Mr. CCLLENS. Negotiate the settlement, but I said if there are matters in dispute, I recommend that matters in dispute be handled by an independent tribunal, but as far as settlement is concerned, I see no reason why one agency could not negotiate and handle it. But if there is a question of dispute, these matters that cause dispute all the time I think should be handled by some impartial tribunal which is local in character, before which each party to the agreement can appear and present its argument.

Senator MURRAY. When you say local in character, I assume you mean regional?

Mr. COLLENS. I mean so that the major industrial regions and centers of the country in war production have a nearby tribunal to which they can refer their disputes.

Mr. SILVERMAN. Mr. Collens, you would confine the jurisdiction of these boards of review solely to questions at issue, that is, controversial points?

Mr. COLLENS. Disputes and questions at issue; yes.

Mr. SLVERMAN. What provision would you make, if any, to protect the Government against the possibility of collusion between the contracting officer and the contractor? After all, the contracting officers in the various procurement services have had sustained relations with these various concerns and that is a possibility to be considered.

Mr. COLLENS. That would be no different than if there were individual claims through the prime contractor. The same situation could occur there.

Mr. SILVERMAN. We will include that in the scope of my question, then. How would you guard against it?

Mr. COLLENS. Collusion between the contracting officer and the contractor?

Mr. SILVERMAN. Yes. In other words, where would you put the power of final audit?

Mr. COLLENS. First, the danger of that collusion is almost eliminated if a company down the lines files an individual claim direct with one of the Government agencies because up the line here, as you say, there may be close relations between the contracting officer and the prime contractor, but with an over-all claim, there is very much less danger of any possible collusion.

Mr. SILVERMAN. That would not affect such items as profit to the prime contractor?

Mr. COLLENS. That is a matter for decision up here between the prime contractor and the agency.

Mr. SILVERMAN. That and kindred items, where there is scope for the exercise of discretion, judgment?

Mr. COLLENS. I think the contract provisions should take care of that, and the formulas or methods for determining termination settlements. I do not look on a negotiated settlement as merely the two parties getting together and saying we will settle for $10,000, and the other wanting $20,000, and finally agreeing on $15,000. I think even in negotiated settlements there have to be certain substantiating data.

Senator MURRAY. Where there was a situation of that kind, where they have compromised a claim of $20,000 which the contractor was

contending that it was $20,000 and the agency was contending it was only $10,000, and they finally compromised on $15,000, would there be any supervision over that settlement, over that adjustment?

Mr. COLLENS. First, I can see no reason why industry should be penalized in a desirable form of settlement because you fear collusion between prime contractors and contracting officers, and I think that you are in a better position to know how the Government should be protected against that than I am, but I think that, as far as the negotiated settlement is made, whether it is on an individual contract basis or on an over-all basis, the question has been raised whether the contracting agencies have the legal right to negotiate a settlement, and if they have the legal right to negotiate a fixed-price contract, I cannot see, as a layman, why they cannot be given the legal right to negotiate the settlement.

Mr. SILVERMAN. You are confining your observations to lump-sum supply contracts; you are not including cost-plus-a-fixed-fee contracts? Mr. COLLENS. No.

Mr. SILVERMAN. Are you familiar with the technical manual entitled "War Department Termination Accounting Manual for FixedPrice Supply Contracts"?

Mr. COLLENS. I have looked it over but I have not mastered the details of it.

Mr. SILVERMAN. May I call your attention to section 1100.1 which I will read to you. It is entitled "Completion of Negotiated Settlements."

The findings of accounting personnel, whether based on office reviews or more extensive examinations, will be submitted in an appropriate manner to the contracting officer. It is then the contracting officer's sole responsibility to negotiate a settlement with the contractor. It is to be emphasized that the findings of the account personnel are for the general guidance of the contracting officer and do not limit that officer in arriving at what he considers to be a proper settlement.

Doesn't that indicate to you a clear intent to give the sole and final power to the contracting officer?

Mr. COLLENS. I would say, reading it, that it did. Who has that same power in negotiating the original contract?

Mr. SILVERMAN. I assume it is the same party.

Mr. COLLENS. Shouldn't he have the power to negotiate a settlement in termination?

Mr. SILVERMAN. I am not sure it follows. Would it be your opinion, on the basis of your extensive familiarity with this, Mr. Collens, that it is questionable at least whether this kind of provision sufficiently protects the funds of the United States against the possibility of collusion which may exist between contracting officers and prime contractors?

Mr. COLLENS. Well, you have got that same problem under present procedures, of course.

Mr. SILVERMAN. Except you have the General Accounting Office making a final audit today.

Mr. COLLENS. I think the General Accounting Office takes the position there should be a final audit even in case of negotiated settlement. I feel that position is wrong.

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Senator MURRAY. You want it fixed so they could only reopen the contract on the basis of fraud?

Mr. COLLENS. Fraud and deliberate misrepresentation, which I think is amply taken care of by penalties under existing legislation. Mr. LAMB. In that connection, Mr. Collens, wouldn't it require a pretty comprehensive recapitulation of the conditions surrounding the negotiated settlement in order to protect against fraud if the evidence, as submitted to the General Accounting Office, is sketchy and the point where fraud begins and negligence or possibly even a reasonable settlement leaves off may be almost impossible to determine? Isn't that correct?

Mr. COLLENS. As I have emphasized several times, of course that same problem exists in the efforts to settle individual claims by the prime contractor.

I am here mainly to present an argument for an over-all company claim, and these problems are the same, and I cannot give the answers to all of them, but I think that my picture of a negotiated settlement is that it is done on the basis of certain facts and factual data supporting the request for a certain amount. It would not leave us a blanket amount without any factual data to support it.

Mr. LAMB. Has it been your experience to date that the data as presented in connection with your settlements have been comprehensive and the records compiled in such form that the General Accounting Office, say a year subsequent, could arrive at a satisfactory estimate of what went on?

Mr. COLLENS. We have had merely minor adjustments of the claims as made out by our company.

Mr. LAMB. By the General Accounting Office?

Mr. COLLENS. I do not know whether they have been through the General Accounting Office or not, but they are the claims that have been approved by the contracting agency and in one case full settlement has been made. What the contracting officer has done in connection with those claims, I do not know, but the bases of the claims submitted by us were simply minor matters relating to the storage that the inventory had taken under the claim. The basic amount in the claim itself was not questioned at all, so I do not support the viewpoint that is taken by some, that claims will be very much padded, and I cannot support the viewpoint at all that claims will be padded and that the Government is not properly protected in making a mandatory payment of at least 75 percent against a properly certified claim.

I think industry generally has done a magnificent job of war production, and everything should be done to speed the readjustment. period, and except for some such procedure as that only can the readjustment period be speeded. I think it is perfectly safe in making at leasta 75-percent advance payment against certified claims, and even in connection with an over-all claim, with proper procedures and proper records and everything, it is perfectly possible to know that the aggregate of the claim is within the aggregate value of these contracts, which is one of the limitations imposed in connection with the settling of individual prime contracts.

Mr. GROSS. Mr. Collens, in case of a contract that is completed, not terminated in process, it is subject to an examination by a price-ad

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justment board for the purpose of capturing back for the Government any excessive profits. In your opinion, would a subsequent examination of a negotiated settlement by a price adjustment board constitute any effective check on the type of collusion that was discussed a moment ago?

Mr. COLLENS. You are meaning that, say, during the year 1943 certain terminated settlements had been made in connection with certain contracts that had been terminated. Those termination settlements go into the books of the company, and if, during the year 1943 when it comes to renegotiation, that will be in there as part of the over-all picture and in renegotiating on an over-all basis those termination settlements will be in there, and there is no way of not having them in your annual statement under renegotiation, but I do not think you will catch, necessarily, if the total volume of business in 1943 is large and the termination settlement a small part of that, you cannot catch partially in connection with that termination settlement that there was collusion and there was a much higher amount than there should have been, because the renegotiation is done under this over-all basis, but it will be a protection, and the wholesale termination settlement would be a protection because it would represent a large part of the business of the company.

Senator MURRAY. I assume that all of these points we have been discussing have been touched on in your formal statement also?

Mr. COLLENS. Yes; they have.

In closing, there are just three matters that I would like to emphasize again, entirely aside from the desirability of an over-all company claim 'settlement.

That is, that legislation should be passed to legalize informal and legally defective contracts and commitments which have been entered into in good faith to speed the war effort, the same as was done by the Dent Act following World War I. I think there is some question as to whether there is now authority to legalize such informal and legally defective agreements and that it should be cleared up, if necessary, by legislation, as was done by the Dent Act following World War I.

I have already emphasized the desirability of a single agency of the Government for handling all surplus materials under termination claims, which is in line with certain proposals that are before Congress for handling surplus Government-owned plants and machinery and excess supplies no longer needed for the war effort, so that is in line with what is being considered in connection with plants and machinery, and I emphasize very strongly having impartial tribunals, lawful in character, to quickly settle matters of dispute and disagreement under termination settlements and not leave it as it is now, that the one party to the agreement makes all final decisions. I have just one case of my own where I think we have been not fairly treated, but I mention that in the filed statement, and I won't take your time with it here.

Senator MURRAY. Thank you very much for your very good statement, Mr. Collens.

The next witness will be Mr. John D. Grayson, of the Hazeltine Electronics Co.

STATEMENT OF JOHN D. GRAYSON, COMPTROLLER, HAZELTINE ELECTRONICS CO., NEW YORK, N. Y.

Senator MURRAY. Do you have someone here you wish to assist you?.

Mr. GRAYSON. I have, sir-L. B. Dodds, vice president of the Hazeltine Electronics Co.

Senator MURRAY. You may give you name and the name of your associate if he is going to make some statement.

Mr. GRAYSON. My name is John D. Grayson. I am a resident of Norwalk, Conn., and comptroller of the Hazeltine Electronics Co. Senator MURRAY. And the name of the gentleman with you?

Mr. GRAYSON. L. B. Dodds, vice president of Hazeltine Electronics Co.

Senator MURRAY. Proceed, Mr. Grayson.

Mr. GRAYSON. Thank you. Hazeltine Electronics Corporation was organized in 1927 as a radio communication research laboratory, presently manufacturing as well as maintaining a research laboratory and development laboratory. In peacetime the volume of the corporation's sales was approximately a million dollars. We have now expanded our organization to the point where, in 1942, twenty millions of dollars was handled as sales volume.

Senator MURRAY. Has you plant been expanded also?

Mr. GRAYSON. It has, sir, and I might add with our own capital rather than Government financing.

This matter of contract termination is a matter of great concern to us, particularly because of two direct experiences we have had, one with the War Department and one with the Navy.

Our firm has a net worth of approximately a million and a quarter dollars. Our inventory is running approximately a million to a million and a half on a month-to-month basis. At given times, our pastdue accounts receivable to the services are approximately, well, it has run up to $4,000,000. Of course, that can be thought of in a period of time but it stresses the importance of liquidity and turn-over.

Senator Murray, we are not here to criticize to any extent either of the departments which we have been dealing with but we feel that, because of the lack of a clear-cut organization to handle the terminated contracts, some modification, some streamlining, is necessary. With your permission, I shall review the two particular contracts that we have in mind and follow with general conclusions and our recommendations.

Mr. Dodds, my associate, has several comments to make which I think are germane to the problem.

The contract with the War Department involved originally an amount of $300,000. This contract was a very important one in that it is research and developmental in nature, following into a production contract. It was so important, according to the War Department, that we obtained deferments for three other contracts. I might add that we are just about 100 percent war business; approximately 95 percent with the Navy and 5 percent with the Army.

A chronological review of this contract with the War Department goes somewhat as follows: We entered into negotiations on the con