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organization of experts for expediting the settlement of contract costs whereas the General Accounting Office would, to a large degree, have to establish such an organization. Therefore, we agree with the views expressed by the War and Navy Departments, the United States Chamber of Commerce, and the National Association of Manufacturers, that the contracting officers should be vested with the authority of negotiating settlement upon cancelation and that such negotiation should be final in the absence of fraud.
4. Authority to settle as a single contract all or groups of the terminated contracts of a contractor, irrespective of whether they may be prime contracts or subcontracts. There should be legislation authorizing the purchase by the Government of the rights of subcontractors against their prime contractors and pay. ment of such claims through use of funds available to procurement agencies under any previous appropriation.
Unless contracts and subcontracts can be handled on a plant-group basis rather than as individual contracts, the matter of final settlement can be delayed for such a long period as to jeopardize reconversion of industry and will result in, large-scale unemployment.
5. Provision for the immediate payment, within 30 days without audit, to prime contractors and to subcontractors of 90 percent of such amounts as they may certify to be all termination charges due them by reason of the termination of their contracts. Any amount so paid in excess of the amount finally determined to be due to any contractor or subcontractor should be treated as a loan and interest penalties should be imposed on anyone making an excessive claim.
We believe that certain war industries have expanded to such an extent that payment of any amount less than 90 percent of the amount actually due them on war contracts would prevent their continued operation or reconversion until such time as termination payments had been received. We believe that such payment should be mandatory within a period of 30 days. The manufacturers of aircraft parts are a classic example of an industry that requires immediate payment of cancelation charges. The majority of manufacturers in this field have come into existence during the war period. They do not have adequate reserves to carry them over any long period of delay in settlement of claims. They have greatly expanded during the war (almost wholly by private financing) in order to meet increased production schedules, and many of them are heavily indebted for past expansion. Further, the post-war demand for aircraft cannot possible be great enough to keep all of these plants busy along the lines of their present manufacturing activity. Therefore, most of them will be forced to convert their plants entirely to a new peacetime pursuit. Reconversion costs will, in many instances, be greater in this field because such manufacturers will be forced to develop new products. Therefore, we disagree with the Under Secretary of War and Mr. Vinson and believe that mandatory payments of 90 percent of cancelation charges (within 30 days after presentation of a certified invoice) must be made a part of the proposed legislation.
6. We recommend that Congress delegate to a board representing all of the procurement agencies the authority, subject to appropriate standards, to establish uniform termination provisions and uniform termination procedures, to be utilized by the various procurement agencies and will effectuate the policies and provisions of this legislation. Specific authority should be given to such board to confer on the procurement agency having the predominate interest in the output of a contractor or of a single plant, the responsibility of settling all terminated contracts of the contractor or plant.
If a uniform procedure is adopted by the various agencies much doubt will be eliminated and contract terminations can be expedited. The theory that the procurement agency having the predominate interest in each plant should handle all contract terminations within said plant has already proved its effectiveness in the field of renegotiation and we believe that its adoption will prove equally sound in the field of contract terminations.
7. We believe that provision should be made for a moratorium at the time of termination of all or substantially all of a contractor's or subcontractor's war contracts of renegotiation payments until after settlement and payment of the termination claims.
The need for such a moratorium is obvious, since in many instances it will be impossible for the price-adjustment board or the contractor to know, prior to final settlement, the percentage of profit, if any, that the contractor has realized.
Therefore, until such uncertainty has been eliminated, renegotiation proceedings and payments should be deferred until after final settlement of termination charges has been made.
8. We believe that there should be enacted a provision requiring assumption by the Government, at the option of a subcontractor, of any claims of the subcontractor against a prime contractor (a) where the individual claims are any amount or (0) where the prime contractor has become bankrupt or insolvent.
In reality the Government is the only purchaser of war goods. Subcontractors should not suffer because some prime contractors will not be able to pay justified claims. Most prime contractors have operated virtually as governmental agencies and the subcontractor should be assured that he will receive the amount due him regardless of the prime contractor's ability to pay.
9. We favor enactment of a provision for the erection of district courts of claim or expansion of jurisdiction of present district courts to which contractors may resort for speedy adjudication of their claims in the event that prompt recognition and payment thereof cannot be obtained from the procurement agencies.
The right of speedy appeal should not be denied to war contractors and enactment of such a provision would aid in securing prompt settlement of all termination claims. If Congress should decide to create administrative agencies rather than courts to handle such matters, we feel that representatives of such agencies should include representatives from industry who have had a background of experience in industry during the war period and were employed in high executive positions.
10. We recommend that any uniform termination provisions and procedures which are adopted consider the following items as part of such regulations :
(a) All amortization under certificates of necessity shall be recognized as part of the contractor's termination costs.
(6) Subcontractors of canceled projects shall be reimbursed for all accounting costs and factory personnel and other expenditures of any character necessary to handle cancelation matters. Subcontractors shall also be reimbursed for any legal and audit fees that may reasonably incur incident to and necessary in the preparation of their claims on canceled projects as part of their cancelation costs.
(C) Provision for recognizing commitments which, because of informality or otherwise, are legally unenforceable. Legislation of this type was embodied in the Dent Act which was enacted following the last war.
(a) Authority for a prime contractor, acting in good faith, to make final settlement of an individual subcontractor's claim which alone does not exceed $125,000. Any such settlement made in good faith shall not be subject to further review.
This suggestion is offered on the same theory as that advanced in support of vesting final authority to negotiate contract settlements in the hands of the contracting officer. The prime contractor is better qualified to handle the majority of termination costs of subcontractors than even the contract officer because his engineering personnel is more familiar with the completed article and can better rule on the percentage of costs incurred by the individual subcontractor upon uncompleted items.
Conclusion: The nature, extent, and urgency of the problem of contract termina. tions have already been presented to this committee. We feel that the matter is much broader than a mere settlement of accounts between Government and prime contractors and between prime contractors and subcontractors. It involves postwar employment and the continued operation of industry. We believe that Congress should give careful consideration to the rights of subcontractors by weighing carefully each of the above suggestions. Such consideration is warranted for two reasons. First, the subcontractors constitute the group that will be employing the largest number of employees after the war. Second, the subcontractors have largely financed the operation and expansion of their individual plants and for that reason they should be assured that they will receive prompt and equitable consideration when the Government no longer has any need for their productive facilities.
The aircraft parts industry represents a total of 2,000 manufacturers in the southern California area. These firms employ approximately 150,000 employees and have an invested capital of approximately $350,000,000.
The Aircraft Parts Manufacturers' Association appreciates the opportunity to submit its views on this vital subject and will endeavor to explain any points which are not clear to the committee.
Respectfully submitted by the Stratton committee of the Aircraft Parts Manufacturers' Association of Los Angeles,
GEORGE W. STRATTON,
L. B. CAMERON, (The following telegram is made a part hereof:)
PITTSBURGH, PA., October 29, 1943. Representative ANDREW J. MAY,
Chairman, Military Affairs Committee, Washington, D. C. On October 27, at our semiannual convention representing practically all inde pendent gear manufacturers in the United States of America, a resolution was unanimously passed recommending that Congress enact contract termination legislation favorable to the following: First, single over-all claim by company or plant; second, mandatory advance cash settlement at least 75 percent by certified claim; third, separate the disposition of inventory from settlement of claim; fourth, creation of central contract termination board.
AMERICAN GEAR MANUFACTURERS ASSOCIATION,
RUSSELL C. BALL, President. The following letter from the Under Secretary of War is made a part hereof:
Washington, D. C., October 27, 1943. Hon. ANDREW J. MAY, Chairman, Military Affairs Committee, House of Representatives,
Washington, D. O. MY DEAR MR. MAY: This morning the Comptroller General furnished me a copy of his supplemental statement to this committee.
Nothing in this statement in any way contradicts any of the three basic facts to which I called your attention in my statement on October 21. Let me explain this to you briefly.
1. The Comptroller General does not deny our statement that 99.95 percent of all procurement vouchers submitted for audit for the 4 months ended August 1943 were passed without opposition by the General Accounting Office. Instead he states that his office "questioned” 15.5 percent of the vouchers under cost-plusa-fixed-fee contracts which were audited during the same period. I am told by his office that this word "questioned" includes all informal inquiries concerning vouchers, whether orally or by letter or memorandum. Such inquiries do not, of course, indicate that the voucher is erroneous or improper or that exception will be taken under it. Furthermore, the Comptroller General has limited his statement to vouchers under cost-plus-a-fixed-fee contracts while my statement was based on all procurement vouchers including fixed-price vouchers. Since these are also passed on by contracting officers, the total figure is a much fairer test of their efficiency and capacity.
2. The Comptroller General does not deny our statement that the actual disallowances by his office have currently totaled less than 10 cents per $1,000 of expenditures under War Department contracts. Instead he states that for the year ended September 30, 1943, his office “took exception” to 36,010 vouchers, totaling $297,031,985.23. These figures based on total exceptions are misleading. The vast majority of exceptions to vouchers are merely temporary and based solely on technical objections such as formal defects in the voucher or its supporting documents. These exceptions do not in any way involve unlawful, improper, or extravagant payments. When the technicality has been met, the exception is withdrawn and the voucher is passed. Consequently, the number of exceptions is no index at all of the number of such vouchers finally disallowed or the actual savings by the General Accounting Office and in no way contradicts our original statement. As for the suggestion that disallowances originated by the General Accounting Office may amount to over $18,000,000, there is nothing in the record or in the experience so far to indicate that they will even approach such a figure.
3. The Comptroller General does not deny that 90 percent of the money amount of the cases submitted to your committee by him represents either items subsequently allowed by him or items brought to light by the War Department in its regular audit before they came to his attention. He seeks to avoid this undisputed fact by claiming that the War Department has delayed in obtaining refunds in such cases. This delay in no way jeopardizes its interests. During performance the Government owes the contractor far in excess of the amounts due on such items. These and all other outstanding items are always settled up before final payment under the contract. The attempt of the Comptroller General to take credit for these amounts which are in process and will ultimately be credited to the Government in connection with the War Department's own audit is, therefore, entirely unjustified.
I repeat that the record presented to this committee does not justify the criticism of the officers of the War Department made by the Comptroller.
These matters are far afield from the main questions now before this committee. The only bill actually pending before you merely provides for means for the financing of contractors and subcontractors pending final settlements of terminated contracts. In his original statement and in his supplemental statement the Comptroller General has expressly recognized the need for granting authority to make loans and advances to aid contractors under proper safeguards. This legislation is essential now both to provide such financing in current terminations and to assure contractors and subcontractors now that it will be available at the end of the war. Otherwise many war producers will certainly try to reduce their volume of war business in order to protect themselves from disaster on termination. Any such tendency would seriously impede the war production program.
We therefore urge you most strongly to consider on its merits the revised draft of bill for termination financing which the War Department submitted to your chairman on October 8. I believe that this legislation is sound and vitally necessary and I urge you to act favorably on it. Sincerely yours,
ROBERT P. PATTERSON,