important question relating to the policies we should pursue, I think the better course to follow now is to take a recess and try to work something out. We will have time to study this bill between now and the 11th day of April, because the Military Affairs Committee bill cannot be heard, this bill cannot be heard, and we cannot do a thing between now and April 11. At that time we may be in a position to have further hearings on this matter, and in the meantime try to get some representatives from the industry here.

Mr. MAAS. Would it be possible to have the record thus far printed as quickly as possible and distributed to the members, so that we might study it?

The CHAIRMAN. Yes; but I want Mr. Warren to write out and send to the committee immediately a complete statement as to exactly how he wants to get into the picture, so that we will have the benefit of that.

Mr. BATES. Before we adjourn this hearing, Mr. Chairman, I think we ought to clear up the intimation that was left in the hearing yesterday by Mr. Warren affecting the integrity of the high officials of the Government. I want to ask Mr. Warren this question.

I want to ask whether or not Mr. Warren has in his possession-or whether Mr. Bell, chief auditor of his department, has in his possession-any information that would lead to the belief that there has been fraud or collusion on the part of high-ranking officers of the Government in the settlement of these claims. That is just a plain question.

Mr. WARREN. Mr. Bates, I made no such intimation yesterday; and certainly if anybody in the world thought so, I think all the members of the committee who were here this morning will say that it was clarified to their absolute satisfaction. I have charged no criminality to anyone. I have said there has been waste and inefficiency and that it has been countenanced and approved and at times abetted.

Mr. BATES. You said there had been illegal payments, aided and abetted, and bordering on scandal, on the part of high-ranking officials of the Government. All I ask is the question whether you have any information which would lead you to believe that there has been any fraud or collusion. That is all I want you to answer.

The CHAIRMAN. When the committee convened this morning, Mr. Bates, I brought the question up. I read the statement that I understood Mr. Warren to have made, which was to this effect: The Comptroller General stated in effect that various wasteful, illegal acts have been committed in connection with contract settlements by certain officers, and these acts were aided and abetted by those in high authority.

Mr. Warren said he had no reference whatsoever to any terminated contracts; he had reference to items of cost that had been permitted in cost-plus-fixed-fee contracts. He said that there is ample evidence to support the fact that there has been waste and that there were illegal charges made against the items that were being manufactured. He pointed out that in some instances thousands of dollars were being contributed to charitable organizations and that large amounts were being paid and charged against articles for advertising. He made no charge, so he said, relating to terminated contracts.

Mr. BATES. Did he make any charge of fraud or collusion on the part of high-ranking officials of the Government?

The CHAIRMAN. No; he made no such charge.

Mr. BATES. I am asking the question.

Mr. WARREN. I made no such charge.

Mr. BATES. Do you want to leave with the committee any intimation that you believe there has been fraud or collusion on the part of highranking officials of the Government in the settlement of any claim?

Mr. WARREN. I said no such thing, and I certainly left no such conclusion with the committee. To repeat: I was talking about contracting officers under the cost-plus-fixed-fee contracts. I was talking of the war agencies in general, not the Army or the Navy particularly. I said that some were able, efficient, high-minded men; that others were inept and inefficient, and that some had been proved to be crooks and thieves. And that is correct.

Mr. BATES. What I have in mind, and what this committee has in mind particularly, is the high-ranking officers of the Navy, with whom we have dealt for many years.

Mr. WARREN. Oh, no; I said no such thing.

Mr. BATES. And for whom we have a very high regard as to their integrity.

Mr. WARREN. You cannot put me in that position; and I do not believe there is a naval officer in this room who will say that I have ever said any such thing.

Mr. BATES. I disagree with that statement you make because there are, and they are very much disturbed about it.

The CHAIRMAN. I want to say that if Mr. Bates had been here this morning at the outset when the committee met, I am satisfied that he would have concluded that what Mr. Warren said about aiding and abetting by those in high authority had reference only to items charged against cost-plus-fixed-fee contracts. There is no statement I recall in which Mr. Warren has said that any officer of the Navy has aided and abetted illegal transactions, has been guilty of fraud, or things

of that nature.

Mr. BATES. He used the words "bordering on scandal."

Mr. GRANT. Mr. Warren, when would the 6 months begin to run within which you feel your office would be able to handle these claims? Mr. WARREN. I think it should run from the time that a sufficient record has reached us.

Mr. GRANT. That is just the point. Suppose there were requestsand proper requests for additional information, piece by piece. The statute of limitations or the 6 months would not begin to run until such time as you had decided you had everything you needed on which to act; is not that true?

Mr. WARREN. No; we would set down a chart as to what we would call for. We would expect the record to come in that form.

Mr. GRANT. But there might be honest disagreement of opinion as to whether the request had been complied with, and, in your opinion, the settlement time would not yet begin to run.

Mr. WARREN. I do not think there would be any difference of opinion on that. We would set down in understandable English just what we wanted.

Mr. GRANT. There might be cases, such as in the exceptions I referred to, where over a long period of time the record was not made as complete as you felt it ought to be, and therefore the time would not begin to operate.

Mr. WARREN. When we spoke about the record not being complete, there was no record; they had not sent anything to us.

Mr. GRANT. You wanted additional information in the case?

Mr. WARREN. Not additional information; we wanted information, because they had sent nothing to us.

Mr. GRANT. But the statute would not begin to run, in your opinion, until you had received the complete record that you felt you had to have?

Mr. WARREN. That is when it should run-when they send a proper record.

Mr. GRANT. A long time might have elapsed, and the 6 months you require might be short in comparison to the time required to finally get a record in your hands that would satisfy you.

Mr. WARREN. I would not anticipate any trouble along that line. The CHAIRMAN. We will have the record printed; and we will have some members of the industry come before us.

The committee will take a recess until the 12th day of April at 10

a. m.

Thank you, Mr. Warren, and thank you, Admiral Robinson. We will get in touch with all of you later on.

(At 12:25 o'clock p. m., a recess was taken until Wednesday, April 12, 1944, at 10 o'clock a. m.)

UNITED STATES CIVIL SERVICE COMMISSION,

Hon. HATTON W. SUMNERS,

Washington, D. C., May 12, 1944.

Chairman, Committee on the Judiciary, House of Representatives.

DEAR MR. CHAIRMAN: The Commission refers to S. 1718 which has now been referred to your committee, to provide for the settlement of claims arising from terminated war contracts.

Section 4 (d) thereof which begins with line 12 on page 7 reads:

(d) The Director may, within the limits of funds which may be made available, employ and fix the compensation of necessary personnel without regard to the provisions of the civil-service laws and the Classification Act of 1923

*

*

* "

It is the opinion of this Commission that any proposal to exempt positions form the civil-service requirements does not constitute desirable legislation, particularly in view of the manpower shortage and the high cost to the taxpayer because of several agencies bidding against each other in their efforts to secure qualified employees.

It is therefore urged in the interests of efficiency and good administration that the words without regard to" beginning in line 14 on page 7 be deleted and the words "in accordance with" be substituted therefor.

The Bureau of the Budget advises there is no objection to /the submission of this report.

By direction of the Commission:
Very sincerely,

HARRY B. MITCHELL, President.

SMALLER WAR PLANTS CORPORATION,
Washington, D. C., May 10, 1944.

Hon. HATTON W. SUMNERS,

House of Representatives, Washington, D. C.

DEAR JUDGE: Herewith two proposed amendments to a contract termination bill known as S. 1718. I sincerely hope, on behalf of those having some million or more subcontracts, that these amendments will be considered by the House Judiciary Committee at the time when it considers the bill.

The first amendment provides for the purchase of claims of subcontractors by the Smaller War Plants Corporation in the event that the prime or higher tier subcontractor goes bankrupt.

The second amendment would permit the Smaller War Plants Corporation to set up an insurance system for the purpose of insuring small termination loans. It is nothing new. It is a conservative system which would enable the bankers of the country to solve the interim financing problem so far as it affects our small business.

Attached also is a memorandum discussing the reasons for this insurance proposal.

I hope you can give these matters your consideration before the committee meets next week.

Smaller War Plants Corporation is hereby authorized and directed to purchase the claims of subcontractors in the following cases:

(a) Where a prime or higher tier subcontractor has become bankrupt or a court has taken jurisdiction of its assets under the terms of chapter 10 of the Bankruptcy Act; and

(b) Under such other circumstances as the Director may prescribe or approve. Smaller War Plants Corporation shall pay fair compensation as described in section 6 (a) above for all claims so purchased by it without regard to the amount which it may ultimately collect thereon.

Unexpended funds in the hands of Smaller War Plants Corporation may be used for the purchase of claims as herein set forth.

SMALLER WAR PLANTS CORPORATION PROPOSED INSURANCE AMENDMENT TO S.

1718

SEC. (a) The Chairman of Smaller War Plants Corporation (hereinafter in this section referred to as the Chairman) is authorized and empowered upon such terms and conditions as he may prescribe, to insure banks, trust companies, and financial institutions (hereinafter in this section called financial institutions), which he finds to be qualified by experience or facilities and approves as eligible for credit insurance, against losses which they may sustain as a result of loans, advances of credit, and purchases of obligations representing loans and advances of credit made by them on and after July 1, 1944, and prior to one year after the cessation of hostilities as declared by the President or by Act of Congress (hereinafter in this section called loans) for the purpose of furnishing interim financing to war contractors and subcontractors.

(b) The Chairman may make advance commitments to insure such loans. (c) In no case shall the insurance granted by the Chairman under this section to any such financial institution exceed 20 per centum of the total amount of such loans.

(d) The total liability which may be outstanding at any time plus the amount of claims paid in respect of all insurance granted under this section and less the amount collected from insurance premiums and other sources and deposited in the Treasury of the United States under the provisions of subsection (i) of this section shall not exceed in the aggregate $300,000,000.

(e) No insurance shall be granted under this section to any such financial institution with respect to any obligation representing any such loans.

(1) if the amount of such loans to any one concern or its subsidiaries exceeds the sum of $100,000;

(2) unless such loan is secured by an assignment of or covenant to assign a claim upon a terminated war contract; and

(3) unless the obligation bears such interest, has such maturity (not later than the date of payment of the assigned termination claim) and contains such other terms, conditions and restriction as the Chairman shall prescribe, in order to make credit available for the purpose of this title:

Provided, That any obligation with respect to which insurance is granted under this section, may be refinanced and extended in accordance with such terms and conditions as the chairman may prescribe, but in no event for a term extending beyond the date of payment of the termination claim except that in the event the payment received from the termination claim is insufficient to pay such obligation the chairman may, in his discretion, extend the time within which the obligation may be paid or otherwise alter or amend the terms and conditions of the insurance in order to effect the most practical collection of the obligation.

(f) Notwithstanding any other provisions of law, the Chairman shall have the power, under regulations to be prescribed by him, to convey, assign, or sell at public or private sale, or otherwise dispose of, any real property, evidence of debt, contract, claim, personal property, or security assigned to or held by him in connection with the payment of insurance granted under this section, and to collect or compromise all obligations assigned to or held by him and all legal or equitable rights accruing to him in connection with the payment of such insurance.

(g) The Chairman is authorized and empowered, under such regulations as he may prescribe, to transfer to any approved financial institution insurance in connection with any loans which may be sold to it by another approved financial institution.

(h) The Chairman is authorized in any case he deems appropriate to waive compliance with regulations heretofore or hereafter prescribed by him with respect to the interest and maturity of and the terms, conditions, and restrictions under which loans may be insured under this section.

(i) The Chairman shall fix a premium charge for the insurance granted under this section, such premium charge shall not exceed an amount equal to one per centum of the net proceeds of such loan, and such premium charge shall be payable in advance by the financial institution and shall be paid in such manner as may be prescribed by the Chairman. The moneys derived from such premium charges and all moneys collected by the Chairman as fees of any kind in connection with the granting of such insurance as provided in this section, and all moneys derived from the sale, collection, disposition, or compromise of any evidence of debt, contract, claim, property, or security assigned to or held by the Chairman as provided in subsection (d) of this section shall be deposited in an account in the Treasury of the United States which account shall be available for defraying the operating expenses of the Chairman under this section and any amounts in such account which are not needed for such purpose may be used for the payment of claims in connection with the insurance granted under this section,

(j) The Chairman is directed to make such rules and regulations as may be necessary to carry out the provisions of this section.

(k) For the purpose of carrying out the provisions of this section and providing a fund from which any losses arising from such insurance may be paid there is hereby appropriated the sum of $300,000,000 which said sum shall be deposited in the Treasury of the United States subject to the order of the Chairman, provided, however, that such money shall be used by the Chairman solely for the purpose of paying losses arising out of such insurance and all drafts drawn by him on the Treasury and directing disbursement of such money shall clearly state that they are drawn for such purpose only.

(1) The Chairman shall make an annual report to the Congress as soon as practicable after the 1st day of January in each year of his activities under this section.

(m) In order to carry out the provisions of this section, the Chairman may establish such field offices, accept and utilize such uncompensated services, utilize or borrow such Federal officers and employees and appoint such other officers and employees as he may find necessary and may prescribe their authorities, duties, responsibilities, and tenure and fix their compensation without regard to the provisions of other laws applicable to the employment or compensation of officers or employees of the United States. The Chairman may delegate by order or power of attorney any of the functions and powers conferred upon him under this section to such officers, agents and employees as he may designate or appoint and may make such expenditures (including expenditures for personal services and rent at the seat of government or elsewhere, for law books, books of reference, and for paper, printing and binding) as are necessary to carry out the provisions of this section without regard to any other provisions of law governing the expenditure of public funds. All such compensation, expenses and allowances shall be paid out of funds made available by this act.

(n) The Chairman shall in carrying out the provisions of this section be authorized, in his official capacity, to sue and be sued in any court of competent jurisdiction, State or Federal.