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 munit ons. 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, j gs, 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'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, except that t 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 educational 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.

There firms have been selected pursuant to the national defense act under the Assistant Secretary of War.

(b) Having these firms 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 amounts to the Government in the event of war.

2. The requ rement 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 Un.ted 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 costs of the art cles 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 in the law.

Moreover, the Secretary's judgment in th's connection is made final and conclusive by the act, subject only to review by the President 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 Ar Corps under the act may be numerous, involving a large sum, and that there is great competition among private firms for aircraft business, the drast c 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 few firms. there is none whose plant is adapted to the manufacture of munitions. Ninety to ninety-five 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 per on 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 articles after these facilities have been provided. 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 quantity. 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 modifica ion. 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. Fur hermore, 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.

66

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:

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 purpose for which they are placed.

These words would have to vary somewhat according to his judg

ment.

Provided further, That the first educational order placed with any firm for a given article includes 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. That will be very useful information for the department.

Provided further, That no educational order be placed with an individual firm oftener than once in three years.

I will call attention to that. We will place educational orders as small as consistent with the purpose to be accomplished, and we are only going to place them once in three years. That does not give an opportunity for looting the Treasury, in our opinion.

Provided further, That the art cle 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 or the work, this cost being itemized under the various accounting heads used in the determination of costs at the plant concerned.

We are urging upon these manufacturing plants to plan in advance for the manufacture of munitions in time of war. It is an engineering proposition. A great many of them are doing this voluntarily, and others say they can not afford to and they have not time, but it is very desirable those plans be made, because it will save a great deal of time if all the changes that are to be made are studied in advance. Mr. MCSWAIN. You failed to add that this record shall be transmitted to the department concerned and preserved by them.

General RUGGLES. We will be very glad to have that. The record would be naturally kept for quite a time. I am perfectly willing to have them kept. That is wise. That concludes my statement.

Mr. JAMES. You have talked to a great many of the men to whom you propose to give these orders?

General RUGGLES. Yes.

Mr. JAMES. Has there been any talk about profit? Or are they willing to do it at cost or cost plus reasonable profit?

General RUGGLES. A great many of them say they are willing to do it at the actual cost. We naturally have not been able to consult with all of them. The general opinion seems to be cost. There

might be some who would want a profit of 10 per cent on their cost. The majority of them, like the witnesses that were heard brought by the chamber of commerce, are perfectly willing to take the orders at actual cost.

Mr. SPEAKS. You think the patriotic tendency would actuate them?

General RUGGLES. I am sure of it. There is no incentive of profit entering into this.

Mr. SPEAKS. That is to be commended. I am very glad that they do feel that way.

General RUGGLES. They do.

Mr. JAMES. That is what I understood from all the men that were here to testify, that they would do it and do it at cost.

General RUGGLES. Yes.

Mr. JAMES. It seems to me from what you say and what I heard the other day that there are some bidders who want to have profits, but in your talk with those who would get educational orders, you have found that they are willing to do it at cost or practically cost. General RUGGLES. At cost?

Mr. JAMES. Yes.

General RUGGLES. I am not very sure every one of them would be willing to take it at cost. There is a little psychology sometimes in these things, and that is the reason I hesitate to say that all would be willing to take it at cost. Some of these concerns might think or might say that the Government is asking a great deal to ask them to set aside their private business as a patriotic matter and do it at cost, because that part of the plant could make a profit, and it really makes a loss if they do that. There is no doubt whatever that will be done at a loss. Whatever we give because it interferes with the use of their plant to take it off of their own activities.

Mr. WURZBACH. Has your experience been that the large corpo1ations are willing to do this without cost?

General RUGGLES. You mean at cost?

Mr. WURZBACH. Yes.

General RUGGLES. My belief is that practically all of them will be glad to do this if their costs are made good and do not expect any profit whatever.

Mr. WURZBACH. I suppose some of these companies might feel that in order to satisfy their stockholders they might want a very little profit.

General RUGGLES. Some might feel that way. I tried to make this plain. It would be a matter of psychology. A man might say, the Government asks me to do this without profit in the midst of my normal business. That is the only thing that would ever have any effect on them. I am sure that all of them would be very willing, and if it is left to them would be perfectly willing to take these orders at

cost.

Mr. WURZBACH. I am sure you are correct in saying that patriotism would be the chief motive. There would be this much selfishness, and I think it is selfishness that would enter into the consideration with these people, that they want to guard against a great war and especially a disastrous war, which would affect them in a business way and, therefore, anything that this committee could do to prevent disastrous war would be valuable to them outside of the patriotic motives.

a

General RUGGLES. Exactly so. That is an element of patriotism to protect the country. It is not only patriotic but their duty to protect the country. It is good business for the country for them to engage in a movement which they believe is one of the most important things that has been ever suggested to keep this country out of war. Mr. WURZBACH. That is especially true of big business manufacturing enterprises that produce articles for consumption in peace time. General RUGGLES. Exactly.

Mr. WURZBACH. As distinguished from other manufacturers who are engaged in peace time in the manufacture of munitions.

General RUGGLES. Exactly. I would like to say that part of the national defense act which places the responsibility upon the Assistant Secretary of War for an adequate provision for mobilization of industrial organizations and organizations essential to war-time needs, has been studied from one end of this country to the other through efforts made under the direction of the Assistant Secretary of War in carrying out that plan. These people are hard-headed men and they want to see a benefit from the expenditure of money, for example. They are 100 per cent for this plan. It has been entirely sold to them. Many of them are spending large sums of money on their own account to further these plans. Of course, they are limited as they are accountable to their stockholders and their boards of directors. You would be astounded to know how much has been spent on those plans for a war that may not come and we hope may never come and that it will not come for many years. They consider this the very best possible insurance for national defense.

Mr. MCSWAIN. The indispensable sine qua non of any adequate defense is explosives, is it not?

General RUGGLES. That is one of them. It takes all parts to make

war.

Mr. MCSWAIN. You can not have cannon without explosives?
General RUGGLES. Absolutely.

Mr. MCSWAIN. Have you any provision for supplies of adequate explosives for the Government in time of war?