Now, you will see in his statement there was $97 billion worth of business filed before his Board, but he only renegotiated a certain amount. What is in his statement there? I forget the amount. Mr. COURTNEY. $26 billion.

Mr. VINSON. You see, it is all over $1 million.

After the 4-month filing date the Board is permitted 1 year in which to indicate renegotiation and a 2-year period thereafter within which to complete actual renegotiation.

Now, that is the way it is all operated there.

Now, I want this to be in the record positive. Here is a statement. on page 18-and I trust-I say, if there is any sensational newspaper writer here, that this is sensational news, and I trust it won't be on the back page of the periodicals and the papers of this country. Here is a witness that testified that

Specifically, for the years included in our study, the aircraft and missile contractors, using incentive contracts predominantly (66.7 percent) *** realized a profit of 71.3 percent of the total net worth.

Now, that is information that should not be on the back page of any periodical or any newspaper.

Thank you very much, Mr. Coggeshall

Mr. BATES. Now, Mr. Chairman, before the newspapers carry that, I think the witness has already testified that had another type of contract been given when so much of the plant was actually owned by the Government, the profit likewise would have been in that neighborhood.

Mr. VINSON. That is right.

Mr. COGGESHAL. It could be.

Mr. BATES. Sure. So it has absolutely no pertinence, as to the type of contract, but only the question of how much of the plant the Government owned.

Mr. VINSON. The only people who have any material assistance from the Government are those who get incentive contracts.

Mr. KILDAY. Of course, what Mr. Coggeshall said is that it could have been.

Mr. COGGESHALL. Yes.

Mr. KILDAY. But if it had been awarded on a competitive bid, a straight general advertised competitive bid, the chances that it would happen would be practically nil. Is that not true?

Mr. COGGESHALL. I would say so.

Mr. KILDAY. Certainly.

Mr. VINSON. And put this in the record. And the testimony shows the only people who get incentive contracts are those in which the Government has made a large contribution in their plants.

Thank you very much.

Now, this is a very fine hearing.

Mr. COGGESHALL. Thank you very much, Mr. Chairman and gentlemen of the subcommittee.

(Whereupon, at 11:50 a.m., the subcommittee adjourned, to reconvene at 10 a.m., Wednesday, May 4, 1960.)

JOHN J. COURTNEY, Esq.,

Special Counsel,

Committee on Armed Services,

House of Representatives.

THE RENEGOTIATION BOARD,
Washington, D.C., May 5, 1960.

DEAR MR. COURTNEY: Pursuant to your request, I am pleased to enclose "Statistics of petitions to the Tax Court" at March 31, 1960, for the use of the Armed Services Committee, House of Representatives.

With cordial personal greetings.

Sincerely yours,

THOMAS COGGESHALL, Chairman.

THE RENEGOTIATION BOARD STATISTICS OF PETITIONS TO THE TAX Court at MARCH 31, 1960

The 59 petitions at the Tax Court on March 31, 1960, represent net refunds (less State taxes) of $108,027,943. These amounts are divided between major airplane manufacturers and others as follows:

PROCUREMENT PRACTICES IN THE DEPARTMENT OF

DEFENSE

WEDNESDAY, MAY 4, 1960

HOUSE OF REPRESENTATIVES,
COMMITTEE ON ARMED SERVICES,

SPECIAL SUBCOMMITTEE ON PROCUREMENT PRACTICES

IN THE DEPARTMENT OF DEFENSE,

Washington, D.C. The subcommittee met at 10 a.m., Hon. Carl Vinson (chairman) presiding.

Mr. VINSON. Now let the committee come to order.

This is a continuation of the hearing on the subject matter that we have been considering for the last 3 or 4 days, with reference to contracts of various kinds by the Department of Defense and the military services.

Now this morning we have the representatives of the Air Force here. And I see the first witness is the distinguished Assistant Secretary of the Air Force for Materiel, the Honorable Philip B. Taylor. Mr. Secretary, we welcome you here this morning. And you have permission to address the committee on this subject matter in any form that you desire to do so.

I see you have a prepared statement. I am sorry I didn't have the opportunity to read it before this morning. So I may not have as many questions to ask you as if I had had the privilege of reading it last night.

First, we will start off with your statement this morning. Go right ahead, now, Mr. Secretary.

Secretary TAYLOR. Thank you, sir.

(A biographical sketch of the witness follows:)

Philip B. Taylor was nominated by President Eisenhower to be Assistant Secretary of the Air Force for Materiel on March 9, 1959. His nomination was confirmed by the Senate April 13, 1959, and he was sworn into office April 16, 1959.

Mr. Taylor was born in New York City on March 7, 1899. He was graduated from the Sheffield Scientific School, Yale University, in 1920, with the degree of Ph. B. in mechanical engineering.

He entered the employ of the Wright Aeronautical Corp. in June 1922 and served as chief engineer of the corporation from 1930 to 1940.

During the war years he served as vice president and acting general manager. In 1945, Mr. Taylor formed the Taylor Turbine Corp. and obtained the exclusive right to sell and manufacture the current Rolls-Royce turbojet engine in the United States. After the sale of this license to Pratt & Whitney, Mr. Taylor became a partner in the engineering and construction firm of Sanderson & Porter.

In October 1948, Mr. Taylor was appointed Chairman of the Aircraft Propulsive Systems Panel of the Committee on Aeronautics of the Research and Development Board of the National Military Establishment.

In September of 1949 he was appointed Chairman of the Committee on Aeronautics of the Research and Development Board, which position he held until the Board was abolished. He has also served on the Powerplants Committee of the National Advisory Committee for Aeronautics, and the Air Force Scientific Advisory Board.

Secretary TAYLOR. I appreciate the opportunity to appear before this committee in response to your invitation to discuss our effectiveness in achieving reasonable costs, prices, and profits.

This subject is one which we consider to be very important and to which considerable attention has been devoted by myself as well as our senior officers and staff. We are keenly aware that not only must we establish sound procurement policies, but, perhaps equally important, that we must see that these policies are implemented in an effective manner so as to yield the maximum benefits to the Government, both from the standpoint of economy as well as military strength.

No matter how sound our pricing policies and techniques are, there may be relatively isolated cases where realistic prices are not realized. Much of the defense procurement dollar is spent for specialized items for which costs, at the beginning of the contract, can only be estimated. Sometimes these costs must be estimated even when the contract has been partially completed. These estimates may or may not be accurate because of changes which may occur during the performance of the contract.

The Deputy Assistant Secretary of Defense for Supply and Logistics has informed you that during the past year, the General Accounting Office reported to Congress on certain defense contracts under which postaudits revealed that estimates of certain cost elements included in price proposals were higher than warranted by data available at the time of negotiation. We are prepared to furnish the details and status regarding these reports, should your committee desire this information.

We have acknowledge the importance of the General Accounting Office reports, and have taken measures over the past year to improve contract management and designed to minimize the recurrence of deficiencies similar to those disclosed. I should like to outline for you implementing steps which we have taken within the Air Force.

În attempting to improve pricing practices at the prime and subcontract level, the active and positive cooperation of industry has been solicited. In this connection, the Secretary of the Air Force and the senior members of the Air Staff, responsible for Air Force materiel, have conducted several meetings with high level management of the principal missile, aircraft, and electronic manufacturers. The Air Force has stressed the urgent need for determined and combined efforts of industry and Air Force personnel. The then Secretary of the Air Force, Hon. James H. Douglas, the commander, Air Materiel Command, and myself, met with industry representatives at Air Materiel Command Headquarters on October 21, 1959. This meeting was devoted primarily to pooling industry's experience in isolating and defining the "soft spots" in management, pricing, and subcontract effort, and in formulating practical guidelines for improvement in these areas. As a followup, working groups consisting of representatives of the Air Force and industry have been formed and assigned the responsibility of developing courses of actions.