S. 1718, upon its passage in the Senate, was referred to this committee. In the meantime, the Post-war Planning Committee of the House had been holding hearings on contract termination and on May 10 the gentleman from Pennsylvania, Mr. Walter, introduced the bill we are now considering (H. R. 4789). The chief difference between my latest bill (H. R. 4717) and the bill introduced by Mr. Walter is that my bill contains section 4 above described, and also some more detailed cost principles. I only mention the bills filed by me because some of the correspondence which will be made a part of this record refers to them.

JOINT HEARINGS WITH SENATE COMMITTEE

When the Murray subcommittee of the Military Affairs Committee of the Senate started its hearings this spring on contract termination, Senator Murray addressed a letter to Judge Sumners, chairman of the House Judiciary Committee, and also to Mr. Walter as chairman of this subcommittee, inviting the subcommittee to join with the Senate committee in its hearings. As a result of this invitation members of this subcommittee have participated in the hearings with the Senate Military Affairs Committee.

The testimony of most of the witnesses before the Senate Military Affairs Committee is contained in a bound volume of hearings and I understand that more than 200 copies are available for members of the House and, in order to save the duplication of printing, these volumes can be used when the House has this bill under consideration. This will do away with the necessity and expense of reprinting these voluminous hearings. The hearings before the Post-war Planning Committee of the House have been included and are set out hereafter. Some of the witnesses who testified before that committee also testified before the joint hearings of the Judiciary Subcommittee with the Senate Military Affairs Committee and, in order to avoid duplication, I do not deem it necessary to include the statements of the same witnesses given before both committees.

I do, however, ask leave to file as part of the record statements of Maury Maverick, chairman of the Smaller War Plants Corporation; Francis Biddle, Attorney General; Donald M. Nelson, Chairman of War Production Board; Frederick C. Crawford, National Association of Manufacturers; Arthur G. Drefs, chairman of the committee on contract termination disposal, National Association of Manufacturers; Herbert L. Carpenter; and Edward O'Neal.

In the hearings of the Senate Military Affairs Committee, in which members of this committee joined, the statement of the Honorable Lindsay C. Warren, Comptroller General of the United States, will be found at page 203. The statement of Frank L. Yates, Assistant Comptroller General, will be found at page 212. As I said before, a number of these hearings are available.

I feel, however, that probably the most comprehensive statement made by the Comptroller General, stating his position, is found at page 1656 of the hearings before the Naval Affairs Committee. This is Mr. Warren's latest statement recorded in hearings, having been been given on March 28, 1944. The chairman of the Naval Affairs Committee, Mr. Vinson, has kindly agreed to allow us to incorporate Mr. Warren's statement in these hearings and, with Mr. Vinson's permission, I ask leave to include Mr. Warren's statement.

Mr. Chairman, when I filed H. R. 4717, I sent copies of it to a number of the governmental agencies and to other interested people in the groups. I have also sent copies of additional cost standards which I propose to offer as an amendment and I have received a number of replies from various agencies, groups, and people which are informative on the subject of contract termination, and I ask leave to file as part of the record certain letters and statements which I have received. (Exhibits to statement of Hon. Estes Kefauver:)

EXHIBIT 1

COMPTROLLER GENERAL OF THE UNITED STATES,
Washington, April 13, 1944.

Hon. HATTON W. SUMNERS,

MY DEAR MR. CHAIRMAN: There has been brought to my attention the bill H. R. 4392, Seventy-eighth Congress, now pending before your committee, entitled "A bill to create an Office of Demobilization, establish general policies for the operation of that Office, provide for the settlement of claims arising from terminated war contracts, prescribe the jurisdiction of courts in connection therewith, and for other purposes." Since the bill relates to a matter in which I am deeply interested, particularly as it would affect the work of the General Accounting Office, and with respect to which I have appeared before, and submitted reports to, other committees of the Congress, I deem it appropriate to express to your committee my views with respect to certain features of the bill.

The bill provides, generally, for the establishment of an "Office of Demobilization" headed by a Director of Demobilization who would be responsible for for supervising and controlling the program of termination of war contracts, interim financing, and other problems relating to industrial reconversion and demobilization. The Director would be authorized to develop and coordinate uniform programs, establish policies, promulgate regulations, and prescribe methods, records, etc., as necessary to carry out the provisions of the proposed legislation. Until the termination of hostilities in the present war the Office of Demobilization would be under the supervision, direction and control of the Office of War Mobilization, established by Executive Order No. 9347, dated May 27, 1943; thereafter it would be an independent agency subject only to the general direction and control of the President.

Subject to such policies, regulations, methods, etc., as prescribed by the Director of Demobilization, the various contracting agencies would be authorized to settle any termination claim under any war contract by agreement with the war contractor or by determination of the amount due on the claim without such agreement, or by any combination of these methods; to allow and pay interest for delays in making final payment of any termination claim; to approve, ratify, authorize or make termination settlements with subcontractors; and to provide interim financing during the period between termination and settlement of war contracts representing not less than 90 percent of the amount of termination claims. The Director would have authority to require Government agencies performing functions under the program to furnish him information and reports regarding terminated contracts, settlements, and interim financing, and he would be required to report quarterly to the Congress on the exercise of his duties and authority under the program, the status of contract terminations, settlements, interim financing, etc. There would be no independent audit of termination claims prior to payment. The General Accounting Office would be authorized to examine records of contracting agencies relating to the settlement of termination claims after the final settlement of such claims for certain limited purposes as provided in section 310 of the bill.

Except that the bill would make no provision for the disposal of surplus Government property its provisions are identical with those of the bill S. 1730, Seventyeighth Congress, now pending before the Committee on Military Affairs, United States Senate, with respect to which I submitted a report under date of March 8, 1944 (B-40486). Also, the provisions of the subject bill-insofar as it relates to the termination of war contracts-appear to be substantially the same as those contained in the bill S. 1718, Seventy-eighth Congress, on which I submitted a

report to the chairman, War Contracts Subcommittee, Committee on Military Affairs, United States Senate, under date of February 22, 1944 (B–37616).

The principal objections I have interposed to proposed and pending bills relating to the termination of war contracts have to do with the making of final payments under settlements by the contracting agencies without a prior independent audit and review and the situations in which loans should be made. I have consistently urged, as necessary to the adequate protection of the Government's interest, that authority to make final payments under proposed settlements should not rest with the contracting agencies but that such payments should be made only after an audit and review of the proposed settlements by an independent agency and that loans should be based on a showing of need therefor and the probability of repayment thereof. The subject bill is open to these same objections, there being no provision for an independent audit and review prior to final payment and there being no specific requirement as to the showing of need for a loan or the furnishing of security therefor. In this connection I stated in the report of February 22, 1944, supra, with respect to the bill S. 1718—which was subject to the same objections as follows:

"There can be no doubt as to the need for enactment of appropriate legislation and the formulation by the Congress of the policy and procedure to be followed in the settlement and payment of obligations under war contracts which may be terminated. In that connection the importance of effecting some payment promptly has been recognized and I have interposed no objection to the enactment of legislation which would make provision for interim financing, the payment of interest on amounts due contractors whose contracts shall have been terminated, and the making of loans to such contractors-my only objection in those respects being as to the amount of the interim financing, the percentage of interest to be paid, and the situations in which loans should be made. Likewise, I see no objection to the similar provisions with respect to such matters in the bill S. 1718 if it be the will of the Congress that the amounts of interim financing and interest payable, and the conditions with respect to loans, should be as provided therein "In my consideration of the problem of settling terminated war contracts I have consistently urged, as necessary to the adequate protection of the Government's interest, that authority to make final payments under proposed settlements should not rest with the contracting agencies but that such payments should be made only after an audit and review of the proposed settlements by an independent agency. The bill makes no provision for such an independent audit and review prior to final payment and because I believe a settlement program without such a provision will not operate to protect adequately the interests of the Government and the taxpayers I cannot approve the program which enactment of the bill would establish. However, and especially in the absence of such a provision, I am convinced that an independent agency should exercise effective control over the program and it is noted that the bill provides for an independent agency-the Office of Contract Settlement-clothed with supervisory and regulatory authority which should be effective, if properly exercised and administered, to control termination settlements and payments in the various war contracting agencies and bring uniformity to the program. In this respect it is noted that the Director of Contract Settlement would be authorized not only to prescribe the records to be used in connection with settlements and interim financing but, also, to prescribe binding regulations with respect to carrying out the provisions of the bill, payment of interest on terminated claims, methods of determining fair compensation, settlement of subcontractor's claims, interim financing and evidence in support thereof, terms and conditions of financing, appeals, etc."

Section 310 of the subject bill relating to the function of the General Accounting Office in connection with the program, is open to the same objections as section 16 of the bill S. 1718 and section 310 of the bill S. 1730 upon which comment was made in my reports of February 22 and March 8, 1944. For the reasons stated therein it is recommended that section 310 be amended to read as follows: "SEC. 310. (a) Any other provision of law notwithstanding, the function of the General Accounting Office with respect to any termination settlement made, authorized, ratified, or approved by a contracting agency shall be confined to an examination for the purpose of determining (1) whether the settlement payments to the war contractor were made in accordance with the terms of settlement, and (2) whether the records submitted to it or other information warrant a reasonable belief that the settlement was induced by fraud, but the General Accounting Office shall not be charged with the duty or responsibility of detecting fraud in connection with such settlements except as the presence of fraud may be indicated by records transmitted to the General Accounting Office with the

termination settlement or with the voucher covering payment thereunder. Whenever the General Accounting Office believes that any settlement was induced by fraud, the Comptroller General of the United States shall report all of the facts relating thereto to the Congress, to the Director, to the Department of Justice, and to the contracting agency concerned, but shall not suspend or withhold, or direct or require any contracting agency to suspend or withhold, by set-off or otherwise, any amounts owing to the war contractor by the United States under such settlement or otherwise and shall not suspend credit to any disbursing officer for any disbursements made by him under such settlement. In any such case the contracting agency on its own initiative may, or upon order of the Director shall, take such action as it deems appropriate to recover or withhold payments to such war contractor.

(b) The jurisdiction of the Comptroller General of the United States shall not be affected by this act except to the extent necessary to give effect to the specific provisions thereof."

Also, section 406 (a) of the bill, relating to delegation of authority, is subject to the same objections as section 23 (a) of the bill S. 1718 and section 406 (a) of the bill S. 1730, such objections being stated in the report of February 22, 1944, as follows:

"Section 23 of the bill S. 1718 would authorize the Director to delegate any authority and discretion conferred upon him to the head of any Covernment agency, and to authorize successive redelegation of such authority and discretion. I seriously doubt the wisdom of this provision of the bill. Not only is the recessity for such delegation and redelegation not apparent, but there can be no doubt that the whole scheme of having supervision and control of the settlement program independent of the contracting agencies would be weakered if not entirely destroyed-depending on the extent to which the authority to delegate and redelegate te exercised-as complete authority with respect to the settlement of tern ination claims, interim financing, loans, etc., could te delegated direct to the contracting agencies and the various contracting officers thereof whose action is not subject to appeal except in the interest of the contractors. * * *""

If the Congress should decide to enact a program substantially as now provided in this bill it is urgently recommended that section 310 of the bill be amended as indicated herein and that section 406 (a) of the bill be eliminated for reasons set forth above. However, I do not recommend enactment of legislation which would not provide for an independent audit and review of proposed settlements prior to the making of final payments thereunder; and, in this connection, your attention is invited to the draft of plan which I recently submitted to the House Committee on Naval Affairs at its request. Under said plan there would be created in the General Accounting Office a War Contracts Settlement Board consisting of not more than nine nor less then three members and, also, at least one War Contracts Settlement Regional Board of three members in each State for the purpose of considering and acting on all termination settlements proposed by the contracting agencies before such settlements should be consummated or any final payments made thereunder. If your committee would care to consider that plan in connection with H. R. 4392, I shall be pleased to furnish, at your request, a draft showing how the plan could be incorporated into said bill. Sincerely yours,

LINDSAY C. WARREN, Comptroller General of the United States.

EXHIBIT 2

Hon. ESTES KEFAUVER,

COMPTROLLER GENERAL OF THE UNITED STATES,

Committee on the Judiciary

House of Representatives.

Washington, May 11, 1944.

MY DEAR MR. KEFAUVER: I have your letter of May 4, 1944, with enclosures, wherein you request an expression of my views on H. R. 4717, entitled "A bill to provide for the settlement of claims arising from terminated war contracts, prescribe the jurisdiction of courts in connection therewith, and for other purposes.' The bill H. R. 4717 is similar to S. 1718 which was passed by the Senate on May 4, 1944, and which has been referred to the House Committee on the Judiciary. It provides, generally, for the establishment, as an independent agency,

of an "Office of Contract Settlement," headed by a Director of Contract Settlement who would be charged with the responsibility of supervising and controlling the war contract termination and settlement program by coordinating the activities of all Government agencies operating thereunder and by prescribing policies, principles, methods, procedures and standards to govern the exercise of the authority and discretion of such agencies and the performance of their duties and functions under the bill. Subject to such policies, principles, methods, etc., contracting agencies would be authorized to settle any termination claim under any war contract by agreement with the war contractor or by determination of the amount due on the claim without such agreement, or by any combination of these methods; to allow and pay interest for delays in making final payment of any termination claim; to approve, ratify, authorize or make termination settlements with subcontractors; and to provide interim financing during the period between termination and settlement of war contracts. The Director would have authority to require Government agencies performing functions under the program to furnish him information and reports regarding terminated contracts, settlements, and interim financing, and he would be required to report quarterly to the Congress on the exercise of his duties and authority under the program, the status of contract terminations, settlements, interim financing, etc. There would be no independent audit of termination claims prior to payment. The General Accounting Office would be authorized to examine the settlements of termination claims, after the final settlement of such claims, for the purpose of determining whether payments were made in accordance with the settlement and whether the records transmitted to it, or other information, warrant a reasonable belief that the settlement was induced by fraud. Under section 3 (c) of the bill the Comptroller General would be required to report to the Congress, from time to time, as to whether the settlement methods and procedures employed by the various agencies result in expeditious and fair settlements; whether such methods and procedures are followed by the agencies with care and efficiency; and whether such methods and procedures adequately protect the interest of the Government.

There can be no doubt as to the need for enactment of appropriate legislation and the formulation by the Congress of the policy and procedure to be followed in the settlement and payment of obligations under war contracts which may be terminated. It has been recognized that some provision should be made for prompt payments, interim financing, and loans in connection with contracts which may be terminated, in order that contractors may convert their facilities to peacetime production, and to lighten the effect which may be caused on the economic and business structure of the country by the cessation of hostilities in the present conflict. I have interposed no objection to the enactment of a bill which would contain appropriate provisions in that respect. However, as you no doubt are aware, I consistently have recommended against the enactment of legislation relating to the war contract termination program which would not provide for an independent audit and review of settlements of termination claims before such settlements become final and before final payments are made thereunder. I am convinced that only by making such provision in any legislation that may be enacted with respect to the program can there be any reasonable assurance that the interests of the Government will be adequately protected. In that connection, in a report of February 22, 1944, to the chairman, War Contracts Subcommittee, Committee on Military Affairs, United States Senate, on the similar bill S. 1718, I stated:

"In my consideration of the problem of settling terminated war contracts I have consistently urged, as necessary to the adequate protection of the Government's interest, that authority to make final payments under proposed settlements should not rest with the contracting agencies but that such payments should be made only after an audit and review of the proposed settlements by an independent agency. The bill makes no provision for such an independent audit and review prior to final payment and because I believe a settlement program without such a provision will not operate to protect adequately the interests of the Government and the taxpayers I cannot approve the program which enactment of the bill would establish. * * *"

Thereafter, in a report of March 8, 1944, to the same subcommittee, on the bill S. 1730, which contains provisions with respect to termination settlements similar to those contained in S. 1718 and H. R. 4717, I stated that

66* * * Nothing has changed in any way my opinion, as heretofore expressed, that there should be an independent audit and review of proposed settlements prior to the making of final payments thereunder."