INVESTIGATION OF THE NAVAL DEFENSE PROGRAM WEDNESDAY, MAY 13, 1942 HOUSE NAVAL AFFAIRS INVESTIGATING COMMITTEE, Washington, D. C. The committee met at 10 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; Melvin J. Maas, Minnesota; W. Sterling Cole, New York; William E. Hess, Ohio; Michael J. Bradley, Pennsylvania; Ward Johnson, California; John Z. Anderson, California; William H. Sutphin, New Jersey; William H. Wheat, Illinois; James J. Heffernan, New York; Thomas A. Flaherty, Massachusetts; Lansdale G. Sasscer, Maryland; and James W. Mott, Oregon. Also present: Edmund M. Toland, general counsel; William J. Shaughnessy, assistant general counsel; and Thomas S. Hinkel, assistant general counsel. The CHAIRMAN. Let the committee come to order. Mr. Toland, the committee is ready. Mr. TOLAND. Captain Hanson. The CHAIRMAN. The evidence you shall give the Naval Affairs Committee in this inquiry shall be the truth, the whole truth, and nothing but the truth, so help you God? Captain HANSON. Yes, sir. The CHAIRMAN. Please sit down, Captain. TESTIMONY OF CAPT. RALPH TROWBRIDGE HANSON, SUPERVISOR OF SHIPBUILDING, UNITED STATES NAVY Mr. TOLAND. Captain, will you please give the reporter your full name? Captain HANSON. Ralph Trowbridge Hanson. Mr. TOLAND. You are a captain in the United States Navy? Mr. TOLAND. Will you tell the committee briefly how long you have been connected with the Navy? Captain HANSON. For 39 years. Mr. TOLAND. Will you also tell the committee briefly what your duties have been for the last 10 years? Captain HANSON. From 1932 to 1936 I was the planning officer at the Puget Sound Navy Yard, Bremerton, Wash.; from 1936 to February 1941, inspector of naval material in the Pittsburgh district; 389 from February 1941 to date, supervisor of shipbuilding, Philadelphia, including the Cramp Shipbuilding Co. and other yards on the west side of the Delaware having Navy contracts. Mr. TOLAND. Captain, will you tell the committee briefly just what your duties are at the Cramp Shipyard, and have been since February 1941? Captain HANSON. My duties as supervisor of shipbuilding are to approve plans for ships under construction and material purchase orders, both for plant facilities and for ships under construction; insure compliance with the specifications and plans for both plant facilities on shore and for ships under construction at the yard; and, until recently, I was senior member of the cost inspection board, passing on the costs of material. Mr. TOLAND. Is it also a fact that a part of your duties is to ascertain whether or not the directives and the rules and regulations of the Department are complied with by prime contractors and subcontractors? Captain HANSON. I take it so, absolutely; to safeguard the interests of the Government. Mr. TOLAND. Are you familiar, in connection with the requirements of the Department in cost-plus-fee contracts, with the number of bids that are required for the purchase of material? Captain HANSON. I was governed by the departmental instructions specifying the minimum number that would be acceptable. Mr. TOLAND. What was the minimum number of competitive bids during 1941 that the prime contractor or subcontractor was required to get? Captain HANSON. In no case less than two and, when specified, not less than three competing bids. Mr. TOLAND. Is it a fact that during the performance of your duties as supervisor of shipbuilding at the Cramp Shipyard, certain irregularities in connection with contracts and competitive bids came to your attention? Captain HANSON. That is correct; yes, sir. Mr. TOLAND. Is it a fact that on the 11th day of September 1941, you, as supervisor of shipbuilding, addressed a communication to the Cramp Shipbuilding Co., bringing to its attention certain irregularities in connection with competitive bids that had come to your attention? Captain HANSON. Yes, sir; and asked for an investigation on them. Mr. TOLAND. I show you what purports to be a photostatic reproduction of your letter dated September 11, 1941, and ask you if that is a true and correct copy? Captain HANSON. Yes, sir; I recognize that as a true and correct copy. Mr. TOLAND. Mr. Chairman, I offer the photostatic copy identified by the captain in evidence. The CHAIRMAN. Why not read one of them? Mr. TOLAND. I will read from a copy that we had made of the document that the witness has identified: SEPTEMBER 11, 1941. From: Supervisor of Shipbuilding, U. S. N., Philadelphia. To: Cramp Shipbuilding Co. (Rear Admiral W. G. DuBose, president). Subject: Supplemental contract Nod-1550 (emergency facilities)-Procurement of miscellaneous electrical fittings by your subcontractor, C. F. Rohleder; irregularities in purchase order 627-156 on Westinghouse Electric Supply Co. in the amount of $1,016.12. 1. As stated in reference (h), it is desired that procurement of miscellaneous electrical material covered by reference (a) be proceeded with in order not to delay the projects involved, but reimbursement for commitments will be withheld pending further inquiry into irregularities found to have developed in connection with placement of the order; and also inquiry into similar purchase orders, references (b) to (f), inclusive, as to which the irregularities, if any, have occurred, are less apparent than in the case of reference (a). I am going to read one of them as soon as it is marked. (The letter dated September 11, 1941, was received in evidence and marked "Exhibit No. 184.") 2. As discussed with Admiral DuBose some weeks ago, question in regard to this order was raised not only by the fact that this order and the others referenced, were submitted in the form of "confirmation" approval, when it was known that some of the material had already been received in the shipyard; but also, and primarily because it was immediately observed that ostensibly competing price offers submitted under the letterheads of two different electrical supply firms and ostensibly signed (autographed) by responsible executives of these two firms, were actually one, an original draft, and the other a carbon copy of this same original draft, identical in all respects except as to letterheads and autographs of signers. The prices offered were identical, and higher by some $56 than the offer of the Westinghouse Electric Supply Co. with which the order was placed. 3. The letter purportedly submitted by "Walker of Conshohocken" (addressed to J. P. Rainey & Co., care of Cramp Shipbuilding Co., Philadelphia, presumably in its capacity as agent and subcontractor to C. F. Rohleder) purported to be signed by an executive of the Walker firm, Mr. A. M. Callanan, under date of July 30, 1941. It was actually a carbon copy of an original letter submitted under the letterhead of the Adelphia Electric Co., of Philadelphia (same date and addressee purportedly signed by Mr. N. T. Leithold, secretary). 4. The curious identity of the price offers of the Adelphia Electric Co. and Walker of Conshohocken (one an original and the other a carbon copy of the same original) was so striking that under date of August 13, 1941, this office addressed inquiries (a) To the Adelphia Electric Co., asking whether the Walker Electric Co., which the Adelphia Co. represents, is the same as "Walker of Conshohocken,' Conshohocken, Pa.; (b) To Walker of Conshohocken asking what position in the latter company is held by Mr. A. M. Callanan, and whether he is duly authorized to sign quotations of the company for furnishing electrical materials. 5. The Adelphia Electric Co. replied under date of August 15, 1941, advising that "The Walker Electric Co., Conshohocken, Pa., has no connection whatever with the Walker Electrical Co., of Atlanta, Ga., which we represent." The letter was signed "N. T. Leithold," but the signature was manifestly different from that appearing on the Adelphia Electric Co.'s price offer to J. P. Rainey & Co. under date of July 30, 1941. It seems reasonable to believe that the two letters were not signed by the same individual. 6. The inquiry of this office dated 13 August to Walker of Conshohocken was answered by the personal visit of Mr. A. M. Callanan to the supervisor's office on 15 August 1941. Mr. Callanan was shown the carbon copy price offer under his company's letterhead and date of 30 July 1941, and stated immediately and without reservation that the signature appearing thereon, viz, "A. M. Callanan" was not his signature. He was then asked whether he customarily delegated authority to subordinates in his firm to sign for him; and he replied that naturally he had to do so, on account of his frequent absences in the field; but that he had not authorized signature to this particular letter. As the conversation progressed, Mr. Callanan became apparently more dis turbed and excited. When asked whether his company made a practice of releasing stationery bearing its letterhead to any individual or firm other than its own, he first replied that it did not do so. Later he stated that it might have done so under certain circumstances. Finally, he stated that on one occasion some weeks previously, he had authorized a price quotation in response to telephone inquiry (from whom he did not say), but that he was sure that this was several weeks previous to 30 July 1941, the date of the carbon copy letter on his company's letterhead and purportedly bearing his signature. 7. The supervisor has read the memorandum (reference (g)) furnished by Mr. C. F. Rohleder to Commander Weyerbacher under date of 14 August 1941, presumably furnished as a result of the supervisor's previous discussion of this situation with Admiral DuBose-although not in as much detail as recited above. The supervisor fully appreciates the difficulties which have been experienced in securing electrical material, and the necessity for speeding up deliveries in every legitimate way; but he does not consider that Mr. Rohleder's statement justifies the procedure followed in this case. Nor is it considered that press of work relieves C. F. Rohleder, your subcontractor, of responsibility for assuring that his subordinates and subcontractors conform to prescribed procedure for securing bona fide competitive bids or price offers for Navy work—particularly where cost-plus-a-fixed-fee contracts are concerned. 8. The Navy Department's definite interest in contracts of this nature is considered full warranty for making further inquiry into the methods and procedure of your subcontractors in matters of material purchase and procurement; and it is requested that you institute such inquiry, and furnish this office information as to its results-particularly as to whether the procedure known to have been followed in connection with purchase order 627-156 has likewise been followed in the case of the other purchase orders listed as references or any other purchase orders initiated by this subcontractor. 9. While it is understood from numerous conversations with your present and late presidents that the procedure of securing sealed proposals in preference to open letter price offers and negotiated bids, in accordance with the expressed policy of the Navy Department, is being extended as much as practicable, it is known that there has been consistent opposition on the part of some of your representatives, to such sealed proposals, on the ground that they require much more time, sometimes lead to no results in securing materials, and generally slow up procedure in a time of national emergency, when the necessity for utmost speed has been stressed in all quarters. However, these considerations must not be allowed to break down the practice of competitive bidding by sealed proposals. Price offers made by open letter cannot be assured of safeguarding against leakage of information to competing firms; and negotiated bids, while unavoidable in some cases, may tend to create an impression of partiality to certain manufacturers, to discourage reliable estimates and bona fide competitive bids or price offers, and therefore to react ultimately to the disadvantage of the Government, except possibly as regards the speed of placement of orders; and to lead to such grave irregularities as developed in the case of your purchase order 627-156. 10. It will be appreciated if the results of your inquiry into this situation be communicated to this office as promptly as practicable, for its information and for that of the interested offices of the Navy Department. This is signed by R. T. Hanson, the witness. Now, Captain, will you tell the committee briefly the conversation that you had with Admiral DuBose prior to the 11th of September, when you wrote this letter? Can you give us your best recollection as to what was said at that time? Captain HANSON. Yes, sir. I took the carbon copy and the original, signed ostensibly by two different firm executives, down to his office, and called his attention to it and suggested that it looked very irregular; that the signatures appeared to have been made by the same man, although the names were different. The carbon was identical with the original, and I suggested that he make inquiry into the procedure in this case. Mr. TOLAND. Did the admiral show very much concern about what you told him at that time? |