This change in language is necessary in order to enable the Air Corps to continue their present practice of utilizing Defense Plant Corporation contracts for the greater part of their facilities expansion. The restrictive language contained in the Regular 1942 Appropriation Act, as amended by the act of July 16, 1941, has been construed to operate against the use of any funds appropriated for expediting production subsequently thereto in connection with Defense Plant Corporation contracts. The office of Chief of the Air Corps may be considerably handicapped and their program delayed unless the present practice of using the Defense Plant Corporation organization for Air Corps expansion and conversion projects is continued. As I have previously stated, the greater part of the expansion of productive capacity required for Air Corps projects is that type which is obtained by adding to or converting existing privately owned facilities. The Defense Plant Corporation type of contract is preferable than having the War Department completely finance and build a Government-owned plant. That concludes my formal statement. LOBBYING FOR CONTRACTS The CHAIRMAN. Mr. Secretary, the complaint that is frequently voiced, both in the House and in the press, is that it is difficult to get information down in the War Department; that those who have applications or inquiries are shifted from office to office and sometimes have to go to as many as a dozen offices before they finally reach the place where the information can be supplied. In connection with that, I notice the Truman report also criticizes this feature, and says it is impossible for the small businessman to secure information which is available to the large contractors through the dollar-a-year men, and they have to resort to lobbyists in order to get fundamental facts about applying for contracts and other information, and the recommendation is made that the Government establish some sort of a clearing house for information-for example, through the Division of Contract Distribution-in order that information may be available promptly and to everybody alike. Has this matter been given consideration by the Department? Mr. PATTERSON. Yes, sir; last August, I set up in my own office a Contract Distribution Section. That was a little before the time when O. P. M. set up their Contract Distribution Division under Mr. Odlum. My action in that regard was prompted by a study that had been made, and also by an article that just appeared in the New York Times, a featured article on a Sunday, regarding the activities of some promoters down here in placing War Department contracts. There was nothing particularly reprehensible in the practices reported in the New York Times, but it seemed to me to be bad to have people running around and posing as knowing who to see, when people just coming into town looking for business might not have that information. I wanted, insofar as possible, to have the War Department itself furnish all available information, and I set that up under Colonel Hare in my office. It has been functioning, and I think has functioned successfully. I am not claiming that it is a panacea. I cannot for the life of me prevent men running around saying they have inside stuff, they have inside information, or pull, or something. We have been faced with that problem now for a year and a half and have done our best to cope with it. We have, as you know, a clause in our contract providing that the contract may be voided if a fee is paid in the negotiation of the contract; also providing for a deduction of the fee in the price to the contractor, if we so elect. And in all of our construction contracts we have taken affidavits, in addition to that clause in the contract, to the effect that no fee has been paid to anybody for negotiating or securing the contract, and I have sent out notices from time to time, when the situation seemed to warrant it, notifying all prospective contractors that they did not need to resort to any such thing as that; that they could come right into the Department and that Colonel Hare's section was especially set up for the benefit of giving information to people who wanted contracts as to the Service most likely to give them contracts. The CHAIRMAN. Why is this affidavit required on construction contracts alone; why should it not be required on all contracts? Mr. PATTERSON. Because the abuses first came up in connection with construction contracts. The CHAIRMAN. You think you have that situation adequately taken care of? Mr. PATTERSON. No; I cannot say that. I have done my best. I am not sure there is any cure-all for it. The CHAIRMAN. Apparently you have met it in a very practical way. Mr. PATTERSON. I did the best I could. Of course, some of these men render perfectly legitimate services, real engineering services and, where they do that, I am not in favor of making it illegal or criminal. The CHAIRMAN. Now I will recognize Mr. Snyder. Mr. SNYDER. Judge, I am glad to hear you say you did your best to keep these many-I do not know what you call them-lobbyists out of the city who tip off a fellow and say, "I have inside information and can get you a contract." Mr. PATTERSON. There is no doubt that pernicious activity goes on, but we have done our best to cope with it; have done our best to stamp it out. I do not object to the people rendering real services, and there may be real services rendered in some cases in engineering, or particularly in conversion of existing facilities over to wartime production; the part we resent is representations that they have some pull, that there is some inside stuff. Mr. SNYDER. Is not this true, that a few small contractors have come in and tried to get a contract for which they do not have the equipment, facilities, and tools, and, when they are turned down, they say "the other fellow has pull"? Mr. PATTERSON. I think it is so. NEED FOR ADDITIONAL FACILITIES-USE OF DEFENSE PLANT CORPORATION Mr. TABFR. Mr. Secretary, do I understand that this $933,000,000 program you have been referring to ties into these estimates that are asked for airplanes and that sort of thing? Mr. PATTERSON. Yes, sir. Mr. TABER. That is, in order to be able to let contracts for airplanes and the other things that are provided for as a part of this estimate, you have got to have these particular facilities that you are asking for now? Mr. PATTERSON. Yes, sir; that is right; they do tie right together. Mr. TABER. I rather understood they were necessary to carry on the program that is already laid out and provided for, from what General Arnold told us. Mr. PATTERSON. No; I think there is a definite relation between these amounts asked for under the head of expediting production and the supply moneys asked for in the same estimates. Is not that right? General KNUDSEN. Yes. Mr. TABER. Within what time do you expect to have these facilities available and ready? Mr. PATTERSON. About a year or 14 months; is that about right, General? General ECHOLS. Yes, sir. Mr. TABER. Now, Mr. Secretary, as I understood from General Arnold, the program of construction was necessary not to fill in these new things, but to carry on what was already set up. That is what I understood him to tell us. General ECHOLS. This program does that, plus increasing the rate of production of heavy bombers. Mr. TABER. When are you going to need this $933,000,000? Mr. PATTERSON. As soon as possible. Mr. TABER. And how much will there be required in addition to this $933,000,000 out of that defense-plant program, if the language that is asked for here in this memorandum we have is carried about the repeal of that provision of the act of July 16, 1941? Mr. PATTERSON. We do not expect any dollar increase to be necessary, so far as we can forecast it now. Mr. TABER. In the R. F. C. funds available from the Defense Plant Corporation? Mr. PATTERSON. We do not expect to have to utilize those funds. This figure of $933,000,000 represents what we now estimate to be the total cost of the new productive facilities and, if we go into business with the Defense Plant Corporation on this program, so far as we now know, we can give them what we call a take-out letter for the entire amount. But we would like that proviso out, because it may come about, in a certain project, that the amount necessary will be greater than the amount we have estimated. We won't make any commitments for that extra amount, Mr. Taber; we won't make any commitments for anything in the way of new facilities to the Defense Plant Corporation beyond the amount of $933,000,000. Mr. TABER. You mean the $933,000,000 will include everything required for the construction program, including what you get from the Defense Plant outfit? Mr. PATTERSON. We think so. We estimate the cost of the new facilities necessary under the heading "Expediting production" at $933,000,000. Mr. ENGEL. What facilities do you mean-plants? Mr. PATTERSON. Plants and machines. Mr. ENGEL. Could you break that down so as to show what part is plants and what part is machines? Mr. PATTERSON. Only as I have done here. I have not done it in the dollar amount, but I have said the greater part will be for machine tools and equipment. it Mr. ENGEL. The greater part of the $933,000,000? Mr. PATTERSON. Yes. Mr. WOODRUM. Judge Patterson, I think you have practically cleared up, but I just wondered whether you wanted to say anything more about the extent to which you have used the Defense Plant Corporation and its advantages in the type of contract that can be made. Mr. PATTERSON. Yes, sir. The Defense Plant Corporation, a subsidiary of the R. F. C. under Jesse Jones, has authority from Congress to build defense plants. Our policy has been this: Where a plant is required for purely military purposes, like an explosives plant, a TNT plant, a smokeless-powder plant, or a machine-gun plant, those projects have been handled by the War Department direct without resorting to any other governmental agency for assistance, because for those plants no civilian use is forecast. On the other hand, with many of the aircraft projects it has been thought that a good many of those could be used after the war for the production of commercial aircraft; that there was a commercial use that could be foreseen. On those contracts we have gone to the Defense Plant Corporation, and they have made arrangements to build and lease to the operator the plant, and we have taken an obligation for varying amounts-40 percent has been the prevailing one, I believe; that is to say, we have written Jesse Jones and told him when his investment is complete we will pledge him 40 percent, and we change that 40 percent against our appropriations as a committed item. The rest of it we do not take any obligation for, unless and if we get further appropriations for that very purpose. Mr. WOODRUM. The hope being that at the end of the necessary use for war purposes, private industry can be encouraged and be given the facilities by which they could take over the plant and operate it as a private concern? Mr. PATTERSON. That is right, and he has an arrangement, in the Defense Plant Corporation lease, whereby they have an option to take over in bailing him out. Mr. WOODRUM. And if that should come about and there was a blackout of that plant, then the Government would only have a 40-percent investment? Mr. PATTERSON. That is right. It has been a very successful arrange ment. Mr. WOODRUM. It has been a very satisfactory arrangement? Mr. PATTERSON. Yes, sir; indeed. Mr. WOODRUM. But with respect to this particular item, as I understand you, you do not expect to call on the Defense Plant Corporation for funds? Mr. PATTERSON. We expect to go to the Defense Plant Corporation; but in many cases we will be able to give them a take-out letter for the full amount; but that proviso has embarassed us somewhat. Mr. TABER. Could you give us some illustrations of actual embarrassments? Mr. PATTERSON. Yes. I think the interpretation that some people, whose opinion is entitled to respect, put upon this proviso was that we could not make an arrangement with the Defense Plant Corporation for, say, a plant to cost $5,000,000 and give them a take-out letter only for $2,000,000. Now, I do not read it that way; but some such discussion was in progress here when that language was written in last June and was changed some in July. And we do not want to feel we are running counter to any intent of Congress as expressed by this proviso. I can give an illustration, I think, in this way: Suppose we were to make a contract for a project with the Defense Plant Corporation estimated to cost $5,000,000 and suppose we gave them a War Department indemnity or take-out for $2,000,000, it being supposed that the plant was to make airplane engines which would be available for use later on in civil life. We woud not want to have that arrangement thought to be running counter to the intent of Congress and, if we were to give that take-out for, say, $5,000,000, the full amount, and suppose the facilities, as it actually turned out, cost $8,000,000, it would be very advantageous to us if we could leave our take-out at $5,000,000. It might be that we might be without any funds at that time, when we needed to have that facility brought in-without any funds for expediting production. It is all due to the flexibility of the Defense Plant Corporation arrangement. Mr. POWERS. Judge, did not we have this thing out last June or July, when it was contemplated that construction was going to be taken out of the C. Q. M. and the Engineers, a certain portion of it, and given to the Defense Plant Corporation? Mr. PATTERSON. Yes, sir. That language was all derived from this fact, that it was planned for a time to put ordnance plants as well as Air Corps production over into the Defense Plant Corporation program, and that was brought about because the lend-lease people were short of funds for expediting production, and if it went over to the Defense Plant Corporation then the Quartermaster Corps would no longer build the plant, or the Construction Division as it then was. Mr. POWERS. And we hoped to set up two construction divisions, or a new one, and I think at the time the testimony showed that probably 500 more employees, draftsmen, and so forth, would have to be taken on by the Defense Plant Corporation. Mr. PATTERSON. That is right. Mr. POWERS. Now, if we repeal this, what is going to happen to the Defense Plant; are we going to build up another construction corps in the Division of Engineers? Mr. PATTERSON. No, sir. Mr. POWERS. Why cannot the Engineers handle it as they are doing now? Mr. PATTERSON. The engineers, so far as the Air Corps is concerned, are handing the so-called Knudsen plants. The rest of the Air Corps program, I believe, is handled altogether through the Defense Plant Corporation route? General ECHOLS. Yes. Mr. POWERS. Is that the contemplated route? |