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In addition either party has the right to make a further demand at intervals of not less than 90 days after the effective date of any prior demand, the absence of a demand by either party under this restricting option is indicative of the competitive reasonableness of the prices negotiated.

At the termination of this contract, did the Department of the Air Force make any demands upon you, the General Motors Corp., relative to the contract, as to being unreasonable?

Mr. GORDON. At the termination of the contract?

Mr. GAVIN. Right, or at any time.

Mr. POWER. No.

Mr. GORDON. No.

Mr. GAVIN. No, they did not.

Now, the facts are that they assumed, then, that the prices negotiated were reasonable. At least I would conclude that. What is your opinion?

In view of the fact that you didn't hear from the Department of the Air Force. We are bringing in here General Motors who complied with what they thought were the statutes and the laws of contracts and are questioning them when evidently if there would have been any unreasonable pricing or at least if the Department of the Air Force thought there were, they had the right to come in and demand of you an accounting as to what they thought was unreasonable, is that right?

Mr. GORDON. That is correct.

Mr. GAVIN. And you did not receive any protest from the Department of the Air Force relative to this contract, is that correct? Mr. GORDON. Not unreasonable, no.

Mr. GAVIN. Well, did you receive any, that any particular segment of the contract was unreasonable?

Mr. GORDON. The only price redetermination meetings we had were those that were mandatory under the contract.

Mr. GAVIN. I have no further questions.

I just want to say this, too. When you came here this morning to present your case-I listened with interest to what the chairman had to say-you came here at our invitation. You didn't come here to be lauded for the outstanding and fine performance you took in. I realize that, at least.

Mr. GORDON. Thank you, sir.

Mr. HÉBERT. Mr. Rivers, you have the time back.

Mr. RIVERS. I just wanted to ask Mr. Gordon-I certainly am impressed with your ability, Mr. Gordon.

Mr. GORDON. Thank you, sir.

Mr. RIVERS. I say that in a complimentary manner.

Is it your understanding that this 8 percent was a figure that was agreed on and is agreed on in the industry from which to figure the overall costs of an item and not a guaranty?

Mr. GORDON. Yes; that is right.

Mr. RIVERS. That is my understanding.

Do I understand the thing right?

Mr. GORDON. That is right.

Mr. RIVERS. Because there is some confusion. And I have been confused that you were guaranteed 8 percent.

Mr. GORDON. No, sir.

Mr. RIVERS. But I am in error on that?

Mr. GORDON. That is right. We were guaranteed no profit.

Mr. RIVERS. No profit?

Mr. GORDON. Nor were we guaranteed against loss.

Mr. RIVERS. So you could have lost. Now, when you say lostthere are two things that I want to find out. Do I understand you to say that BOP had $135 million tied up before they ever asked the Air Force to give them 5 cents, is that right?

Mr. GORDON. No, sir. We had an item of some $90 million before we requested any payment. It got to $135 million total investment before it was what you might call current. But we actually had an investment of over $90 million before we received anything, that is before we billed the Government for anything on the contract.

Mr. RIVERS. Did you stand a chance of losing any of that $96 million under the contract?

Mr. GORDON. No; I don't believe so.

Mr. RIVERS. You would not have lost it?

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Mr. RIVERS. I see these other things on the board here.

I don't want to hang you. I want to give you credit for something before I hang you.

Which I think is a fair proposition, don't you?

Mr. GORDON. Well, Mr. Rivers, I think the statement was made this morning and the performance under this contract is worthy of consideration other than hanging. We consider that we did an outstanding job, in General Motors, on this contract under the conditions. We are proud of it, frankly.

Mr. GAVIN. At a time when we needed planes.

Mr. RIVERS. I yielded to you and you yielded back. I urge you to keep quiet.

You know, you better not lock horns with me.

I just want to inquire a few things of this distinguished gentleman. Now, I said yesterday, and I think you heard it-I know I saw this young fellow.

Mr. POWER. Yes, sir.

Mr. RIVERS. I think you are very youthful looking, Counselor. I said in view of what I had seen from these reports that I thought you would welcome the opportunity to occupy the seat which he was occupying.

Mr. POWER. We do, sir.

Mr. RIVERS. In order to explain to the public what your side of the question is. And as the distinguished former chairman of our committee, Dewey Short, used to say, "Every pancake has two sides, regardless of how thin it is."

I want to see you get your day in court.

I want to ask you

this.

Mr. GORDON. Yes, sir.

Mr. RIVERS. Do you feel legally or morally bound to refund any or all of an alleged $17 million profit in excess of what is supposed to be reasonable on this contract to the Government?

Mr. GORDON. No, sir. We feel no either I as an individual--and I think I can speak for the corporation on that basis-do not feel that there is any legal or moral responsibility based on the presentation that has been made here for refunding of the alleged $17 million excess profit in this case. I stated alleged.

Mr. RIVERS. Under the renegotiation law-what I understand about it-you take your whole business and renegotiate it and no one item. Mr. GORDON. That is right.

Mr. RIVERS. But I was intrigued by one thing you said, Mr. Gordon, and that was that the internal policy of your company wouldn't permit you to consider any one item. Did I understand that correctly?

Mr. GORDON. We have an internal policy of that type; yes. I mentioned it.

In

Mr. RIVERS. What does that mean? I don't quite understand it. Mr. GORDON. That policy was actually developed during the war when we were on continuing contract basis on many items. ternally, we set it up on the basis that at any time-with a good many fixed price contracts. At any time that we exceeded the bid profit rate by more than 25 percent, we would take a look at all the factors and consider a possible revision. I don't mean to say it was automatic. We would consider all the factors applicable to that contract and consider internally a revision in our profit rate.

Mr. RIVERS. Is that contained in your contract with the Air Force? Mr. GORDON. No.

Mr. RIVERS. So if you made 25 or 30 percent on any segment of itsay this $1,700,000

Mr. GORDON. Yes.

Mr. RIVERS. Under your policy or the policy of the Air Forceby which would you be bound? Your own policy?

Mr. GORDON. Legally, we would be bound by the policy as covered in the contract.

Mr. RIVERS. Not if it conflicts with your internal policy, as I understand it.

Mr. GORDON. Oh, yes. I mean, we don't get away from the legal requirements of the contract because of an internal policy. In General Motors.

Mr. RIVERS. What is going on in my mind, that you would lump it in the overall contract and make your profit or the loss on the overall and not one item?

Mr. GORDON. That is correct.

Mr. RIVERS. Is that the reason for the internal policy?
Mr. GORDON. Yes.

Mr. RIVERS. That one item should not reflect the profit on the contract?

Mr. GORDON. That is right.

Mr. RIVERS. I want to get it in my own head.

Mr. GORDON. That is right.

Mr. RIVERS. Because I am not smart, like you people in this busi

ness.

Mr. GORDON. No. As we said repeatedly, of course, we consider the contract in its entirety as being the one on which we were applicable, I mean from the policy standpoint and the contractual standpoint.

Mr. RIVERS. Is that the basis of your explanation on the one million seven?

Mr. GORDON. We believe a great deal of the misunderstanding that has been introduced in the particular case is due

Mr. RIVERS. Is that the basis of the misunderstanding? I want to get the basis of it. That the 1 million 7 is not a fair representation of a contract?

Mr. GORDON. That is quite right. That is only a part of the picture. The one million seven, of course

Mr. RIVERS. Is a factor in the contract?

Mr. GORDON. A factor in the contract, but it is also a factor in the renegotiation proceedings which I have mentioned repeatedly will consider that item.

Mr. RIVERS. Therefore, you are not legaly or morally bound to consider any one factor, under your policy?

Mr. GORDON. That is right.

Mr. RIVERS. The renegotiation law and the contract with the Air Force. Is that a fair statement?

Mr. GORDON. Well

Mr. POWER. That is right.

Mr. RIVERS. I am not trying to get you confused. Because you can confuse me by saying two words.

Mr. CUNNINGHAM. Quite a leading question.

Mr. GORDON. I will admit you have me a little confused the way you worded your statement.

Mr. RIVERS. Well, I live in confusion. I am the southern distributor for confusion.

I can't get it in my head that a company that does $10 billion worth of business in 1954 would get around here and steal $1,700,000 from the Government. That to me sounds kind of incredible.

Mr. GORDON. Mr. Rivers, I don't think that anybody in this room has ever felt I will be quite frank to say so that General Motors would submit to deception or that we do any business with any customer except on a fair and square basis. I think the operation and administration of this contract demonstrates the fact that General Motors operates on that basis, in this as well as all other things in which we are obligated.

Mr. RIVERS. I have no further questions.

Mr. HÉBERT. Mr. Gavin.

Mr. GAVIN. I just want to say-call to attention. You say you received no progress payments whatsoever; is that correct?

Mr. GORDON. No progress payments as such. We received payment for billings to the Government upon delivery of airplanes and parts. Mr. GAVIN. What?

Mr. GORDON. We receive payment from the Government upon billings for delivery of airplanes and parts, but no progress payments as normally referred to.

Mr. GAVIN. How many employees does General Motors have? Mr. GORDON. Total?

Mr. GAVIN. Yes.

Mr. GORDON. Around 600,000.

Mr. GAVIN. 600,000?

Mr. GORDON. Yes.

Mr. GAVIN. You had to revamp your whole BOP setup to take on this job; is that right?

Mr. GORDON. Yes.

Mr. GAVIN. You had to discontinue your entire line of production and move in. The Air Force came to you with this request to build these planes; is that right?

Mr. GORDON. That is right. Not only request for us to build these planes, but at this specific plant.

Mr. HÉBERT. Mr. Cunningham.

Mr. CUNNINGHAM. Mr. Chairman, thank you.

Mr. Gordon, I am confused, and I don't mean by that to imply that you are a master at confusing anyone. I think the confusion is the result of my lack of knowledge of business or trade terms. Probably that applies to many members of the committee.

Mr. RIVERS. If the gentleman would yield, that is the position I took. Mr. CUNNINGHAM. I knew you were in the same position as I was as far as confusion is concerned.

Mr. BATES. Bipartisan confusion.

Mr. CUNNINGHAM. On page 32, Mr. Gordon, I read as follows:

Accordingly, in negotiating a fixed price contract, the contractor contemplates "not a specific profit, but rather such profit as he is able to earn through efficient operation."

Mr. GORDON. Yes, sir.

Mr. CUNNINGHAM. Then you go on:

At the same time, the Government contemplates receiving lower prices if the contractor is efficient.

Now, do I understand that there was any agreement originally that if as a result of efficient operations you could make a greater profit that was contemplated, then that belonged to General Motors?

Mr. GORDON. Yes, sir; that is covered in the correspondence.

Mr. CUNNINGHAM. Then what do you mean by the second clause, "At the same time the Government contemplates receiving lower prices if the contractor is efficient"? That implies to me that there is some understanding that if you are greatly efficient, say, or beyond a certain point, that the Government will get the benefit of that efficiency, instead of General Motors. Would you clear that up?

Mr. GORDON. Yes. That contemplates the renegotiation meeting which will follow the segment in which that profit rate is achieved.

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