Mr. UMSTEAD. Did that include all of the elements that were included in the bids submitted by the private yards?

Admiral Du BOSE. Yes, sir. These figures are roughly comparable. The Philadelphia Navy Yard's estimate was $36,789,000. The bids from the navy yards were, in one case, $37,000,000, in round numbers, and in the other case, $37,300,000. As stated, the low private bid was $47,800,000.

Now, to both of those figures, to the private shipyard bid or to the navy-yard estimate must be added certain other elements of cost to arrive at the total estimated cost of those ships. First, there are changes. We do not know what they are going to be initially. have to make an estimate or an allowance for those changes. We allowed $1,150,000 for changes. We may expend that much or we may not.

Mг. THOм. That is, on each ship, or both of them?

Admiral Du BOSE. On each ship, $1,150,000 for each ship. also allowed for Trial Board items, items of work that may be recommended by the Trial Board when the ship is completed. That is an estimate, too. We estimated $1,150,000 for that. We allowed, in the case of the navy-yard ships, $1,000,000 for what we call shipbuilding administrative charges. Those are the expenses incurred in the Navy Department itself in the office of the inspectors of material and for miscellaneous expenses of the navy yards in connection with general administration. That was all to be charged to the appropriation "Replacement of naval vessels." It has nothing to do with the statistical cost. It is a direct appropriation charge, and that was estimated at $1,000,000.

In the case of the private ships, we had $900,000, because there is less of that sort of work in the case of a private shipyard.

In the case of the Bureaus of Engineering, C. and R., Navigation, Supplies and Accounts, and Aeronautics, there are items known as Government-furnished material, equipage, which the Government

supplies.

The Bureau of Navigation, for instance, supplies compasses, and things of that kind. The Bureau of Supplies and Accounts supplies certain articles of galley equipment. Those items are the same for both ships, whether they are built in a navy yard or in a private yard. The C. and R. Government-furnished material was estimated at $184,000; the Bureau of Engineering Government-furnished material was estimated at $568,000; the Bureau of Navigation, $134,000; the Bureau of Supplies and Accounts, $13,000, and the Bureau of Aeronautics, $65,000.

In the case of both of these battleships the navy yards included, in addition to their actual cost to build and in addition to their statistical cost estimate, an estimate of additional plant equipment or facilities required to build the ships, for which, in round numbers, we have allowed $700,000, coming out of the appropriation "Replacement, naval vessels."

The sum of all of those figures, for the New York Navy Yard estimate was $37,685,000, and the Philadelphia Navy Yard figure was $38,588,000. The private shipyard figure was $50,376,000, which shows a discrepancy between the low navy yard figure and the low private shipyard figure of nearly $13,000,000.

The ordnance costs are the same for both ships, because the Bureau of Ordnance supplies the material to the navy yard, and to the private -hipyard. The Bureau of Ordnance figures, appropriation costs, are $26,000,000, making a total of $63,685,000 for the North Carolina, and $64,588,000 for the Washington, as opposed to a private shipvard apparent cost of $76,376,000.

INCREASES IN COSTS OF LABOR AND MATERIAL

The private shipyard bid was on what is known as the adjusted price basis. If a navy yard submits a poor estimate and the actual costs are in excess of the estimate, the Government is bound to pay the difference, whatever it may be. On the other hand, if a private shipbuilder makes a poor estimate and his costs are actually higher than he expected they would be, he has to pay the difference and the Government is not affected.

Mг. THOM. However, that does not show the full picture. It should be added, should it not, that if the private shipbuilder experiences an increase in cost of materials or labor during the time the ship is under construction he is entitled to adjusted compensation, is he not? Admiral Du BOSE. That is perfectly true. Your question related solely to the accuracy or inaccuracy of the original estimate?

Mr. THOM. But he does have that also as to any changes that occur in price while the ship is in course of construction?

Admiral Du BOSE. Yes, sir. If he has made an accurate estimate, and if labor and material go up, the adjustment features of the contract entitle him to additional payments on account of that.

10-PERCENT-PROFIT PROVISIONS OF VINSON-TRAMMELL ACT

Mr. UMSTEAD. Admiral, has there been any opportunity up to the present time, under the 10-percent-profit provisions of the VinsonTrammell Act, to determine whether or not private builders have profited in excess of the profit to which they are entitled under that act? Admiral Du BOSE. To date there have been no contracts finally closed out to which the Vinson-Trammell law applies, so there have been no recoveries on account of excess profits.

Mr. THOм. Are you certain of that, Admiral?
Admiral Du BOSE. Yes; absolutely.

Mг. THOм. I had a copy of the report of the Internal Revenue Service for the year 1935; and while I was not making a special investigation with reference to this examination of the cost of vessels, I noticed in there a column in which it was stated that there had been certain collections from shipbuilders, amounting not to a great dealbut one item, I think, ran to a considerable figure.

Admiral Du BOSE. There could not have been any statement as to recoveries from shipbuilders on account of ships built, because the contracts have not been completed and final costs have not been determined. Therefore, we cannot yet tell whether or not shipbuilders have made a profit in excess of 10 percent.

Mr. THOM. You mean that of the 119 built there has been no complete adjustment of the pay for those ships?

Admiral Du BOSE. Oh, yes; we have made payments on them.

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Mr. THOм. I know you have made payments, but complete adjustment?

Admiral Du BOSE. There has been no closing out of any contract for any ship that was built under the operation of this 10-percent clause.

Admiral KIMMEL. I think what Mr. Thom is talking about is the subcontracts.

Admiral Du BOSE. I said shipbuilders. Now, the ship contractor, the main contractor, may place subcontracts with certain industrial concerns, and there are certain cases where the Vinson-Trammell 10 percent profit would apply, and if those subcontracts are completed there may have been statements there of recoveries of profits in excess of 10 percent, but I am talking about the shipbuilders themselves.

Mr. THOм. When you make a contract for a ship with a private navy yard, does not the private navy yard pay direct to the subcontractor?

Admiral Du BOSE. Yes; but the subcontractor has to make his own returns to the Treasury Department indicating his profit on his

contract.

CHECKING PROFITS IS DUTY OF BUREAU OF INTERNAL REVENUE

Mr. UMSTEAD. Admiral, in any event, checking the returns of prof: or loss of the private ship yards operating under the 10 percent profit provision of the Vinson-Trammell Act is not the duty of the Navy Department but has to be done by the Bureau of Internal Revenue?

Admiral Du BOSE. That is correct, except that the Navy Department, anticipating being called upon by the Bureau of Internal Revenue to furnish certain facts, did make certain recommendations as regards costs, and, particularly, overhead costs, and has established at each of the shipyards a cost-inspection board which is composed of one civilian cost inspector and three naval officers who are on duty in or near that yard.

Mr. UMSTEAD. That is for the purpose of supervising the construction also?

Admiral Du BOSE. No, sir; it has nothing to do with the construction. It is a cost-inspection board. This board has access to the books of the shipbuilder, and submits periodic returns to the Navy Department Compensation Board where these financial reports, based on an examination of the shipbuilder's books, are reviewed and acted upon by the Navy Department in accordance with certain Treasury rules and regulations.

Mr. UMSTEAD. Then the Navy Department does participate in the checking, in reality?

Admiral Du BOSE. Yes, sir. The responsibility is, really, by law. placed upon the Bureau of Internal Revenue of the Treasury, but the Navy Department is also concerned.

Mr. THOM. You are furnishing evidence that helps the Bureau of Internal Revenue to arrive at a conclusion as to whether or not a profit in excess of 10 percent was made?

Admiral Du BOSE. Yes, sir.

"REPLACEMENT, NAVY" EXPENSES ON NEW SHIPS

Mr. UMSTEAD. Admiral, a few days ago I understood you to testify that you frequently incur "Replacement, Navy" expenses upon new ships up to 27 months after commissioning, when built in private vards, and 6 months after commissioning, when built in navy yards. Am I correct in that?

Admiral Du BOSE. I do not recall exactly what testimony I gave, but your statement of my testimony, is not correct. The 27-month period applies to both navy yard and the private shipyard vessels. It is the period of time administratively set by the Navy Department beyond which expenditures under R. N. V. will not be permitted.

Mr. UMSTEAD. Then my recollection is in error as to the 6-month period as applied to either a Government or private yard.

Admiral Du BOSE. Yes, sir. This 6-month period came in in this way: In the case of a private ship the shipbuilder guarantees the replacement of any defective work or material during the 6-month guarantee period.

The policy of the Navy Department, as set forth by the Secretary, is not to authorize items of work on any vessel, privately built or navy-yard built, after the expiration of the 6-month guaranty period, but during that period items of work may come to light which be authorized by the Navy Department.

may

Mr. UMSTEAD. Admiral, would it help or hinder to place in this bill a limitation providing that the appropriation "Replacement, Navy" shall not be available for obligation for any purpose as to ships commissioned after June 30, 1938, after such ships have been in commission 6 months or more?

Admiral Du BOSE. It would decidedly handicap the Navy Department's procedure. It would be possible, in many cases, to take a new ship and send her to a navy yard and undertake whatever work the Navy Department might desire to accomplish within the specified period. In other cases, that would not be possible, however, because the necessary material might not be obtained within that time. The Navy Department now prefers to get new ships in the fleet at the earliest possible time, and then, later on, within the regular overhaul period, during that first overhaul, after joining the fleet, that these authorized items of work that you are referring to are usually undertaken, items which have not been done during the 6-month period.

Mr. UMSTEAD. Would such a provision tend to make more careful the initial plans for ship construction, to make more efficient the construction itself?

Admiral Du BOSE. No, sir; it would not, because, generally speaking, these Trial Board items come to light many months, and in some cases several years, after the original contract plans and specifications for a particular ship have been prepared and sent out to the shipbuilders.

Mr. UMSTEAD. Do I understand you, then, to mean by that that these changes come to light not necessarily as the result of either bad planning or inefficient construction?

Admiral Du BOSE. Yes, sir. The Trial Board items are almost always the direct result of improvement in the art of shipbuilding or involve improved military features. The ships are better as a result of having this additional work done on them.

PRIVATE YARDS AT WHICH BATTLESHIPS CAN BE BUILT

Mr. THOм. How many private shipyards are capable of building a battleship?

Admiral DU BOSE. Today there are three shipyards that can readily undertake battleship construction.

Mr. TнOм. Where are they?

Admiral Du BOSE. The Fore River shipyard, at Quincy, Mass.; the New York Shipbuilding Corporation, at Camden, N. J., and the Newport News Shipbuilding and Dry Dock Co., at Newport News,

Va.

Mr. THOм. Are the plans for the two new battleships that you are proposing to build drastically different from those of the two battleships that are now in course of construction?

Admiral Du BOSE. Yes; a complete new design will be required, and the plans will be different.

Mr. THOм. The present bill calls for two cruisers. Will your plans for those cruisers approximate the plans of the cruisers we have been building, or will these new cruisers be radically different from the old cruisers?

Admiral Du BOSE. The cruisers we have been building have been 10,000-ton cruisers. The cruisers proposed to be constructed in the 1939 appropriation bill are of a smaller tonnage and will require a complete new set of plans.

Mr. THOм. Are the 10,000-ton cruisers we have been building all alike in plans?

Admiral Du BOSE. There are two classes of 10,000-ton cruisers being built. We are now building an 8-inch cruiser, 10,000 tons, at the navy yard at Philadelphia, and there are 6-inch 10,000-ton cruisers building at other yards. They are not identical.

OBJECT OF INCREASED SHIPBUILDING

Mr. DITTER. Admiral, basing my observations on the emphasis that the chairman placed on the number of men employed in shipbuilding and allied industries, are we to assume that the recent request for increased shipbuilding is predicated upon a desire to take up the present serious unemployment problem, or is it due to an imminent national-defense need?

Admiral Du BOSE. I am not in a position to answer that question, sir. It is a matter of national policy on which I cannot supply information.

Mr. DITTER. You said that there was a serious decrease in the employment in shipbuilding during the period from February 1936 to May 1937. Am I correct in that?

Admiral Du BOSE. There has been a drop of approximately 3,000 men from February 1936 to May 1937 and a drop of 5,000 from May 1937 to December 1937.

REASON FOR DECREASED EMPLOYMENT IN SHIPBUILDING

Mr. DITTER. Has that been due to a retardation of the building program?

Admiral Du BOSE. It is due primarily to the completion of certain ships. To some extent retardation but primarily due to the completion of ships.