HOUSE OF REPRESENTATIVES,

COMMITTEE ON MILITARY AFFAIRS,

January 24, 1929.

The committee met at 10.30 o'clock a. m., Hon John M. Morin (chairman) presiding.

The CHAIRMAN. The committee will be in order. General Ruggles has a statement to make in connection with the amendment Mr. McSwain is to make.

Mr. JAMES. Read your amendment and explain it a little, Mr. McSwain.

Mr. MCSWAIN. The heart of it, as I see it, is to preserve the principle of competitive bidding with reference to the procurement of Government supplies and to apply to the problem presented by this proposition the existing law as to advertising and receiving competitive bids and letting contracts for procurement of munitions, and so forth, to substitute for that the principles and general policies that were adopted when we enacted the Air Corps law with reference to the purchasing of aircraft for the Army and Navy.

Mr. HUGHES. Is this the same as the Air Corps law?

Mr. MCSWAIN. It is very similar. Some of the language is identical.

Mr. HUGHES. Does the aircraft law work satisfactorily with the War Department?

Mr. MCSWAIN. The aircraft industry has prospered greatly under this.

Mr. HUGHES. Was it your intention to talk on this part of it? General RUGGLES. Yes. The chairman asked me to prepare a written statement on the proposed modification and I have prepared such a statement, which I will read:

STATEMENT WITH RESPECT TO THE MODIFICATION OF H. R. 450 PROPOSED BY MR. MCSWAIN

PARAGRAPH 1 OF MR. M'SWAIN'S PROPOSED MODIFICATION

1. This paragraph does not authorize the Secretary of War or the Secretary of the Navy to do anything not now author zed by law. Either Secretary can now cause the patterns, tools, jigs, etc., referred to to be manufactured in Government establishments or he can call for bids for the manufacture of these articles by private firms and place the award with a private firm if that firm is the lowest bidder and the bid is less than the cost of manufacturing the articles at Government establishments.

2. It is not practicable to manufacture a supply of patterns, tools, jigs, and fixtures so standardized as to be easily adaptable for use in different industrial manufacturing establishments for the manufacture of munitions. To do this would be a waste of money. These appliances must not only be adapted to the articles to be produced but they must be especially adapted also to the particular plant in which the manufacture is to be done. It is impracticable to select commercial plants so nearly alike that the same or identical sets of these' tools, jigs, and fixtures will answer for all plants.

3. It is very important to have on hand in time of peace a supply of patterns, tools, jigs, and other fixtures for the manufacture of munitions of war, but these articles must be especially adapted to the plants that will manufacture the material in time of war.

PARAGRAPH 2 OF MR. M'SWANE'S PROPOSED MODIFICATION

1. This paragraph does not authorize the Secretary of War or the Secretary of the Navy to do anything not now authorized by law, except that it would permit him to purchase munitions from the lowest private bidder at a greater cost than that of manufacturing the articles at a Government establishment.

Either Secretary can now call for bids for the manufacture of munitions of war by private firms and place the award with a private firm if that firm is the lowest bidder and the bid is less than the cost of manufacturing the articles at a Government establishment.

2. The object of educat onal orders is to reduce the time required by industry to furnish munitions to the Government in the event of war by:

(a) Giving training in time of peace to the particular private firms which have agreed with the Government to manufacture certain munitions in specified quantities for the Government in the event of war; and

(b) Having these films manufacture one set of jigs, tools, fixtures, and manufacturing gauges for the manufacture of munitions especially adapted not only to the munitions to be produced in their plants but to the special machinery in their plants, such tools, jigs, fixtures, and manufacturing gauges to become the property of the United States.

3. The proviso in paragraph 2 of Mr. McSwain's proposed modification, that the award be made to the lowest responsible bidder that can satisfactorily perform the specifications of the contract, will prevent the accomplishment of either of the purposes of educational orders specified in (a) and (b) in the preceding paragraph, because it requires the acceptance of the bid of any firm which can satisfactorily manufacture the small order of munitions called for and make the jigs, tools, and fixtures called for, without having a plant or an organization at all suited for the production of these munitions in the large quantities that would be required in the event of war, or the ability to produce such munitions promptly in the event of war. Such a plant also may refuse in time of peace to agree with the Government to manufacture munitions for it in the event of war. There is nothing in existing law requiring any plant to come to such an agreement in time of peace.

PARAGRAPH 3 OF MR. M'SWAIN'S PROPOSED MODIFICATION

1. The requirement in paragraph 3 of Mr. McSwain's proposed modification, to the effect that only citizens of the United States and corporations controlled by citizens of the United States should be permitted to make any bid by authority of this act or to be awarded any contract thereunder, is considered good, and while it is considered that the Secretary would not place educational orders with any citizens or corporations other than those described, there would be no objection to having this provision included in the act authorizing educational orders. However, it is believed well, following the line of thought suggested by Mr. McSwain, to include also a provision that educational orders should be placed only with those responsible firms which have agreed with the Government to furnish munitions of a specified kind in specified amount to the Government in the event of war.

2. The requirement in Mr. McSwain's proposed modification, that the manufacturing plant and the books of any contractor executing any contract entered into under the authority of this act shall be open to inspection at all times by any representative of the department letting the contract and to audit by any person designated by the head of any executive department, is considered unnecessarily drastic. This requirement is taken from the act of July 2, 1926, to provide more effectively for the national defense by increasing the efficiency of the Air Corps of the United States and for other purposes. It is submitted that the conditions under which educational orders would be placed with private firms differ radically from the conditions under which aircraft and accessories pertaining thereto may be purchased under the act of July 2. 1926, referred to. This act was designed to encourage the development of an aircraft industry in the United States and the improvement of aircraft by the efforts of private industry. It provides numerous conditions under which aircraft and accessories pertaining thereto whose merit is considered superior may be procured by the Government without competition as to the cost of the articles or competition as to the cost of the designs, the only competition required in this case being as to the merit of the design, which is decided by a board appointed by the Secretary of the department concerned, subject to his approval. Merit of the design is the first consideration, cost and competition as to the price of the articles is a secondary consideration, the Secretary being authorized in many cases to place orders for articles based on their merit and subject to his consideration that the prices are reasonable, even if the articles are higher in cost than those submitted by some other bidder or by any other bidder. That is the law. Moreover, the Secretary's judgment in this connection is made final and conclusive by the act subject only to review by the Presi

dent of the United States or the Federal courts. In view of the facts that the articles that may be purchased in this manner for the Air Corps under the act may be numerous, involving a large sum, and that there is great competition among private firms for aircraft business, the drastic requirements in that act as to the plants of the contractors being open at all times to inspection by any representative of the department letting the contract, and the books to audit by any person designated by the head of any executive department of the Government, are reasonable and undoubtedly desirable.

3. The conditions are quite different, however, with respect to educational orders. There is no firm in the United States which makes the manufacture of munitions of war its principal business, and, with the exception of a very few firms, there is none whose plant is adapted to the manufacture of munitions. Ninety to 95 per cent of the munitions required in the event of war would have to be produced by private firms which do not make anything like these munitions in time of peace and which do not want any such business in time of peace. Naturally the Government has been forced to select firms with large plants and large and capable organizations for this important work in time of war, such firms ordinarily being very busy in the successful manufacture of commercial material not in any way allied with the munitions they would be called upon to produce in the event of war. These firms, as a matter of business, would much prefer not to receive educational orders. They have agreed to manufacture munitions for the Government in the event of war and to take educational orders in time of peace, simply because they believe it is their patriotic duty to place their vast resources at the disposal of the Government for the defense of the country in the event of war. Looking at the subject narrowly, it is decidedly to their disadvantage to take educational orders, as these orders necessarily interfere with the prosecution of their regular business. It is believed to be very inadvisable to impose upon these firms, as a condition for their taking educational orders, a requirement that their plants shall be open to inspection at all times by any representative of the department letting the contract and that their books shall be open to audit by any person designated by the head of any executive department of the Government. There is no objection, however, to a requirement that such parts of the plants of a contractor accepting educational orders as are utilized in the performance of the contract be open to inspection by a representative of the department letting the contract, during the time of performance of the contract, and this requirement has always been included in specifications for material purchased from private concerns. This requirement has never, however, included the right to inspect all parts of the plant, whether engaged in the manufacture of an article for the Government or not, nor has it been extended to permit the Government to audit all the books of the company.

4. It is believed, however, that it would be well to require manufacturers who accept educational orders from the Government to submit to the Government, after completion of the work, an itemized statement of the cost of such educational orders under the various accounting heads used in cost accounting at the establishment. The cost of manufacturing jigs, fixtures, etc., should be separated from the actual costs of the article after these facilities have been completed. This information would be very valuable to the Government in submitting estimates of cost of munitions in the event of war and in determining what the cost of these munitions should be when ordered during war in quantities. There is no objection to reports of inspection of articles or parts of plants making articles under educational orders or statements of cost being preserved by the appropriate department for a period of 10 years and subject at all times to inspection by direction of any committee of Congress. The records of the departments are always subject to the call of committees of Congress.

PARAGRAPH 4 OF MR. M'SWAIN'S PROPOSED MODIFICATION

1. This paragraph is considered to be unnecessary and inadvisable in the case of educational orders, largely for the reasons stated in the comments on paragraph 3 of Mr. McSwain's proposed modification. Since practically none of the contractors who would accept educational orders is anxious to take such orders, except on the general broad ground of patriotism, and since these orders would be small in any event, there is no incentive for any contractor to practice collusion in order to obtain such orders. Furthermore, if any collusion of this kind should occur it is considered that the existing laws of the United States provide adequate punishment therefor upon conviction.

GENERAL

A minor comment on the proposed modification of Mr. McSwain is that the words "Ordnance material should be omitted and that the articles to be purchased under the educational orders proposed be as described in H. R. 450.

SUGGESTIONS

It is suggested that some of the objects which Mr. McSwain wishes to obtain by his proposed modification of H. R. 450 may be obtained by adding provisos to that bill substantially as follows:

66

Provided, That educational orders be kept as small as in the judgment of the Secretary of War or of the Secretary of the Navy is consistent with due regard for economy and with the accomplishment of the purposes for which they are placed: Provided further, That the first educational order placed with any firm for a given article include one complete set of jigs, fixtures, special tools, and manufacturing gauges required for the production of the article in quantity in the event of war, and wherever practicable a plan in such detail as the Secretary of War or the Secretary of the Navy may prescribe for the manufacture in the event of war of the article by the firm accepting the educational order: Provided further, That no educational order be placed with an individual firm oftener than once in three years: Provided further, That the article to be manufactured under an educational order and that portion of the plant engaged in such manufacture shall be at all times during the progress of the work open to inspection by any person designated by the head of the department placing the order: Provided further, That an accurate record of cost of making the jigs, fixtures, special tools, manufacturing gauges, etc., and of producing munitions after these special appliances have been completed shall be submitted to the head of the department placing the order after completion of the work, this cost being itemized under the various accounting heads used in the determination of costs at the plant concerned."

Mr. WURZBACH. When you read your proposed amendment the other day, when we had the air bill here, I noticed that the letter gave a great deal of latitude to the Secretary of War. His decision was not subject to review. Is that included in your amendment? Mr. MCSWAIN. I did not repeat that very extreme language. I am perfectly willing to put different language than that in. This was for the purpose of preventing trouble when they came to settle with the Comptroller General.

Mr. SPEAKS. Would not the effect of this amendment be to remove all restrictions and permit the War Department to go ahead and make such contracts as they please.

Mr. MCSWAIN. I take it that it will enable them to have competitive bidding. I think that is about the substance of it. That is the view I take of it. That is why I am opposed to it. That is the reason I am opposing that.

Mr. JAMES. I would like to have the amendment read. (For amendment see proceedings of January 19, 1929.)

Mr. JAMES. Personally, I would not have any objection to changing your language so the Secretary of War, whose action is subject to the approval of the President, would have the right to advertise. It seems to me you have enough safeguards around there with that change. It is subject to the approval of the President as commander in chief of the Army and Navy.

Mr. MCSWAIN. That is a constructive criticism, and I think there is force in what you say. I think it would be dangerous to enact a blanket authority as proposed by the bill itself. I think we ought to throw adequate safeguards around it, or else we can not defend the bill on the floor.

Mr. JAME. Does not the gentleman from South Carolina think that the letter of the Secretary of War is subject to the President's con

sideration, in which case it must go up to the President himself as commander in chief? Would not that quite safeguard it?

Mr. MCSWAIN. Without advertising?

Mr. JAMES. NO; go ahead with the rest of it, but instead of pinning the Secretary down to where he must give it to the lowest responsible bidder let him select anybody he wishes among the bidders, provided in each case it is approved by the President.

Mr. MCSWAIN. The lowest responsible bidder who in his judgment can satisfactorily perform the contract. That ought to be the desire of everybody. If there is a contractor who can satisfactorily perform this contract and has bid lower than anybody else, he ought to have it. The other day someone mentioned that a little weak man might get the contract. We must remember that the little weak man in the course of years becomes a strong man, and that strong men die and decay. Big firms that are in existence now and considered strong may be in bankruptcy and their plants rusted when we get into war, and some of the little fellows that we speak of contemptuously now may have grown tremendously. Every citizen and every industrial enterprise ought to have a chance to scratch through.

Mr. SPEAKS. Why not strike out the words "in his judgment "? Mr. HUGHES. I think we had better hear from General Ruggles.

The CHAIRMAN. After General Ruggles makes his statement we can discuss these matters in executive session.

STATEMENT OF BRIG. GEN. COLDEN L'H. RUGGLES, ASSISTANT CHIEF OF ORDNANCE, WAR DEPARTMENT

General RUGGLES. Mr. Chairman, after studying this proposed modification of Mr. McSwain's and writing my opinion on it, I took it to the Assistant Secretary of War yesterday evening, and he agreed with it entirely. I am authorized to say it meets with the approval of the Assistant Secretary of War. He is the one that is charged with the mobilization of materials and industrial organizations essential to war-time needs, and following Mr. McSwain's suggestion I tried to incorporate some suggestions constructive in character, and that would meet, at least, some of Mr. McSwain's objections to the bill as written and as they involved an addition to the bill as submitted by the War Department, I particularly wanted to get the War Department's approval. I did not get the Secretary of War's approval. He was too busy, but I got the Assistant Secretary's approval, and if there is any doubt about the War Department's approval, of course, the committee can suggest it. The Assistant Secretary told me that he would recommend that the War Department approve such suggestions as I have made. I have prepared a statement which I will read covering each paragraph of Mr. McSwain's proposed modification, as follows:

PARAGRAPH 1 OF MR. M'SWAIN'S PROPOSED MODIFICATION

1. This paragraph does not authorize the Secretary of War or the Secretary of the Navy to do anything not now authorized by law. Either Secretary can now cause the patterns, tools, jigs, etc., referred to to be manufactured in Government establishments or he can call for bids for the manufacture of these articles by private firms, and place the award with a private firm if that firm is the lowest bidder and the bid is less than the cost of manufacturing the art.cles at Government establishments.