Mr. KRUG. We plan to give priority of materials to the man whose production is less than $50,000 a quarter; and to work with the small fellow, the bulk of the small entrepreneurs, to help him get started in production.

ACCOMPLISHMENTS OF INDUSTRY, LABOR, AND AGRICULTURE IN WAR PRODUCTION

Mr. LUDLOW. A mighty hand has written the end of the war in Europe and I am wondering, as we look back and take a retrospective view of the job that labor has done in war production and the job that industry has done, if you would mind giving us a brief statement of what part you think they have played in the job.

Mr. KRUG. I covered the general picture in my introductory statement, but to summarize I would like to say that I am quite sure when the history of the war is written, in addition to the admirable achievement of the troops on the battle fronts, the job done back here at home in the production of ammunitions, will be seen as a decisive factor in the liquidation of Germany.

I have coming to me from everyone, even those who are not in the war, testimonials about the amazing job that industry, agriculture, and labor have done here at home. Since Pearl Harbor we boosted our production from less than a billion dollars a month to over $5,000,000,000 a month. That production involved many changes, day by day, so to speak, from the B-17 to the B-29, or from the P-51; from one type to meet one phase of a particular problem to another type to meet another phase. And, to meet the tremendous advances on the front, the flow of equipment for training and equipping this tremendous army, I am sure that every man and woman in this country will agree that management, industry, and labor are going to have pride when they look back on the record of what has been accomplished.

Mr. LUDLOW. And the credit for that achievement runs equally to labor and management.

Mr. KRUG. Yes. Based on the experience we have had I can say that labor and management have rolled up their sleeves and gone to work when the facts were laid out on the table just as soon as they could understand them.

Mr. WOODRUM. Do you think anybody anticipated we would be able to increase production in the amount that was achieved?

Mr. KRUG. I think there were estimates made back in 1942 that we might attempt these goals. As a matter of fact the late President, in 1942, outlined a program for us to achieve.

Mr. WOODRUM. Was it as much as that? I did not think it was Mr. KRUG. Just about that. For example, the airplane program which the President had in mind was roughly about the same number of planes. Of course, there was a difference in size, but the number was about the same.

In terms of ammunition no one, even in their most fantastic imagination, could have said we could reach that goal.

OUTSTANDING WAR PRODUCTION CONTRACTS

Mr. LUDLOW. Now in looking toward the problem of liquidating the War Production Board's operations, what would you say roughly

would be the total amount in dollar volume of the war-production contracts outstanding at this time?

Mr. KRUG. I cannot give you the outstanding figure. We do not call them outstanding contracts, but we schedule production, and I can leave a chart with the committee which shows the actual production of 1944; it shows the scheduled production for a one-front war and it also shows what would have been anticipated if the two-war front had been continued.

Now the projects over here for a one-front war are being revised. Mr. LUDLOW. Could you give us an estimate of the total number of war contracts?

Mr. KRUG. Yes.

Mr. LUDLOW. Just the number of contracts.

Mr. KRUG. The total number, 33,876.

Mr. LUDLOW. That is the over-all?

Mr. KRUG. As of March 31.

Mr. LUDLOW. All kinds of contracts?

Mr. KRUG. Well, there must be 100,000 items, procurement items. Mr. LUDLOW. But those are definite contracts?

Mr. KRUG. This does not include food; that is not under our jurisdiction.

Mr. RABAUT. It does not include subcontracts?

Mr. KRUG. No.

Mr. LUDLOW. Those are prime contracts?

Mr. KRUG. Yes.

Mr. LUDLOW. How many did you say there were?

Mr. KRUG. 33.876.

Mr. LUDLOW. Are those standardized contracts?

Mr. KRUG. They are pretty much standardized.

CANCELATION CLAUSES IN CONTRACTS

Mr. LUDLOW. There is a provision in the contract for cancelation? Mr. KRUG. All of them have a termination or cancelation date. Mr. LUDLOW. Will you furnish for the record the text of the cancelation clause in the contract?

Mr. KRUG. That is under the direction of the Army and Navy, but if you want me to I can get it from them.

Mr. LUDLOW. Will you insert it in the record?

Mr. KRUG. If you like.

Mr. LUDLOW. I would like to have it in the record.

(The information requested follows:)

UNIFORM TERMINATION ARTICLE FOR FIXED-PRICE SUPPLY CONTRACT

Article termination at the option of the Government: (a) The performance of work under this contract may be terminated by the Government in accordance with this article in whole, or from time to time in part, whenever the contracting officer shall determine any such termination is for the best interests of the Government. Termination of work hereunder shall be effected by delivery to the contractor of a notice of termination specifying the extent to which performance of work under the contract shall be terminated, and the date upon which such termination shall become effective. If termination of work under this contract is simultaneous with, a part of, or in connection with, a general termination (1) of all or substantially all of a group or class of contracts made by the department for the same product or for closely related products, or (2) of war contracts at, about the time of, or following, the cessation of the present hostilities, or any major

part thereof, such termination shall only be made in accordance with the provisions of this article, unless the contracting officer finds that the contractor is then in gross or willful default under this contract.

(b) After receipt of a notice of termination and except as otherwise directed by the contracting officer, the contractor shall (1) terminate work under the contract on the date and to the extent specified in the notice of termination; (2) place no further orders or subcontracts for materials, services, or facilities except as may be necessary for completion of such portions of the work under the contract as may not be terminated; (3) terminate all orders and subcontracts to the extent that they relate to the performance of any work terminated by the notice of termination; (4) assign to the Government, in the manner and to the extent directed by the contracting officer, all of the right, title, and interest of the contractor under the orders or subcontracts so terminated; (5) settle all claims arising out of such termination of orders and subcontracts with the approval or ratification of the contracting officer to the extent that he may require, which approval or ratification shall be final for all the purposes of this article; (6) transfer title and deliver to the Government in the manner, to the extent, and at the times directed by the contracting officer (i) the fabricated or unfabricated parts, work in process, completed work, supplies, and other material produced as a part of, or acquired in respect of the performance of, the work terminated in the notice of termination, and (ii) the plans, drawings, information, and other property which, if the contract had been completed, would be required to be furnished to the Government; (7) use his best efforts to sell in the manner, to the extent, at the time, and at the price or prices directed or authorized by the contracting officer, any property of the types referred tɔ in subdivision (6) of this paragraph: Provided, however, That the contractor (i) shall not be required to extend credit to any purchaser and (ii) may retain any such property at a price or prices approved by the contracting officer; (8) complete performance of such part of the work as shall not have been terminated by the notice of termination; and (9) take such action as may be necessary or as the contracting officer may direct for protection and preservation of the property, which is in the possession of the contractor and in which the Government has or may acquire an interest.

(c) The contractor and the contracting officer may agree upon the whole or any part of the amount or amounts to be paid to the contractor by reason of the total or partial termination of work pursuant to this article, which amount or amounts may include a reasonable allowance for profit, and the Government shall pay the agreed amount or amounts. Nothing in paragraph (d) of this article prescribing the amount to be paid to the contractor in the event of failure of the contractor and the contracting officer to agree upon the whole amount to be paid to the contractor by reason of the termination of work pursuant to this article shall be deemed to limit, restrict, or otherwise determine or affect the amount or amounts which may be agreed upon to be paid to the contractor pursuant to this paragraph (c).

(d) In the event of the failure of the contractor and contracting officer to agree as provided in paragraph (c) upon the whole amount to be paid to the contractor by reason of the termination of work pursuant to this article, the Government, but without duplication of any amounts agreed upon in accordance with paragraph (c), shall pay to the contractor the following amounts:

(1) For completed articles delivered to and accepted by the Government (or sold or retained as provided in paragraph (b) (7) above) and not theretofore paid for, forthwith a sum equivalent to the aggregate price for such articles computed in accordance with the price or prices specified in the contract;

(2) In respect of the contract work terminated as permitted by this article, the total (without duplication of any items) of (i) the cost of such work exclusive of any cost attributable to articles paid or to be paid for under paragraph (d) (1) hereof; (ii) the cost of settling and paying claims arising out of the termination of work under subcontracts or orders as provided in paragraph (b) (5) above, exclusive of the amounts paid or payable on account of supplies or materials delivered or services furnished by the subcontractor prior to the effective date of the notice of termination of work under this contract, which amounts shall be included in the cost on account of which payment is made under subdivision (i) above; and (iii) a sum equal to -- percent of the part of the amount determined under subdivision (i) which represents the cost of articles or materials not processed by the contractor, plus a sum equal to percent 2 of the remainder of

1 Not to exceed 2 percent.

1

2 To be established at a figure which is fair and reasonable under the circumstances.

such amount, but the aggregate of such sums shall not exceed 6 percent of the whole of the amount determined under subdivision (i), which for the purpose of this subdivision (iii) shall exclude any charges for interest on borrowings;

(3) The reasonable cost of the preservation and protection of property incurred pursuant to paragraph (b) (9) hereof; and any other reasonable cost incidental to termination of work under this contract, including expense incidental to the determination of the amount due to the contractor as the result of the termination of work under this contract.

The total sum to be paid to the contractor under subdivisions (1) and (2) of this paragraph (d) shall not exceed the total contract price reduced by the amount of payments otherwise made and by the contract price of work not terminated. Except for normal spoilage and to the extent that the Government shall have otherwise expressly assumed the risk of loss, there shall be excluded from the amounts payable to the contractor as provided in paragraph (d) (1) and paragraph (d) (2) (i), all amounts allocable to or payable in respect of property, which is destroyed, lost, stolen, or damaged sc as to become undeliverable prior to the transfer of title to the Government or to a buyer pursuant to paragraph (b) (7) or prior to the sixtieth day after delivery to the Government of an inventory covering such property, whichever shall first occur.

(e) The obligation of the Government to make any payments under this article: (1) shall be subject to deductions in respect of (i) all unliquidated partial or progress payments, payments on account theretofore made to the contractor and unliquidated advance payments, (ii) any claim which the Government may have against the contractor in connection with this contract, and (iii) the price agreed upon or the proceeds of sale of any materials, supplies, or other things retained by the contractor or sold and not otherwise recovered by or credited to the Government, and (2) in the discretion of the contracting officer shall be subject to deduction in respect of the amount of any claim of any subcontractor or supplier whose subcontract or order shall have been terminated as provided in paragraph (b) (3) except to the extent that such claim covers (i) property or materials delivered to the contractor or (ii) services furnished to the contractor in connection with the production of completed articles under this contract.

(f) In the event that, prior to the determination of the final amount to be paid to the contractor as in this article provided, the contractor shall file with the contracting officer a request in writing that an equitable adjustment should be made in the price or prices specified in the contract for the work not terminated by the notice of termination, the appropriate fair and reasonable adjustment shall be made in such price or prices.

(g) The Government shall make partial payments and payments on account, from time to time, of the amounts to which the contractor shall be entitled under this article, whether determined by agreement or otherwise, whenever in the opinion of the contracting officer the aggregate of such payments shall be within the amount to which the contractor will be entitled hereunder.

(h) For the purposes of paragraphs (d) (2) and (d) (3) hereof, the amounts of the payments to be made by the Government to the contractor shall be determined in accordance with the statement of principles for determination of costs upon termination of Government fixed-price supply contracts approved by the Joint Contract Termination Board, December 31, 1943. The contractor for a period of 3 years after final settlement under the contract shall make available to the Government at all reasonable times at the office of the contractor all of its books, records, documents, and other evidence bearing on the costs and expenses of the contractor under the contract and in respect of the termination of work thereunder.

NOTE. The foregoing article incorporates by reference in paragraph (h) a statement of principles for determination of costs upon termination of Government fixed-price supply contracts. This statement was amended by regulation 5 of the Office of Contract Settlement and is reproduced as amended, with an explanation of the amendments, as part of exhibit IX.

DEPENDENCY OF PROGRAM UPON COURSE OF WAR WITH JAPAN

Mr. SNYDER. Mr. Krug, do you anticipate the War Production Board will go out of business before the end of the war with Japan? Mr. KRUG. I do not.

Mr. SNYDER. I am sorry I cannot be as optimistic as my chairman about putting Japan out of business. Japan still has about 8,000,000 soldiers, about 2%1⁄2 million in the Islands, and about 5,000,000 in Manchuria. I would say that I can see possibly a war of 2 or more years with Japan.

Mr. KRUG. We have only one policy, that is to prepare for a long war as the most certain way to have a short one. We feel that we must provide for the military needs on the assumption that the war may be a long one, and we do not feel we should try to cut down here and there in order to try to save a few dollars that will be very costly in case we guess wrong,

Mr. SNYDER. That is good. Within the next space of days I expect to start hearings on the War Department appropriation bill for 1946. You have requests from them for today, tomorrow, or next week, because of what is happening in Europe, involving a reduction in that appropriation?

Mr. KRUG. For some weeks we have anticipated VE-day in Europe, and they have been adjusting their production schedules.

But the very important thing to keep in mind with reference to Japan is that we cannot always guess what the Japanese might be able to do to us. For example, they might find a more effective way than they have now of damaging our fleet-and as you men know they have found some pretty effective ways.

Mr. SNYDER. That is true.

Mr. KRUG. If we actually have to go into Japan's mainland and blast them out with ground artillery in the way that we went into Germany the expenditure of ammunition for the Japanese war will reach a greater figure than what was used in Europe, and we have to be ready for things like that in planning our war production.

Mr. SNYDER. Perhaps more than the combined two fronts, from the ammunition standpoint. I think we should blast Japan out with ammunition, rather than sending the marines and soldiers in to get them, even if it takes more ammunition; it will save lives.

TIRE PRODUCTION AND STOCK-PILING OF RUBBER

Now, you have jurisdiction over tire production.
Mr. KRUG. Yes.

Mr. SNYDER. I would like to give you a concrete illustration back in my own county where there is a mountain of tires, enough to fill 50 or maybe 100 cars, tires that have been piling up there for 21⁄2 years. They expected to use these tires, many of them are usable tires, but they have been piled up and are still there, and every time I go home I am confronted with someone who asks me why they cannot get these old tires, that they are better than the tires they have on their cars, many of them are better, and that they need them now, and why are they piled up there and not being used.

Mr. KRUG. Of course, we have had to anticipate the requirements of reclaimed rubber over some period of time. We did not know when they would have to be used and we could not afford to take the chance of not having them available.

Mr. SNYDER. Yes.

Mr. KRUG. As a matter of fact, during the past 6 months, the bottleneck in rubber production has been reclaiming that rubber fast enough to take care of the current needs.