Act"2 authorized the Secretaries of the War and Navy Departments, in the interests of national defense and as an aid to expanding aircraft production, to award contracts for aircraft, aircraft parts and accessories not alone to the lowest responsible bidder but to the three lowest bidders, dividing the work among them and avoiding the overloading of aircraft production facilities.

Three months later, on June 14, 1940, Congress gave authorization for an 11% expansion in the size of the Navy; and the following month, authorization for a 70% expansion, the authority for the two-ocean Navy said (Public Laws 629 and 757, 76th Congress; 54 Stat. 780, 34 U.S. Code 498). Between the effective dates of these two authorized increases in naval strength, Congress passed a bill, H.R. 9822, which was approved by the President on 28 June 1940 as Public Law 671, 76th Congress (54 Stat. 676; 50 USC App. 1152). Although superseded and greatly overshadowed by the First and Second War Powers Acts, said Public Law 671 (colloquially and not inappropriately called the "Speed-up Act") was the cornerstone upon which much of our wartime procurement authority and practice was erected. It authorized advance payments to contractors up to 30% of the contract price; it authorized contracts for the acquisition, construction, repair or alteration of naval vessels and aircraft, or any portion thereof, to be made by negotiation without regard to existing requirements for competitive bidding and award to the lowest bidder; and it was the basis upon which preference ratings were founded by providing for priority of deliveries of material under Army or Navy contracts over deliveries for private account or export. An amendment dated May 31, 1941 (Public Law 89, 77th Congress; 55 Stat. 236), provided for allocations of all materials as to which a shortage threatened, from which allocation authority there emerged rationing and all its attendant discomforts. The Act of June 28, 1940, also authorized the Navy Department to construct and provide for the construction of plant facilities, including extensions and

2 Public Law 426, 76th Congress; 54 Stat. 45, 10 U. S. Code 310

note.

Public Law 801, 76th Congress; 54 Stat. 974.

additions to private plants, and to take over and operate any existing manufacturing plant or facility necessary for the national defense whenever a satisfactory agreement with the owner for its use or operation for defense purposes could not be arrived at a grant of authority which, though not exercised until after the outbreak of war, illustrated eighteen months before Pearl Harbor a realization on the part of Congress that the approaching war clouds justified drastic measures. Public Law 671 in large measure, therefore, was the vehicle which first converted the country from a peacetime to a wartime footing.

As a further stimulus to the expansion of private industrial capacity for war production, Congress by the Second Revenue Act of 1940, approved October 8, 1940,3 provided for the accelerated amortization over a five-year period of emergency facilities constructed or acquired after June 10, 1940, and certified by the Secretary of War or the Secretary of the Navy as necessary in the interests of national defense. In view of the fact that the Second Revenue Act of 1940 imposed an Excess Profits Tax up to 95% of adjusted excess profits net income, the accelerated amortization deduction for emergency facilities constructed under Certificates of Necessity was a tremendous inducement to the investment of private capital in tooling up for war.

As might have been expected, the increasing volume of the Navy's procurement during the eighteen months intervening between the increased tonnage authorizations in the summer of 1940 and the onset of hostilities in December of 1941, gave rise to some far-reaching changes in the Navy's procurement practices. As noted above, substantially all Navy purchases were required to be made pursuant to public advertisement "when the public exigencies do not require the immediate delivery of the articles, or performance of the service" (Section 3709, Revised Statutes; 41 USC 5); and with very few exceptions (as in the case of contracts for the construction of vessels, of guns, or of facilities) the Navy's purchases were made by the Bureau of Supplies and Accounts on contracts executed by that Bureau.

The "Speed-up Act," Public Law 671, (supra) provided in Section 2(a) thereof:

"That whenever deemed by the President of the United States to be in the best interests of the national defense during the national emergency declared by the President on September 8, 1939, to exist, the Secretary of the Navy is hereby authorized to negotiate contracts for the acquisition, construction, repair, or alteration of complete naval vessels or aircraft, or any portion thereof, including plans, spare parts, and equipment therefor, that have been or may be authorized, and also for machine tools and other similar equipment, with or without advertising or competitive bidding upon determination that the price is fair and reasonable...." (Italics supplied.)

By a letter dated June 29, 1940, the President formally "deemed... [it]... to be in the best interests of the national defense during the national emergency" for the Secretary of the Navy to be authorized after June 28, 1940, (the date of the approval of the Act) to negotiate the contracts specified in the Act without advertising or competitive bidding. The President, however, placed certain limitations upon such authority which did not appear in the Act. The first of these limitations was expressed in the alternative and required a finding by the Secretary of the Navy that either (a) the bids which would be received upon advertising or bidding would not represent the operation of effective competition or (b) advertising for a reasonable time would seriously hamper, impede and delay the desired acquisition. Neither of such findings was expressly or impliedly required by the Act.

The Act, however, did require that there be a "determination that the price is fair and reasonable." It did not require the Secretary of the Navy to make such determination, but the letter of June 29, 1940, from the President required that prior to the execution of any negotiated contract the Secretary of the Navy shall find and determine that the price or prices included therein are fair and reasonable.

The effect of this personal and non-delegable grant of authority to the Secretary necessitated the establishment of procedures whereby the Secretary of the Navy could make the requisite determination (1) that the price was "fair and reasonable," and (2) that advertising and competitive bidding would not result in the operation of effective competition or that advertising and competitive bidding would seriously hamper, impede and delay the procure

Sec Nav 1tr AL-3/A18 (400603) P.

SecNav 1tr EN/L4-3 (410620) P HBC :mp.

ment. By Navy directive dated July 5, 1940,* provision was made for the submission of all negotiated contracts to the Secretary's Office for execution by him, each such contract being required to contain a certification as to the facts upon which the Secretary could predicate the required determinations.

This procedure was further amplified by a directive of June 20, 1941, which required, rather than a simple certification by the technical Bureau of the ultimate facts, a request to the Secretary for "Authority to Negotiate," which request had to recite sufficient facts to serve as a sound basis for the determinations that the Secretary under the President's letter was required to make.

The laborious procedure involved in first investigating and ascertaining facts which would justify the required determinations, in setting forth these facts at length and processing through channels to the Secretary the request for Authority to Negotiate, in then negotiating the procurement, and finally in preparing and forwarding the resulting contract or letter of intent to the Secretary's Office for execution was manifestly unsatisfactory and a material impediment to that expedition in procurement which the worsening world situation increasingly demanded. Tedious and retarding though they must have been, these requirements for personal determination and action by the Secretary himself nevertheless laid the groundwork for the program of centralized control and coordination of procurement in the Secretary's Office that proved so successful during the war.

Needed relief from the stringent requirements of the President's letter of June 29, 1940, was forthcoming through the medium of Executive Order 8891 issued on September 4, 1941. This Executive Order created the Division of Contract Distribution in the Office of Production Management (forerunner of the War Production Board) and vested it with the broad functions of securing a wider diffusion of defense procurement (particularly among subcontractors and small business) and facilitating the conversion of industry to defense production. The purposes of this Executive Order were used as a vehicle for getting the President to cancel his letter of June 29, 1940,

to the Secretary of the Navy and to supersede it on October 7, 1941, with a letter requiring only, as a condition precedent to negotiating under Public Law 671, that the Secretary of the Navy or the Chief of the cognizant Navy Bureau determine that the price was fair and reasonable, having due regard to the program and objectives of Executive Order 8891.

On October 25, 1941, both the Executive Order and the President's revised letter of authority were promulgated in the Navy Department by a directive materially broadening the field of permissible negotiation of contracts without regard to advertising or competitive bidding." The new directive required only that requests for Authority to Negotiate show that the proposed procurement fell within the contemplation of Public Law 671 (i.e., was for "the acquisition, construction, repair or alteration of complete naval vessels or aircraft, or a portion thereof, including plans, spare parts and equipment therefor," or "for machine tools and other similar equipment") and that the price was fair and reasonable. Furthermore, in determining the reasonableness of price, consideration was to be given to the objectives of the Executive Order, so that a higher price might be justified if the effect of the proposed contract would be to spread defense production over a wider area and out of tight labor markets.

7

By directive dated September 29, 1941, authority to execute contracts made after October 15, 1941, for the construction of vessels, facilities, equipment and naval materiel, theretofore executed by the Secretary of the Navy, was delegated to the Chief of the technical Bureau having cognizance of the subject matter of the contracts, provided that in the case of all negotiated contracts there was first secured from the Secretary the requisite Authority to Negotiate. Thus, by the beginning of World War II some experience in negotiating contracts for the Navy's requirements had been gained and the concept of central coordina

SecNav 1tr QM/L4-3(410930) PLD/WJK:vmc.

SecNav 1tr EN/L4-3(410923) JAG:rld; supplemented by SecNav 1tr EN/L4-3(410923)P JDM:mk, dtd Nov. 5, 1941.

8 Sec Nav 1tr QW20/L4-3(411228) PLD/HSH:jhf.

34 U. S. Code 582.

10 41 U. S. Code 15.

tion in the Secretary's Office of contracts made by the technical Bureaus had been born.

Mention has already been made of the virtually complete emancipation from all statutory restrictions on procurement procedure granted by Title II of the First War Powers Act and the President's Executive Order 9001 thereunder. The day following the Executive Order the Secretary issued his directive of December 28, 1941,8 putting the new war contract procedures into effect in the Navy. Under this directive there was delegated to contracting officers in the Department (i.e., those authorized by the Chiefs of their respective Bureaus to contract on behalf of the Bureau) authority to execute and deliver contracts and amendments and modifications of contracts without regard to the requirements for competitive bidding, and without limitation as to form or substance except for the following contractual provisions: (1) those required for classified contracts, (2) in the event of progress payments, appropriate provision for a lien in favor of the Government in accordance with the Act of August 22, 1911,9 (3) labor provisions required by the Walsh-Healey, Davis-Bacon, and Copeland "Anti-kickback” Acts referred to above, (4) racial non-discrimination, (5) employment of aliens, (6) assignability, if any, under the Assignment of Claims Act, 10 (7) in cost and cost-plus-fixed-fee contracts, provision for the preservation of records, and (8) required patent and patent infringement clauses. The directive authorized advance payments up to any amount, and dispensed with all requirements for bonds or other security for payment or performance.

The exercise of central control in the Secretary's Office, which had been engendered by the non-delegable nature of the negotiation authority conferred on the Secretary of the Navy by the President's letter of June 29, 1940, was retained in the directive of December 28, 1941, by requiring that authority to contract by negotiation must continue first to be obtained from the Secretary in connection with any contract or amendment involving the payment of $200,000 or more. This limitation upon the Secretary's delegation, it should be noted, provided one of the cornerstones upon which rested the Navy's wartime system of checks

and balances on procurement. The request for authority to make contracts under the new directive differed materially from the Request for Authority to Negotiate under Public Law 671. No longer was emphasis placed on reasonableness of price or the type of procurement; the information now required was essentially statistical: the name of the proposed contractor, the kind of supplies being purchased, the price to be paid, the location of the producing plant or site of the proposed facility, and the certificate of the contracting officer that the article or facility was necessary for the prosecution of the war. The requirement for this certification of necessity was later dropped inasmuch as the President, in Executive Order 9001, had to all intents and purposes made the finding of facilitation of the prosecution of the war required by Section 201 of the First War Powers Act, thereby obviating the necessity for an individual finding in connection with each contract.

Finally, the directive of December 28, 1941, was explicit on the point that it was not designed to "change or affect in any way the present distribution among the several Bureaus and Offices either of business or authority to make or execute contracts." This statement was not entirely gratuitous. With the rapidly increasing volume of Navy procurement, considerable opposition was being manifested to the historical distribution of procurement authority whereunder the Bureau of Supplies and Accounts, with only limited exceptions, did all of the Navy's buying upon requisition from the technical Bureaus. At a time when substantially all Navy purchases had been effected through the mechanical means of advertising and competitive bid procedures, the centralization of the procurement function in one Bureau had been entirely logical and satisfactory. With the advent of negotiated procurement, however, the buying function could not be wholly disassociated from the persons familiar with the technical requirements involved. As a result of increasing material

11 SecNav ltr (PLD/JK:11) dtd March 17, 1943; NPD Par. 11, 131. ("NPD" refers to the "Navy Procurement Directives," a looseleaf volume published by Commerce Clearing House and available for distribution to naval personnel through the Office of General Counsel.)

12 Sec Nav ltr (PLD/HSH:jhf A3-1/EN).

shortages, rigid specifications became subordinated to the capacity of an available supplier to produce the item. Negotiations covered not only price but time of delivery, use of substitute materials, preference ratings and the like, thereby requiring the presence and views of persons in the Bureau actually charged with responsibility for the item. Furthermore, the vastly increased volume of procurement and the necessity for utmost economy in manpower required that any duplication of effort between the technical Bureau and the Bureau of Supplies and Accounts as the buying agency be reduced to a minimum, or eliminated.

In December of 1941 the time was not ripe for any radical change in the division of procurement responsibilities between the Bureaus. During the summer and fall of 1942, however, the preparation, executing and administration by the Bureau of Supplies and Accounts of contracts which of necessity had to be negotiated in the technical Bureaus became increasingly anomalous and wasteful with the result that on December 13, 1942, a directive12 was issued which had as far reaching and significant an effect on the division of the Navy's procurement responsibilities as the First War Powers Act had on the Navy's procurement practices. Briefly, this directive authorized the Chief of any Bureau having technical cognizance over materiel and services to be procured to determine in his discretion the extent to which contracts embodying the terms of such procurement should be negotiated, prepared and executed in his Bureau and the extent, if any, to which the Bureau of Supplies and Accounts should be availed of for the purpose. Thus, the procurement function within the Navy became decentralized, whereas at the same time procurement policy, as will be noted below, remained centralized.

The directive of December 13, 1942, also gave formal recognition to the establishment within each Bureau (other than Medicine and Surgery, which had no procurement function) of an Office of Counsel for the Bureau. Counsel for each respective Bureau was charged with the preparation or approval of all contracts, and with furnishing all necessary legal advice and services to the Bureau in matters of procurement. The various Counsel were answerable

jointly to the Chief of the Bureau and to the Under Secretary of the Navy through the Chief of the "Procurement Legal Division" in the Under Secretary's Office. While the procurement function was decentralized by the December 13, 1942, directive, centralized coordination over the mechanics of procurement was obtained through the respective Offices of Counsel and the Procurement Legal Division. Similarly, as we shall see, centralization of procurement policy control was obtained through the Office of Procurement and Material.

Executive Order 9024, issued on January 16, 1942, established the War Production Board, which superseded the Supply Priorities and Allocations Board and the Office of Production Management, and which was vested with the broadest possible powers to "exercise general direction over the war procurement and production program." All Federal Departments and agencies were instructed to "comply with the policies, plans, methods and procedures in respect of war procurement and production as determined by the Chairman" of the War Production Board. To meet the need for a central coordination of program planning within the Navy Department, and to provide a single agency in the Department as its representative before the War Production Board in arranging priorities, obtaining allocations and securing permission for new or converted facilities, the Secretary of the Navy, by General Order 166, established the Office of Procurement and Material on January 30, 1942. This Office was charged with the duties of coordinating all the material procurement activities of the Department, supervising procurement programs, and estimating and scheduling requirements.

It has been observed that the directive of December 28, 1941, implementing the broad powers conveyed by the First War Powers Act and Executive Order 9001, retained the requirement for specific "Authority to Contract" from the Secretary of the Navy before any contract involving a payment of $200,000 or more might

18 By 4 February 1942 WPB clearance had been waived for Letters of Intent and was required only for contracts in the amount of $1,000,000 or more. SecNav ltr 4 Feb. 1942; EE7(1)/L4-3(420204) USO:CFD:hk.

14 Sec Nav ltr (EN/L4-3(420219) dated 19 Feb. 1942. 15 SecNav ltr; EN1:3:hk; dated 3 Aug. 1944.

16 Public Law 413, 80th Congress; 41 U. S. Code 151.

be made. Superimposed upon this Navy requirement was the requirement of the new War Production Board that contracts for war production in excess of certain amounts had to be cleared with that agency.13 These clearance requirements, both of WPB and of the Secretary of the Navy, by delegation, were centered in the Procurement Branch of the Office of Production and Material,14 which, by its contract clearance authority, was able effectively to supervise and coordinate the procurement activities of the respective Bureaus.

Although historical in approach, this brief review is of more than purely historical interest for, as will be seen, so satisfactory did this organizational distribution of procurement functions prove, and so successful was the Navy's record of negotiated purchasing during the war, that they have set the pattern for the present peacetime operations of the Department. The Office of Procurement and Material was given statutory permanence by Public Law 432 of the 80th Congress (62 Stat. 66, 5 U.S. Code 432a; approved March 5, 1948), as the Office of Naval Material headed by the Chief of Naval Material, who, under the direction of the Secretary of the Navy, is charged with (1) determining the procurement and production policies and methods to be followed by the Naval Establishment, and (2) coordinating and directing the Bureaus and Offices of the Navy Department in this regard. The Procurement Legal Division, which had as its basic concept the furnishing to the technical Bureaus of lawyers having commercial rather than military law experience so as to assist the Navy in its relations with its suppliers, was renamed the Office of the General Counsel in 194415 and continues as the office charged with responsibility for all legal matters relating to procurement, contract termination, property disposition, renegotiation, and fiscal matters relating to procurement. Finally, with the end of the war, the Navy did not revert to the inflexible earlier rule of strict competitive bid buying and award to the low bidder where sound business judgment dictated otherwise, but secured the enactment on February 19, 1948, of the Armed Services Procurement Act, 16 a comprehensive grant of procurement authority establishing judgment rather than rule as the basic guide