GAO v G.M.

Before a House Armed Services subcommittee last week Lawrence J. Powers, the General Accounting Office's top auditor on defense contracts, leveled an angry blast at the nation's biggest corporation. Said Powers: on a $375.9 million contract to supply 599 F-84F Thunderstreak jet fighters to the U.S. Air Force between 1952 and 1955, General Motors made an actual profit of $42.2 million v. a "contemplated" profit of $24.8 million. Part of the $17.4 million extra, said Powers, could be attributed to good management. But $8,322,000 resulted from "overstating" and overestimating anticipated expenses. Three times the Government had asked for at least part of the money back, and each time G.M. flatly refused. Snapped Virginia's Democratic Representative Porter Hardy Jr.: "It looks like General Motors is trying to be bigger than the United States Congress or the United States Government."

G.M.'s troubles began in the do-it-now days of the Korean emergency, when top Air Force brass farmed out part of a 2,700-plane order for Thunderstreaks because Republic Aviation Corp. was unable to build the jets fast enough. The Air Force gave the contract to G.M.'s Buick-Oldsmobile-Pontiac assembly division at Kansas City, Kans., agreed to pay the automaker all costs plus a 5.9% profit on an initial order of 71 planes, with the understanding that this cost experience would be used in figuring later profits. As it turned out, said Auditor Powers, in subsequent negotiations to set a price on installments of 228 and 300 planes each. G.M.'s cost estimates, inadequately checked by Air Force representatives, resulted in profits that were too big.

After production started on the first 71-plane order, G.M.'s suppliers reduced their charges by $1,700,000. Yet, said Powers, at the time of reordering, the company did not tell the Air Force about the saving, instead continued to use old cost estimates for subsequent deliveries. There was also a clerical "error" by G.M. planners, which overestimated the labor on each plane by 1,600 man-hours. Cost of the mistake: another $736,000. Finally, as volume rose, G.M. should have anticipated a reduction of overhead cost of $15,000 per plane, saving the Air Force $4,500,000.

By week's end G.M.'s President Harlow H. Curtice had made no public reply other than a terse announcement stating that the company had completed its plane contract "to the satisfaction of the Air Force over two years ago," with an overall profit of 5.4% after taxes--"a reasonable rate of profit and substantially below the rate realized by G.M. on its commercial business." But the GAO still wanted the money back, though it did not say how it proposed to get it.

The Government also entered the ring last week to recover money from two other companies, and scored knockouts on both. The cases:

P: A $15.5 million blunder by Dallas' big Burrus Mills, which undertook to store 37 million bu. of surplus wheat in special tents three years ago because conventional grain-elevator space was unavailable. Floods came, starlings pecked holes in the thin canvas, rats and insects invaded the tents. When time came to release the wheat, much of it was fit only for animal feed. The Agriculture Department is withholding $4,700,000 in storage fees and wants another $8,000,000 in damages. Sadly, Burrus admits it owes the U.S. $10.7 million, questions only $2,000,000 of the Government's demand.

P: A multimillion-dollar project to build Brooklyn's big 2,496-unit Farragut Gardens, since renamed Vandeveer Estates. After convincing the Federal Housing Administration that the housing project would cost $24 million, Builders Morris Kavy, Martin and Louis Benedek and Alexander and Henry Hirsch got a mortgage guarantee for $21.7 million, spent $18.1 million and pocketed all but $500,000 of the remaining $3.6 million as windfall profits. Settling out of court last week, they agreed to pay back $2,000,000. In return, the Government will return control of the project to the owners.

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