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Pretax Profits Reply to Questtionaire GAO Study of 146 Contracts
...comparison, the pretax profits of all U.S. manufacturing corporations in 1969 averaged 20.1% on stockholders' equity. The results of the GAO study of the 146 contracts carries the strong implication that the average profit of 56.1% applies to most other defense contracts as well. The GAO claims that defense work is so lucrative because of a device that often removes much of the risk from Pentagon contracting: progress payments, made weekly, for up to 90% of the costs incurred. Progress payments rose from $3.3 billion in 1964 to $10 billion last year. Such payments are a common practice...
Defense industry spokesmen, who decline to be named, argue that the 146 contracts selected by the GAO are misleading and unrepresentative, partly because none involved competitive bidding. The spokesmen suggest-without saying why-that the GAO's accounting methods are wrong, and they contend that it is impossible to separate profits contract by contract. Who is right? Perhaps no one will ever know. The GAO, which is responsible to Congress, was forbidden by the House Operations Committee in 1965 to name companies or cite specific contracts after it was severely criticized before the committee for being overzealous...
...GAO survey of defense profits coincides with the publication of a new book by Richard Kaufman, economist counsel for the Congressional Joint Economic Committee and a longtime critic of military spending. In The War Profiteers (Bobbs-Merrill; $8.50), Kaufman contends that defense contractors have "learned to make large amounts, and in some cases the largest amounts, of their profits practically undetected by old-fashioned auditing methods." They do so, he says, by padding costs, using Government equipment for commercial work, and persuading the Pentagon to cover cost overruns...
...GAO and Kaufman have correctly analyzed the military profit machine, there is considerable urgency about reforming the Pentagon's contracting practices. In 1969 alone, the go-ahead signal was given for two new fighter aircraft-the Navy's F-14 and the Air Force's F-15-as well as a new supersonic bomber, several new missiles and torpedoes, a new antisubmarine aircraft, a landing helicopter assault ship, the anti-ballistic missile system (ABM), and a new bomber defense system. Last year the Pentagon requested only $2.2 billion to begin all this work, but it has since...