Mr. KNUDSEN. There are three forms of contracts.

Mr. CANNON. What are those three forms?

Mr. KNUDSEN. The first one is a straight competitive bid.

Mr. CANNON. You go out and announce that you are in the market for certain material.

Mr. KNUDSEN. That is right.

Mr. CANNON. And the man who will agree to make it for the least money gets the contract?

Mr. KNUDSEN. Yes, sir.

Mr. CANNON. How long have you been making contracts of that character?

Mr. KNUDSEN. We are doing it every day.

Mr. CANNON. What trend do you notice in the bids you are receiving? Is the material you buy costing you more or less?

Mr. KNUDSEN. You mean over a period of time?

Mr. CANNON. Yes; from the time you made your first contract. When did you make your first contract?

Mr. KNUDSEN. The Army and Navy, of course, made contracts in June. I do not make any contracts.

Mr. CANNON. That is June 1940?

Mr. KNUDSEN. Yes.

Mr. CANNON. And your last contract, doubtless, was made today? Mr. KNUDSEN. Perhaps.

Mr. CANNON. What trend have you noticed in the terms you are receiving from private industry?

Mr. KNUDSEN. That depends entirely on the item. On some items the cost has gone up. On some, it has remained fairly stationary. Take, for instance, food. I do not think there has been any increase at all on food. On textiles, there has been some slight increase. But in machine work I do not know of any instance that I can point out to you where the increase has been of any moment, so far.

Mr. CANNON. You are able to get products of machine work at as low a price now as you were able to get them when you made your first contracts in June?

Mr. KNUDSEN. I would imagine so, depending somewhat on the locality.

Mr. CANNON. We would be interested in knowing what was paid for machine goods in June and what is the price of the same material

now.

Mr. KNUDSEN. Do you mean machine tools?

Mr. CANNON. Either tools or other machine goods.

Mr. KNUDSEN. I am sorry, sir, but I cannot answer that accurately. I can only give you my opinion of the trend. I think there has been a slight rise in the cost of doing machine work, but if it is done with the proper tooling, it does not amount to very much.

Mr. CANNON. Are you manufacturing machine guns?

Mr. KNUDSEN. Only in one plant. The other four plants will be in operation some time beginning in May and through June.

Mr. CANNON. Have you made contracts with the other four that will go into operation?

Mr. KNUDSEN. Yes; but we made the contract on an experimental basis. The first 5,000 guns would be made at an estimated cost and a fixed fee. Then after the 5,000 guns were made, a price would be set.

Mr. CANNON. How will you determine the price when it is set? Mr. KNUDSEN. We will determine that from the cost figures we have from the company that is operating on a fixed-price basis.

Mr. CANNON. You will just take the company's price or do you have an opportunity to analyze bids and go into costs of labor, material, overhead, and depreciation, as for a price based on costs of production?

Mr. KNUDSEN. Indeed, sir; that is our job.

Mr. CANNON. You follow the latter method?

Mr. KNUDSEN. Yes, sir.

Mr. CANNON. You analyze production and you get a price based on the cost of production?

Mr. KNUDSEN. Yes, sir.

Mr. CANNON. Then the only way in which prices of goods which you will send to England under this bill would vary, would be because of a change in the cost of production?

Mr. KNUDSEN. That is right.

Mr. CANNON. What items in the cost of production are subject to variation?

Mr. KNUDSEN. Wages and the price of materials.

Mr. CANNON. What trend do you expect in those two items between now and a year from now, or any time during the life of this legislation? Mr. KNUDSEN. We hope to hold the cost as nearly uniform as we can. Mr. CANNON. Are you in a position to do that; will costs be subject to outside influence, over which you have no control?

Mr. KNUDSEN. Of course, we really have not any control of the price of labor. We can only negotiate and try to hold the increase down to as little as possible. But on materials, we have not any right to establish a price ceiling, so to speak. But we try to get to the manufacturers and prevent them from making any increases.

Mr. CANNON. You say that the price you have to pay for labor is subject to revision?

Mr. KNUDSEN. Yes, sir.

Mr. CANNON. At the close of the last war millions of dollars were paid holders of contracts with the United States, similar to those to which you refer, on the plea that the war ended unexpectedly, and that they had suffered loss on contracts. The payment of considerable amounts of money was made in order to reimburse them for losses due to the unexpected cancelations. In the course of these reimbursements a check for $50,000 was sent to the Eastman Kodak Co. They returned the check with the statement that they were not entitled to anything. That is the only instance among many reimbursements in which a check was refused. More frequently checks were returned with the complaint that they were insufficient. The Government was at the mercy of manufacturing firms with which it had entered into contracts without provision for such a contingency. Now, in the contracts which you will enter into, under the provisions of this law, will you provide a basis on which you will settle in the event of peace and the discontinuance of the contracts before they are completed? Mr. KNUDSEN. There is a cancelation clause. Every contract has that.

Mr. CANNON. Under the cancelation clause there is a formula on which you will be able to negotiate a reasonable settlement if the war should end before contracts are executed?

Mr. KNUDSEN. To the best of my knowledge the Government contracts have a cancelation clause in them. Mr. Smith has handed me the termination clause put in by the Government, which, of course, means that it works both ways. If the contractor fails to carry out the contract with the Government, the Government may take the plant over and turn the work over to someone else and the contractor would be liable for the excess cost that might be incurred by reason of having the articles manufactured elsewhere. I am sure that if the Government should end any contract with the termination of the war, the contract provisions deal with that separately.

Mr. CANNON. What does this contract form provide?

Mr. KNUDSEN. In other words, if the contract is incomplete, and the Government chooses to cancel it at certain points, then there is a settlement as to the disposition of the materials and other things that might be on hand. I had the negotiation of a couple of them in the last war. I came down to Washington, and they paid for the facilities what they were worth, and the Government gave a check for the balance. I do not know what you refer to, unless someone, for instance, made a 10-percent profit on an order, and claimed a 100percent profit.

Mr. CANNON. You are making provision for such contingencies? Mr. KNUDSEN. Yes, sir.

AGRICULTURAL PRODUCTS

(See pp. 13, 20, 32, 35, 39)

Mr. CANNON. How do you propose to acquire and transport food which, under this bill, will be sent to England?

Mr. WOODRUM. You do not have anything to do with that, do you, Mr. KNUDSEN?

Mr. KNUDSEN. No, sir; my business is that of production.

Mr. CANNON. You mentioned food, did you not?

Mr. WOODRUM. Mr. Knudsen does not handle the agricultural end of it.

Mr. CANNON. Mr. Knudsen, have you heard any comment as to how agricultural products would be acquired and transported overseas? Do you have any information on that at all?

Mr. KNUDSEN. Food is generally handled on the bid basis by the Quartermaster's Department. The Quartermaster's Department buys it under bids, and that is not within my province.

PRODUCTION COSTS AND PRICES

(See pp. 29, 36, 48)

Mr. CANNON. When these materials, guns, ammunition, tanks, airplanes, are delivered to England, what credit do we get from the English Government? Are they inventoried at the cost of produc

tion?

Mr. KNUDSEN. I have not the faintest idea.

Mr. CANNON. What record is kept of the material delivered to England? There must be some accounting for it somewhere. How do we know what it is worth. What system of bookkeeping is being followed to determine what credit we will get on the books of the English Government? If there is reimbursement, on what basis will that reimbursement be made?

Mr. KNUDSEN. I do not know anything about that at all. The value of the equipment would be known to the contracting agencies of the Army and Navy.

Mr. CANNON. Your work is limited to production alone?

Mr. KNUDSEN. Yes, sir.

Mr. CANNON. You see that the factories turn the material out? Mr. KNUDSEN. Yes, sir.

Mr. CANNON. And you have no information as to what becomes of it after it leaves the plants?

Mr. KNUDSEN. No, sir.

Mr. CANNON. To whom do you submit your statements of cost of production? You keep an account of the cost of production, do you not? If so, where does it go?

Mr. KNUDSEN. I do not keep an account of cost of production. We check up and enter into contracts at prices which the Army and Navy may obtain for the articles.

Mr. CANNON. You know the cost of producing the material?

Mr. KNUDSEN. Yes, sir.

Mr. CANNON. With whom do you file that information?

Mr. KNUDSEN. We do not file it with anybody. The War Department or Navy Department would have the figures.

Mr. CANNON. The War Department has data in its files as to the cost of production?

Mr. KNUDSEN. Yes, sir.

Mr. CANNON. You do not know what is the cost in the plant which produces the material?

Mr. KNUDSEN. Yes, sir; but I do not carry any files, or keep any cost system.

I check that over in the light of my experience, and give my judgment as to whether it is high or low, and there it ends.

Mr. CANNON. You must have some figures in order to know whether the price the manufacturer is charging is in compliance with his contract. You must have some figures somewhere.

Mr. KNUDSEN. Documents that come to me contain figures, and we check them.

Mr. CANNON. Where do they come from?

Mr. KNUDSEN. From the procurement departments.

Mr. CANNON. Where do those documents go after they leave you? Mr. KNUDSEN. Back to the contracting division where the contracts are made.

Mr. CANNON. Does the Army have it?

Mr. KNUDSEN. The Army negotiates it, in the first place, and sends it to me for checking.

Mr. CANNON. Do you think that under the system you are following, the Government is getting a dollar's worth of service or goods for every dollar spent? In other words, will we receive $7,000,000,000 worth of service for the $7,000,000,000 expenditure in the procurement of these items?

Mr. KNUDSEN. I hope so, and I imagine we will.

FACILITIES PROGRAM

(See p. 47)

Mr. WOODRUM. Mr. Knudsen, you have given a statement of what we have done up to date in the way of providing facilities.

Mr. KNUDSEN. Yes, sir.

Mr. WOODRUM. There are additional facilities that, in your preliminary estimates, you think may be necessary in order to take care of the articles that you may be required to furnish to Great Britain or the other countries coming within the purview of the lend-lease bill, on the basis provided in the bill?

Mr. KNUDSEN. Yes, sir.

Mr. WOODRUM. Of course, no contracts have been let for those facilities, and there has been nothing more than preliminary studies. made.

Mr. KNUDSEN. That is right.

Mr. WOODRUM. Will you be able to get those needed facilities constructed within a reasonable time and to get prompt deliveries? Mr. KNUDSEN. I think so. In fact, I know we can.

Mr. TABER. Mr. Knudsen, referring to the items in the bill, do you have information as to the quantity that can be procured through existing facilities?

Mr. KNUDSEN. Yes.

Mr. TABER. What about the facilities that the British are currently using? They are going to be available in some volume, will they not? Mr. KNUDSEN. Yes, sir.

Mr. TABER. They are getting quite a lot of airplane engines and that sort of thing. The total figure is $171,000,000. They are occupying a lot of other facilities, and are drawing on private outfits besides that.

Mr. KNUDSEN. Of course, it turns mostly on airplane engines, and, generally, the airplane plants are not complete projects, but are merely additions to some other projects. It is not a contribution that you could say would have a separate value in the production program.

Mr. TABER. You mean that in order to put the program into effect at all, and to get the stuff out within the time, you must have all these additional facilities?

Mr. KNUDSEN. That is correct.

Mr. WOODRUM. If you get these facilities, you will be able to fill the needs?

Mr. KNUDSEN. Yes, sir.

Mr. TABER. What about the details of these British items and their requirements? Are you posted on that, or would you prefer to have someone else tell us about that?

Mr. KNUDSEN. There is a gentleman here from the War Department who will explain that.

ADVANCES TO CONTRACTORS

Mr. TABER. To what extent do you know about what advance payments will have to be made in connection with the procurement of these different items, or as to whether, or not, a very considerable portion of these items will require cash, or an advancement of cash?