An Excess of Excess Profits

Officially, British companies bidding for government contracts are allowed to plan on a maximum profit of 7%. Unofficially, they can make up to 20%. Actually, many of them do a great deal better than that. Or so it seemed last week as Parliament was embroiled in a brouhaha triggered by the news that on a contract for overhauling aircraft engines, the Bristol Siddeley division of the Hawker Siddeley Group had rung up profits of 63%.

Directors of the company maintained that they had no knowledge of any overcharges--which for some work amounted to twice the contract price. Ministry of Technology officials said that they had realized the company's profits were excessive, but that they had been refused access to Bristol Siddeley's books. Trying to cool the criticism, Minister of State (Technology) John Stonehouse told Commons that though Bristol Siddeley's contract was not open to renegotiation, so that the company was not obliged to repay any money, its directors had agreed to return $11 million of excess profits. "I pay tribute to the way in which they have brought things to a satisfactory conclusion," said

Stonehouse. Commons, however, was not in the mood to pay tribute to anyone. And the very fact that Bristol Siddeley turned loose so much money only increased suspicions that something was wrong.

Indeed, while both the ministry and the company bore their share of criticism, Britain's defense industry contracts seemed to be the main target of the debate. Critics in the press and Parliament alike were quick to remember that the same thing happened only three years ago, when Ferranti, Ltd., repaid $12 million after acknowledging an 82% profit manufacturing Bloodhound missiles. Since then, there has been no significant change in the basis for contracting. The government still has no legal redress for excess profits.

The obvious loser in this unbusinesslike scheme is Britain's aircraft industry. It is foundering between inefficiency and inordinately high profits. The expense of developing the TSR 2 bomber, for example, became so outlandish that the government instead decided to buy 50 American F-llls. Commercial lines have suffered too; BOAC, after innumerable problems with British-made equipment, put $154 million down on six Boeing 747s.

Inevitably, the Bristol Siddeley affair is expected to reach far beyond the balance sheets of any one company. Its settlement surely will affect the future of Britain's aviation industry and, if parliamentary critics have their way, the entire practice of defense-industry contracting.

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