Mr. WARD. What company is that?

The CHAIRMAN. Kermath. Your conscience hasn't hurt you to such an extent that you tried to renegotiate with them?

Mr. WARD. No, sir.

The CHAIRMAN. You hope they won't bring up the subject to you, don't you?

Mr. WARD. I haven't thought anything about it.

The CHAIRMAN. At least you are not contemplating a renegotiation with them?

Mr. WARD. No, sir.

The CHAIRMAN. You hope that everything will stand as it is with that company?

Mr. WARD. I hope the contract will be fulfilled some day.

The CHAIRMAN. You don't want the company to take the initiative to disturb that contract?

Mr. WARD. As it looks now, it is very doubtful that the contract will be finished because of material markets.

The CHAIRMAN. It does look very doubtful as to whether you are going to get all that is coming to you?

Mr. WARD. I doubt it.

The CHAIRMAN. I doubt it myself, because here sits a gentleman from the Comptroller's Office.

Mr. SHAUGHNESSY. Mr. Ward, you don't believe that these companies can handle their business in Washington with the Department through their regular distributors, do you?

Mr. WARD. I don't just understand that.

Mr. SHAUGHNESSY. You don't believe that companies seeking Government business can contact the Government procurement agencies successfully through their own distributors?

Mr. WARD. Not in the majority of cases; no.

Mr. SHAUGHNESSY. I show you a communication dated April 10, 1939, signed by yourself and addressed to the Fulton Lawn Mower Co., attention Mr. C. Fulton, and ask you if you did not cause the same to be sent.

Mr. WARD. That is correct, sir.

Mr. SHAUGHNESSY. This letter is dated April 10, 1939, to the Fulton Lawn Mower Co., 2436 North Grand Boulevard, St. Louis, Mo., attention Mr. C. C. Fulton.

DEAR MR. FULTON: I am glad to receive your letter of April 8, in connection with representation for the Government.

I cannot agree with your statement that the usual method of contacting the departments in Washington is through distributors. Most companies find this method unsatisfactory. Most of the large corporations, such as G. E., Westinghouse, General Motors, etc., maintain branch offices in Washington for the sole purpose of handling Government business.

The duties of a representative before the Government are, first, to afford you an opportunity to quote upon all Government requirements and, second, to see that your bid receives the proper consideration.

I can engage to bring to your attention invitations for bids for your product and can undertake to see that you are awarded all contracts to which you are entitled.

I work upon a strict commission basis and do not handle competitive accounts, and can, therefore, offer you exclusive representation in your field. My activities are confined to sales to the Government.

I have been engaged in this line of endeavor since 1911 and, of course, have gained a wide circle of acquaintances and invaluable experience.

The rate of commission is naturally governed by two factors: First, the amount of work to be done, and second, the competitive conditions to be encountered. I suggest that 10 percent upon individual orders would be equitable and 5 percent on orders placed under annual contract. The reason for the difference is because in the case of the annual contract the work has to be done only once a year, and on individual orders the work has to be done in connection with each invitation for bids.

As to your inquiry as to whether I am now working for any other manufacturer of lawn mowers, I reply in the negative.

If there is any further information I can give you, I shall be happy of the opportunity to submit the same.

Cordially yours,

HORACE WARD.

(The letter was received in evidence and marked "Exhibit No. 543".) Mr. SHAUGHNESSY. So all of your work and all of your contracts with a single exception are based upon a commission basis, is that correct?

Mr. WARD. That is correct.

The CHAIRMAN. And you pay all your office expense?

Mr. WARD. Yes, sir.

The CHAIRMAN. And you pay for all your personnel?

Mr. WARD. Yes, sir.

The CHAIRMAN. You only represent these companies in doing business with the Government?

Mr. WARD. That is correct.

The CHAIRMAN. Your whole field of activity is strictly with the Government as far as these companies are concerned?

Mr. WARD. That is correct.

The CHAIRMAN. None of these companies contributes anything to the maintenance of your organization?

Mr. WARD. No, sir.

The CHAIRMAN. It all comes out of your pocket?

Mr. WARD. Yes, sir.

The CHAIRMAN. You are just strictly dealing in Government business with them?

Mr. WARD. That is correct.

Mr. MOTT. I would like to ask a question, Mr. Chairman.

You held out in the letter to the Fulton Lawn Mower Co. that you could do certain things for them. How do you benefit one of your clients who is selling some of the same kind of an article to the Government? What do you do for that client that enables him to get Government business in competition with his competitors?

Mr. WARD. By bringing to his attention invitations for bids, helping him prepare the bids, and sending him an abstract of bids so that it will show what his competitors are doing in the way of bids, so that he will have that information for next time. Any time I did that I reduced the price to the Government.

Mr. MOTT. How do you mean you could show him what his competitor was doing?

Mr. WARD. It is public bidding.

Mr. MOTT. You mean what his competitor has done in prior bids? Mr. WARD. Sir?

Mr. MOTT. You mean what his competitor has done in the way of prior bids?

Mr. WARD. We will say we have a contract for six lawn mowers, a requirement, and they advertise for bids. I send the invitation for

bids to the manufacturer with a suggestion how the bid should be prepared. When the bids are opened I send him a report of the bids received, so that he will know how he lines up in competition, and can reconsider his price for the next occasion.

Mr. MOTT. Well, what else do you do for him?

Mr. WARD. Well, if there is any question of liquidated damages, I take that up, and if there is difficulty in collection I take that up. The CHAIRMAN. Now, may I ask you this?

Mr. WARD. Surely, sir.

Mr. MOTT. I just want to be sure he covered all of his services. That was really the extent of your services to the lawn mower company?

Mr. WARD. We were talking about the lawn-mower people. You were asking me in connection with the lawn-mower business.

Mr. MOTT. I just cited that as an example. That would be the extent of your services that you could render to a lawn-mower-company; wouldn't it?

Mr. WARD. That would be all I would render to them, because it would be all that would be necessary to render.

Mr. MOTT. I see.

Well, have you any clients who sell armor plate or anything like that?

Mr. WARD. No, sir.

Mr. MOTT. Well, what is

The CHAIRMAN. Let him tell us, Mr. Mott, what he does for the big client he has, the Kermath Manufacturing Co.

Mr. MOTT. What do they make?

Mr. WARD. They manufacture gasoline and Diesel marine engines. Mr. MOTT. What do you do for them?

Mr. WARD. I bring to their attention the requirements.

Mr. MOTT. Do you do for them more than you would for a lawn mower company?

Mr. WARD. I only start with them because there are constant questions of various kinds arising in connection with adaptation. I will give you an illustration, if I may. I don't know that I am violating any confidence.

We sold 100 engines to one of the Government departments for a certain specific requirement. Those engines have not yet been delivered. They haven't started to manufacture them, as a matter of fact. Meanwhile this department finds that it wants another adaptation of these engines. For example, they put them in tandem, one behind the other, and hook them up with what they call a "V" drive. The Kermath Co. could not do that job very well, so I went to the Twin Disc Clutch Co., who make equipment of that character, and had them come down here, and took them over to the department and consulted with the engineers as to how this adaptation could be made. I insisted to the Twin Disc Clutch people that I was to receive no compensation from them, because my compensation was coming from Kermath, and if I could serve them and solve this problem, then I would be serving Kermath.

Meanwhile, the department has adopted another scheme, and we are still working on that, as to a reduction gear in lieu of the "V" drive.

Mr. BATES. That is a 600-horsepower engine?

Mr. WARD. Yes, sir.

Mr. BATES. Instead of the 1,200 that they were using?

Mr. WARD. No; they were using three 600-horsepower engines in a twin screw installation.

Mr. MOTT. You really think that you are rendering some service to your clients?

Mr. WARD. Certainly, sir. I think they think I am doing it.

Mr. MOTT. You wouldn't be rendering any service to the taxpayers, would you?

Mr. WARD. Well, I don't think so.

Mr. MOTT. You understand, of course, that the taxpayers are paying every bit of the profit that you have made since this war started on everything you have sold to the Government?

Mr. WARD. I don't know that I can say, sir.

The CHAIRMAN. Don't you know all your fees are charged in the contract?

Mr. WARD. But it would be charged in the contract anyhow if someone else was doing it.

The CHAIRMAN. Not if the company was doing it.

Mr. WARD. They would have to have a Washington office.

The CHAIRMAN. Not necessarily. Do you think you could have made a contract with this Kermath Manufacturing Co. and they would have agreed to pay you $201,805.89 for work that you have rendered for them?

Mr. WARD. No, sir; I don't think so.

The CHAIRMAN. Of course not. Don't you know you couldn't have talked them into giving you such a contract to pay you that much money?

Mr. WARD. But they made no effort to reduce it.

The CHAIRMAN. Don't you know that that amount of money-of course they haven't. It is not coming out of their pockets. It is coming out of the taxpayers' pockets. Don't you know that that $201,000 is charged against the cost of those engines? Of course it is. And, of course, they will make no fuss about it. They are getting the business and you are getting the commission, but the people are holding the bag.

Mr. WARD. But they have to have somebody here to do my work. Mr. MOTT. They don't have to pay you $200,000 of the taxpayers' money to do that work.

Mr. WARD. No, sir.

Mr. MOTT. Do you think that is right or wrong?

Mr. WARD. I think it is wrong.

The CHAIRMAN. Why don't you give it back?

Mr. WARD. How am I going to do that?

Mr. MOTT. You could pay it into the Treasury. A lot of these manufacturing concerns have been awarded contracts in the last year, since this committee has begun its investigations, who have turned a part of their huge profits back to the Navy Department. Why don't you do the same thing, and give the taxpayers a little decent treatment from now on, if you are going to stay in business? Mr. WARD. I don't know that I am going to get these commissions. The CHAIRMAN. You have been getting them.

Mr. MOTT. You have already got-what did he get in 1942?

The CHAIRMAN. Up to date he has, oh, $70,000 for the 6 months. Mr. MOTT. Of 1942?

The CHAIRMAN. Yes.

Mr. MOTT. The people I represent in Congress had to pay that; the people that everyone else represents. If you and your client got together and ran a little racket between yourselves and it didn't hurt the taxpayers any I don't think this committee would have any concern, but when you go down in the taxpayers' pockets during wartime and take three or four hundred thousand dollars away from these taxpayers without rendering them any service, then of course the committee is concerned and wants to stop it.

Mr. WARD. But, sir, you must understand that I have to maintain this office until these contracts have been completed and paid for, even if it is 10, 12 months from now; and on the other hand, these manufacturers are pretty nearly up to capacity and cannot take any additional contracts until these have been finished.

The CHAIRMAN. And you stated a moment ago that you considered it wrong?

Mr. WARD. Yes, sir.

The CHAIRMAN. Then I want to know, if you consider it wrong, why you continue to do the business-because you are hooked with all this money and can't get away from it?

Mr. WARD. No.

The CHAIRMAN. If it is wrong and your conscience tells you it is wrong, why do you continue to do it, when yet you haven't sought to renegotiate a single contract but in one instance?

Mr. WARD. That is correct.

The CHAIRMAN. And yet you consider it wrong?

Mr. WARD. Yes, sir; I do. It is too much money.

The CHAIRMAN. You don't make any effort to pay back to the Kermath Manufacturing Co. and give them a better contract, and you yourself admit it is too much money, and you admit it is wrong, and yet you sit by and continue to gather in all the money you can rake your hands on from that company?

Mr. MAGNUSON. Mr. Ward, at any time have you informed the Navy Department or the officers directly in charge of negotiating these contracts the amount of your fee?

Mr. WARD. No, sir.

Mr. MAGNUSON. Do you know anyone in the Navy Department that knows of their own knowledge-take for instance on the Kermath which is marine engines. They are dealing with them all the time. Mr. WARD. We have just two contracts with the Navy, sir.

Mr. MAGNUSON. Well, on any of your Navy contracts. Let's limit it to that the amount of percentage you are getting. Have you mentioned that to any officer down there?

Mr. WARD. No, sir.

Mr. MAGNUSON. Did any officer ever ask you how much you were getting?

Mr. WARD. No, sir.

Mr. MAGNUSON. Do you think that a naval officer in charge of O. K.'ing such a contract would put his O. K. upon it if he knew that in the case of some of these instances you were getting one hundred or two hundred thousand dollars?

Mr. WARD. No, sir; I don't think so.

Mr. MAGNUSON. You don't think he would?