settlement,-keeping payment separate from decision-you have two problems, which you lawyers know better than I do, the problems of counterclaims, for instance, and the effect in bankruptcy anywhere in your contract chain. Politically there is another difficulty. If the Government sets up a plan that is going to provide quick payment to big contractors, and it will not have enough personnel to handle them all, I think you are going to have a tremendous political uproar that you are not handling the small men fairly. And when you start to induct men to believe that the Government should handle all the subcontractors' claims, you are going to have trouble. I am for company-wide determination in any case and for settlement if we can find the answer on bankruptcy, and we are trying to find the answer. We have a number of men working on the job. It is not yet coming clear. I can see some daylight on the counterclaim problem but we are not clear yet. If we cannot get releases, we cannot settle. The bankruptcy problem nobody has seen through yet. The other problem is, I am afraid, the administrative break-down. If you start promising everybody in America that we are going to settle every claim in every plant-we have 70,000 plants-we are not going to have enough auditors to find facts as bases for settlements. If we sit around and propose a plan that is going to help the big companies get their money quickly and let the small men run the risk of bankruptcy and delay in settlement, I want the burden to be on your shoulders and not on mine. Yet I am sympathetic to the movement, but I cannot see my way through it. I have been very brief and very sketchy, but I think I have covered the problem. We have got to find the answer in the next 2 weeks. We shall probably have to make the best decision we can make. You will have to depend largely on the good administration afterward. Mr. VINSON. Well, gentlemen, I think I have said all that I can say. Mr. WALTER. Thank you very much, Mr. Vinson. We appreciate your cooperation. Mr. KEFAUVER. May I ask Mr. Vinson a question? Mr. WALTER. All right. Mr. KEFAUVER. In the bill I introduced, H. R. 4717-I do not know whether you have had a chance to look it over Mr. VINSON. No; I have not analyzed that, but I have analyzed the Murray bill. Mr. KEFAUVER. I tried to provide for a yardstick something along the line of yours. I think in many respects yours is an improvement, but I have a provision about which I would like to ask you. I would like to ask if you think it is advisable to try to separate the wheat from the chaff in the matter of audit. We can assume that 95 percent of the companies would have their books in such shape that you could rely on them, so that you could make a terminated contract. But in the case of others, committees have found that their books are sloppy and the bookkeeping methods bad. So the Government would be pretty sure to come out badly in some of those cases unless there was some kind of audit by the contracting agency who could go into the records in more detail than you would ordinarily want to go into them in making a termination settlement with a more responsible contractor. I tried to set up a provision to provide that where the books are in reasonably good shape to show that this, that, and the other was there, and the claim could be settled, no audit would be taken. But where the books were irresponsible and the figures could not be relied upon without great risk to the Government, then an audit by the contracting agency to the extent necessary would be made before the settlement. My idea was that if you worked by the criterion of having to have your books in reasonably good shape, these companies-I will not mention any by name that have not followed good bookkeeping methods would get their books in better shape. Do you think anything like that might be feasible? Mr. VINSON. On all cost-plus-fixed-tee contracts that will be involved-there is not much of that involved in this there is an audit being carried on all the time. This is on fixed-price contracts. Your point is that if a concern does not have a satisfactory audit, then the contracting agency steps in and does the auditing? Mr. WALTER. Prescribes methods of procedure. Mr. VINSON. To put that responsibility on him when he makes his claim, to justify his claim, and if the facts and circumstances show to the contracting officer whether or not the audit is a sufficient one for him to act upon-I would not put the burden upon the contracting agency to say, "Well, we do not like your way of auditing.". We would have to have certain standards to go out and audit. What about the small man, down about the third or fourth tier, running a little old garage? Put it on the contracting agency when he files his claim. If he has not done it right, why, then, make him justify it by oral testimony or documentary evidence to substantiate his claim. Mr. WALTER. I think under H. R. 4789 we have given to the contracting agencies authority to say that the companies are responsible, because of the experience we have had on this bookkeeping procedure. Mr. KEFAUVER. In rewriting 7 (a), where I originally had it much longer, I finally worked out this paragraph. I think it is along the line of Mr. Vinson's suggestion [reading]: Whenever any termination claim, or any statements, certificates, or other evidence in connection therewith, submitted by a war contractor to a contracting agency, or any other information available to or obtained by a contracting agency, warrants a reasonable belief on the part of such contracting agency that the methods of accounting and control employed by such war contractor are inadequate to permit reasonable reliance by such agency on the facts, figures, and other data which form the basis of such claim, the contracting agency shall not settle such claim until after a thorough audit has been made of such claim. Mr. VINSON. Of course, it would not settle it anyhow, because he would have to have facts to support his claim. You are prohibiting him from weighing what has been submitted there until he had audited it himself. Take a subcontractor down in Georgia, who is in the third tier. He is running a little old garage, making some little part for somebody. He may be involved in a certain phase of settlement and might be dealt with directly by the Government. The Government might be buying up his claim. Some officer down here might say, "You do not have a good method of accounting for this thing." 99189-44-3 Mr. KEFAUVER. The only thing is that if he finds reasonable reliance could not be placed Mr. VINSON. He would not pass on it. Mr. HANCOCK. He would not know that until he had gone in to examine the case. Mr. VINSON. Do not establish by any legislation that business has got to have certain particular standards of auditing and bookkeeping, and all that, if you can avoid it. Mr. KEFAUVER. It is provided in other parts of the bill that they do not have to standardize; that they may use their own system. But I thought the Truman committee and some other committees had found places where by sloppy bookkeeping, by looking at the books, you could not tell what the facts were. Mr. VINSON. No. In my investigation, the finest bookkeeping oftentimes is a mere effort to dodge around. It is not so much a question of sloppy bookkeeping, because the fellow who keeps books on the back of an envelope. is the fellow you can rely on pretty well. He carries his books under his hat. I would not put that in. Mr. HANCOCK. I am afraid of it initially. I would like to know a little more. My fear is that you are going to have a lot of men and that we are going to have to depend on a lot of men who are not as wise as Solomon. They are going to go out and see how your books are kept, not that they are bad, but that they do not fit what this man's preconceived idea of what books should be. The contractor is going to have a set of forms that will indicate the basis of his claim. The man, however, will show the facts as best he knows them. The Government man can look at that rather quickly. He is going to know whether a casting costs $2 or $4. The man will come to a basis on the net on pretty good validation of facts. The contracting agent for the Government is going to know whether the fair cost was $8 or $15, whether $30 or $50. I do not think it does any harm to give him $15 as against $13 if both are in the realm of fair cost. He is going to pay more back in taxes. He may be caught in renegotiation. The important thing is to get him back to work very soon. Mr. WALTER. For a tremendous amount of claim there will be very little delay. Mr. HANCOCK. You gentlemen will be startled to find that a good many claims that contractors have against the Government today, for tremendous amounts of money, are being passed up; the contractors are saying, "Let us forget them." They say, "What good does it do us to get the money? If we get it, we have to renegotiate. Mr. KEFAUVER. I did not understand that after a claim had been settled, it could be renegotiated. Mr. VINSON. Oh, yes. Not that one contract, but for the company's over-all contracts. That applies also to the Murray-George bill. Now, I want to say this: We are right up against what Mr. Hancock has said. Time is of the essence. The Navy Department wants a standard to go by just as quickly as we can write it on the statute books. Every other department wants it. I want to pledge my full cooperation in trying to get a bill out just as quickly as it can be brought to the floor of the House. Whether it embodies all my views does not make any difference. I have no pride of authorship; results are what I want. I want the Government to be protected, and I want business equally to be given a square deal. But I do not want any hurry in drafting a bill so that the Government is going to be forgotten while the contractor receives an adjustment. I think there are certain protections that we can throw around all these matters that are not going to delay the bill at all. Mr. WALTER. Thank you very much, Mr. Vinson. (The information requested is as follows:) Interdepartmental committee promul- Director of Contract Settlement, gates basic policies, resolves contro- Office Contract Settlement; has adversies, adopts procedures respecting visory board; $12,000 year compensasurplus property disposal, appoints tion; issues "orders and regulations"; Appeal Board personnel. may restrict exercise of any agency's authority. 3. Surplus property May acquire from or sell to contrac May acquire "termination inventors materials at plant. General author-tories" of contractors. No special disity for public and private sales of surplus posal provisions. property to achieve specified objectives. 4. Review of settlements Provisions for departmental review. | No requirements. 5. Yardsticks as to items considered in settlements 8. Reconversion costs Title II provides for ascertaining | No provision. amount of reconversion costs and pay ing same. ANALYSIS OF S. 1718 Section 1 deals with the objectives of the legislation. Speed, fairness, and uniformity are prescribed. Prompt termination notices and expeditious removal of inventory are suggested. Prevention of improper payments and detection and prosecution of fraud are provided. Section 2 provides for appropriate committees of Senate and House to study reports submitted by Director and Comptroller General and their continuous surveillance. Requires Director to submit quarterly reports, showing status of contract terminations, interim financing and procedures employed. Section 3: Definitions, very similar to our bill. Section 4 sets up Office of Contract Settlement, to be headed by a Director of Contract Settlement, to serve for 2 years at $12,000 a year. His job is to coordinate the activities of the several Government agencies and to prescribe the policies, principles, methods, procedures, and standards. It provides that he shall perform his functions through the personnel and facilities of the contracting agencies. Section 5 sets up a Contract Settlement Advisory Board consisting of the Director, the Secretaries of War, Navy, and Treasury, Chairman of the Maritime Commission, Administrator of the Foreign Economic Administration, Chairman of the Reconstruction Finance Corporation, Chairman of the War Production Board, Chairman of Smaller War Plants Corporation, and the Attorney General. The Director shall advise and consult with this Board. Section 6 provides for the settlement of termination claims and sets up only broad general standards, such as reasonable costs solely incident to termination and settlement, reasonable costs of removing and storing termination inventory, allowance of reasonable profit and interest on the termination claim. It permits the contracting agency to settle claims by agreement or by determination of the amount due. Provides that any settlement by agreement shall be final and conclusive except for fraud or renegotiation. It also provides that settlements by determination shall be final unless the war contractor appeals or brings suit. It provides for the payment of interest at 21⁄2 percent, running from 30 days after termination to final settlement, with certain exceptions. Section 7 provides that each contracting agency shall establish methods and standards for determining fair compensation. Provides it shall adopt so far as possible settlements made by contractors with subcontractors. It recommends group settlements of subcontractors' claims. The Section 8 provides for interim financing up to 100 percent of the completed items and 90 percent of the cost of raw materials purchased, parts, etc. interim financing provisions are very simi ar to our bill. It provides that the Director may prescribe penalties for overstatement by the war contractor of the amount due on termination. Section 9 provides for advance or partial payments on account of any termination claim. It provides that any excess advance payment shall be treated as a loan. Section 10 provides for loans through Federal Reserve banks. Section 12 provides for the removal and storage of termination inventories. It provides for a statement of such termination inventories, and for the Government to arrange for the storage or removal of such inventories within 60 days. It provides that the War and Navy Departments and the Maritime Commission can take over any such termination inventory for their own use. Section 13 provides for an appeal by the contractor to an appeal board when the contractor is dissatisfied with the amount determined to be due by the contracting agency. It provides for the preparation of written findings indicating the basis of termination. It provides for the payment of 90 percent of the amount determined to be due pending appeal. The contractor has an election to appeal to the appeal board or to bring suit in the Court of Claims or a United States district court. It also provides that where any contracting agency has provided a procedure within that agency for protest against findings, the war contractor |