figures that are based on any investigations that members of the staff themselves have made. Mr. COLE. In other words, these percentages of profit are the percentages admitted by the companies to have been made. Mr. TOLAND. Yes, sir. The CHAIRMAN. Based on the cost. Mr. TOLAND. Based on the cost. Mr. Izac. Mr. Chairman, is there any way we can tell whether the contracts were in large or small amounts? The CHAIRMAN. That will be disclosed when it is printed, that is, the exact amount of the contract. Mr. TOLAND. We will file a report that will show that. I will be glad to run through and show the amount of the contract, if necessary. The CHAIRMAN. It will show what the amount of business was. Mr. SUTPHIN. All of these contracts that were mentioned, I suspect, observe the Walsh-Healey Act? The CHAIRMAN. I presume they observe every act and also the act to make as much as they possibly could. (The report referred to was submitted later, received in evidence, marked "Exhibit No. 4" and is printed in the appendix of this volume.) Mr. TOLAND. In connection with a query the other day in regard to increases in compensation, we have made a spot survey of certain companies to show the increased compensation of officers of companies having contracts with the Government from the period of 1934 to 1941. The CHAIRMAN. That is a statement showing the salaries of individuals or of presidents and vice presidents of corporations? Mr. TOLAND. Right. The CHAIRMAN. That may carry with it a wrong interpretation; a man might be entitled to a salary of a certain amount and another man might be entitled to a salary of a certain amount, and it all depends upon the magnitude of the business and the character of the corporation as to whether or not in the eyes of the average person it might be considered an exorbitant salary. But how does that have any particular bearing on the cost of production, because the salary is exclusive of the cost of production? Mr. TOLAND. The purpose is this, Mr. Chairman, that just as much as the increased cost of workers is a material part of the defense program, the increased salaries to officials or officers of companies having contracts and engaged in Government business also are an item which the taxpayers must bear. Treasury Decision 5000 placed a ceiling on the top amount of any salary of any official performing any contracts for the Government at $25,000. The CHAIRMAN. That could be charged against the cost? The CHAIRMAN. That is right. Over twenty-five thousand couldn't be charged against Government contracts. Mr. Izac. Mr. Chairman, there is nothing to show how many officials could get the full $25,000, and they could pad their rolls to such a degree that you eat up all of the cost, or a major portion of the cost, by $25,000 salaries. Isn't that true? The CHAIRMAN. Let me see this, Mr. Toland, before you file it. All right, take up your next exhibit. (The survey referred to, "Exhibit No. 5," was received in evidence on Wednesday, March 25, 1942, was marked "Exhibit No. 79," and is printed in this volume at p. 98.) Mr. TOLAND. The next subject is something that the committee may desire to have submitted to the committee in executive session. There has been some controversy with regard to whether there has been a proportionate allocation of contracts throughout the United States, and we have made a survey of 22,346 contracts involving $4,147,990,038; the results show the concentration in certain states. of the war effort, and it may be that the committee would feel that a public disclosure of the location of the concentration of the defense effort is something that should not be released to the public. The CHAIRMAN. I do not think that should be made public, because that would be information to the enemy, as to where the locations of the plants are. Mr. MAAS. The record, from your statement, clearly indicates that there is not an equitable distribution throughout the country and that certain areas have undue concentrations. Is that correct? Mr. TOLAND. That is a fact. The CHAIRMAN. But you have to bear in mind in connection with that that the present location of industries has been accelerated by the war expansion. They have previously been established and therefore a great many have merely been enlarged. It is out of balance, but I don't think we want to disclose that. Mr. MAAS. No, I don't think we do, either. I wanted that one fact, that there is an undue inequity in the distribution, on the record. Mr. TOLAND. Mr. Chairman, in connection with the investigation, since I have been appointed I have had many contacts with officials of the Navy Department, including Admiral Spear, and I feel it is my duty that in the course of my performance of my duties I give my own observation to the committee as to the people that I deal with. If there is any man in the Department who is as anxious for the speed that is required for the program as Admiral Spear, I don't know him, but at the same time he is the watchdog for the taxpayers in that Department. He submitted to me a communication from the Twelfth Naval District at San Francisco, which is a matter, I think, in connection with the costs of this program, that should be brought to the attention of the committee. From the Office of Supervisory Cost Inspector, Twelfth Naval District, to the Bureau of Supplies and Accounts (Cost Inspection Division), Navy Department, Washington, D. C. Subject: Contract Nos. 97816, William Cryer & Son, Oakland, Calif. Request for decision regarding time of wood caulkers. 1. Subject contract is of the ship alteration and repair time and material type, and in connection with expediting certain work for the Navy on various purse seiners, it is necessary to utilize the services of wood caulkers who are members of Wood Caulkers' Local No. 554, United Brotherhood of Carpenters and Joiners of America. Article 1 of section 2 of the union trade rules reads as follows: "Not more than 150 on deck, or not more than 100 feet outboard, shall constitute a day's work of 8 hours. For excess, it shall be punishable by a fine of not less than $1 or suspension." 2. On Saturday, February 21, 1942, two wood caulkers worked 8 hours each on the purse seiner Santa Rita, which is being converted to Navy use. Together they produced 1,100 feet of caulking outside and 750 feet on deck, equivalent to 550 feet and 375 feet, respectively, for each man. For this footage it is understood they are claiming reimbursement as follows: 3. It is understood that the contractor has paid each man $50 on account, informing them that the remainder would be held in abeyance until the Navy Department had made a decision as to the amount for which the contractor could be reimbursed. 4. Under the provisions of subject contract "labor charges against each job order shall be computed by multiplying the number of hours actually worked by the various classifications of labor by the applicable rate of charge per hour." (See article 7C.) Schedule A of subject contract provides: "When required to pay workmen double at normal day rates, the rate will be $3.50 per hour per man for all trade or crafts." In view of this situation, it would appear that the contractor is entitled to be reimbursed only for each man in the amount of $28 (8 X $3.50). 5. Undoubtedly the case cited above is extreme. However, the question will undoubtedly arise subsequently with subject contractor as well as with other bay area contractors holding similar contracts. It is understood that normally when a caulker has reached 100 or 150 feet he ceases work for that day, and receives pay for 8 hours even though he may have completed the footage in considerably less time. 6. In view of this situation, decision is requested as to whether or not the contractor may be reimbursed for actual footage caulked converted to hours in accordance with Wood Caulkers' Local No. 554 union wage agreement. /s/ H. F. Gallagher. Attached to it is a letter from the admiral as follows: DEAR MR. TOLAND: I am enclosing a copy of a letter received from the supervisory cost inspector, Twelfth Naval District, in re the time of wood caulkers and their alleged earnings of $160 per man per day. I believe you may be interested in this case. RAY SPEAR, Rear Admiral, S. C., United States Navy, A notation in his own handwriting: "Our contract provides (or requires) for a payment of $28 per man for the time stated." I would like to file that as an exhibit. (Copies of letter from office of supervisory cost inspector, Twelfth Naval District, to Bureau of Supplies and Accounts, Washington, D. C., and letter of transmittal from Admiral Ray Spear, dated March 16, 1942, were received in evidence and marked "Exhibit No. 6.") Mr. TOLAND. In connection with the report we filed, Mr. Chairman, on January 20, and in order to establish the profits in the aircraft industry, we further made a survey of the questionnaires referred to in the report showing the profits ranging from 10 to 20, 20 to 30, 30 to 40, 40 to 50, and 50 or more percent profit on the cost of the contracts. The four individual cases referred to in the report that showed the highest profit on particular contracts were the Bell Aircraft Corporation, 105.6 percent; Bendix Radio Corporation (Towson and Baltimore plant), 122 percent; Bendix Aviation Corporation (Scintilla Magneto Division), 120.9 percent; Square D Co. (Kollsman Instrument Division), 141.1 percent. I won't take time to read the memoranda, but ask permission that they be filed and printed as an exhibit. (Memoranda listing aviation companies with contracts on which over 10 percent profit was earned are received in evidence, marked "Exhibit No. 7," and are printed in the appendix of this volume.) In connection with the decision of the Supreme Court on the question of profits, the Bethlehem Shipbuilding Corporation during the World War entered into a contract with the United States Shipping Board for the construction of ships. That contract provided for a fee of $12,000,000, and a clause provided for payment of 50 percent for time saving; that amount likewise amounted to $12,000,000. Two or three years ago, the Government filed a bill in equity in the Federal court to prevent or restrain the payment of this sum. Recently, in a very excellent opinion written by the distinguished Justice Black, the Supreme Court dismissed the bill of the Government and sustained the lower court. Mr. Justice Black made this observation with regard to the right of the court to interfere with the contract: The problem of war profits is not new. In this country, every war we have engaged in has provided opportunities for profiteering and they have been too often scandalously seized. (See Hearings before the House Committee on Military Affairs on H. R. 3 and H. R. 5293, 74th Cong., 1st sess., 590-598.) To meet this recurrent evil, Congress has at times taken various measures. It has authorized price fixing. It has placed a fixed limit on profits, or has recaptured high profits through taxation. It has expressly reserved for the Government the right to cancel contracts after they have been made. Pursuant to congressional authority, the Government has requisitioned existing production facilities or itself built and operated new ones to provide needed war materials. It may be that one or some or all of these measures should be utilized more comprehensively, or that still other measures must be devised. But if the Executive is in need of additional laws by which to protect the Nation against war profiteering, the Constitution has given to Congress, not to this Court, the power to make them. I would like to file that as an exhibit and not have it printed. (A copy of the opinion of the Supreme Court of the United States delivered by Mr. Justice Black in United States of America v. Bethlehem Steel Corporation et al., and United States Shipping Board Merchant Fleet Corporation v. Bethlehem Shipbuilding Corporation, was received in evidence, marked "Exhibit No. 8," and is filed with the committee.) Mr. TOLAND. Mr. Chairman, in connection with the case I am now going to present, I would like to briefly state to the committee the substance of what will be disclosed. Jack & Heintz, Inc., an Ohio corporation, was formed on November 5, 1940, and its capital at that time was $500. On November 7, the assets of a previous company were transferred to the new company at a value of $99,500, making the capital on November 7, $100,000. The company was the successor to Jack & Heintz, Ltd., a California corporation organized in February 1940. The stockholders of Jack & Heintz, Inc., are identical with the stockholders of Jack & Heintz, Ltd. The limited company, we understand, was forced to leave California because of labor difficulties. Jack & Heintz, Inc., hold over $58,000,000 at the present time in Government contracts. These contracts are for airplane motor starters and automatic pilots. The Army Air Corps has the dominant or the larger amount of these contracts. The company has reported profits of approximately 10 percent on these contracts. A Navy audit has shown that the profits actually were 100 percent on the cost of the contracts, on the basis of disallowing various expenses and charges made by that company, principally exorbitant salaries, bonuses, and employee gratuities of various kinds. During 1941, salaries amounting to almost $145,000 were paid to each of the three principal officers of the company. In addition, bonuses of over $600,000 were awarded employees. In addition, free life insurance policies, free lunches, free banquets, free musical entertainment, free athletics, and so forth, were furnished employees. The secretary to the president, a lady, received during the year of 1941 over $39,000 in salary and bonuses. A former employee of the Army Air Corps received over $11,000 in bonuses, although he was with the company just over 6 weeks at the time of these bonuses. The history of the activities of this company, as the testimony will show, reflects astounding profits, tremendous returns upon investment, and a remarkable picture of the willful dissipation of Government money received through Government contracts. In addition, it shows the avoiding of the recapture of excessive profits by taxation. To my mind, this company is a clear example that in a firm bid contract with the Government of the United States, where the Government has no control over the contractor and where there is the decision of the Supreme Court in the Bethlehem case, with the right to distribute the money with no control or no check by the Government of the United States, the excess-profits-tax limitation is not the answer with regard to war profits. The CHAIRMAN. Is not the complete answer? Mr. TOLAND. Not the complete answer. The first witness I will call is Mr. Ryan. The CHAIRMAN. Let me ask this, Mr. Toland. How many witnesses do you think you can use today? Mr. TOLAND. I will rush through with six of them. The CHAIRMAN. Suppose we swear them at one time. Mr. TOLAND. Will all the witnesses who have been subpenaed come forward? (The following witnesses came forward and identified themselves: Donald W. Lake, W. R. Jack, William S. Jack, Miss Adeline Bowman, Maynard T. Ryan, Harry E. Yoxtheimer.) The CHAIRMAN. The evidence you shall give the Naval Affairs Committee in this inquiry shall be the truth, the whole truth, and nothing but the truth, so help you God? (The witnesses individually replied, "I do.") TESTIMONY OF MAYNARD T. RYAN, ASSISTANT CHIEF ACCOUNTANT AND AUDITOR, BUREAU OF SUPPLIES AND ACCOUNTS, COST INSPECTION DIVISION, NAVY DEPARTMENT, DISTRICT OF COLUMBIA Mr. TOLAND. Mr. Ryan, will you please give the reporter your full name? Mr. RYAN. Maynard T. Ryan. Mr. TOLAND. Where do you reside, Mr. Ryan? |