The CHAIRMAN. Mr. Toland, read for the benefit of the committee a letter I had the Secretary write to people who raise the same question that this company is raising. Mr. TOLAND. This is dated October 13. It is mimeographed and sent out by the Department of the Navy, and it is from the Secretary of Navy to all bureaus and offices of the Navy Department, and commandants of naval districts, and Major General Commandant, United States Marine Corps. Subject: Two independent investigations of the national defense program now being conducted by a special committee of the Senate, and by the House Naval Affairs Committee. Reference: (a) Rear Admiral R. S. Holmes, United States Navy, Circular Letter EN/A18-3(410505-2) of September 30, 1941. 1. Information has been brought to the attention of the Navy Department that certain contractors are not cooperating satisfactorily with the field investigators representing the congressional investigating committees due, apparently, to a misinterpretation that has been placed on reference (a). 2. The Department desires to stress its policy of wholehearted cooperation with congressional investigating committees now examining into naval contracts and other matters pertaining to national defense. The Secretary feels that the Navy has nothing to hide from these committees and welcomes a complete and thoroughgoing investigation into its activities. 3. The restrictions heretofore imposed upon the disclosure to the congressional investigating committees, or to their authorized representatives, insofar as contracts classified as "restricted" are concerned are hereby removed. Full information concerning restricted contracts may be disclosed to the committees or to their authorized representatives. 4. Information regarding contracts classified as "secret" or "confidential" shall not be disclosed to any congressional committee, or to its representatives, without specific authority in each individual case from the Secretary of the Navy, pr vided, however, information concerning costs and profits under such contracts may be disclosed to congressional committees or to their authorized representatives, if in so doing the confidential features of the materials or articles to which the contract applies are not disclosed. In cases of doubt, naval representatives in the field shall refer the matter to the Secretary of the Navy for decision. 5. Addressees will take appropriate action to bring the contents of this letter to the attention of all interested personnel. Signed by Secretary Knox. (The letter referred to was received in evidence and marked "Exhibit No. 377.") Mr. TOLAND. In this connection, I would like to make this statement for the record, that the investigation of this company was requested by the Navy Department, and it was based on that request that the members of this committee staff went there to examine their books and records. The CHAIRMAN. Now, confine your inquiry to the question of profits on the first line of questions. Mr. TOLAND. I asked you heretofore the percentage of the volume of business, classified and unclassified Navy business, that you did in 1941. Mr. BEGGY. Approximately 50 percent of our total gross billing in 1941. Mr. TOLAND. And the total gross billing for that year was what? Mr. TOLAND. Do you have with you the actual total cost of the classified and unclassified Navy sales? Mr. BEGGY. No, sir; I do not. Mr. TOLAND. Do you have any record with you as to the profit realized on the classified Navy sales and unclassified Navy sales before taxes? Mr. BEGGY. I do not have the detail of that, sir. I have the report. of our net profit after taxes on all our business, which shows the percentage of 7.58 percent. Mr. TOLAND. You have read that once. Do you know the Wolf Flame Safety Lamp Co. of Brooklyn, N. Y.? Mr. BEGGY. I do not know them as individuals. I know that there is such a company. Mr. TOLAND. Did you ever have any agreement with them with regard to the price of safety lamps that you sell to the United States Navy? Mr. BEGGY. No, sir. Mr. TOLAND. I would like to show you photostat copies of: a letter dated March 1, 1939, and a reply from the Wolf Flame Safety Lamp Co. of America, Inc., dated March 2, 1939; a letter from the sales engineering department to the Wolf Flame Safety Lamp Co., dated March 7, 1939, and a letter from the Wolf Flame Safety Lamp Co., dated March 10, 1939; a letter from the Wolf Flame Safety Lamp Co. of March 22, 1939, together with a letter to the Wolf Flame Safety Lamp Co. from your company of March 24, 1939; a letter from your company to the Wolf Flame Safety Lamp Co., dated March 29, 1939, and a letter from the Wolf Flame Safety Lamp Co. dated March 29, 1939; a letter from the sales engineering department of your company dated April 6, 1939, together with a letter to the same company, the Wolf Flame Safety Lamp Co., dated April 7, and a letter from_them dated Sept. 7, 1939; and a letter from the Wolf Flame Safety Lamp Co. of Sept. 26, 1939, and a letter of October 4, from your company. I ask you if you ever have seen the originals of those communications. [Handing correspondence to witness. Mr. BEGGY. Yes, sir; I saw the originals of these at the time that your representatives had them photostated. I did not read the letters, but I know that such letters were photostated. The CHAIRMAN. I think, Mr. Toland, the committee should be informed as to the contents of these letters. Mr. TOLAND. The contents of the letters disclose an understanding between the parties. The CHAIRMAN. Let's read the letters. Mr. TOLAND. All right; I will offer them in evidence and read all the letters. (The two letters which follow were received in evidence and marked "Exhibits Nos. 378 and 379.") (Balance of correspondence referred to was received in evidence, marked "Exhibits Nos. 380 through 390," and are printed in the appendix of this volume.) Mr. TOLAND. The first letter reads as follows The CHAIRMAN. Who is it from? Mr. TOLAND. It is from Mr. Kulesz. Who is he? Mr. BEGGY. What is the date of the letter, Mr. Toland? Mr. TOLAND. March 1, 1939. Mr. BEGGY. At that time he was employed in our sales engineering office. Mr. TOLAND. It is addressed to the Wolf Flame Safety Lamp Co., Inc., Attention of the President: On a recent Navy schedule opened February 24, 1939, at the Navy Department, Washington, D. C., and calling for 20 gasoline burning type flame safety lamps in accordance with Navy Department specifications 31-L-25 dated October 1, 1935, we have been informed that the Portable Lamp & Equipment Co. of Pittsburgh, Pa., was the low bidder at the unit price of $6 per lamp. We now have another Navy schedule under consideration, which opens March 7 and calls for 33 gasoline-burning type flame safety lamps, and we believe that the same competition will be encountered on this bid as that which occurred on the former. In order to meet this competition, we respectfully request your cooperation and the best price which you can give us on the lamps of this type. As you may know, our present cost on these lamps is $7.50 each net, which, as you can see, is quite out of line with the price of the competition. According to the information which we have received on the former Navy schedules, the Portable Lamp & Equipment Co. have bid on the flame safety lamp manufactured by the Koehler Lamp Co., of Marlboro, Mass. Although we have been under the impression that the standard Koehler lamp did not meet Navy specifications 31-L-25, it is our understanding that on the above-referenced Navy schedule the Portable Lamp & Equipment Co. did not take any exceptions to the requirement of the specifications and therefore apparently will furnish lamps in accordance with these specifications. We are forwarding this information on to you, as we believe that it will be of some value in letting you know that we are encountering competition on these lamps and just where the competition is coming from. Your cooperation in looking into this matter and forwarding to us your best price quotation as soon as possible will be sincerely appreciated. Inasmuch as the present bid which we have under consideration opens on March 7 and we anticipate sending out our quotation on March 4, will you kindly see that this information is in our hands by the latter date? Very truly yours, The reply to that is as follows: MINE SAFETY APPLIANCES CO., Sales Engineering Department. In prompt reply to your letter of March 1, having reference to a request to bid on 33 flame safety lamps under schedule 8346 to be delivered to the Brooklyn Navy Yard and bid to be opened 10 a. m. on March 7, permit us to say that we received a similar request. We have put in our bid on this inquiry at $9 each, and, as in a previous instance, should we receive the order on that basis, which we doubt very much, the difference between your cost price and the price you are getting from the United States Navy would be credited to you, as, after all, your company has developed this Navy business. We read with great interest your report that Mr. Nelms, of the Portable Lamp & Equipment Co. of your city, was a low bidder on 20 lamps at a unit price of $6 per lamp, which inquiry, by the way, was never received by us. The Navy-type lamps are special lamps not carried in stock and not sold to any other customer, and due to the fact that we have no idea of their requirements they cannot be manufactured until we receive a firm order. We have been furnishing, as you know, all-brass lamps, heavily nickel-plated, on which your cost is $7.50 each net. It is needless for me to say that we are more than anxious to cooperate with your company, as we have proven previously, but immaterial how we figure on the all-brass lamp, nickel-plated, it will be impossible for us to reduce the price from $7.50. It is news to us that Koehler is making a brass lamp, which so far he has never done and which his literature does not show. The price of $6 makes us believe that Mr. Nelms is attempting or will furnish his regular steel lamp, and we have just been wondering whether he can get by the Navy inspectors with that type of equipment. Your company being in very much closer contact with the United States Navy requirements, we wonder whether you had a previous instance where you lost the order that the Koehler Co. obtained through their Pittsburgh distributor and whether actually brass nickel-plated lamps, exactly as per specifications 31-L-25, were furnished. We have been in the flame safety lamp business for many years, as you know, and we are convinced that a lamp according to the specifications as given cannot be furnished at $6 each. Considering that at times orders may cover one, two, or a half dozen lamps, or even 12, 50, or 100 lamps, which would have to be run through the shop, all the machines disturbed, and when the work is finished, even at $7.50 it is very questionable whether this company makes 5 percent. We believe that should we again lose this order a serious effort should be made to see what Koehler is furnishing. We understand that you have a representative in Washington, and if Koehler actually gets this business for 20 lamps about which you wrote us, your representative should make an effort to find out whether brass nickel-plated lamps according to the Navy's specifications were delivered or whether he substituted with a steel lamp, which, after all, meets with the specifications of the Bureau of Mines, as mentioned in the Navy specifications. If we can be of any further help from this end, please do not fail to call upon us. The CHAIRMAN. That shows the substance of the correspondence? Mr. TOLAND. The substance shows an agreement between the two companies. In the event the Wolf Co. should receive the contract, even though it was the higher bidder, the correspondence establishes that there was an understanding between this company and the other company that the Wolf Lamp Co. would remit to the Mine Safety Applances the profit that the Mine Safety would have made if it had been the successful bidder. Thus, when the Navy received these bids it was under the impression that there were two competing parties and that there was no understanding as to the price or the profit realized. You also do business, do you not, with the Sanderson Safety Supply Co.? Mr. BEGGY. The Sanderson Safety Supply Co. is an agent of ours. Mr. TOLAND. Is it a wholly owned company of yours? Mr. BEGGY. No, sir. We have no stock interest in the Sanderson Safety Supply Co. Mr. TOLAND. Is it a fact that you have had an agreement with the Sanderson Co. whereby your company and the Sanderson Co. agreed and fixed the price that was quoted in the Navy on these lamps or these hats? Mr. BEGGY. No; there was no agreement as to fixed price, but on the Navy business the quotations are furnished from Pittsburgh, Pa., and I would like to refer to Mr. Sanner, who is a sales engineer in charge of our Government business, the question that you have asked me, and also an explanation of this Wolf safety lamp situation, because there may be items involved in that which will clear this situation. Mr. TOLAND. Wasn't it a fact that there was an arrangement between your company and the Sanderson Co. whereby your company fixed the price which Sanderson quoted to the Navy? Mr. BEGGY. We are the only suppliers of that type of hat that you are referring to. Mr. SUTPHIN. Is that their agent that you are speaking about, Mr. Toland? Mr. TOLAND. He has testified that it was an agent. Mr. SUTPHIN. Isn't it customary for a manufacturer to protect the agent in every line of industry? Mr. TOLAND. The point is that the agent submitted an independent bid to the Navy Department of the United States as a competitor of this company where the price for that lamp was fixed for this company by the agent higher than they bid. Mr. BEGGY. Pardon me, Mr. Toland. You referred to protective hats in your question to me. Mr. TOLAND. Yes; protective hats. Isn't it a fact that your company had this agreement, that you fixed the price, and the price of Sanderson was higher? Mr. BEGGY. May I see it? Mr. TOLAND. I show you the correspondence on it. The amount of business in 1941 on this particular item was $49,113, and the cost of the hat was $1.97 and it was sold to the Navy Department for $2.92 with a 95-percent profit or 95 cents profit on each hat. Mr. BEGGY. The cost that you are referring to there is factory cost only. Mr. TOLAND. Factory cost before taxes. Isn't the same thing true with regard to your monoxide indicators, that you do the same thing with regard to them? Mr. BEGGY. I cannot answer that because I don't know all the details. (The Sanderson Safety Supply Co. correspondence was received in evidence, marked "Exhibits No. 391 through 397," and is printed in the appendix of this volume.) Mr. TOLAND. Isn't the McDonald Co. that bids on these items a wholly owned subsidiary of your company? Mr. BEGGY. It is. Mr. TOLAND. Doesn't it submit an independent bid to the Navy Department in competition with your company? Mr. BEGGY. I cannot answer that; I am not familiar with all those details. Mr. TOLAND. I will show you this correspondence and ask you if it isn't a fact that the parent company fixed the price which the subsidiary would bid to the Government? (The B. F. McDonald Co. correspondence was received in evidence, marked "Exhibits Nos. 398 through 403," and is printed in the appendix of this volume.) Mr. BEGGY. I can't answer that. Mr. SUTPHIN. Will you identify the paper? Mr. TOLAND. Will you look at that exhibit and identify it? Mr. SASSCER. Did he or did he not identify that letter, Mr. Toland? Mr. TOLAND. Do you identify those? Mr. BEGGY. This letter is from the agent of the B. F. McDonald Co. in San Francisco. Mr. TOLAND. Which is a wholly owned subsidiary of your company? Mr. BEGGY. That is right. Mr. TOLAND. The fact of the matter is that they did submit competing bids. Mr. BEGGY. I can't answer that, Mr. Toland. Mr. TOLAND. The correspondence shows it. Now, Mr. Beggy, on the contract that you have with the Navy Department for gas masks that we have discussed, what amount per unit did you charge the Navy? Mr. BEGGY. Which contract are you referring to, Mr. Toland? Mr. BEGGY. Mr. Toland, isn't that a confidential contract? Mr. TOLAND. I am asking you if you don't have the contract No. 75776. Don't you have that contract with the Navy involving $2,034,000? |