fornia is contemplated. The policies stated in paragraphs (b) to (d) of this section will be subject to the requirements of any such directives.

(b) Ability to perform. Primary emphasis shall be placed upon securing performance or deliveries at the time, in the quantity, and of the quality required by the war program. As indicated in paragraph (a) of § 81.222, the objective is to insure delivery in time to avoid delays in the war program, but to avoid creation of unnecessary inventories.

(c) Labor supply policy. (1) The War Manpower Commission has divided the country into twelve regions and from time to time classifies localities in each region according to their labor supply conditions and on this basis designates them as:

Group I: Areas of current acute labor shortage.

Group II: Areas of labor stringency and those anticipating a labor shortage within six months.

Group III: Areas in which a general labor shortage may be anticipated after six months. Group IV: Areas in which labor supply is and will continue to be adequate to meet all known labor requirements.

The Industrial Personnel Division, Headquarters, Army Service Forces, will advise the technical services monthly, or more often if conditions warrant, of the designations of the Commission.

(2) When two or more contractors are considered equally able to perform a contract, the selection between them shall be based on the labor supply situation in the areas in which the facilities where the work is to be done are located, in accordance with paragraphs (d) and (e) below.

(d) Labor shortage areas. In accordance with paragraph (c) of this section the following policies will be observed with respect to the placing of contracts in Group I, II, or III labor areas:

(1) Group I. It is the intent to avoid so far as possible the placement of contracts in Group I areas. The only contracts which may be placed there are those (i) for which established special facilities exist and for which labor has been specially trained; or (ii) on which the required speed of deliveries cannot otherwise be met; or (iii) which, in the considered judgment of the chief of the technical service concerned or of any person or persons to whom he may dele

gate his authority, it is impracticable to place elsewhere.

(2) Group II. In these areas there may be placed any contract for the continuation of the production of items of the same character as those already being produced by the contractor for any government department if no labor is required in addition to that currently employed by such contractor. In addition, any contract may be placed in a Group II area which is of such character that it might properly be placed in a Group I area under the provisions of subparagraph (1) of this paragraph.

(3) Group III. In these areas there may be placed any contract (whether representing new or continuation business) which can be completed within six months and which will not require the employment of labor in addition to that normally or currently employed by the contractor. In addition, any contract may be placed in a Group III area which is of such character that it might properly be placed in a Group I or II area under the provisions of subparagraphs (1) and (2) of this paragraph.

(4) Exceptions. The restrictions stated in this paragraph (d) of this section do not apply to the placing of contracts:

(i) With firms which currently employ less than 100 wage earners and which will not employ more than 100 wage earners during the performance of the contract; or

(ii) With originating manufacturers for a newly developed article in accordance with § 81.224.

(e) Labor surplus areas; Group IV labor areas. There are no restrictions from the standpoint of labor supply upon the placement of contracts in Group IV areas or in areas not classified by the War Manpower Commission. Furthermore, the policy of the War Department is to distribute its business so as to utilize as widely as practicable the facilities of concerns located in Group IV, unclassified and Group III areas.

(f) Subcontracting in labor shortage areas. (1) Prime contractors holding the bulk of War Department contracts have received a request from the Under Secretary of War to apply principles similar to those described in paragraphs (c) to (e) of this section in placing their subcontracts for the fabrication of products required by their prime contracts. When new prime contracts which may involve subcontracting are made, the prime contractors will be advised of these principles by contracting officers and will be strongly urged to apply them in placing subcontracts.

(2) The restrictions relating to Group I, II and III areas are not intended to apply to existing subcontract relationships (particularly for the production of difficult or complicated items) where their application might tend to delay or interfere with production. Where to give effect to changes in the classification of labor supply areas occurring after the execution of a particular prime contract would decrease the efficiency or increase the cost of placing recurring subcontracts thereunder, the chief of a technical service or his duly authorized representative is authorized, pursuant to the First War Powers Act, 1941, to enter into and approve supplemental agreements to provide for the payment of any increased price to the prime contractor to cover increased costs resulting from such changes in subcontracting, in the same manner as provided in § 81.225 (f) (3). It is hereby determined that supplemental agreements entered into for this purpose will facilitate the prosecution of the war.

(3) Many prime contractors are regularly receiving the monthly classification of labor market areas issued by the War Manpower Commission. Arrangements may be made to have additional prime contractors supplied with them by communicating directly with the Division of Procurement Policy, War Production Board, Washington, D. C.

(g) Other factors. When policies relating to ability to perform and labor supply have been met, contracts will be placed so as to give due weight in each instance to the following objectives:

(1) Cost and efficiency. Placement of contracts so as to use the minimum number of manhours and the minimum quantity of material to make the supplies needed. In the long run this will result in the lowest cost to the Government. In the absence of actual data as to the relative efficiency of producers in utilizing manpower and material, their comparative prices are normally the best test of their relative efficiency in these respects, unless other differences between them (such as differences in their cost of transportation or in their expenditures

for facilities) distort the comparison. Whenever such information is needed producers will be required to furnish actual or estimated cost data covering their production. In so far as possible contracts should provide the maximum incentive to the producer for the reduction of his costs.

(2) Small business concerns. Placement of contracts so as to make the most effective utilization of the small plants of the nation. To this end, as large a proportion of awards as practicable will be made to qualified small concerns, directly if feasible and, if not, through awards to larger firms which will subcontract to small concerns. To achieve these objectives, payment of a reasonable premium to small concerns is authorized where necessary, in accordance with directives from time to time in effect.

[Preceding subparagraph, in small type, superseded by following subparagraph during period covered by this Supplement]

(2) Small business concerns. Placement of contracts so as to make the most effective utilization of the small plants of the nation. To this end, as large a proportion of awards as practicable will be made to qualified small concerns, directly if feasible and, if not, through awards to larger firms which will subcontract to small concerns. To achieve these objectives, payment of a reasonable premium is authorized where necessary, in accordance with directives from time to time in effect. (As amended by W.D. Proc. Regs., C 29, Dec. 17, 1943, 8 F.R. 17464]

(3) Conservation of special abilities. Conservation for the more difficult war production problems of the resources of concerns best able, by reason of engineering, managerial and physical resources, to handle them, through placement of contracts for items which involve relatively simple production problems with concerns, normally the smaller ones, which are less able to handle the more difficult problems.

(4) New facilities. Avoidance, so far as possible, of the creation of additional new (as distinguished from existing) machinery, equipment or facilities.

(5) Transportation. Conservation of transportation facilities by avoiding unnecessary crosshauling of raw, semi-finished or finished material from the point of origin to the point of consumption and by avoiding long hauling when such materials are available at a shorter distance.

(6) More than one source of supply. Placement of contracts, whenever practicable, so as to have for each item of supply and equipment at least two producers so located as not to be subject to the same hazard. Determination of whether it is practicable so to do shall be made by the chief of the technical service concerned.

(7) No one of the six objectives stated in this paragraph (g) of this section should alone be regarded as controlling. The placement or revision of contracts should reflect an evaluation of all these objectives which are applicable to the particular case.

(h) Price. (1) The application of the principles stated in paragraphs (a) to (g), inclusive, of this section will in some instances require the payment of prices higher than those of the lowest bidder. The technical services hereby authorized and directed to pay higher prices than would otherwise be required to the extent that such action is necessary to carry out the foregoing policies.

are

(a) In general a substantial proportion of the initial orders for a new article should be placed with the manufacturer who developed it. Unless the chief of the technical service concerned deems it impracticable so to do effort should be made to place enough of the volume with other qualified producers to develop at least one other experienced source; except in unusual cases this should be a going production order and not a limited quantity educational order. [As amended by W.D. Proc. Regs., С 26, Oct. 15, 1943, 8 F.R. 14513]

Army supply program (see also §§ 88.15103, 88.15-302). [W.D. Proc. Regs., C 26, Oct. 15, 1943, 8 F.R. 14513]

§81.228 Exceptions. Upon specific request the Director, Purchases Division, Headquarters, Army Service Forces may grant authority to depart from the policies stated in §§ 81.220 to 81.228. Requests for such authority stating the reasons therefor will be forwarded to the Purchases Division, Headquarters, Army Service Forces. One such specific exemption granted to The Quartermaster General is referred to in QMS paragraph 2-2-3d (29 Je. 43). [W.D. Proc. Regs., C 26, Oct. 15, 1943, 8 F.R. 14513]

§81.229 Labor aspects of production rescheduling-(a) General policy. (1) When production in an individual plant is reduced substantially as a result of rescheduling, withdrawal or reduction of contracts or for other reasons, the War Manpower Commission will be informed of the change so that that agency may (1) work with the employer, determine the number and types of workers to be released and on what date; and (11) arrange for the immediate reemployment of the displaced workers in other essential industry.

(2) In such cases, workers to be released as a result of the cut-back will be notified of their pending separation, of the assistance to be provided by the War Manpower Commission in obtaining other employment for them, and, so far as security considerations permit, of the reasons for the cut-back.

(3) These arrangements are desired to avoid impairment of labor morale, to insure continuous employment of workers in essential jobs and to avoid public impression that cut-backs are due to poor allocation of materials, inefficient management of the facility itself or unsatisfactory work by the employees laid off.

(4) To accomplish these objectives, the procedure specified in paragraphs (b) to (d) of this section will be followed. The procedure applies only after final decision to make a cut-back is reached and it has been determined that the facilities made available by the cut-back probably will not be used by another contracting agency. Application of the procedure should not be withheld because of a vague possibility that some other agency might use the facilities.

(b) Procedure for technical services. Each technical service is responsible for:

(1) Notifying the regional office of the War Manpower Commission in whose area the plant is located of the cut-back, transmitting a copy of the notification to the headquarters office of the technical service involved. If the technical service making the notification has knowledge of subcontractors and suppliers who will be substantially affected, notification concerning these emplovers should also be transmitted to the appropriate War Manpower Commission regional offices.

(2) Advising management of the cut-back and the reasons therefor. If the notification is first made verbally, it should be confirmed by letter. Management should be asked to notify the workers affected and their union representatives if any. Management should also be asked to inform such of their subcontractors or suppliers as may be substantially affected by the cut-back.

(3) Preparing official statements to the press announcing the curtailment and the reasons for it. These statements will be cleared with the Bureau of Public Relations. After the latter's approval they will be transmitted to the appropriate field procurement office for release in the locality in which the facility is located. Such action is normally desirable only when a large lay off results or there is an unusually adverse community reaction to the change.

(4) Establishing and operating necessary controls to insure that management carries out its responsibilities.

(5) Transmitting to the War Manpower Commission information concerning where, in the technical service's opinion, the displaced workers might be reemployed with advantage to the war production program.

(6) Determining that classified information is not revealed in notifications, explanations, meetings, press releases, etc., except as authorized in § 5.4.

(c) Responsibilities of the management of the affected facilities. (1) Appropriate notification to workers individually or as a group using written or verbal methods as indicated by the individual situation.

(2) Notification to subcontractors and suppliers with a request that they in turn inform such of their employees as may be released because of the change.

(3) Cooperate with the War Manpower Commission in determining the workers to be released and in placing them elsewhere. Management should also give the War Manpower Commission the names of such of the subcontractors and suppliers who, it is believed, will be substantially affected.

When the facility involved is a Government owned one, the Commanding Officer will discharge the responsibilities of management as described above.

(d) Temporary curtailments. When a temporary curtailment of production due to changes in specifications, change over to production of a different product or to other factors occurs, the following procedure will be followed:

(1) The technical service involved will notify the contractor of the change and reasons therefor. The technical service will make every effort to give the contractor such information as will permit exact determination of the date on which employment operations will be resumed.

(2) Management will be asked to transmit this information to the workers affected and to take steps to avoid disintegration of its labor force pending resumption of full operations. However, it is not desirable that the temporarily displaced workers be idle during

the interim. Therefore, management should solicit the aid of the War Manpower Commission in finding temporary local employment for the workers involved. [W.D. Proc. Regs., C 20, July 6, 1943, 8 F.R. 9908]

NOTE: This section, originally issued as § 81.228, was redesignated as § 81.229 by W.D. Proc. Regs., C 26, Oct. 15, 1943, 8 F.R. 14513.

[Preceding section, in small type, superseded by following section during period covered by this Supplement]

§ 81.229 Labor aspects of production rescheduling. See § 88.15-324. [W.D. Proc. Regs., C 26, Oct. 15, 1943, 8 F.R. 14513]

CONTRACT PRICE POLICIES

§ 81.232a Time and material or laborhour contracts. The buying of articles or services on the basis of: direct labor at specified hourly rates, which rates are intended to include wages, overhead and profit, and material at cost, is usually referred to as the time and material or labor-hour system of purchasing. The system was developed primarily for use in those situations where it was not possible at the time of placing the order or contract to estimate accurately the amount or duration of the work or to anticipate costs with any substantial accuracy, and has been employed to some extent in the procurement by the Army or by cost-plus-a-fixed-fee contractors of: engineering and design services in connection with production of suppliesthe engineering, design and manufacture of dies, jigs, fixtures, gauges and special machine tools-repair work of various kinds, and outside work on regular production in emergency cases.

(a) Use discouraged. In the light of present procurement conditions and the cost experience now accumulated the necessity for the use of this system either in direct procurement or in purchases by cost-plus-a-fixed-fee contractors has been greatly reduced. The chiefs of the services will cause the use of this system of purchasing to be restricted to those situations where no practicable alternative exists.

(b) Conditions on use. In the restricted situations where this system is permitted to be used, the chiefs of the services will assure that reasonable precautions are taken to prevent the abuses to which it is susceptible. In this connection it is important that particular care be exercised to select firms of known integrity and efficiency and that the use

of complete, clear and definite orders or contracts be insisted upon. Adequate control will also require that all time and material or labor-hour purchase orders or contracts issued by a cost-plus-afixed-fee prime contractor be approved or ratified by the contracting officer.

(c) Adequacy of contract provisions. In determining the adequacy of the provisions of any such orders or contracts where their use is permitted, consideration of the following basic elements will be helpful:

(1) Labor. Only direct labor should be included in the billing and the types of labor or work to be included in the category of direct labor should be specified. It should also be specified that the time of non-productive personnel will not be included in direct labor. The time of partners, officers, supervisors, foremen, clerks, typists, timekeepers, material handlers, stockroom employees, tool crib attendants, cleaners, janitors, maintenance men, packers, watchmen, truck drivers, and receiving and shipping employees, would normally be considered as non-productive work.

(2) Hourly rate. Separate rates should be specified for (i) engineering and design, and (ii) manufacturing and construction work. Separate rates should also be quoted for normal time, overtime and double time work where overtime and double time are necessary.

(3) Cost of materials. The materials for which reimbursement is to be made should be adequately specified and should be billed at cost and without the addition of any so-called handling charge or profit. For example, it may be specified that material cost will include only raw materials and fabricated parts entering directly into the products; that purchases made specifically for the contract may be charged at their actual price; that materials withdrawn from stores may be charged at cost under any recognized method of pricing conforming to sound accounting practices and consistently followed; and that incoming transporting charges may be included. Provision should be made for a reduction in cost of materials for cash and trade discounts, rebates and allowances and the value of resulting scrap, where the amount of such scrap is appreciable.

(4) Overtime. In order to prevent excessive overtime and double time a provision having substantially the effect

of one of the following should be employed:

(i) Vendor (the person or firm with whom the time and material or laborhour order is placed) should covenant. that the amount of overtime and double time used on the work will be fair and reasonable and will be in accordance with the exigencies of the particular job. (This will support any claims on account of excess overtime developed by an audit.)

(ii) The vendor should specify the maximum amount of overtime and double time, if any, which he anticipates will be required for the job and should agree that this amount cannot be exceeded without the prior written approval of the contracting officer or contractor, as the case may be, placing the order.

(iii) The vendor should agree that no overtime or double time may be used on the work without the prior written approval of the contracting officer or contractor, as the case may be, placing the order.

(5) Subcontracting by the vendor. The vendor will not be permitted to derive any profit on account of subcontracting a portion of the work. Where subcontracting is contemplated or is to be permitted, it should be provided that the amount billed on account of such work will neither exceed the amount charged therefor by the subcontractor nor the rates for such work regularly agreed upon between the vendor and the subcontractor. In order to control the amount of subcontracting, provision may be made that the vendor cannot subcontract any portion of the work in excess of a stated percentage without the prior written approval of the contracting officer or contractor, as the case may be, placing the order. Provision should be made that there can be no subcontracting by a vendor at an hourly rate which exceeds the vendor's hourly rate, without the prior written approval of the contracting officer.

(6) Records. Provision will be made that the vendor will maintain detailed, complete and accurate accounting records on a job order basis; that the hours of labor will be supported by individual daily job time cards preferably signed by the workers performing the services and in all cases by evidence of actual payment; that material charges will be supported by paid invoices or storeroom