Statement reflecting number of vessels assigned to the below listed agents at the date indicated, compensation accrued under various service agreements, and net results before and after application of pars. 10 and 11 of General Order No. 12 for the period Jan. 1 to Dec. 31, 1943 (as reported by the agents)

Statement reflecting number of vessels assigned to the below-listed agents at the date indicated, compensation accrued under variuos service agreements and net results before and after application of sec. 306.96 of General Order No. 34 for the period Jan 1 to Sept. 30, 1944 (as reported by the agents)

Statement reflecting number of vessels assigned to the below-listed agents at the date indicated, compensation accrued under various service agreements and net results before and after application of sec. 306.96 of General Order No. 34 for the period Jan. 1 to Sept. 30, 1944 (as reported by the agents)-Continued.

Mr. WIGGLESWORTH. You spoke a little this morning about recapture and renegotiation. The over-all figure you gave was $20,000,000 for both. I assume there have been no further results in reference to the Red Sea charters?

Admiral LAND. They are still in the courts.

Mr. WIGGLESWORTH. Only two companies have paid up?

Admiral LAND. Yes; only two. As far as Red Sea profits are concerned, I have felt for some time that they were excessive. The owners still maintain that the profits, however large, were not excessive because the basic rates were no higher than those earned from commercial operations in other trade routes in 1941. We have been trying for the past year, without great success, to achieve adjustments by renegotiation. The owners contend that the renegotiation law is not applicable to these charters principally on the ground that the renegotiation law of 1942 does not apply to contracts made with the British Government agencies, even though they were financed under lendlease and various other asserted ambiguities in the renegotiation law. From present indications, these questions ultimately will have to be resolved by the courts. We feel that the courts will ultimately sustain the soundness of our legal position. The Renegotiation Act of 1943 was originally enacted as the Sixth Supplemental National Defense Appropriation Act of 1942, in section 403, and the questions therefore may be of some concern to this committee.

In view of the committee's interest in the matter, I hope the committee will consider whether or not further assistance is required in the

form of clarifying amendments to the law. In our opinion, the law as presently written, supports the position taken by us in attempting to renegotiate. If the committee feels differently, an opportunity would be presented by this appropriation to enact a clarifying amendment to the Appropriation Act of 1942.

There is about a 5 percent chance that the Red Sea controversy can be settled amicably, but I am not hopeful. Of course if the courts sustain injunction proceedings instituted against renegotiation, we will be completely stymied.

PROFITS ALLOWED AFTER RENEGOTIATION

Mr. WIGGLESWORTH. Is there any average figure you can give for profits allowed after renegotiation?

Admiral LAND. Oh, I would not like to guess at an average figure, but I would say it is roughly, from the W. S. A., around 7 or 8 percent, maybe only 6. I do not know; it depends altogether on the character of the work performed.

Mr. WIGGLESWORTH. Seven or eight percent after renegotiation? Admiral LAND. We allow-yes, after renegotiation we allow something like that. I could give you a fairly accurate estimate; I would rather not give you a guess.

Mr. WIGGLESWORTH. Will you put an average figure in the record? Admiral LAND. Yes. Do you mean all contracts or just service contracts?

Mr. WIGGLESWORTH. All the contracts that have been renegotiated. Is that on turn-over, and so forth, 7 or 8 percent?

Admiral LAND. No, that is after renegotiation.

(The information requested is found in the telegraphic report from the Chairman of the Price Adjustment Board, inserted on p. 402 in response to the chairman's inquiry.)

Mr. TABER. Is it on the investment or the turn-over?

Admiral LAND. It is on the business done.

Mr. TABER. It is on the gross?

Admiral LAND. Yes.

Mr. CASE. What would that be? On their invested capital? Admiral LAND. I could not answer that question, because we deal with a great many small concerns.

Mr. TABER. Four hundred or five hundred percent, maybe?

Admiral LAND. That may be true of a small concern in the repair business; it would not be true of a large concern. Most of these contracts are repair contracts, service contracts, stevedoring contracts, and things like that, in which the capital invested in the business is mostly of the arm and hammer brand. It is the number of men doing the work. It is not something you can analyze on capital invested units and get any value out of it. It was also indicated this morning that the major companies are being renegotiated by the Navy, so it does not come under W. S. A.

Mr. WIGGLESWORTH. This renegotiation is wholly separate from the Maritime Commission renegotiation?

Admiral LAND. Oh, yes, entirely separate.

Mr. WIGGLESWORTH. Two separate bodies?

Admiral LAND. Yes.

Mr. WIGGLESWORTH. You said this morning that you thought the W. S. A. job had been pretty well done?

Admiral LAND. Yes.

Mr. WIGGLESWORTH. You have not been responsible for the renegotiation of the Kaiser profits, as far as W. S. A. is concerned?

Admiral LAND. No, but I am responsible as the Chairman of the Maritime Commission.

Mr. WIGGLESWORTH. I was interested in what a Member of the House placed in the record the other day, indicating that on a $100,000 initial cash investment, in respect to two of the many companies that Mr. Kaiser operates, he had apparently realized a $27,000,000 profit after taxes and after renegotiation.

Admiral LAND. I furnished the information on Kaiser's profits to various committees in Congress in full detail. Extensive testimony on shipyard profits will be found in the hearings before the subcommittee on shipyard profits of the House Merchant Marine and Fisheries Committee on March 22 and March 23. Similar testimony will be found in the hearings before the Ways and Means Committee on H. R. 2628 on April 16, 1945. You apparently are referring to material placed in the Record by Mr. Woodruff on February 21, 1945. The $27,000,000 figure mentioned by Mr. Woodruff represents profits after renegotiation but before taxes. The statement of California Shipbuilding shows a profit of approximately $19,700,000 before taxes, but only $4,250,000 after taxes. Profits of the Oregon Shipbuilding Co. are listed at approximately $10,700,000 before taxes. No figure is stated in the Congressional Record as to the tax liability.

I am quite prepared to submit any and all figures on shipbuilding as fast as they come in under renegotiation, and the results thereof. You are not going to get anywhere at all on capital invested in the business of shipbuilding. It is a fundamental error to attempt to adjudicate those things on the capital invested in the business.

In the first place, those people were practically forced by us to go into the business.

Mr. WIGGLESWORTH. It seems to have been a gainful operation. Admiral LAND. Well, they delivered the ships. Mr. TABER. They got a reasonable return? Admiral LAND. Yes, and a very small return. recollect, is somewhere between 4 and 5 percent. yard, the best Kaiser yard there is.

Mr. TABER. Over-all?

Admiral LAND. No; after renegotiation.

The best yard, as I
That is the Oregon

Mr. TABER. They had several contracts with you?
Admiral LAND. Yes, sir.

UNREASONABLE CHARGES CLAUSES IN CERTAIN CONTRACTS

Mr. TABER. Among them were Nos. 29,039 and 33,546. In those contracts there was this provision, 7.23, Unreasonable charges. I will skip over parts that are not of very much importance, comparatively. Excessive or unreasonable payments, whether in cash, stock, or other property, shall not be taken into account. In computing the shipbuilder's profit, no salary of more than $25,000 per year to any individual shall be considered as a part of the cost of building the ship or group of ships. All subcontracts, regardless of the amount involved, are subject to the provision that the Commission shall scrutinize construction costs, to determine that they are fair, just, and not in excess of a reasonable market price for the commodities or goods or services purchased or charged.

Then, I have article 10 involved.

Subsequent to the completion of the work to be performed hereunder and the determination of profits derived from the performance thereof by the contractor, the contractor shall pay the Commission an amount equal to that by which such profits exceed $8,800,000. The amount of such profit shall be determined by the Commission pursuant to the provisions of its regulations prescribing the method of determining profit, adopted May 4, 1939, including amendments and annotations to September 1, 1941, and for the purpose of such determination the contractor shall make such statements and returns to the Commission as it shall direct and shall also make available to inspection and audit by representatives of the Commission all books, files, and other records of the contractor. It is understood and agreed that the Commission, in determining the contractor's profits in accordance with the aforesaid regulations, will apply such regulations as regulations for determining profit under a fixed price contract and not as regulations for determining reimbursable costs, charges, and liabilities incurred by the contractor, including those resulting from the negligence of its corporate officers, agents or employees, or those made necessary because of any guaranty contained in this contract and all insurance premiums, including, without limitation, premiums on products liability insurance, the cost of completion or termination of this contract (unless the contractor shall be compensated therefor under another agreement with the Commission), including the cost of preserving and protecting any property of the Commission located in the shipyard and legal, accounting, clerical, office, administrative, and other expenses incident to final settlement of this contrct. The Commission, in determining profits, will make the specific exclusions provided for in said regulations, but no item of cost, properly allocable under sound accounting practice to the performance of the contract work, shall be disallowed on the grounds that it is excessive or unreasonable except in cases where (i) there is a showing of reckless or willful misconduct or evasion on the part of the contractor or its corporate officers; (ii) the payment has been made for the liability incurred to a corporation affiliated with the contractor or in which a director or corporate officer of the contractor holds a substantial stock interest or for a purpose other than salary payments to a director, corporate officer or employee of the contractor or a partnership in which such person is a member;

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That seems to be a provision that is in only these particular Kaiser contracts.

Admiral LAND. No, sir; it is in some other contracts; but I invite your attention to the fact that it has nothing to do with the contract price; it has only to do with the recapture of excessive profits.

The policy of the Government is to shift over from any kind of costplus-fixed fee contract to a fixed-price contract. In so doing, with C. P. F. F. contracts already in existence, you have to make some concessions, or else the contractor will not shift. There is nothing in the law to make them shift.

We have been using our best endeavors to get them over onto a fixed-price basis throughout the whole shipbuilding industry and have been successful and may continue to be.

Mr. TABER. I wonder why they felt obliged in making that shift to insert the words

including those resulting from the negligence of its corporate officers, agents, or employees?

Admiral LAND. There is a very long story attached to that. If you want to take the time, I shall be glad to tell it in my own words; or I can submit a memorandum of about 10 pages to do it. As I have just explained, this provision is included in the recapture clause only. It does not affect the basic substantive rights under the fixed-price contract. What we were trying to do was to shift the C. P. F. F. contract into a fixed-price contract and at the same time to add a recapture clause which ordinarily is not associated with a fixed-price

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