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The CHAIRMAN. You know Mr. Corcoran was engaged, and Mr. Corcoran had previously been employed by the R. F. C., and the purpose was to receive a $12,000,000 loan from the R. F. C.?

Mr. STRENZ. Also negotiations for the patent with the various legal holders.

The CHAIRMAN. That loan was made to what company?
Mr. STRENZ. To the Todd-California Shipbuilding Corporation.
The CHAIRMAN. For what purpose?
Mr. STRENZ. To develop the magnesium plant.

The CHAIRMAN. Do you know, Mr. Barnes, how much Mr. Corcoran received of that $100,000?

Mr. BARNES. I do not know anything about that transaction.

The CHAIRMAN. It was reported, I think in the Truman committee, that it was, I believe, $60,000. Is not that correct?

Mr. BARNES. I would not know. Mr. Corcoran, as I understand, testified something about it before the Truman committee.

The CHAIRMAN. You do not know whether Mr. Corcoran has received any stock in the company in addition to the fee?

Mr. BARNES. I could not answer that.

Mr. STRENZ. Up until February 14, Senator, at which time we sold out our interest entirely in that company, he had not gotten any stock. We are not associated in the Todd-California Co. any more.

The CHAIRMAN. You were associated up until this time?
Mr. STRENZ. That is right.

The CHAIRMAN. You haven't got the figure as to how much Mr. Corcoran received because the money was paid to Mr. Miller?

Mr. STRENZ. To Mr. Mann.

The CHAIRMAN. I mean to Mr. Mann. Did you know that Mr. Corcoran would get part of the fee when you paid it to Mr. Mann?

Mr. STRENZ. We assumed he was engaged as associate counsel.
The CHAIRMAN. You knew that in advance?
Mr. STRENZ. I did not know that.

The CHAIRMAN. Did you know that Mr. Corcoran was to be employed because of his previous association with the R. F. C.?

Mr. STRENZ. We did not employ him. Mr. Henry J. Kaiser employed him.

The CHAIRMAN. That was one of your companies at that time, was it not?

Mr. STRENZ. That is right. We had a minority interest in it, but he engaged Mann.

The CHAIRMAN. You yourself knew Mr. Corcoran would be associated with Mr. Mann?

Mr. STRENZ. I did not know it at the time. I have since found out that Mr. Corcoran was associated prior to that time, but I do not know it of my own knowledge.

The CHAIRMAN. You do not know whether he received any stock of this new company or not?

Mr. STRENZ. I know he did not, up until February 14.
The CHAIRMAN. Any questions along that line?
Senator GEORGE. What is your company?

Mr. STRENZ. Todd Shipyards Corporation is a holding company for various ship-repair organizations.

Senator GEORGE. Todd Shipyards Corporation?

Mr. STRENZ. Todd Shipyards Corporation. That is the parent company.

Senator GEORGE. That is the parent company?
Mr. STRENZ. Yes.
Senator GEORGE. How many subsidiaries?

Mr. STRENZ. We have six, I believe. Five repair organizations. We have one oil-burner equipment company-I am sorry, there are more than that.

Senator GEORGE. Have you got a list of them?
Mr. STRENZ. They are all covered in here somewhere.
Senator GEORGE. You are speaking of wholly owned subsidiaries?
Mr. STRENZ. Yes, sir.
Senator GEORGE. Not companies in which you have some stock?
Mr. STRENZ. No, sir.
Senator GEORGE. Minority stock?
Mr. STRENZ. No, sir.

Senator MCKELLAR. You are president of the Todd Shipyards Corporation?

Mr. STRENZ. I am treasurer.
Senator MCKELLAR. Who is the president?
Mr. STRENZ. Mr. John D. Reilly.

Senator McKELLAR. What concern was this that you got rid of, that you say you sold out?

Mr. STRENZ. We disposed of our interest in the California Shipbuilding Corporation, the Oregon Shipbuilding Corporation, and the Permanente Metals Corporation.

Senator GEORGE. Were you a minority stockholder in all the three companies?

Mr. STRENZ. We were a 50-50 stockholder in the California Shipbuilding and the Oregon Shipbuilding Corporations, and a 35-percent stockholder in the Permanente Metals Corporation.

Senator GEORGE. Your interest in all those corporations that you have just named has been disposed of?

Mr. STRENZ. Yes, sir.
Senator McKELLAR. And you have six others left.
The CHAIRMAN. What date were they disposed of?
Mr. STRENZ. February 14.
The CHAIRMAN. You have 11 left, haven't you?
Senator MCKELLAR. He just mentioned six.

Mr. STRENZ. We have eight subsidiaries, and I think we have four that we have a stock interest in.

Senator McKELLAR. I want to ask you this: Why did you sell these companies?

Mr.STRENZ. At that time, February 14, we were approached by Mr. John McCone, of the California Shipbuilding Corporation, with the suggestion that we join with them in the synthetic-rubber undertaking, and we did not believe that was along our lines, and we told them we would not care to join in that undertaking, but would, if necessary, free the ownership in that company so that he could do it if he cared to do it.

The CHAIRMAN. They were sold to Henry J. Kaiser, were they not, an associate?

Mr. STRENZ. And associates; yes, sir.

Senator MCKELLAR. How does it come about that you have made an agreement to pay back a portion of your profits, all except 10 percent, as I understand you, to the Navy?

The CHAIRMAN. At this point, Senator, let me make this clear, that the 10 percent he refers to is the profit on an individual contract for the building of certain ships.

Mr. ŠTRENZ. For repairing.

The CHAIRMAN. That the aggregate, as applied to the invested capital, would be tremendously in excess of that.

Senator MCKELLAR. Take the contract about which Mr. Barnes testified that they made 72 percent, how could your company, or any company, make friends with its conscience, if it had one, if it would go to such an extent that it would charge its own Government, in time of war, a 72-percent profit on what may be billions of dollars involved? How in the name of heaven could you get such a conscience, to charge the Government such profits as that?

Mr. STRENZ. Senator McKellar, we did not make 72 percent on one contract, we made it on one job under a general repair contract. The average over the entire contract is far under 72 percent. I have the average here. It is 11.35 on the entire repair contract for all our repair companies since July 1, 1940.

The CHAIRMAN. That does not mean much unless you apply it to the invested capital.

At this point, I would like to read the letter I have written to Mr. Barnes asking for certain information, dated February 28, 1942

On February 4, the Senate Naval Affairs Committee accorded you the privilege of making a statement with respect to charges that had been made by the Truman committee as to alleged excessive profits made by the companies you represent on Government contracts.

You testified that your company either owned or controlled 16 shipyards located in different sections of the country and that your company was the largest ship-repairing organization in America.

During that hearing, certain questions were propounded to you by me and other members of the Naval Affairs Committee for the purpose of ascertaining the profit your corporation has made and is realizing on Government contracts. This information you agreed to furnish promptly but, although nearly a month has elapsed, you have not done so.

I therefore call on you to appear before the Joint Committee on Reduction of Nonessential Federal Expenditures next Thursday, March 5, at 10 o'clock a. m., prepared to present to the committee all information respecting your contracts, and specifically the following:

1. A statement of all contracts you have made, or work you have undertaken, since September 1, 1940

I think that was changed later to July 1, 1940.
Mr. STRENZ. That is right.

The CHAIRMAN (continuing) — the actual profit on each contract, and the estimated profit on each contract not yet completed or begun.

2. Copies of such contracts covered by inquiry No. 1.

3. A clear and detailed statement of the invested capital of your various corporations under the definition established by the Treasury Department for invested capital.

4. The sums that your various corporations have either received, or have made agreements to receive, from the Federal Government for plant expansion, and a copy of the agreements so made.

5. In what instances, if any, has the Government contributed funds for plant expansion on land owned by your various corporations, and under what obligation, if any, is your company to reimburse the Government for expenses thus made on private property? Also, a statement of any other advances made by the Government to your corporations for any other facilities.

In using the word “Government," I refer to all branches of the Federal Government, and in asking for information with respect to contracts, I ask for information on all contracts or work undertaken during the period mentioned.

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Could you, as concisely as possible, present that information to the committee?

Mr. STRENZ. I have a statement prepared.
Could I give you this, Senator?

(The document was handed to the chairman.) STATEMENT SUBMITTED BY THE TODD SHIPYARDS CORPORATION AND SUBSIDIARIES

WITH REFERENCE TO MATTERS CONSIDERED BY THE SENATE NAVAL AFFAIRS

COMMITTEE
To the United States Senate Naval Affairs Committee, Washington, D. C.:

Mr. J. E. Barnes, Washington representative of Todd Shipyards Corporation and its subsidiary companies, requested permission to appear before the Naval Affairs Committee of the United States Senate to make clear certain testimony he gave before a committee of the United States Senate under the chairmanship of Senator Truman. This permission was granted. Mr. Barnes appeared before the Naval Affairs Committee on February 4, 1942. Before Mr. Barnes could make the clarification for the purpose of which he appeared before the committee, he was interrogated as to a number of matters as to which he was not only unprepared to testify, but as to which he could not possibly have had adequate information and as to which extensive analysis and study of a vast amount of data and records would have been required to permit the giving of accurate information.

On account of these facts, some of Mr. Barnes' conclusions and answers given to the committee were erroneous and created impressions which this company feels strongly should be corrected. Such correction would have been made more promptly if it had not been for the fact that the company has been doing its utmost to prepare a statement for the use of the committee, such as was requested by the committee and promised by Mr. Barnes. Even now the company has not yet been able to complete such a statement, but submits herewith the portion completed and will submit the remainder as promptly as possible.

The company feels that portions of Mr. Barnes' testimony which were errone ous, and other portions which were not clear as to their intended application, have given rise to injustices to the Navy Department, to this company and its subsidiaries, to this committee, and to Mr. Barnes himself. It therefore wishes to point out the principal points as to which such a condition exists, so that justice may be done to all concerned, and that this company and its subsidiaries may proceed with the tremendous burden of war and defense work, which rests upon their shoulders, without misunderstandings and with as little interference and delay as possible. In this connection, this company is prepared to show by this statement and the further statement to be submitted as soon as it can be prepared, that the Navy Department has not been neglectful of its duties in any respect; that this company its subsidiaries have not been war profiteers; that all their profits from all sources, over and above such an amount of dividends as they felt compelled to pay, in accordance with the policy of the internal-revenue laws, have been put to work in connection with their share of the war program, and, in addition, very substantial amounts of money have been borrowed for this purpose.

Without reviewing the entire testimony of Mr. Barnes before the committee, but dealing only with the points of major importance as to which this company believes that erroneous and unjust impressions may have been created, it wishes to point out the following facts:

DESCRIPTION AND ORIGIN OF THE CONTRACT FOR THE REPAIR OR ALTERATION OF

NAVAL VESSELS

General repair contracts, identical in their terms, were entered into by the Navy Department with subsidiary companies of Todd Shipyards Corporation (hereinafter referred to as general repair contracts) as follows:

Robins Dry Dock & Repair Co., NOs. 75854, September 6, 1940.
Tietjen & Lang Dry Dock Co., Ń Os. 75907, August 6, 1940.
Todd Galveston Dry Docks, Inc., NOs. 76213, August 16, 1940.
Todd Seattle Dry Docks, Inc., NOs. 75816, August 2, 1940.
Todd-Johnson Dry Docks, Inc., NOs. 76206, August 15, 1940.

Subsequent to the respective dates just given, no new work was undertaken for the Navy Department by the respective companies except under these contracts. All the general repair contracts are "lump-sum-not-to-exceed” contracts, the general provisions of which may be summarized as follows:

1 Approximately 62 percent interest held.

The intent of the contracts is to provide drydocking, marine railways, shipyard and other facilities for expeditious repair and alterations of naval vessels which may be ordered to the contractor's plant from time to time during the period of the contract (art. 1).

The contractor is to provide necessary facilities and furnish labor, materials, tools, and equipment as required to accomplish necessary alterations and repair work on naval vessels, either at the plant of the contractor or in the vicinity (art. 2).

As soon as practicable after the arrival of a naval vessel at contractor's plant or vicinity, the work to be done on such vessel is to be inspected jointly by the contractor and the naval inspector and job orders are to be prepared, each specifying in detail the repair and alteration necessary as to each individual item. Each job order is to contain the contractor's estimate of maximum cost to the Government of the work specified in the order (art. 4 (a)).

If the maximum estimated cost on any single job order is less than $3,000, such order is to be executed by the naval inspector on behalf of the Government, provided that it is agreed by the contractor and the inspector that the estimated cost has been fixed on the basis of rates specified in schedules A and B attached to the contracts and all charges for material computed in accordance with article 7 (b), (art. 4 (b)).

If the maximum estimated cost specified in any job order is $3,000 or more, the sam.e procedure is followed except that the commandant of the proper naval district is to act instead of the naval inspector (art. 4 (c)).

Upon the receipt of a job order properly executed on behalf of the Government, the contractor is to commence to prosecute the work to the satisfaction of the naval inspector, and is to furnish at his own risk and expense all necessary material, labor, and accessories for accomplishing job orders and is to give priority for same over all private work in progress at the contractor's plant (art. 5).

As soon as the items of work on the vessels have been inspected and job orders executed therefor, the sum of the maximum estimated cost specified in the job orders shall constitute the upper lim.it of possible cost, called the estimated fixed price for all work undertaken by the contractor to which these jobs are applicable, the estimated fixed price to be estimated as soon as practicable after the arrival of the vessel. If it is later found necessary to undertake additional work not contemplated on the original inspection job orders, such additional work shall be prepared and executed as specified in article 4 and the maximum. estimated cost specified in such job orders shall be added to the estimated fixed price as defined. Also, job orders may be canceled by the naval inspector and, if so, the estimated fixed price is to be decreased accordingly (art. 6).

As the work specified in each job order proceeds, accurate records of labor employed and material used on such work are to be kept by the contractor and to be open for inspection by the naval inspector at all times for the purpose of checking the accuracy of the information contained in such records which is to be used in computing charges against each job order. Charges for material are to include actual cost to the contractor, as shown by authentic invoices, of all direct material purchased and supplied by him for a specific job, and to such cost is to be added 10 percent thereof as a handling charge. Material from stock supplied by the contractor for a specific job is to be taken at the market price, to which cost is to be added 10 percent or such greater percentage not exceeding 25 percent as may

be approved by the naval inspector for warehousing and handling. Cost of material is to be based on the original cost before processing, subject to determination by the naval inspector as to material supplied from stock and that the use thereof is in the interest of the Government, consideration being given to elements of time and economy. (In only a small minority of cases and to the extent of comparatively small amounts was more than 10 percent out of this permissible 25 percent charged or asked for as to material from stock. The 25 percent was reduced definitely to 10 percent by subsequent agreement of the parties as shown below.)

Rates of charges per hour for skilled and unskilled labor by trades (including rates for overtime work) are specified in schedule A annexed to the contracts and are to be computed against each job order.

Rates of charges per hour or other acceptable charges for the use of necessary machines or equipment, including drydocks, marine railways, tugboats, cranes, derricks, and for electricity, compressed air, fresh and salt water and steam supplied to the vessel are to be as specified in schedule B annexed to the contracts, the charges to be computed upon the basis of the duration of use.

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