MEMORANDUM RE PROPOSED AMENDMENT TO S. 1718 The proposed amendment follows very closely the provisions of title I of the Federal Housing Act. The reasons for offering this amendment at this time are as follows: (1) The Army states that there are between one and two million war contracts. (2) It is possible that the bulk of these contracts may have to be terminated within a relatively short space of time. (3) The V-loan, VT-loan, and T-loan guaranty procedure is not adapted for mass production. Only about fifty-six hundred V-loans have been made to date, and the number of VT-loans is very small. (4) Neither Reconstruction Finance Corporation, Smaller War Plants Corporation, nor the services have adequate personnel to handle a great number of credit applications on an individual loan or individual guaranty basis. The banks and trust companies of the country are the proper institutions to handle the bulk of interim or contract termination financing. However, the security behind this type of loan is hard to appraise, and the maturity is indefinite. This is particularly true where the small subcontractor is concerned. For these reasons it is probable that the banks must be fortified in some manner if they are to handle these loans. The size of the problem makes it imperative that any system set up should act as automatically as possible. Ac The $100,000 loan limit in the proposed amendment is an outside figure. cording to Army and Navy estimates, more than 50 percent of termination claims (including both primes and subs) amount to less than $10,000. It is, therefore, probable that the individual banks will have a sufficient number of relatively small loans so that their coverage on the shaky loans will amount to 100 percent. Title I of the Federal Housing Administration has been very successful. During the period from June 3, 1939, to December 31, 1942, Federal Housing Administration paid all of its losses and administrative expenses under this title from its premium income and had approximately $3,000,000 left over. This insurance proposal will not require as large an organization as will be necessary if individual loans are to be made or guaranteed. In the event that contracts are terminated in such a manner that insurance services are not needed, no great amount of money will have been spent. On the other hand, if an appropriate insurance system is made available for small termination loans, it may prevent disaster in the same manner that a sprinkler head prevents disaster when it goes off and puts out the fire. SMALLER WAR PLANTS CORPORATION The Honorable HATTON W. SUMNERS, United States House of Representatives. DEAR JUDGE: I am enclosing herewith three proposed amendments to the contract termination bill known as S. 1718. These amendments are essential to small business and the maintenance of free enterprise. I would appreciate it if you would urge the passage of these amendments to S. 1718. Sincerely yours, (Enclosures.) MAURY MAVERICK, Chairman and General Manager. PROPOSED INSURANCE AMENDMENT TO S. 1718 SEC. 11. (a) Smaller War Plants Corporation is empowered upon terms and conditions which it may prescribe, to insure and make commitments to insure banks, trust companies, and financial institutions which it finds to be qualified, against losses up to 40 per centum of the aggregate of loans not exceeding $50,000 each made in contemplation of or related to termination of war contracts after July 1, 1944 and prior to one year after the cessation of hostilities. (b) Three hundred million dollars is hereby appropriated to Smaller War Plants Corporation to furnish a revolving fund which it may use together with premium charges and other collections to pay operating expenses and losses. (c) Smaller War Plants Corporation may (1) Fix and collect a premium charge not in excess of 1 per centum per annum. (2) Appoint officers, agents and employees and fix their classification, tenure and compensation withour regard to other laws. (3) Delegate powers to officers, agents, and employees. (4) Sell, convey, and assign real and personal property. Collect or compromise obligations. Sue and be sued in any court of competent jurisdiction. SMALLER WAR PLANTS CORPORATION PROPOSED AMENDMENT TO S. 1718 PURCHASE OF CLAIMS BY S. W. P. C. Proposed Section 7 (f): 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. S. 1718 On page 48, line 22, after "inventories," and between the word "in," insert the following: "make interim loans and guarantees and otherwise exercise powers herein conferred on contracting agencies,". INTERNATIONAL UNION, UNITED AUTOMOBILE, AIRCRAFT, AGRICULTURAL IMPLEMENT WORKERS OF AMERICA (U. A. W.-C. I. O.), Re Kilgore bill (Sen. 1893). Hon. HATTON W. SUMNERS, House of Representatives, Washington, D. C. Detroit, Mich., May 12, 1944. DEAR CONGRESSMAN SUMNERS: The termination of war contracts consequent upon the completion of the European phase of the war will leave millions of war workers without employment or the prospect of employment during the long months needed for the reconversion of industry and deny immediate reemployment opportunities to returning servicemen. This prospect seriously threatens the morale of those upon whom the Nation depends for the fighting and working called for as we face the climax of our war against the Axis. Industry has received the most generous protection to its profits levels through the carry-back provisions of the Internal Revenue Act, and the Senate of the United States has just passed Senate bill 1718 which grants to industry all that it has asked for itself in the termination and settlement of war contracts. No action has been taken to provide legislation necessary to effect the speediest conversion when the time comes for that, nor have any measures been enacted to meet the human needs for retraining, increased unemployment compensation or dismissal pay arising out of the conversion of industry to peace. All of these problems can be met through provisions of the Kilgore bill (Sen. 1893) which has so far been denied consideration by Congress, despite its endorsement by the Congress of Industrial Organizations, American Federation of Labor, and the Railroad Brotherhoods. It is, therefore, with these thoughts in mind that the International Executive Board of the United Automobile Workers-Congress of Industrial Organizations in meeting in the city of Minneapolis, Minn., May 8, 1944, urgently calls upon you to 1. Seriously consider favorable action upon the Kilgore bill; 2. Requests your position be made known on this legislation; and 3. Urges the amendment of the contract settlement bill now before the House of Representatives to provide that contract settlement payments shall cover dismissal pay where union-employer contracts call for such pay ment. We do sincerely trust our request will receive your immediate and thoughtful consideration. GENTLEMEN: In considering the proposed legislation regarding settlement of terminated war contracts, we respectfully request that you read the enclosed resolution adopted by the Council of the American Institute of Accountants May 9, 1944, which refers particularly to the problem of auditing the records underlying termination settlements. Yours respectfully, JOHN L. CAREY, Secretary. RESOLUTION ON AUDITING IN SETTLEMENTS OF TERMINATED WAR CONTRACTS ADOPTED BY COUNCIL OF THE AMERICAN INSTITUTE OF ACCOUNTANTS MEETING AT NEW YORK, MAY 9, 1944 Whereas certain proposed legislation before the House of Representatives would provide for participation by the General Accounting Office in decisions as to amounts to be paid to war contractors whose contracts have been terminated for the convenience of the Government; and Whereas such participation by the General Accounting Office would inevitably lead to delay in settlements and duplication of audits or accounting reviews which in any event would have to be conducted by the procurement agencies, and sufficient trained personnel is not available to do the extra work; Whereas, sound business practice has demonstrated that the person responsible for audit of completed transactions should have no share of responsibility for the administrative decisions governing such transactions: Be it Resolved, That the Council of the American Institute of Accountants assembled in regular meeting May 9, 1944, urges Congress to enact legislation providing (1) That the procurement agencies have the responsibility for settlement of terminated war contracts, and that their settlements once made be final and binding except for fraud. (2) That the General Accounting Office, by tests and samples, in accordance with generally accepted auditing practice, make post audits of the records of the completed termination settlements at the offices of the procurement agencies to the extent necessary to satisfy it as to both whether or not fraud existed and whether or not the procedures followed by the procurement agencies in termination settlements were functioning properly, with adequate safeguards; reports of the findings of the General Accounting Office to be submitted periodically to the proper administrative authorities and to Congress. (3) That the Comptroller General have no particupation in settlements by the procurement agencies, either with or without a vote, because he would thereby be disqualified from making an independent audit of decisions in which he had himself participated: and be it further Resolved, That the Council of the American Institute of Accountants approves the provisions of Senate bill 1718 relating to this subject, which appear to be wholly in conformity with the principles outlined in this resolution. Hon. HATTON W. SUMNERS, ST. LOUIS CHAmber of CommERCE, Chairman, Judiciary Committee, House of Representatives, Washington, D. C. DEAR MR. SUMNERS: We are writing you to urge that Congress speedily enact a law governing the rights and obligations of business following the termination of war contracts. Last February we held a conference in St. Louis at which over 600 contractors from the St. Louis ordnance district were in attendance. At that conference we discovered that there was much confusion and uncertainty in the minds of contractors about how to proceed when termination occurred. It is our conviction that until the necessary legislation is passed this feeling will continue to prevail, thus acting as a deterrent to the progress of business and to the successful prosecution of the war. Contract termination is one of the most important problems facing Government and business today. Over $12,000,000,000 of contracts have already been terminated. This amount, as you well know, will continue to increase. The need, therefore, of providing a clear-cut method of procedure is obvious to avoid business paralysis and unemployment following the war. The Senate has passed a bill (S. 1718) which we believe embodies the essential provisions for fair and equitable settlement of terminated contracts both from the standpoint of Government and business. This bill will shortly be before the House, and we hope that you will not only vote for it but will do everything you can to hasten its enactment into law. Very truly yours, Hon. HATTON W. SUMNERS, ARTHUR G. DREFS, THE CLARK CONTROLLER Co., House Judiciary Committee, Washington, D. C. DEAR SIR: We understand that you have before you for consideration, the Murray-George Senate bill 1718, which was passed Thursday, May 4. Since we are very much interested in the fate of this measure, we wish to take the liberty of expressing to you our views on it. In our opinion this is the most satisfactory bill which has up to this time been presented to Congress covering all phases of termination of war contracts and the prompt settlement of claims arising from such termination. We therefore urge you to give this bill your careful consideration and if it meets with your approval do everything possible to secure its speedy enactment. In some of our contracts we act in the role of a prime contractor, and in others as a subcontractor. We have already received a number of cancelations and there appears to be considerable confusion as to what charges are legitimate items to include in the cost of termination and what disposition to make of materials. We feel that the speedy enactment of this bill is necessary to avoid further confusion and to obtain prompt settlement. The general opinion seems to be that prompt settlement of cancelations and terminations is of extreme importance in reconverting from war business to peacetime business, and we heartily concur in this view. With the hope that you may be in agreement with these sentiments, we beg to remain, MY DEAR CONGRESSMAN SUMNERS: I note that war contract termination legislation is now receiving the active attention of the Judiciary Committee. As chairman of the committee on Federal legislation of the Association of Reserve City Bankers, I am writing to advise you of the association's attitude on this subject. This letter is in substance the equivalent of one which, by direction of the association, I addressed to Senator Murray when the Senate Committee on Military Affairs was considering S. 1718. I understand that a companion bill of S. 1718, as passed by the Senate, is one of the House bills now before your committee. As you may know, the Association of Reserve City Bankers is composed of individuals, as distinguished from banks. Our membership of 450 is drawn from senior officers of 198 banks located in the Reserve cities. These banks, being the larger banks and holding over 50 percent of the total bank deposits of the country, have made and are making very substantial war production loans and also are the banks to which a very substantial segment of business, both large and small, will turn for nonwar financing when war production terminates. At our annual meeting in Chicago last month, attended by 320 members from all parts of the country, we considered, on April 13, 1944, the salient provisions of H. R. 3022, H. R. 4392, H. R. 4469, S. 1718, S. 1730, and S. 1823. We also heard very illuminating comments from a top war contract termination officer and a war production manufacturer-regarding termination procedures and problems-and also from a member banker well versed in the subject. They all confirmed our own thinking and experience. We had before us at that time a more recent committee print of S. 1730, and we believe that the creation of a board, composed of a director and departmental and agency heads, to deal with both war mobilization and demobilization questions reflects sound thinking on the problems ahead. We also had before us the amendments to S. 1718 suggested by the Senate Special Committee on Post-War Economic Policy and Planning. It was agreed that S. 1718, as amended in this report, establishes remarkably sound and desirable procedures and that its early passage would remove many of the doubts we, as bankers, entertain regarding both war and nonwar financing and the progressive transitions from one to the other. Inasmuch as the procedures as set forth in Senate bill 1718, as amended, are urgently needed, it was our opinion that this bill should go forward as independent legislation in the thought that the Office of Contract Settlement can later be incorporated in the over-all Office of War Mobilization and Demobilization when legislation in this respect is ultimately enacted. At the end of our discussions we unanimously adopted a motion as follows: "The Association of Reserve City Bankers approves, both in principle and substance, Senate bill 1718 as amended in the report of the Senate Special Committee on Post-War Economic Policy and Planning to the War Contracts Subcommittee of the Senate Committee on Military Affairs, dated April 7, 1944, and urges its early consideration and passage as an independent piece of legislation." I am transmitting this information by direction of the association. With kindest personal regards, Sincerely yours, HAROLD V. AMBERG, Chairman, Committee on Federal Legislation. THE FEDERATED INDUSTRIES OF WASHINGTON, Seattle, Wash., May 8, 1944. To the House Judiciary Committee, United States Congress, Washington, D. C. GENTLEMEN: At the Sixth Annual Washington Industrial Conference the following resolution was passed: "The undersigned business organizations of the State of Washington observe with encouragement the Senate passage of the George-Murray bill. "It is vitally important that prompt and final cancelation settlement with the contracting agency should be clearly assured by law as in the Senate bill. "We urge you to follow that policy and limit the authority of the Comptroller General on review to protection against fraud, and observance of procedur We urge you to prevent these essential factors from distortion by amendment." Respectfully yours, FEDERATED INDUSTRIES OF WASHINGTON, 99189-44—17 |