INVESTIGATION OF NAVAL DEFENSE PROGRAM MONDAY, APRIL 13, 1942 HOUSE OF REPRESENTATIVES, (The committee met at 10 a. m., pursuant to notice, Hon. Carl Vinson, chairman, presiding.) The CHAIRMAN. Now, Mr. Toland, I understand you have some statement to make as a result of the work of the investigating committee that you desire to submit in regard to the inquiry about Jack & Heintz, Inc. STATEMENT OF EDMUND M. TOLAND, GENERAL COUNSEL, HOUSE NAVAL AFFAIRS INVESTIGATING COMMITTEE Mr. TOLAND. In addition to that, Mr. Chairman, I have a complete survey of the profit laws of England, Canada, and Australia. The CHAIRMAN. Let us not go into that phase of it today, because I have to be on the floor in a few minutes. We will take that up tomorrow. Just take up the Jack & Heintz matter now. Mr. TOLAND. I have in addition to that a great deal of material that has a bearing on the previous testimony of witnesses, and I have two proposed substitute bills for the present bill which is now before the committee. The CHAIRMAN. Now, what have you on the formal inquiry into the Jack & Heintz matter? Mr. TOLAND. In connection with Jack & Heintz, I would like to read for the record a letter from the Secretary of the Navy, addressep to the chairman of the committee under date of March 28, 1942. He states: I acknowledge receipt of your letter of March 25 and a copy of the hearings concerning Jack & Heintz, Inc. I have also seen a letter on this subject which was written to you by Under Secretary Forrestal. I think that letter covers the Navy point of view. As you will observe from that letter, the initiation of the investigation of Jack & Heintz began in Forrestal's office and Mr. Forrestal notified Mr. Toland of our suspicion that all was not right. I am personally very glad that this thing was brought out in the open and I think your committee did a very useful service. Yours sincerely, FRANK KNox. (The letter was received in evidence and marked "Exhibit No. 80.") Now, the letter he referred to is dated March 27, and is from Under Secretary Forrestal, addressed to the chairman of the committee. He states: MY DEAR MR. VINSON: The newspaper reports of hearings on the Jack & Heintz, Inc., case have left an impression on the public mind of negligence on the 105 part of the Navy Department in the contracts made with this company. I realize it was not the intent either of the committee or of its counsel to create such an impression but, in view of its existence, I feel it is only fair to the Department to recite. the following facts and ask you to introduce this letter as a part of the record: (1) The first major contract of the Navy Department with the Jack & Heintz, Inc., was entered into on February 19, 1941, for starters. Prior to that date the total procurement by the Navy from Jack & Heintz, Inc., amounted to $79,000. The price agreed to at this time was $600. (2) Subsequent orders for $132,000 and $491,400 were awarded in June and September 1941. At each of these times the Navy Department asked for a reduction in price, pointing to the fact that increased volume of business should produce lower costs. The company demurred to this and said that they could not afford to take the contracts at any lower figure. Inasmuch as there was no other supplier available, the additional orders were given. In all the Navy Department has placed 11 orders with this company, the aggregate of the contract prices being slightly in excess of $3,000,000. (3) Toward the end of 1941, information reached us as to what seemed like undue liberality of the company toward its employees in the matter of bonuses, gifts, etc. We took two steps: First, we advised the counsel of your committee of our misgivings, and second, I instructed the Bureau of Supplies and Accounts, which as you know, is the auditing Bureau of the Navy, to send some of its representatives to Cleveland to make an examination of the company's books and costs insofar as obtainable and to obtain any other pertinent information. This study resulted in the development of facts which made it clear that the company not only was enjoying earnings out of proportion to its investment but also disclosed certain practices which we felt should be publicly explored. We so notified your Counsel who took prompt steps to conduct an investigation of his own. As I have frequently said to you, I am in complete sympathy with the activity of your committee and its efforts to prevent wasteful practices in the vast procurement program upon which we are engaged. Having full confidence, however, in the integrity and ability of the procurement officers of the Navy Department, I could not do less than endeavor, through this letter, to correct public misunderstanding arising out of the hearings, although I fully realize this was not your intert. (The letter was received in evidence and marked "Exhibit No. 81.") Now, subsequent to that, we received from Jack & Heintz, Inc., a letter dated March 30, 1942, enclosing a copy of the minutes of a special meeting of the board of directors of Jack & Heintz, Inc. These minutes read as follows: A special meeting of the board of directors of Jack & Heintz, Inc., was held at the office of the company at Solon Road, Bedford, Ohio, on Friday, March 27, 1942, at 10 a. m. All of the directors were present. Mr. William S. Jack acted as chairman and Mr. Ralph M. Heintz acted as secretary. The chairman stated the purpose of the meeting was to discuss the elimination of the company's present bonus plan. The chairman stated that the Naval Affairs Investigating Committee objected to the plan of incentive bonuses and that by the elimination of this production incentive plan, it would cause the average hourly rates of the associates to fall far below the average hourly rates for comparable industries in this area, and would result in the loss of skilled workers to other industries paying higher hourly rates. To avoid the loss of our skilled associates, the chairman suggested that each associate's rate be increased an equivalent of $112.50 per month. In the discussion which followed, the following resolution was submitted by William R. Jack, seconded by Ralph M. Heintz, and unanimously adopted: "Be it resolved, In order to avoid criticism regarding our form of so-called bonuses, that a general increase equal to $112.50 per month be granted to each of our associates, beginning April 1, 1942; and further, that this increase be paid to each of our associates in Defense bonds in the name of the party to whom our associate may designate. This money, utilized for the purchase of Defense bonds, would enable our Government to purchase more of the things necessary to conduct the war in which we are now engaged. This increase in wages of $112.50 per month is granted to each of our associates in order that the hourly rate of all productive men would be comparable to that paid to skilled workers of their type in the surrounding area, and to offset the instigation of piece work in order to get maximum production." There being no further business to come before the meeting, it was, on motion duly made and seconded, declared adjourned. Certified a true copy. RALPH M. HEINTZ, Secretary. (The minutes were received in evidence and marked "Exhibit No. 82.") On March 25 letters regarding this company were sent to Mr. J. Edgar Hoover, Director of the Federal Bureau of Investigation; Hon. Guy T. Helvering, Commissioner, Bureau of Internal Revenue; Hon. Frank Knox, Secretary of the Navy, and Hon. Henry L. Stimson, Secretary of War. (The letters referred to were received in evidence, marked "Exhibit No. 83" and are printed in the appendix of this volume.) In addition, under date of April 3, 1942, the chairman of the committee sent a letter to the Honorable Robert P. Patterson, Under Secretary of War, regarding the renegotiation of War Department contracts with this company. In response to a telegram that we sent to Jack & Heintz, a telegram was received stating: year. Retel newspaper reports correct quote we have voted to reduce salaries as of April 1 from one hundred thousand to fifteen thousand for all officers: namely three-R. M. Heintz, Wm. R. Jack, and Wm. S. Jack, the only officers. Also agreed that no dividends or bonuses will be paid any of the officers for the duration of the war. Also to refund to the Army and Navy in proportion to business done with each any profits in excess of 6 percent before the close of each No salaries to be paid in excess of twenty-five thousand to any keyman for the duration of the war; there are three keymen drawing twenty-five thousand per year. Secretary's salary reduced from twenty-five thousand to six thousand a year. Will surprise the world with our production. Our associates 100 percent behind our all-out for maximum production. We have been too busy on development and production to realize the harm of high salaries and bonuses. I thank the chairman and the committee for their consideration. The meeting did a world of good. We cannot be a MacArthur but we will do our best to support him. JACK & HEINTZ, INC. WM. S. JACK. (The telegram was received in evidence and marked "Exhibit No. 84.") Three days after the committee hearing, the Navy Department and the War Department sent for Mr. Jack and requested him to renegotiate the contracts that the company had with each Department, which was done. The resultant saving to the War Department, through this renegotiation, to date, is approximately $9,250,000. The Navy Department has not been able to compute the amount that it will save, but it will be in proportion with the amount of contracts which they hold, $3,000,000. I would like to read a letter from Judge Patterson, which I received as a result of a letter I wrote to him under date of April 3: Receipt is acknowledged of your letter dated April 3, 1942, requesting information as to the renegotiation undertaken by the Army Air Forces of contracts now existing between the Government and Jack & Heintz, Inc., of Bedford, Ohio. As result of several conferences held with officials of Jack & Heintz, Inc., and the Price Adjustment Board of this office, it was agreed that the unit prices applicable to the various items now being manufactured by Jack & Heintz, Inc., would be reduced by approximately 25 percent, which will result in a net saving to the Government of something in excess of $9,250,000. In addition, an adjustment will be made as to the amount set aside by the contractor for servicing units delivered to the Army. Approximately $800,000 is so set aside and it is expected that some $600,000 of this amount will be recaputerd. The committee will recall that this $800,000 is what the company bought Government bonds with. The company has likewise agreed to pay no salaries in excess of $25,000 and to eliminate the practice of paying bonuses to executives. The recently prevailing system in this corporation of furnishing luncheons to employees has been discontinued. The wage scale to prevail hereafter will not be in excess of the prevailing scale in the locality where the manufacturing operations are to be conducted and will not be augmented so as to exceed that scale by bonuses or by contributions in any other guise. The foregoing has been definitely agreed upon and the matter has been referred to the Commanding General, Material Command, Army Air Forces, to work out the details and make effective the necessary contractual changes. (The letter read was received in evidence and marked "Exhibit No. 85.") (The letter referred to, from Edmund M. Toland to the Honorable Robert P. Patterson, was received in evidence, marked "Exhibit No. 86" and is printed in the appendix of this volume.) Mr. IzAC. Do they still have the 12-hour day? Mr. TOLAND. Yes. To the same effect from Commander Houser, who represents the Department as its clearing officer, is a letter enclosing certain communications from Admiral Towers. These communications, in substance, recite that on April 1 the unit price on all starters was reduced from $600 to $370; they also state in detail the agreement entered into. I ask that they all be printed and filed with the record. (The letter from Commander Houser, together with the enclosures, are as follows:) MR. EDMUND M. TOLAND, DEPARTMENT OF THE NAVY, Room 527, Old House Office Building, Washington, D. C. DEAR MR. TOLAND: There is transmitted herewith a letter from the Chief of the Bureau of Aeronautics, dated April 7, 1942, together with enclosures (A), (B), and (C) relative to Jack & Heintz, Inc. This information is forwarded to you in response to your oral request to the Chief of the Bureau of Aeronautics. Sincerely yours, Enclosures (4). H. A. HOUSER, Commander, U. S. Navy. From: The Chief of the Bureau of Aeronautics. NAVY DEPARTMENT, Bureau of Aeronautics, To: The Under Secretary of the Navy (Clearing Office). (A) Two copies of BuAer letter Aer-PR-BA, F24-1, QM (6428), dated March 26, 1942, to Jack & Heintz, Inc. (B) Two copies of Jack & Heintz letter of March 28, 1942. (C) Two copies of Jack & Heintz letter of March 30, 1942. 1. In response to oral request by Mr. Toland to Rear Admiral J. H. Towers, United States Navy, Chief of the Bureau of Aeronautics, enclosures are forwarded for further transmittal to the House Naval Affairs Committee. 2. The Bureau of Aeronautics is currently proceeding with the amendments to existing contracts and extensions to contracts on the basis of the offer made by Jack & Heintz, Inc., in enclosure (B). 3. It is the understanding of this Bureau that the prices quoted to the Bureau of Aeronautics are identical with those quoted to the Army Air Forces. Enclosure A JACK & HEINTZ, INC., Solon Road, Bedford, Ohio. NAVY DEPARTMENT, Subject: Jack & Heintz starters-Navy contracts for. GENTLEMEN: As a result of a recent audit of your company's books by Navy auditors, it is mandatory that immediate steps be taken to renegotiate the prices on current Navy contracts and establish reasonable prices for any pending or future business. It is apparent that drastic reductions in prices being paid and being asked by your company are in order. In view of the urgency of this matter, it is desired that you arrange to visit the Bureau of Aeronautics, Navy Department, at an early date for a complete discussion. DEAR SIR: Confirming conference held in the office of Colonel Volandt of the War Department, Friday, March 27, we are pleased to advise as follows: After April 1, all shipments made on model JH-5 starters, the billing price will be $370 each, instead of $600 each, and wherever the flexible hand crank is used, the price will be changed to read as follows: Part No. 1015, $67 each; part No. 1197, $9 each; part No. 1402, $8 each; part No. 841-1 $6 each. With reference to the model JH-10 starters and model JH-10-F starters, now on order or being negotiated, you are authorized to insert the following prices, irrespective of quotations made you heretofore: Model JH-10 starters, $570 each; model JH-10-F starters, $637 each. Going with the model JH-10-F starters are the following parts, which will be billed as follows: Part No. 1045, $67 each; part No. 1197, $9 each; part No. 1402, $8 each; part No. 841-1, $6 each. It is understood that we agree to enter into renegotiations at any time during the life of our contracts, if our profits appear to exceed 6 percent of the selling price. It is also agreed that not later than July 1, 1942, at which time, we will have a fairly good idea as to any parts we are going to have to replace on any of our equipment already shipped and as we have a contingency reserve of $750,000, if any of these replacement parts do not exceed this amount of money, we will refund the difference to the War Department and the Navy Department, in proportion to the amount of business done with each. However, this question will not be decided as to the amount before July 1. Thanking you kindly for the courtesies extended to the writer and assuring you of our cooperation at all times, we beg to remain, Sincerely yours, JACK & HEINTZ, INC. WM. S. JACK, President. |