Mr. HANCOCK. That is possible. I do not see any way of guaranteeing that without getting into the merits of the case, because you are going to have disputes. Here is a subcontractor who has delivered his stuff last month. It does not pass the inspection. You have a counterclaim. I do not know how the Government can mediate all those cases. We provided, however, that the Government might step in between on a showing of fact. But that is different from assuming the obligation to step in in every case. If a subcontractor has a claim against the prime contractor, he may go to the Government, and the Government may intervene. I am also sure that the Government is not going to be in a hurry to intervene, except in a good showing of the facts. That has been the ordinary risk of commercial business. That happens all the time in war or peace. There is nothing new about that but the fact that the Government made a contract with the prime contractor. The only difference would be if the Government stepped in and said, "You have to subcontract these airplane parts to a weak contractor.'

Mr. WALTER. Where there is arbitrary holding up of a claim, the Government may step in and make settlement?

Mr. HANCOCK. That is right, or may have arbitration.

Mr. KEFAUVER. The 90 percent interim financing provision applies to subcontractors?

Mr. HANCOCK. To everybody.

Mr. KEFAUVER. Suppose the Director authorized a prime contractor to make settlement with a subcontractor. Is there going to be any administrative difficulty in getting 90 percent interim financing to the subcontractor when there has not been any collection of the amount of his claim with the prime contractor?

Mr. HANCOCK. I do not think so. It is conceivable that there will be. But here is the protection. If a subcontractor can go to his local bank and get the local bank to take 10 percent of the risk, the local bank is going to police that operation pretty well.

Mr. KEFAUVER. How much record do the procurement agencies have of the subs?

Mr. HANCOCK. Far from complete, but they are going to be quick on making guaranties with the banks taking 10 percent.

Mr. KEFAUVER. I can visualize that with the Government not having much record of the amount of a subcontractor's claim, he might have real difficulty in getting interim financing, because there might be a very substantial dispute between him and the prime contractor as to how much he has coming to him.

Mr. HANCOCK. It should not be very much, but he is going to be able to satisfy his bank of the substantial character of his claim and of the fact that the claim ties into a Government contract.

Mr. KEFAUVER. This has in mind making provision for liberal loans to the subcontractors?

Mr. HANCOCK. That is right. There may be some erring on that side. I think it is better to err on that side than on the other. But you are going to have pretty quick validation for a contractor by dealing through his own bank.

Mr. KEFAUVER. Is it in the contemplation of the Director to enter into any sort of insurance arrangement, such as the authority sought by the Smaller War Plants Corporation?

Mr. HANCOCK. It has not been up to now. The question arose only yesterday. So far as I am concerned, I am only afraid that if you start trying to grasp that now, it will mean delays. If you find the need is here, I do not see any objection in principle to it. But I would not like to see the thing start out at this stage without any obvious need for it. I do not think that the need is going to arise. Mr. KEFAUVER. Do you see a need for any insurance plan or the need for the Smaller War Plants Corporation being authorized to insure payment of small claims?

Mr. HANCOCK. The need for an insurance plan.

Colonel ROSE. As distinguished from guaranty.

Mr. KEFAUVER. Is it your contemplation that if the need arises, the word "guarantee" in that section is sufficiently broad to enable the Director to put into effect an insurance plan?

Mr. HANCOCK. Absolutely. I have not asked counsel about it, but I do not see any objection to it.

Mr. KEFAUVER. There is some difference between guaranty and insurance. It may be a legal or a technical difference.

Mr. HANCOCK. The question had not arisen until yesterday. I mean in my mind it had not. The best bet I can make today is this: The banks of the country want to get back into commercial business. This ought to be reasonably attractive business to them. It ought to be the kind of thing they can do and do very well. Now, the advantage of having them do it is that you get quick policing of the moral character of the man who is making the loan. That is the best credit basis there is. There will be errors and differences in judgment as to the amount to be paid. But it is recoverable, and a bank is certainly going to police it more effectively than it can be policed from Washington.

Mr. KEFAUVER. Suppose the contracting agencies did want to make very substantial loans or even go into the business of insuring banks on the payment of loans made on claims. Do you have any money to do it except what you get through the Federal Reserve bank or working in connection with them?

Mr. HANCOCK. They are authorized today to guarantee it on the basis of their appropriations. They will not have a basis for going into the insurance business, I believe.

Mr. WALTER. Of course, it is well in that connection to bear in mind the fact that money has been appropriated for these contracts in their entirety.

Mr. KEFAUVER. The unexpended balances may be used under this section 10 for that purpose?

Mr. WALTER. To settle claims, yes.

Colonel ROSE. That is a specific provision of section 22, page 51. Mr. HANCOCK. I would hesitate to say that there is power to handle insurance under that, but it might be that counsel would say that the word "guarantee" was broad enough. But I have had no indication from the banks in this country that they have any concern or worries about needing insurance.

Mr. WALTER. The only thing I am fearful of is that we have given the Federal Reserve so much power they might veto a loan that a bank might think would be all right.

Mr. HANCOCK. They are a tool in the middle, as an agent of the procurement agency.

Mr. KEFAUVER. If they did veto a loan, the contracting agency could make the loan direct.

Mr. HANCOCK. Yes; but the Federal Reserve has been more than cooperative throughout this plan. I have no trace of fear of any difficulty created by them; I look forward to the finest of cooperation from the whole crowd. Mr. Eccles has helped us. We brought bankers from all over the country in the middle of January. We had a 2-day session with them and have had frequent meetings with them since then. The bankers are anxious to have this plan approved. The loan provisions are of two pages, against the old V. T. loans of 60 and 70 pages. This new plan looks so simple that any small town banker can readily understand it, and on the basis of the faith he has in the man he is dealing with he can go ahead and make the loan. We will decentralize the administration of it so that he will get his money very quickly. I hope I am not promising more than we will be able to perform, but the spirit of performance is perfect. You could not ask for anything better than that.

The CLERK. Should not the reference on page 33, line 17, subsection "(b)" of section 6, be to subsection "(c)" of section 6? Mr. WALTER. Page 33, line 15.

Mr. HANCOCK. Yes; it looks like it.

Mr. KEFAUVER. Mr. Hancock, could I ask you what the last sentence in section 9 (a), page 18, means?

Mr. HANCOCK. The question has been confused around the words "partial settlements," "partial payments," and "advance payments." The important part, to my mind, is this: When the payment is made, the man may know, the man must know, and is entitled to know whether this payment is recapturable by the Government in any event. What we are proposing here is that you will do this. Perhaps a man is owed X dollars, we will say; the Government admits it owes him that amount of money as final payment. It might be final as to the particular items covered at the time or it might be final only as the total amount. But it is paid in order to expedite operations. For example, a man is claiming, we will say, $100,000. He is paid $90,000 as a final payment. That part is settled. We cannot get by with any less than that. But we have not bound ourselves to the exact determination of the exact items to which it applies.

Colonel ROSE. I think the question was this: There was a desire for legislative confirmation of authority to make three kinds of payments: One would represent a final closing on the items covered. In other words, you might make a negotiated settlement of part of the claim but say, "We cannot agree on the rest of it. We are going to deal finally as to the part we can agree on and make a payment that will be final in amount as to those items."

Secondly, you might want, as you pointed out, to make payment which would not be recapturable but which would not settle any specific items in the claim. In other words, you might want the contractor to go to formula settlement finally, but also say to him, "You are entitled to at least 90 percent. We will make with you a final agreement whereby this $900,000 out of your $1,000,000 claim

will not be recapturable by us in any event, although any specific item in your claim can be reviewed in formula settlement."

Or, third, you may want to make an advance, a pure loan. I think that the purpose was to confirm legislative authority to make any one of these three types of payments.

Mr. KEFAUVER. I think it is well to have that authority. I did not understand it.

Mr. WALTER. There are certain items roughly ascertainable, and the idea was to get them settled in 5 seconds.

Mr. HANCOCK. Or if you were not able to move quite that fast, you might say, "I will pay you $90,000 anyway, knowing you are entitled to at least that much; but it is not final as to everything."

Mr. WALTER. So when settlement is made, you go back and review and determine the manner in which the $90,000 was arrived at. Mr. HANCOCK. And merge it all into one final settlement.

Colonel ROSE. Which in that case might be more but could not be less than $90,000.

STATEMENT OF M. D. FOLSOM, DIRECTOR OF STAFF, HOUSE SPECIAL COMMITTEE ON POST-WAR ECONOMIC POLICY AND PLANNING

Mr. WALTER. Mr. Folsom, do you have a statement you wish to make for the record?

Mr. FOLSOM. My name is M. D. Folsom. I am director of the staff of the House Special Committee on Post War Economic Policy and Planning.

I am submitting, first, the report of this committee relating to the settlement of claims arising from terminated war contracts.

Mr. KEFAUVER. I move that the report be included as part of the hearings of this committee.

Mr. WALTER. Without objection, it is so ordered.

Mr. FOLSOM. This report was adopted unanimously by the 18-man committee, and it was based upon the hearings at which there appeared a number of men representing business organizations, labor organizations, and government agencies.

The committee has studied its own hearings and the hearings of other committees of the House and Senate.

Also, a subcommittee of the Post War Committee, consisting of five members, with Mr. Walter as chairman, was appointed to study the problem in detail. That committee held 14 meetings and, as a result of the study, recommended to the full committee the approval of the bill which was introduced by Mr. Walter, namely, H. R. 4789. Mr. KEFAUVER. The Post War Committee has gone very thoroughly into the matter of contract termination, has it?

Mr. FOLSOM. Yes, sir.

Mr. KEFAUVER. You have heard many witnesses on the subject? Mr. FOLSOM. We have heard witnesses over the last 2 months and the subcommittee had a number of executive sessions. All the witnesses have stressed the importance of early congressional action to give the necessary authority in policy direction relating to the settlement of claims arising from terminated war contracts.

Mr. KEFAUVER. You are including as part of your testimony the parts of the hearings having to do with contract termination?

Mr. FOLSOM. Not the whole hearings; just extracts relating to them.

[NOTE.-In order to make the record immediately available there follows hereafter in this record the Special House Post-war Planning Committee hearings on contract termination.]

Mr. KEFAUVER. I understood you to say that there was unanimous approval by the subcommittee and also the full committee of the bill introduced by the chairman of the subcommittee, who is also chairman of this subcommittee, Mr. Walter?

Mr. FOLSOM. Yes, sir; and the reasons are given in the report which I have submitted. (The report referred to is as follows:)