Senator BREWSTER. Well, any date. Mr. McCARTHY. I can give it to you as of the 22d of September; when I compiled this report, Taylor-Hale had received from the United States Government $362,394.57 in rent. We had recaptured from the Taylor-Hale Co. $19,056.06 worth of equipment. Senator BREWSTER. At that time? Mr. McCARTHY. At that particular time. Senator BREWSTER. They still at that time owned the equipment and had their $360,000? Mr. MCCARTHY. $362,394.57; yes, sir. Now, in the case of Choctaw Culvert, their total contract value was $188,720. They were receiving average monthly rentals of $76,431.90, and we recaptured from them $5,638.56 worth of equipment, which gives them a total received from the Government of $82,070.46 as of September 22. Since then we have received more equipment from Taylor-Hale; I am not sure of Choctaw Culvert. We have received quite a few more items from these people. Mr. FULTON. Mr. McCarthy, the committee has requested directly from Taylor-Hale a recapitulation of their own ideas as to their equipment, and it shows on that that they valued equipment at $704,634, that they sent to the Government, which they, themselves, paid only $565,000 for. Mr. MCCARTHY. The only case I have ever come across from Taylor-Hale Mr. FULTON (interposing). Well, I just wished to develop these figures, that in renting the equipment to the Government, they evidently added $130,000 or more to their cost. Mr. McCARTHY. Evidently. Mr. FULTON. When they valued this equipment, because the Government, of course, if it recaptured would recapture at their evalua tion. Mr. McCARTHY. That is right. Mr. FULTON. Of that $567,000 that was their cost for this equipment, the Taylor-Hale Co. originally had a lien of $530,000 against it, so that their investment, their owner's equity in this equipment that they were renting the Government was apparently only $37,000. Senator BREWSTER. On which they received rental of $362,000; was that your figure? Mr. MCCARTHY. You see, we don't pay the rental direct to the lessor in all cases. In cases where there are liens against the equip. ment we try to get power of attorney via Taylor-Hale to make a statement authorizing the Ferguson-Oman Co. to make payment to the lienor. Mr. FULTON. To answer your question, Senator Brewster, TaylorHale informs us that on that particular equipment they get rentals of $360,781 from the Government, rentals of approximately 70 percent of their own cost, and that is all until August 31. I assume it would be increased by the amounts thereafter. Senator BREWSTER. In the handling of recapture, who determines whether or not recapture will be carried out? Mr. McCARTHY. I make the recommendations of recapture to the constructing quartermaster's office. I make the recommendations for the recaptures to protect the Government's interest. I noticed when I arrived here that the amount of repairs being put into this equip ment was in excess of depreciation of the individual pieces; so in the interest of the Government, I saw fit to make recommendation to recapture to try to hold in check all these repairs that we had put into this equipment so that we, the people, could get the benefit of this. Senator BREWSTER. Apparently very little was recaptured up until the date of this report. Did that mean that your recommendations were not carried out? Mr. McCARTHY. Yes, sir; my recommendations so far on every piece of recapture were carried out, but it is a long-drawn-out affair, sir, and you have to go through your records and pull out the pieces that you want to recapture to save more per cents per month, and for various reasons. By the time you compile those reports, it might take 2 or 3 weeks sometimes. Then we make these forms up and send them to the constructing quartermaster, and he in turn, his executive officer, sends it to the zone, and by the time it comes back from the zone with the approval for recapture, then we institute the recapture proceedings. Senator BREWSTER. Now on September 22 your recaptures were negligible. Mr. MCCARTHY. We had up to that time $600,000 worth of recaptures to be recaptured the 30th of September which were all consummated and completed up to date. At the present time I am in the process of recapturing approximately $300,000 worth. Senator BREWSTER. That will make around $1,000,000 altogether. Mr. MCCARTHY. I have recaptured everything except the 102 pieces of equipment up to October 31. Senator BREWSTER. You have been operating on the job about long enough to make large recaptures about due. Mr. MCCARTHY. That is right. Senator BREWSTER. That doesn't represent a change of policy? Mr. MCCARTHY. No, sir. That recapture clause has been in the contract since I have been with the Government. Senator BREWSTER. I mean a change of policy as to recapture. Senator BREWSTER. Has it been a matter that you have discussed with any of your supériors at all as to the policy that you should follow? Mr. MCCARTHY. On recapture? Senator BREWSTER. Yes, sir. Mr. McCARTHY. No, sir; only I have followed this recapture provision to the best interests of the Government. Senator BREWSTER. There has been a great deal of concern, and I am interested to know whether it has come to your attention, among the contractors' organization, over the accumulation of vast amounts of construction equipment in the Government. Has that ever come to your attention in any way? Mr. McCARTHY. Yes; it has in the past month or so. Senator BREWSTER. Yes; they feel that before long the Government will have all the construction equipment in the country. Mr. MCCARTHY. That is correct, and since then there has been an order come out and it has not been in effect on this particular project. There will be no recapture clause, but there will be a lower rate of rental and the lessor will get his equipment back. Senator BREWSTER. When was that order put out? Mr. McCARTHY. I received that order a few days ago. The CHAIRMAN. That is the committee's recommendation in your report that you have been testifying about. Mr. MCCARTHY. I think it is construction division 520, but it came out recently. I received a copy a few days ago from the zone. The CHAIRMAN. At this point, Senator, I want to make this TaylorHale report to the committee a part of the record. It is a very interesting document to show how a man can take $37,000 and borrow $530,000, and then sell the equipment to the Government at a figure of a profit of $137,000. I think that ought to be made part of the record of this committee. (The report referred to was marked "Exhibit No. 163" and is included in the appendix on p. 3311.) Senator BREWSTER. So that you won't be able, I assume, to change existing rental arrangements. Mr. MCCARTHY. Not without authorization from the Quartermaster General's office via the zone and via the C. Q. M. Senator BREWSTER. And also with the lessor. · Senator BREWSTER. So that under this order, you accomplish that as far as possible. Mr. MCCARTHY. On this particular job, it says where it can be accomplished without any injury or upset to the construction of the plant, that it should be taken up. Senator BREWSTER. It would be difficult, I suppose, where the job is approaching completion. Mr. MCCARTHY. At the present time to try to change our rental equipment agreements to coincide with this new C. D. L. letter, it would be a little job in itself and it would take approximately 2 weeks to change all the contracts and get the authorization from the people who own the equipment. The CHAIRMAN. The committee will take a recess until 1:30, and Mr. McCarthy will continue at that time. (Whereupon, at 12:05 p. m., the committee recessed until 1:30 the same day.) AFTERNOON SESSION The CHAIRMAN. The committee will come to order. Mr. McCarthy, I believe we will proceed where we left off. Mr. Fulton. TESTIMONY OF J. F. McCARTHY, SUPERVISING AUDITOR, TOOLS EQUIPMENT, QUARTERMASTER CORPS, WOLF CREEK ORDNANCE PLANT, MILAN ORDNANCE DEPOT, MILAN, TENN.— Resumed VALUATION AND REPAIRS OF EQUIPMENT Mr. FULTON. Mr. McCarthy, will you tell us the total amount of equipment that was on the job-that is, that was rented. Mr. MCCARTHY. Now, at the present date? 1Exhibit No. 163, appendix, p. 3311, at p. 3313. Mr. FULTON. Yes; as of the nearest date you have it. Mr. MCCARTHY. The total amount on the job at one time was 2,398 pieces, including the I. B. M. system, which is approximately 37 pieces, and some Monroe business machines, which did not come under heavy or light equipment. There are 1,303 heavy pieces and approximately, offhand, 1,100 light pieces of equipment. Mr. FULTON. What was the total value of that equipment as valued by the renters? Mr. MCCARTHY. The total value of that equipment as of September 22 was $3,264,421.74. You can add to that figure approximately another $40,000-forty or fifty thousand dollars. There has been more than that come in, but the approximate figure would be about $4,000,000—a little over $4,000,000. Mr. FULTON. And that does not include, does it, the Governmentowned equipment? Mr. MCCARTHY. That is the total contract value of what is on the job. That includes everything that we have a contract value on. Now Government equipment is delivered to the site from other parts of the country and comes in here with a value attached to it for auditing purposes, to know how much money is involved in the equipment, especially if it is transferred on a new rental schedule from another project or transferred over as a Government-owned piece of equipment. We carry a valuation on it so that we don't lose sight of the fact on our ledgers. (The document referred to was marked "Exhibit No. 164" and is included in the appendix on p. 3319.) Mr. FULTON. Is that included in that $3,200,000? Mr. McCARTHY. In this particular figure here, no. Mr. FULTON. And do you know how much the Government-owned equipment amounted to? Mr. MCCARTHY. At the present time there are only 102 pieces on rental, and the remainder is Government-owned now as of the 31st of October. We had at one time approximately $74,000 worth of Government equipment prior to the recapture of these last batches of equip ment. Mr. FULTON. You say approximately $74,000? Mr. MCCARTHY. Approximately $74,000 worth. Mr. FULTON. And that $3,200,000 was the privately owned? Mr. MCCARTHY. $3,264,421.74 was the privately owned equipment. Mr. FULTON. So you have a very negligible percentage of Government-owned equipment on the project? Mr. McCARTHY. That is right. The CHAIRMAN. You have more than $3,000,000 worth of equipment privately owned on the job? Mr. McCARTHY. Yes, sir. The CHAIRMAN. Three million-what were the hundred thousands? Mr. MCCARTHY. $3,264,421.74. Mr. FULTON. The Oman Construction Co., I believe, had about $159,510. Mr. MCCARTHY. On the construction at one time without the new additions since September 22, was $162,285 worth, actual contract value. He received in rentals up to the 22d day of September, $59,097.74, and one recapture of $74.20. Mr. FULTON. At that time there had been only one recapture? Mr. McCARTHY. I don't know if this represents one individual piece of recapture, but the amount of money recaptured was $74.20, which gives a total of $159,174 paid to the Oman Construction Co. Mr. FULTON. In other words, the rent amounted to a little over a third of the value of the equipment, and the equipment amounted to less than 5 percent of the equipment on the job. Mr. MCCARTHY. That is about right. Mr. FULTON. Now, I note that the repairs that were put on the equipments that belonged to the Oman Construction Co.-the joint contractors-totaled $53,413.26. (The document referred to was marked "Exhibit No. 165" and is included in the appendix on p. 3320.) Mr. McCARTHY. That is a recapitulation as of the end of September. That does not show a true course up to date. Mr. FULTON. There would be additions up to date? Mr. MCCARTHY. These figures are Oman's own figures which they sent over to my department every month for the preceding month, a monthly report of operations cost, such as gas, oil, and labor and parts. Now, this figure here, taken from their own reports, which I have with me, is exactly their actual repair and labor on repairs and parts, as it was put on these individual pieces of equipment. Mr. FULTON. As of their figures? Mr. MCCARTHY. As of their own figures. These are their figures, not mine. We just compile them from their own reports. Mr. FULTON. Then it appears that they got about thirty-odd percent of the value of the equipment, as rent. Mr. McCARTHY. Well, that shows about 25 percent as the repair cost, approximately. Mr. FULTON. It is a little more than that, isn't it? $53,000 to $162,000 would be nearer 30 percent. Mr. McCARTHY. Yes; but since that last report of $162,000, that went up a little bit, due to the fact that some equipment of theirs was coming in. Mr. FULTON. They put new equipment on the project lately? Mr. MCCARTHY. They are putting some equipment on the project, and they still had some equipment coming in the other day until a representative from the Zone came down to find out whether or not they needed that equipment. It was four new bulldozers and tractors ordered, which were stopped, as I understand. Mr. FULTON. As we look over these items of the contractor's own equipment, we note the tremendously high ratio of repairs to the contractor's valuation of that equipment, and a question arises as to whether they weren't undergoing excessive repairs and whether they might not be rebuilding their equipment for themselves at Government expense. Mr. McCARTHY. That was my contention. I thought they had the same thought in mind when the equipment came in. We were sending inspectors out to inspect this equipment and make our recommendations. While we would make a recommendation, it wasn't followed through as it should have been. We would make a recommendation, and they would come along and say, "Well, the rental is at depreciation value," and that they could get twice as much for the equipment, and at various times I have often said if they thought they could get |