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or asked you by them what your arrangements were with the companies who were furnishing the Navy supplies?

Mr. OLCOTT. Never.

Mr. MAGNUSON. Do you know, within your knowledge, whether or not they knew what your fees were going to be in these cases?

Mr. ŎLCOTT. I don't believe they have any idea.

Mr. MAGNUSON. And it was never discussed at any time?

Mr. OLCOTT. It was never discussed.

The CHAIRMAN. How much office force do you carry? How much personnel is there in this office? You own your own building; do you

not?

Mr. OLCOTT. No, sir; we don't. We rent it.

The CHAIRMAN. How much office personnel do you carry?

Mr. OLCOTT. We have five, six, seven, eight, nine people in addition to the members of the firm.

The CHAIRMAN. You have 12 people. What is the annual salary of your 9 employees?

Mr. OLCOTT. I don't know, but it shows on the books.

The CHAIRMAN. Isn't it about $20,000?

Mr. HINKEL. In 1941 it was around $23,000, which included a bonus at the end of the year.

The CHAIRMAN. What do those employees do, carry on correspondence?

Mr. OLCOTT. Five of them are clerical and two of them are trained for doing abstract work. They go around to the various departments; when our firms bid, they attend public openings of bids and get the abstract of bids which they come back and write up and we send it out to the companies. There are two men who go around to the various departments to pick up

Mr. MAGNUSON. Specifications?

Mr. OLCOTT. Yes; specifications and current information that is public.

Mr. MAGNUSON. And you send those to your clients?

Mr. OLCOTT. Yes, sir.

Mr. MAGNUSON. And to your clients alone?

Mr. OLCOTT. Yes, sir.

The CHAIRMAN. And then the Army or the Navy calls you up and says, "We need such and such material," and then you notify your clients that they have got a contract.

Mr. OLCOTT. They will call us up and say, "We will need such and such a material and can you furnish it?"

"What are the specifications?"

"Here is what we require."

We will call our company on the phone; we will wire them; we will write them and say, "The Navy have a problem and they want this, and here are the specifications," and the company will call us back and say, "We can't furnish this for such and such a reason."

Mr. MAGNUSON. I wish you wouldn't use the word "problem." The specifications are out.

The CHAIRMAN. Wait a minute, that is important. Then you step in and sometimes tell them how to change the specifications to meet what your company can furnish? Isn't that correct?

Mr. OLCOTT. We very frequently recommend that the specifications be changed.

The CHAIRMAN. So your company can furnish it, because under the other specifications your company couldn't furnish it.

Mr. OLCOTT. Under some specifications that are very loosely drawn, the cheapest, most inferior material could be furnished, and we have saved the Government hundreds of thousands of dollars during our career by having specifications so drawn that the Government cannot be cheated.

The CHAIRMAN. All right. All these fees that you got-$764,341.80 are charged against the article that the Government purchases, isn't that so?

Mr. OLCOTT. I don't know, sir.

The CHAIRMAN. You don't?

Mr. OLCOTT. No, sir.

The CHAIRMAN. Don't you know that the Government could have purchased for that much less if you weren't in the picture?

Mr. OLCOTT. I doubt it.

The CHAIRMAN. You do?

Mr. OLCOTT. Yes, sir. I will tell you why I say that, Mr. Vinson, because I understand that some of our companies charge our annual expense, their Washington office expense, under general sales overhead. The CHAIRMAN. Of course they do.

Mr. SUTPHIN. Have you or any of your clients been permitted to revise bids or proposals after they have been submitted to the Department?

Mr. OLCOTT. We have been asked to lower our bid.

Mr. SUTPHIN. You have been permitted to lower your bid after you submitted it?

Mr. OLCOTT. We have been told, "Your price is too high; on a negotiated contract your price is too high. If you can't meet this price you can't furnish it."

Mr. SUTPHIN. That frequently happens?

Mr. OLCOTT. That has happened once or twice on a negotiated

contract.

Mr. SUTPHIN. Is that because of your intimate association and acquaintance with anyone in the Navy Department or the War Department?

Mr. OLCOTT. No, sir.

Mr. SUTPHIN. Just happenstance?

Mr. OLCOTT. Just because the price was too high and the Navy said they wouldn't pay it.

The CHAIRMAN. Go ahead, Mr. Hinkel.

Mr. HINKEL. I show you, Mr. Shirley, photostatic reproductions of financial records taken from your office and ask you to identify them.

Mr. SHIRLEY. Yes, sir.

Mr. HINKEL. I offer them in evidence, not to be printed.

(The photostatic copies of monthly financial records for 1941 were received in evidence, marked "Exhibit No. 481," and are filed with the committee.)

Mr. HINKEL. On the basis of these records, we prepared a table setting forth the receipts from each company.

The CHAIRMAN. Put that in the record for publication.

(The tabulation was received in evidence, marked "Exhibit No. 482," and is printed in the appendix of this volume.)

Mr. HINKEL. I show you, Mr. Olcott, the photostatic reproductions of records for the 6 months ending June 30, 1942, and ask you if they do not represent the receipts of your firm during that period. Mr. OLCOTT. Yes, sir; they do.

Mr. HINKEL. I offer the photostatic reproductions in evidence, not to be printed.

(The photostatic reproductions were received in evidence, marked "Exhibit No. 483," and are filed with the committee.)

Mr. HINKEL. I offer the tabulation made up by the committee accountants and investigators from those records.

(The tabulation was received in evidence, marked "Exhibit No. 484," and is printed in the appendix of this volume.)

The CHAIRMAN. Offer in evidence the explanation of the services they rendered to each company. Put that in. Put that in. We have that, and I want you to offer that so we will have a record showing what they claim their services are.

Mr. MOTT. I would like to hear oral testimony on what they claim their services are.

Mr. HINKEL. With your permission, I will read some of the larger items from the tabulation and at the same time read from the statement they furnished, a description of the services they furnished.

The CHAIRMAN. Take the case where they made $190,000 in 6 months, the Triumph Explosive Co., and read what they say their services were for the Triumph Explosive Co.

Mr. HINKEL. From the Triumph Explosives Co. in the 12 months of 1941 they received a total of $136,615.13; and for the 6 months ending June 30, 1942, they received a total of $190,972.74. However, that is subject to renegotiation, I understand, from a contract recently entered into, but as of the time we received their records, these are the actual receipts.

I offer in evidence a statement furnished by Messrs. Shirley, Olcott & Nichols, concerning their prior history and also concerning the activities that they performed. Is that a copy of the statement, Mr. Shirley?

Mr. SHIRLEY. Yes.

(The statement was received in evidence, marked "Exhibit No. 485," and is printed in the appendix of this volume.)

Mr. HINKEL. I will read from this statement.

The CHAIRMAN. Now read what they say which justified them to earn $190,000 in 6 months from the Triumph Explosives Co.

Mr. HINKEL. They gave a brief description of the services rendered the Triumph Explosives Co., of Elkton, Md. The description is as follows:

Assisting in laying out of various loading lines, recommendation as to the kind and type of machinery necessary to do the loading, conferring with ordnance officers of the Army and Navy regarding recommended changes, improvement, and modification of various specifications, following tests of these materials which must be tested and approved before acceptance.

For those services they received that amount of money.

The CHAIRMAN. Modifying and changing the specifications? Isn't that what it said?

Mr. HINKEL. "Improvement and modification of various specifications."

The CHAIRMAN. That is right.

Mr. BATES. What was the material they furnished?

Mr. HINKEL. Explosives of various kinds. "All types of pyrotechnics, loading of fuses, detonators, percussion elements, identification flares, landing flares, reconnaissance flares, railway signals, airplane starter cartridges, and so forth."

The CHAIRMAN. The change of those specifications enabled you to get the business, didn't it? I am asking any one of you gentlemen. Mr. SHIRLEY. We did not. The change of specifications had nothing to do with securing the business.

The CHAIRMAN. It didn't?

Mr. SHIRLEY. The business in practically every instance has been awarded to us at a lower price, and after we got into production on many of these items, the Navy had developed quite a few of these things at Bellevue you might say in a tailor-made fashion. When we got into production we found that it was not practical to produce it in a production way.

Mr. SUTPHIN. It is the usual custom, isn't it, to permit favorites to revise their prices?

Mr. SHIRLEY. I don't know about a usual custom to revise the price.

Mr. SUTPHIN. Yes. It happens sometimes, doesn't it, to reduce their price? Mr. Olcott, I believe, just testified according to that

statement.

Mr. SHIRLEY. We are speaking of design, sir.
The CHAIRMAN. Go ahead, Mr. Hinkel.

Mr. HINKEL. I have a photostatic reproduction of the break-down of expenses for the firm of Shirley, Olcott & Nichols for the years 1938 through the first 6 months of 1942. I ask you, Mr. Olcott, to identify that as being from your records, furnished to the committee. Mr. OLCOTT. Yes, sir; that is correct.

Mr. HINKEL. I offer it in evidence.

(Photostat of break-down referred to was received in evidence, marked "Exhibit No. 486," and is printed in the appendix of this volume.)

The CHAIRMAN. In that break-down, does it show how much money has been spent for entertainment purposes?

Mr. HINKEL. No, sir; that is not set down as a separate account. The CHAIRMAN. Read off his expense account.

Mr. HINKEL. It is quite a list. I will read the totals. For the year 1938, the total receipts were $46,698.

The CHAIRMAN. What year?

Mr. HINKEL. Excuse me. For the year 1938, the total receipts were $68,893.62, of which $46,698.57 was profit, and then they received an additional $11,034.55 for commission received from Triumph Fuse & Fireworks Co. So the total was $57,783.36.

In 1939 the total receipts were $86,975.17. The total profits were $63,783.47.

In 1940 the total receipts were $171,970.04. The total profits were $138,392.50.

For the year 1941, the total receipts were $603,493.73, and the total profits were $470,386.04.

For the first 6 months of 1942 the total receipts were $764,341.80, and the total profit, $646,701.03.

Mr. MOTT. What the chairman asked you about is their entertain

ment expense.

Mr. HINKEL. There is no item in there that would show entertainment.

Mr. MOTT. Then let me ask the witness, do you have any. entertainment?

Mr. OLCOTT. No, sir. Everything is in there that we spend.
Mr. MOTT. Was any of it for entertainment?

Mr. OLCOTT. Very little, very little.

Mr. MOTT. How much?

Mr. OLCOTT. I couldn't estimate how much.

Mr. MOTT. What did the entertainment consist of?

Mr. OLCOTT. The entertainment will consist of taking somebody out to lunch when you are talking business with them and you are talking over a problem and it comes 12:30 and you have an hour or two more to go. Someone will look at the clock, and it is time to go to lunch. "Well, let's go to the Occidental and have some lunch,' or, "Let's go here and have some lunch."

Mr. MOTT. Does that include all of your entertainment expenditures?

Mr. OLCOTT. That includes all except some very special occasions. Mr. MOTT. What did you do on special occasions?

Mr. OLCOTT. I tell you one thing I have in mind that we have had every year, once a year, for years. The American Society of Naval Engineers have an annual meeting and banquet once a year, it was cut out this year on account of the war, at which time they send out invitations to all of the companies in the country that are doing business with the Navy or Coast Guard and invite you to attend this banquet and tell you that tables for 10 are provided and that the plate charge is so much a plate. Many of the companies-all of the large companies in the country that are doing business-will take a table or two tables, and invite guests who may be from the Government and may not be from the Government.

Mr. HINKEL. Generally they are procurement officers of the various departments?

Mr. OLCOTT. No; I would say they are generally technical people that you work with on these technical problems.

Mr. MOTT. And they pay for their own dinner?

Mr. OLCOTT. No.

Mr. MOTT. You pay for it?

Mr. OLCOTT. Yes, sir.

Mr. MOTT. Do you charge the expense of that-wait a minute. Mr. OLCOTT. That dinner will amount to probably the largest item of expense that we have that you could call entertainment. That happens once a year.

The CHAIRMAN. You charge that against your income tax for operation of your business?

Mr. OLCOTT. Yes, sir.

The CHAIRMAN. That is right.

Mr. OLCOTT. It is considered as a business affair. It is done openly.

Mr. MOTT. You don't charge that to your clients. You take it out of your profits, don't you?

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