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Senator DOWNEY. And as a matter of fact recently a bill was passed by Congress waiving bonds in cases where it might be found inadvisable or impossible to obtain bonds of contractors.
Mr. MEHORNAY. That applies to the War Department and was for the particular purpose or had for the particular purpose of supply contracts which did not come under the Miller Act, which does leave it optional with the Under Secretary of War to waive or set the amount of bonds in the War Department. The Navy denies they have any such privilege.
Senator KilGORE. Under that contract then a contract for $499,000 worth of leggings could be let to a contractor without him giving a performance bond; is that not right? Mr. MEHORNAY. Yes.
Senator KILGORE. And without your Office having any opportunity to survey his plant facilities to see whether or not he has an adequate plant to make those $499,000 worth of leggings. Mr. MEHORNAY. That is correct.
Senator KILGORE. And there is nothing requiring any agency, other than the Procurement Branch-and there is no responsibility fixed on them to ascertain the responsibility of the bidder; is that not a fact too? In other words, there is nothing other than a moral responsibility; there is no responsibility other than a moral responsibility to ascertain whether or not the plant can produce when the contract is let.
Mr. MEHORNAY. We have to break that down, Senator.
Mr. MEHORNAY. And the Ordnance Department has very thoroughly analyzed and surveyed those plants which they have allocated or have on their list, to invite to bid, and have a pre-knowledge of their ability and their management. Other services just go out and invite anyone to bid, take their chances on it. Those are reserved, however, principally to plants making commercial items. The man making leggings maybe has always made leggings, and the man who makes socks has always made socks, and the necessity for a detailed survey and inventory of his machinery is not as necessary as it is in ordnance, because practically all ordnance items are conversions. He is not making a thing he has ever made before.
That is the reason that that particular branch must be more particular.
Senator KilGORE. And the Ordnance at the present time, of course are only dealing with those contractors that they have already approved and, are they making any effort, to your knowledge, to expand their list of potential manufacturers?
Mr. MEHORNAY. They definitely are, in that we are asked by them practically daily to suggest additional bidders for them to be surveyed and qualified.
Let us not take this word “qualified” too seriously. They are surveyed.
Senator KilGORE. It is pretty serious to the small contractors.
Mr. MEHORNAY. I mean as to whether or not he can work to a particular tolerance. The first survey is: Has he the basic machinery to do the kind of work. Then when it comes to the question of a
particular order that will be can he work to ten-thousandths, or ten
Senator KILGORE. Now, I am getting off of my line, of questions there, which was getting up to this bill.
Under the provisions of this bill, under the present system, it will be possible for contractor X, with very inadequate facilities, if he could get by, to get a contract through a procurement branch for something he is going to have trouble with. In other words he might be optimistic, as a lot of plant owners are, and then come back and say, “I cannot carry it out unless I get more equipment,” and under the provisions of this bill, if it were abused—and you know laws are abused—we must admit frequently privileges are abused-he can take plant equipment away from a potential rival contracting plant. Mr. MEHORNAY. That is right. Senator KilGORE. And put that plant out of business.
Mr. MEHORNAY. Senator, I must, if you will, be allowed to state that I am not in a position to pass upon the legislative provisions of this bill.
Senator KilGORE. But I have got more information out of you in the last 2 or 3 minutes than I have been able to get during the last 3 or 4 weeks rambling around here trying to find out what the set-up is. I certainly appreciate it and you have made it very clear to me, and I understand now the situation with reference to V. P. M., Procurement, and that sort of thing which I duly appreciate, and you certainly have made it clear. I thank you.
The CHAIRMAN. Are there any further questions?
Senator JOHNSON of Colorado. Yes; I want to ask a question. I want both of you gentlemen to answer if you will, Colonel Hare, and Mr. Mahornay, in order to get the information from your own experience, because it applies to both of you, and that is this:
Is there anything encouraging to the small industries in the development as you see it, in what you are trying to do? Are these subcontracts going to be more and more given to the small industries? Is the man in small industry going to have an opportunity to bid into this tie-up? Is he going to have a chance to serve and save his business, because his business will go under unless he can get into the defense program, and his business will be all through. He cannot get zinc; he cannot get many other materials that he has needed in his normal factory operations and the defense program is the only thing that is left to him.
Now, I see no encouragement for him to believe that gradually he is going to get into this picture.
Mr. MEHORNAY. I think I see a very distinct encouragement, paralleling encouragement, or certain obstacles that may minimize them at least. I think the development of the attitude of the services such as the written instructive of the Under Secretary that no priority for machinery be given, if the subcontractors can eliminate the need of that machine priority, is indicative that speed is requiring that the facilities where they are worked by the men where the machines are will be brought into it. Now, we are approaching that from a development and not from pressure, because there is no pressure that we have.
I believe if we could fix the shorter time limit--this is apparently an observation that we are wrong when we let the contractor himself say when he will deliver the goods. We should tell him when we want the goods and he has to subcontract or have other participants in the execution of the contract to meet that delivery date.
Senator KILGORE. May I interrupt?
Senator KILGORE. In other words, the best time to obtain subcontracts is the date of the contract; is that not right?
Mr. MEHORNAY. I would be very happy if you would let me expand that, because I agree with you entirely, and we recommended to the services. May I just digress and take that up?
Senator JOHNSON of Colorado. I do not accept your statement that you are impotent at all, because you have all of the power that you need. It is not just a mere inference and gesture that you have. You have all of the power on earth when you let that contract. You can make the conditions in that contract.
Mr. MEHORNAY. If we do it first.
Senator JOHNSON of Colorado. Yes. Of course, you cannot lock the barn after the horse is stolen and do any good.
Senator DOWNEY. Of course, if I may intervene to make this comment, Senator Johnson, there may be those who will not be influenced by the 0. P. M. at all. That is not said in criticism, but is just realistically.
Senator JOHNSON of Colorado. Naturally, wherever you have human beings, you have such things, but I hope that they are not governing the situation at all.
Senator KILGORE. Mr. Chairman, may I say something at this point. I think Senator Johnson misunderstood Mr. Mehornay. You do not let the contracts at all, do you? Mr. MEHORNAY. No, sir.
Senator JOHNSON of Colorado. He approves all contracts, Senator, for over $500,000. Whenever the contract is let by some other division, the Army, for instance, and it calls for more than $500,000, it goes to 0. P. M. for approval and they scrutinize it or are supposed to, very minutely and carefully as to all of its terms and conditions. So he does have a great authority.
Senator DOWNEY. Is that a correct statement? Mr. MEHORNAY. That is a correct statement for O. P. M., not me, in my section.
Senator DOWNEY. I understand.
Senator DOWNEY (interposing). That applies to all contracts for
Senator Hill. The War Department, and the Navy Department, I understand, cannot let contracts involving over a half a million dollars without first having the approval of O. P. M.; is that correct?
Mr. MEHORNAY. That is correct.
Senator Hill. You do not know what rule refers to the Maritime Commission?
Mr. MEHORNAY. I am sorry, but I am not familiar with that.
Senator Hill. I do not think they have to clear through the 0. P. M.; certainly not to the extent that the War and Navy Departments do.
Senator DowNEY. Senator, I did not understand your prior question. What was that?
Senator Hill. I was just making it clear that as I understood neither the War nor the Navy Department today can make a contract if it involves over a half a million dollars without that contract first having been approved by the O. P. M.
Mr. MEHORNAY. With that policy of shortening time and bringing these, forcing these men in that way, and the policy of the O. P. M. which distinctly is that subcontracting must be used to its fullest extent, I believe that we have the background in the letting of contracts which will allow us, if we are given the opportunity before a contract, regardless of its size, is let, to analyze that from the standpoint of the parts that that contractor proposes to subcontract.
Senator JOHNSON of Colorado. Is there a provision in the contract now, Mr. Mehornay, if you will pardon an interruption, where the contractor states how much of this contract is going to be sublet?
Mr. MEHORNAY. There is no requirement of that kind at this time.
Senator JohnSON of Colorado. They make no statement of that kind at any place in the contract?
Mr. MEHORNAY. No, sir.
Senator Johnson of Colorado. Do you not think it would be helpful if you had that information before you?
Mr. MEHORNAY. I think it is impossible to operate under the objective which we will have without that.
Senator Johnson of Colorado. I should think that is correct.
The CHAIRMAN. The O. P. M. is in charge of all the purchases by the Army and the Navy? Mr. MEHORNAY. Yes.
The CHAIRMAN. Why is there not, therefore, someone down at the 0. P. M. who can answer Senator Johnson's inquiries about the shipbuilding business on the program? Most of the contracts made by the Navy are submitted to your organization in view of the fact that they are over $500,000. Isn't there someone down there at the 0. P. M. who can answer the direct inquiries made by Senator Johnson?
Mr. MEHORNAY. I am afraid that there is not, and for this reason: The contracts do not have in them whether or not there will be any subcontracting, nor who the contractors will be.
The CHAIRMAN. Yes. But the contracts already have been made, and judging by the experiences of the past, isn't the 0. P. M. itself interested in the progress of the contracts in excess of $500,000 that have already been made and are in the course of fulfillment?
Mr. MEHORNAY. As to subcontracting?
Mr. MEHORNAY. As to subcontracting the 0. P. M. by official action and under order is as of today making a survey of all subcontracting in the contracts which have been let.
The CHAIRMAN. Then there is a man who can provide us with the information as to any difficulties in reference to subcontracts, if any, is there? That is what he is interested in, I believe.
Senator Downey. Yes.
The CHAIRMAN. Who is there down there that can give us this information? The O. P. M. has charge of all the Government contracts relating to national defense, hasn't it? Mr. MEHORNAY. That is right.
The CHAIRMAN. And, as has been stated, with reference to the Army and the Navy—we will confine it to the Army for the moment, we want to know who there is down there in the O. P. M. who is in a position to provide us with the status of all contracts in excess of $500,000 or less than $500,000, and what the difficulties are, if any. This committee is viewing them in relation to this proposed legislation. I am sure there must be somebody down there who can give us that information. Who is it?
Mr. MEHORNAY. They can give it to you, sir. I can give it to you as soon as we can have gotten the reports from the companies which we are now asking.
But without the return of the answers to our questions, I cannot make a factual statement on what is being done. I am sorry, sir. We are only apart on the standpoint of timing. The investigation is being made. There are not reports in from which to report to you the findings.
The CHAIRMAN. Who is there down there who can provide us with the information pertaining to the experience that you have had with regard to these contracts?
Mr. MEHORNAY. We have no record of the experience, Senator. We are gathering the record now. We have not kept that record.
The CHAIRMAN. Heretofore do you mean to tell us that no information has been procured with regard to these contracts?
Mr. MEHORNAY. That is correct, as to the amount of subcontracting being done under them as they go along.
Senator DOWNEY. Mr. Chairman, I believe that Captain Jones, who is head of the shipbuilding department of the Procurement Division of the Navy, would probably be the right man to furnish us with all the facts about the contracts that have been let in the Los Angeles area and the equipment of the different companies and all of that. If it meets with the approval of the chairman and the committee, I would like to have Captain Jones called.
The CHAIRMAN. Where is he? Senator Downey. He is here in Washington. He is head of the shipbuilding bureau of the Navy.
The CHAIRMAN. In view of the fact that we seem to be unable to get the information that we are asking here in some respects, I suggest that we take an adjournment until Monday.
Senator JohnSON of Colorado. Are we going to let the witnesses answer the question that I asked?
The CHAIRMAN. Yes. Go ahead. Senator JOHNSON of Colorado. We were getting some very fine answers. This question is extremely important, I think, to the small industries of the country. I would like to have the witness go on