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INVESTIGATION OF NAVAL DEFENSE PROGRAM

MONDAY, MARCH 23, 1942

HOUSE OF REPRESENTATIVES,

NAVAL AFFAIRS INVESTIGATING COMMITTEE,

Washington, D. C.

The committee met at 10:20 o'clock, pursuant to call of the chairman, in room 313, Old House Office Building, Representative Carl Vinson, Georgia, chairman, presiding.

Present: Representatives Carl Vinson, Georgia; William H. Sutphin, New Jersey; William W. Blackney, Michigan; William S. Jacobsen, Iowa; Beverly M. Vincent, Kentucky; Thomas A. Flaherty, Massachusetts; Melvin J. Maas, Minnesota; W. Sterling Cole, New York; William E. Hess, Ohio; William H. Wheat, Illinois; Ed V. Izac, California; Arthur B. Jenks, New Hampshire; John Z. Anderson, California.

Also present: Edmund M. Toland, general counsel, William J. Shaughnessy, assistant general counsel; Thomas S. Hinkel, assistant general counsel; James H. Brock, principal attorney; Charles A. Randall, chief investigator.

The CHAIRMAN. Let the Naval Affairs Committee come to order. The committee is sitting this morning in its capacity authorized by the House under House Resolution 162.

Mr. Toland, have you any matter you desire to submit to the committee?

Mr. TOLAND. Mr. Chairman, I would like to spread on the record the resolution you referred to, House Resolution 162.

In the House of Representatives. March 31, 1941; Mr. Vinson of Georgia submitted the following resolution; which was referred to the Committee on Rules. April 1, 1941; Referred to the House Calendar and ordered to be printed. April 2, 1941: Considered and agreed to

RESOLUTION

Resolved, That the Committee on Military Affairs and the Committee on Naval Affairs, respectively, each acting as a whole or by subcommittee, are authorized and directed to conduct thorough studies and investigations of the progress of the national defense program insofar as it relates to matters coming within the jurisdiction of such committees, respectively, with a view to determining whether such program is being carried forward efficiently, expeditiously, and economically. The Committee on Military Affairs and the Committee on Naval Affairs shall report to the House during the present Congress the results of their studies and investigations, together with such recommendations for legislation as they deem desirable.

For the purposes of this resolution, the respective committees, or any subcommittees thereof, are authorized to hold such hearings, to sit and act during the present Congress at such times and places whether or not the House is in session, has recessed, or has adjourned, to require the attendance of such witnesses and the production of such books, papers, and documents by subpena or otherwise, and

to take testimony, as it deems necessary. Subpenas may be issued under the signature of the chairmen of the respective committees and shall be served by any person designated by such chairmen. The chairman of each committee or any member thereof may administer oaths to witnesses.

I ask that that be marked as an exhibit, Mr. Chairman.

(The copy of H. Res. 162 was received in evidence and marked "Exhibit No. 1.")

Mr. TOLAND. Mr. Chairman, on the 20th day of January, 1942, the committee filed its first preliminary report based upon the questionnaires that had been sent out to naval contractors. I ask that that

be filed and marked as an exhibit.

(Preliminary report of the Committee on Naval Affairs, House of Representatives investigating the naval defense program parts 1 and 2, House Report, No. 1634, 77th Cong., 2d session, was received in evidence, marked "Exhibit No. 2," and filed with the committee.)

Mr. TOLAND. The report, Mr. Chairman, that I have just referred to related to questionnaires that the committee received up to and including November 1, 1941. Since that time we have received, up to and including December 31, 1941, certain other questionnaires. In order to show that the profits that were reflected by the first report of the committee continue to exist and appear in questionnaires received up to and including December 31, 1941, I have selected 14 companies as examples. I have the questionnaires, from which I will just briefly read the name of the company and the amount of the profit realized on a particular contract.

American Machine & Foundry Co., New York; the percentage of profit based on cost was 44.4 percent.

Bantam Bearings Corporation, Indiana, 39 percent profit.

Bearings Co. of America, located in Pennsylvania, 119 percent.
Crane Packing Co., Illinois, 30.5 percent.

Delano & Aldrich, located in the State of New York, 28.4 percent.
Diamond Power Specialty Corporation, Michigan, 38.3 percent.
Fellows Gear Shaper Co., Vermont, 54.7 percent.

Jones Motorola Sales Co., of the State of Connecticut, 25.1 percent.
Kieckhefer Container Co., New Jersey, 27.3 percent.
Liquid Carbonic Corporation, Illinois, 25.8 percent.
Service Tool & Engineering Co., Ohio, 35.9 percent.

Square D Co., New York, 35 percent.

Wellington Sears Co., of the State of New York, 58 percent. Wollensak Optical Co., of the State of New York, 40.3 percent. I ask permission to file these as an exhibit. None of these exhibits are to be printed.

(Questionnaires of the above listed companies showing percentages of profit based on cost, were received in evidence, marked "Exhibit No. 3" and are filed with the committee.)

The CHAIRMAN. That is based on costs?

Mr. TOLAND. Based on costs.

The CHAIRMAN. Are those completed contracts?

Mr. TOLAND. Yes, sir.

Mr. COLE. Mr. Chairman, may I inquire, is that figure used as the basis to compute the percentage? In other words, the amount of cost, the figure given by the company?

Mr. TOLAND. By the company. These are the figures, Mr. Cole, that are taken from the questionnaires themselves. They are not

figures that are based on any investigations that members of the staff themselves have made.

Mr. COLE. In other words, these percentages of profit are the percentages admitted by the companies to have been made.

Mr. TOLAND. Yes, sir.

The CHAIRMAN. Based on the cost.

Mr. TOLAND. Based on the cost.

Mr. Izac. Mr. Chairman, is there any way we can tell whether the contracts were in large or small amounts?

The CHAIRMAN. That will be disclosed when it is printed, that is, the exact amount of the contract.

Mr. TOLAND. We will file a report that will show that. I will be glad to run through and show the amount of the contract, if necessary. The CHAIRMAN. It will show what the amount of business was. Mr. SUTPHIN. All of these contracts that were mentioned, I suspect, observe the Walsh-Healey Act?

The CHAIRMAN. I presume they observe every act and also the act to make as much as they possibly could.

(The report referred to was submitted later, received in evidence, marked "Exhibit No. 4" and is printed in the appendix of this volume.)

Mr. TOLAND. In connection with a query the other day in regard to increases in compensation, we have made a spot survey of certain companies to show the increased compensation of officers of companies having contracts with the Government from the period of 1934 to 1941. The CHAIRMAN. That is a statement showing the salaries of individuals or of presidents and vice presidents of corporations?

Mr. TOLAND. Right.

The CHAIRMAN. That may carry with it a wrong interpretation; a man might be entitled to a salary of a certain amount and another man might be entitled to a salary of a certain amount, and it all depends upon the magnitude of the business and the character of the corporation as to whether or not in the eyes of the average person it might be considered an exorbitant salary. But how does that have any particular bearing on the cost of production, because the salary is exclusive of the cost of production?

Mr. TOLAND. The purpose is this, Mr. Chairman, that just as much as the increased cost of workers is a material part of the defense program, the increased salaries to officials or officers of companies having contracts and engaged in Government business also are an item which the taxpayers must bear. Treasury Decision 5000 placed a ceiling on the top amount of any salary of any official performing any contracts for the Government at $25,000.

The CHAIRMAN. That could be charged against the cost?
Mr. TOLAND. Against Government contracts.

The CHAIRMAN. That is right. Over twenty-five thousand couldn't be charged against Government contracts.

Mr. Izac. Mr. Chairman, there is nothing to show how many officials could get the full $25,000, and they could pad their rolls to such a degree that you eat up all of the cost, or a major portion of the cost, by $25,000 salaries. Isn't that true?

The CHAIRMAN. Let me see this, Mr. Toland, before you file it. All right, take up your next exhibit.

(The survey referred to, "Exhibit No. 5," was received in evidence on Wednesday, March 25, 1942, was marked "Exhibit No. 79," and is printed in this volume at p. 98.)

Mr. TOLAND. The next subject is something that the committee may desire to have submitted to the committee in executive session. There has been some controversy with regard to whether there has been a proportionate allocation of contracts throughout the United States, and we have made a survey of 22,346 contracts involving $4,147,990,038; the results show the concentration in certain states of the war effort, and it may be that the committee would feel that a public disclosure of the location of the concentration of the defense effort is something that should not be released to the public.

The CHAIRMAN. I do not think that should be made public, because that would be information to the enemy, as to where the locations of the plants are.

Mr. MAAS. The record, from your statement, clearly indicates that there is not an equitable distribution throughout the country and that certain areas have undue concentrations. Is that correct?

Mr. TOLAND. That is a fact.

The CHAIRMAN. But you have to bear in mind in connection with that that the present location of industries has been accelerated by the war expansion. They have previously been established and therefore a great many have merely been enlarged. It is out of balance, but I don't think we want to disclose that.

Mr. MAAS. No, I don't think we do, either. I wanted that one fact, that there is an undue inequity in the distribution, on the record. Mr. TOLAND. Mr. Chairman, in connection with the investigation, since I have been appointed I have had many contacts with officials of the Navy Department, including Admiral Spear, and I feel it is my duty that in the course of my performance of my duties I give my own observation to the committee as to the people that I deal with. If there is any man in the Department who is as anxious for the speed that is required for the program as Admiral Spear, I don't know him, but at the same time he is the watchdog for the taxpayers in that Department.

He submitted to me a communication from the Twelfth Naval District at San Francisco, which is a matter, I think, in connection with the costs of this program, that should be brought to the attention of the committee.

From the Office of Supervisory Cost Inspector, Twelfth Naval District, to the Bureau of Supplies and Accounts (Cost Inspection Division), Navy Department, Washington, D. C.

Subject: Contract Nos. 97816, William Cryer & Son, Oakland, Calif. Request for decision regarding time of wood caulkers.

1. Subject contract is of the ship alteration and repair time and material type, and in connection with expediting certain work for the Navy on various purse seiners, it is necessary to utilize the services of wood caulkers who are members of Wood Caulkers' Local No. 554, United Brotherhood of Carpenters and Joiners of America. Article 1 of section 2 of the union trade rules reads as follows: "Not more than 150 on deck, or not more than 100 feet outboard, shall constitute a day's work of 8 hours. For excess, it shall be punishable by a fine of not less than $1 or suspension.'

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2. On Saturday, February 21, 1942, two wood caulkers worked 8 hours each on the purse seiner Santa Rita, which is being converted to Navy use. Together they produced 1,100 feet of caulking outside and 750 feet on deck, equivalent to

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