Mr. SCHWARZ. That is right, strictly as an engineering business at that time, and later we had it a little tough getting engineering work, so we went into manufacturing.

Senator MOODY. Were you in the service?

Mr. SCHWARZ. No, I wasn't in the service, but I was in the engineering business all during the war. I incorporated with some of the individuals in the company in June of 1950.

Senator MOODY. What you really have is a job machine shop that also handles light metal fabricating?

Mr. SCHWARZ. That is right. We do work for the automotive concerns when they are tooling up for new models.

Senator MOODY. Whom do you supply?

Mr. SCHWARZ. Chrysler is our biggest customer, and we do some work for-we just finished a job for Kaiser-Frazer Co., and we do work for the J. L. Hudson Co. in Detroit. That is a department store. Senator MoODY. I know that well.

Mr. SCHWARZ. And we do a lot of their specialty work, conveyor work and shelving and anything in the metal line that they want. Senator MOODY. How many employees do you have?

Mr. SCHWARZ. Well, we average from 35 to 60. Right now we have about 40.

Senator MOODY. About 40. What are you making now?

Mr. SCHWARZ. Presently, about half of our business is on a rocket container for the Navy, and the other half is some subcontract work from Chrysler on Government marine engines and industrial engine supports.

Senator MOODY. Do you have any current subcontract for any defense work with Kaiser-Frazer?

Mr. SCHWARZ. We just finished one in December on a tooling program for the C-119 aircraft that they are making.

Senator MOODY. You helped to tool up Willow Run, in other words.. Mr. SCHWARZ. That is right, and presently we are working on a new one, on this C-123 that is coming up.

Senator MOODY. I am very familiar with that. We have been trying to get the Air Force to increase the schedules there because we feel this is a good time for them to make airplanes in the Detroit area with so many people unemployed.

Mr. SCHWARZ. Yes.

Senator MOODY. Well, although you haven't been in business long, you have apparently established a reputation of competency or you would not be getting these contracts repeatedly from companies. Mr. SCHWARZ. That is right.

Senator MOODY. Tell us about your Navy contract. How many rocket containers are you making?

Mr. SCHWARZ. We have a contract for 6,000 that we received in April of 1950, and that was at a price of $54.14.

Then we received another contract for the same item in June of '51 for $75.31 each for 1,600 of them plus $11,000 for additional tooling, and that was supposed to take care of us on our present contracts that we are running.

Senator MOODY. What is the actual cost of making these rocket containers?

Mr. SCHWARZ. The actual material cost right now is running around $48 each, and the actual labor-this is without any factory burden, overhead-is running approximately $14.

Senator MOODY. Will you describe these containers? What are they made of, steel?

Mr. SCHWARZ. Aluminum, 100 percent aluminum, with the exception of four lugs that are made out of a forged steel piece.

Senator MOODY. Are you having trouble getting aluminum or do you get it readily?

Mr. SCHWARZ. We are not having any trouble now. We did have some trouble originally.

Senator MOODY. You do have a priority item?

Mr. SCHWARZ, That is right.

Senator MOODY. And you are getting aluminum readily?

Mr. SCHWARZ. That is right.

Senator MOODY. You say that the actual cost per rocket is greater than the amount of your initial bid?

Mr. SCHWARZ. It is right now.

Senator MOODY. You have given us $62 as the actual cost of making one of these rockets.

Mr. SCHWARZ. That is right.

Senator MOODY. And your contract is for $54.14, is that right?
Mr. SCHWARZ. That is right.

Senator MOODY. How did that happen?

Mr. SCHWARZ. Well, frankly, we got the contract in April of '50 before the Korean war. We tried to get a firm price from Reynolds Metals on the aluminum, and they gave us a firm price for 6 months.

However, in that 6 months we only received 1 month's supply. They weren't in a position or couldn't or didn't have the material to supply us for the rest of the time.

Senator MOODY. So they gave you a contract for 6 months but they gave you only 1 month's supply, and after the 6 months were over they increased the price, right?

Mr. SCHWARZ. The price went up, yes. However, when we received the contract they worked with us. I was down here in Washington with the contracting officer, and there were indications at that time. that at least the material would remain stable, it wouldn't go up in price, and if anything, it would go down, because they were adding new plants.

However, in about 4 months it went up and they wanted to raise the price immediately, but according to our agreement, there wasn't any contract on it, but it was a verbal agreement, they agreed to hold off for two months.

Senator MOODY. They did honor their verbal contract?

Mr. SCHWARZ. That is right, but we didn't receive any materiał in that time, anyway.

Senator MOODY. Did that slow down your production?

Mr. SCHWARZ. Yes, among other things. I mean there were other parts that we couldn't get right away. The forgings, for instance, the tooling required on it was such that it took about 3 to 4 months to get any lugs. Of course, the container was no good without the lugs go with it.

to

Senator MOODY. So the metal company did not increase the price during the 6 months' period. They just did not deliver any more metal, is that the story?

Mr. SCHWARZ. That is right, although I don't know if that is the

reason.

Senator MOODY. I don't either.

Mr. SCHWARZ. That is what happened, though. And of course all the materials went up in price except one that I can remember of argon gas. These are welded with an argon gas. Mr. Noone has a copy of the material, I believe, that I gave you yesterday. It shows the comparisons as of April 1950, and as they are in July 1951, which is approximately the same as it is today.

Senator MOODY. You have said your direct material costs are $47.62?

Mr. SCHWARZ. That is what it was originally.

Senator MoODY. That is the material cost?

Mr. SCHWARZ. That is right.

Senator MOODY. Then you have said that your labor cost was around $14, making the direct costs of this thing $62, but you have supplied us with a figure of $70.10 as the unit cost.

Mr. SCHWARZ. $54.14.

Senator MOODY. No, as the unit cost of the containers.
Mr. SCHWARZ. Yes?

Senator MOODY. The price under your contract was $54.14.

Mr. SCHWARZ. That is right.

Senator MOODY. But you have supplied us with a unit cost of the containers as of November 1950 of $70.10.

Mr. SCHWARZ. That is right.

Senator MOODY. I assume that is adding some overhead to your material and labor cost.

Mr. SCHWARZ. Here is a breakdown of that, that figure right there at the bottom.

Senator MOODY. This profit and loss statement will go into the records of the committee but not into the printed record of the hearing. Mr. SCHWARZ. This is a comparison between the new contract, the negotiated contract that we received at a later date.

Senator MOODY. This statement shows a loss per unit of $16.51.
Mr. SCHWARZ. That is right.

Senator MOODY. Under the new contract which was for 1,600 units

Mr. SCHWARZ. The new one showed a profit.

Senator MoODY. $7.25.

Mr. SCHWARZ. That is right.

Senator MOODY. Is that going to average you off so you will get out of this contract without a loss?

Mr. SCHWARZ. No, sir; it won't.

Senator MOODY. It is not. How much of a loss do you have?

Mr. SCHWARZ. Up to the end of November, $44,000. Of course, that includes our overhead, and we show a gain on the new contract of something like $4,000.

Senator MOODY. So you lose $44,000 and you gain $4,000. Doing business with the Government isn't quite all it is cracked up to be, on occasion.

Mr. SCHWARZ. On occasion; yes, sir.

Mr. NOONE. What will be your loss upon completion of the contract, can you estimate that?

Mr. SCHWARZ. Around $99,000, and I estimate that we will make a profit on the new contract of around 13, so putting them both together

Senator MOODY. You have a loss of $86,000.

Mr. SCHWARZ. That is right.

Senator MOODY. Now, that loss of $86,000, what is the effect of that? Is your company financially able to withstand that loss?

Mr. SCHWARZ. Fortunately, we have been so far, because it has just meant a lot of hard work in getting a lot of other profitable business in there, but it has hurt. We have had to get an RFC loan on this contract originally for $40,000.

Senator MOODY. You do have an RFC loan now on the contract? Mr. SCHWARZ. That is right.

Senator MOODY. The other business that you have will enable you to pay that loan off, I take it.

Mr. SCHWARZ. Yes, sir; that is the way it is working right now. It is costing us $1,400 a month.

Senator MOODY. It is costing you $1,400 a month. Is that loan attributable to this price situation?

Mr. SCHWARZ. No, that has nothing to do with it. How do you mean?

Senator MOODY. Well, you said you had to get an RFC loan.
Mr. SCHWARZ. You mean have I included it in this?

In fact,

Senator MOODY. No. Did you have to get the loan because of this contract or would you have had to have the loan, anyway? Mr. SCHWARZ. Öh, no, it is a direct result of the contract. the loan is based specifically on the contract. Senator MOODY. Will you tell us how?

Mr. SCHWARZ. Well, of course, the RFC wouldn't give us a loan until we went to several banks, and they wouldn't give us any money after we received the contract. However, the contracting officer insisted we have some financial assistance before we could handle the contract. Senator MCODY. So the Navy insisted that you get financial assistance for working capital?

Mr. SCHWARZ. That is right.

Senator MOODY. And you got it from the RFC?

Mr. SCHWARZ. That is right, and up to now the RFC has gone along. We haven't had any trouble with them.

Senator MOODY. There has been considerable criticism of the RFC. Did you have to go through any surreptitious means to get the loan? Mr. SCHWARZ. None whatsoever. I didn't know anybody down there. There were a lot of people.

Senator MOODY. This was a straight out-and-out business proposition?

Mr. SCHWARZ. That is right.

Senator MOODY. You did not have to offer anybody a mink coat? Mr. SCHWARZ. Didn't have to offer anybody a mink coat. Senator MOODY. Nothing at all?

Mr. SCHWARZ. I did not know anybody there. I suppose I only know a couple of the fellows right now.

Senator MOODY. Did you have to hire anybody in Washington to get the loan?

Mr. SCHWARZ. No; I didn't.

Senator MOODY. You went over there yourself?

Mr. SCHWARZ. When I came to Washington first, when they sent us a telegram that we were the low bidder, I brought our attorney

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with me. As it resulted in the end, it wasn't 100 percent necessary, but I just thought in case

Senator MOODY. This was a Detroit attorney?

Mr. SCHWARZ. That is right.

Senator MOODY. Who is that?

Mr. SCHWARZ. Mr. John Yoe.

Senator MOODY. So you are now in a position where you stand to lose $99,000. Have you sought relief on that?

Mr. SCHWARZ. Yes; I have several times. From the beginning, about 4 months after we were going and the Korean war started, the prices started going up and we asked for relief. I have written several letters. I received answers to several of them. I spent considerable time down here.

I was to the Pentagon Building, to the Under Secretary of the Navy's office, saw a Mr. Moore, and at that time, Public Law 921 wasn't in effect, but they said they expected some relief or legislation to provide relief and that was the information I received from the contracting officer, also.

Senator MOODY. Approximately when was it?

Mr. SCHWARZ. It was before the Public Law-about November. I believe it went into effect in November or January. It was November before that.

Senator MOODY. Since this law has been passed, have you tried to get relief under the law?

Mr. SCHWARZ. I have. I approached the board of commerce, I approached the NPA.

Senator MOODY. The board of commerce in Detroit, you mean?
Mr. SCHWARZ. That is right.

Senator MOODY. Harvey Campbell's organization?

Mr. SCHWARZ. That is right; and of course they referred me to your committee.

Senator MOODY. It was a good choice.

Mr. SCHWARZ. I hope so. And I approached NPA in Washington, a Mr. Beach. About 2 weeks after I saw him, however, he died.

They got me all the information about this 921 law that was before Congress, and after that I approached our contracting officer, again by means of a letter, and made a phone call, but I did not get any results. As a matter of fact, I asked him for an application, and they never answered my letter. I have a copy of the letter.

Senator MOODY. Did you ever get a declination from the Navy on this?

Mr. SCHWARZ. No; nothing on 921; nothing at all.
Senator MOODY. They did not answer your letter at all?

Mr. SCHWARZ. No, sir.

Senator MOODY. You say you did talk to your contracting officer on this?

Mr. SCHWARZ. That is right.

Senator MOODY. What did he say?

Mr. SCHWARZ. "Well, it is too bad, we can't do anything for you in this competitive bidding."

Senator MOODY. Did you ask him specifically about 921?

Mr. SCHWARZ. Yes: I did.

Senator MOODY. What was his reaction to it?

Mr. SCHWARZ. None. He changed the subject.