Mr. MARBURY. As this was drawn it would only apply to our appropriations made solely for war purposes. The redraft says:

That, in connection with the termination of any contract made with the War Department, the Navy Department, the Treasury Department or the Maritime Commission which is connected with or related to the prosecution of the war. So that point is covered.

The CHAIRMAN. What do you think about the idea of extending that to include the Navy Department, the Maritime Commission, and the Treasury Department?

Has the Treasury Department still got a procurement set-up?

Mr. MARBURY. Yes. The redraft is here before the committee, but we are not authorized by the Bureau of the Budget to present it. That is provided for in the redraft.

The CHAIRMAN. In other words, instead of taking it piecemeal, why not take it all at once.

(The revised draft, H. R. 3022, is as follows:)

REVISED DRAFT OF H. R. 3022, JUNE 23, 1943

AN ACT to expedite and facilitate the termination of war contracts and to permit the financing of such negotiations

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That, in connection with the termination of any contract made with the War Department, the Navy Department, the Treasury Department, or the Maritime Commission which is connected with or related to the prosecution of the war, any such department or agency, without regard to any provision of law relating to the making, performance, amendment, or modification of contracts, may make or participate in making contracts, commitments, or payments for any one or more of the following purposes:

(a) as or for advance or partial payments to contractors with such department or to subcontractors or suppliers directly or indirectly under such contractors;

(b) for loans or guaranties of loans to such contractors, subcontractors, or suppliers, or

(c) for the purchase of the rights of such contractors, subcontractors, or suppliers to such amounts certified by them to be due in connection with any such termination and upon such terms as the Secretary or head of such department or agency may prescribe or permit by regulation.

The authority hereby granted shall be exercised by any such department or agency subject to such rules and regulations and by means of such delegations of authority as the Secretary or head of such department or agency may prescribe from time to time. For the purposes described in the act any such department or agency may utilize any funds now available or hereafter made available to it under any appropriation.

Mr. HARNESS. If this legislation is enacted, you would have to make reports to the Committee on Appropriations from time to time, if you should ask for appropriation, would you not?

Mr. MARBURY. Yes, sir.

Mr. HARNESS. What would be wrong with providing that the Secretary of War, the Secretary of the Navy, or the Maritime Commission should make reports in full at least every 6 months? I am talking about settlements and payments advanced under this legislation. Colonel MECHAM. We would make reports.

Mr. HARNESS. What reports do you make?

Colonel MECHAM. Every 3 months, quarterly, we will be required to make reports.

Mr. HARNESS. Are you not in a position, so far as the contractor is concerned, from the termination of his contract, to accept a public

audit made by certified public accountants appointed by the contractors?

Mr. MARBURY. No, sir; we do not do that and we are not in a position to justify that at present. I am hopeful that when the terms of settlement on which claims should be presented are better understood by contractors that we will be in a position to have more confidence, and I am sure we will be in a better position to do that than we are at the

moment.

Mr. HARNESS. Does your revised draft leave the regulations up to the various agencies and heads of the various departments? Does the bill provide that the Secretary of War shall make such regulations as are required to carry it out? If you have half a dozen different departments and each one makes its own regulations, the contractor will not know where he stands.

Mr. MARBURY. I think the answer to that, Mr. Harness, is that there will have to be some freedom left for variations in the regulations to permit adjustment to the varying conditions that do exist in the procurement agencies, from an administrative standpoint.

What you are saying about the necessity for having standard regulations as a basis for determination is well recognized and the War Department and all procurement agencies have been cooperating in preparing such regulations through the Procurement Committee of the War Production Board, and tentative drafts for such regulations have been circulated, and I think it is safe to say-and this is a personal prediction-that before long we will have a uniform basis of termination and settlement applicable to all procurement agencies.

Mr. DURHAM. Suppose you had several hundred thousand dollars' worth of raw material left over. Does not somebody make a report on that?

Mr. MARBURY. Of course, questions like that do arise, and that question might arise and there might be differences of opinion as to how much of the raw material is properly applicable to the contract. It is a question of judgment.

Mr. DURHAM. Who passes on that?

Mr. MARBURY. Eventually that is settled by negotiation. The contracting officer and the contractor work it out. There is plenty of room for differences of opinion.

Mr. ELSTON. I am worried about the provisions that provide for loans by the Government to these subcontractors. I am wondering if it would not be better if the Government simply guaranteed the loans instead of making them. If, however, the Government did make loans to all subcontractors and the subcontractors defaulted, then the Government will own a lot of businesses.

If a bank or a private loaning agency made those loans they could make such extensions as they wanted and could make the loans upon such terms as they wanted, and that would be a matter between the private loaning agency and the subcontractor. This bill opens the door to the Government to make loans to any subcontractor. If the Government sees fit to loan money to them they might make extensions of the loans, and the final result might be the Government owning a lot of those companies which I think we should avoid, because the Government will own enough anyway when the war is over.

Mr. MARBURY. The same power is now possessed in regard to war production contracts. It was a question of the guaranty of bank loans. We have made no direct loans.

The purpose and value of it is, in my opinion-and I do not want to express an official opinion-that if the banks should have any risk, we are in a position to make those loans, and the risk to the taxpayers' money is no greater in the one than in the other. We think it is very much needed as a power to exist, if we are to see this financing program through.

Mr. ELSTON. I am not so much worried about the War Department, but we do have some other Government agencies.

Mr. JOHNSON. Looking at page 2, line 5, of the bill, what is meant by the clause "purchase of the rights of such contractors"?

Mr. MARBURY. It may be in a particular case that a subcontractor has a claim and he says, "I will cash it in now at 85 cents on the dollar if you will pay it," and that would dispose of the whole business. At the end of the last war a great many settlements were made in that way. They say, "Give us the money; we want to get back in business."

Mr. JOHNSON. In line 6, page 2, it says "certified by them to be due." Does that mean certified by the contractor or the subcontractor to be due?

Mr. MARBURY. That is right.

Mr. JOHNSON. That comes within the termination clause. It must follow your formula?

Mr. MARBURY. Yes; they would certify it was due.

Mr. JOHNSON. In other words, it would be reasonably certain that that was the amount that was due and that would come under your scheme of terminating contracts?

Mr. MARBURY. Yes, sir.

(Thereupon, the committee proceeded to the consideration of other business.)

TO AUTHORIZE SECRETARY OF WAR TO USE FUNDS FOR

ADJUSTMENT OF CONTRACTS

THURSDAY, JUNE 24, 1943

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE OF THE COMMITTEE ON MILITARY AFFAIRS,

EXECUTIVE SESSION

Washington, D. C.

The subcommittee met, pursuant to call, at 10:30 a. m., in room 1310, New House Office Building, Representative Carl T. Durham (chairman), presiding.

Present: Representatives Durham (chairman), Sikes, Martin, and Fenton.

Also present: Mr. H. Ralph Burton, general counsel, Military Affairs Committee.

The CHAIRMAN. The committee will come to order.

STATEMENTS OF LT. COL. R. A. CUTTER, LEGAL DIVISION, PURCHASES BRANCH, ARMY. SERVICE FORCES, WAR DEPARTMENT; LT. COL. H. A. FRIEDLICH, OFFICE OF THE UNDER SECRETARY OF WAR; LT. JOHN A. GILCHRIST, BUREAU OF SUPPLIES AND ACCOUNTS, NAVY DEPARTMENT; JOHN KENNEY, ASSISTANT CHIEF, PROCUREMENT LEGAL DIVISION, OFFICE OF THE UNDER SECRETARY OF THE NAVY; AND ALEXANDER HAWES, GENERAL COUNSEL, WAR PRODUCTION BOARD

Mr. BURTON. This discussion, I would say, falls into two categories, one relating to termination clauses which are inserted in contracts between the various agencies and contractors. There is one clause, Procurement Regulation No. 3, section VIII, paragraph 324, which relates to lump-sum contracts, except those to be completed in 6 months or less for an amount of less than $500,000, and contracts for an amount of less than $50,000 regardless of the date of completion.

There are other termination clauses which relate to cost-plus-afixed-fee contracts for supplies, and for construction contracts which are not definite in their construction-in other words, they are prepared according to the particular conditions surrounding a contract. However, Colonel Cutter, Mr. Hawes, and Mr. Kenney have been discussing those additional termination clauses with a view to formulating definite construction for those to be inserted.

Colonel CUTTER. That isn't quite the situation as to those, just to be strictly accurate.