane and was killed had no guaranty of any higher profit. The man who is drafted and goes to the front, he fights to defend a way of life. He fights with his fists or his guns or the weapons given by these individuals. They don't sit across any negotiating table

General THURMAN. Sir, you don't expect me to disagree with that. Mr. HÉBERT. Of course not. I want to bring that into focus. I am not arguing with you, General, on that. I am just again reverting to the great position that General Motors took in this thing: "We did an outstanding job for the Government." They shouldn't have done any less, because if they hadn't done an outstanding job they wouldn't have any negotiating table probably to go to in the future. So there is no great contribution to be made, a great big pat on the back. They did what they had to do to protect themselves, the same as you, I, or anybody else had to do.

General THURMAN. I thoroughly agree.

Mr. HÉBERT. So when they come before the public, and their Madison Avenue boys sell it to the public that here they have not realized or they have realized a profit much less than commercial profit-I have no quarrel with what they get in commercial profit. But I do have a quarrel when they realize 100 percent more, or twice as much as any other industry engaged in the same production, of the same weapon. And we should take a look at that. And that is all we are trying to do.

Mr. Courtney, now we have some matters to close this up.

Mr. COURTNEY. Mr. Chairman, in view of the question that was raised, I would like permission to interpolate into this record a tabulation of the types of contracts and the percentages that were developed during the course of the airframe inquiry a year ago.

Mr. HÉBERT. Without objection.

[blocks in formation]

AF 33(038) 9211.
AF 33(038) 14800.
AF 33(038) 19050..
AF 33(600) 6202..
AF 33(600) 22303.
AF 33(038) 14801
AF 33(038) 18988.
AF 33(600) 6517.
AF 33(600) 8505.
AF 33(600) 22304.
AF 33(600) 29371..
AF 33(038) 27681..
AF 33(600) 25402..
AF 33(600) 26479.
AF 33(600) 6545
AF 33(600) 26962.
AF 33(600) 28736.
AF 33(600)79150..
NOa(s) 9243.
NOa(s) 9773.
NOa(s) 10486.
NOa(s) 51-6341.
NOa(s) 51-1391.
NOa(s) 51-642i.
NOa(s) 52-9781
NOa(s) 54-3221.
NOa(s) 54-323i
W 33-038-ac21800_.
AF 33(038)8953.
AF 33(038) 17206.
AF 33(038) 5895.
NAO(s) 53-313.
NAO(s) 54-318.

November 1949. June 1950.

July 1950

January 1951..

October 1951.
August 1952.
July 1950

January 1951.
October 1951
December 1951..
August 1952.
December 1954..
May 1951
June 1953.
December 1953..
June 1952
February 1954.
October 1954.
May 1955.
September 1947.
May 1948..
September 1949.
February 1951...
August 1950.
February 1951.
April 1952
March 1954
October 1953.
June 1948.
January 1950_
July 1950.
August 1951.
September 1952.
April 1954..

April 1951.
August 1952.
June 1953
April 1951..
March 1952
August 1952.
October 1952.
June 1953
June 1955.
October 1952.
June 1954.
.do
May 1953.
June 1954.
June 1955.
May 1955.
September 1947..
May 1948..
September 1949..
February 1951...
August 1950.
February 1951.
April 1952.
March 1954
October 1953.
April 1949

$116, 597, 858 128, 774, 874 1 45, 822, 840 1767, 839, 522 ¦1 122, 256, 389 68, 072, 746 99, 469, 665 139, 438, 820 43,556, 948 1 26, 322, 744 42,670, 979 1 104, 291, 289 27, 577, 893 1 54, 528, 647 1178, 036, 039 |1 219, 398, 495 1147, 339, 981 1251, 260, 966

19, 889, 150 24, 342, 178 13, 653, 294 1 8, 547, 433 41,931, 459 129, 826, 646 124, 873, 916 39, 989, 511

121, 004, 034

4, 150, 300

July 1951

[blocks in formation]
[blocks in formation]
[blocks in formation]

28, 779, 270

1,655, 053

5.74

Do.

January 1950.. March 1951. November 1952..

[blocks in formation]

September 19521 49, 292, 427

4, 216, 865

[blocks in formation]

April 1954.

23, 721, 872

[blocks in formation]
[blocks in formation]
[blocks in formation]
[blocks in formation]

NOa(s) 51-632.

NOa(s) 51-141.
NOa(s) 53-693.
AF 33(600) 5806.
AF 33(038)9345.
AF 33(600)9646
AF 33(038) 14765.
AF 33(600) 16314.
AF 33(038) 18564.
W 33-038ac-20260_.
AF 33(600) 22452..
AF 33(600) 25669_
AF 33(600) 28368.
NOa(s) 10483.
NOa(s) 12026.
NOa(s) 51-020.
NOa(s) 51-021.
NOa(s) 51-630.

February 1952..

December 1950.
April 1948
October 1952.
June 1953.
September 1954.
September 1949.
June 1950..
July 1950..
do
February 1951...
do..

[blocks in formation]

October 1949.

December 1953.

do.

54, 406, 868 68,036, 359 139, 911, 091 188, 584, 998 365, 890, 196 21, 394, 550 106, 113, 982 193, 648, 872

5,797, 566

10.66

Redetermined. Do.

Redetermined.

1,886, 270 15, 744, 445

2.77

CPFF.

11.25

Redetermined.

5,557, 320

2.95

CPFF.

18, 634, 371

5.09

CPFF.

2, 939, 722

[blocks in formation]

187, 847, 632 30, 036, 363

[blocks in formation]
[blocks in formation]

Redetermined.

CPFF.

Redetermined.

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